Danville Bottlers is a wholesale beverage company. Danville uses the FIFO inventory method to determine the cost of its ending inventory. Ending inventory quantities are determined by a physical count. For the accounting yearend December 31, 2021, ending inventory was originally determined to be $3,265,000. However, on January 17, 2022, John Howard, the company’s controller, discovered an error in the ending inventory count. He determined that the correct ending inventory amount should be $2,600,000. Danville is a privately owned corporation with significant financing provided by a local bank. The bank requires annual audited financial statements as a condition of the loan. By January 17, the auditors had completed their review of the financial statements which are scheduled to be issued on January 25. They did not discover the inventory error. John’s first reaction was to communicate his finding to the auditors and to revise the financial statements before they are issued. However, he knows that his and his fellow workers’ profit-sharing plans are based on annual pretax earnings, and he is uncertain what effect the error correction would have on pretax earnings. Required: 1. What is the effect of the inventory error on pretax earnings? 2. How would correcting the error affect employee bonuses? 3. If the error is not corrected in the current year and is discovered by the auditors during the following year’s audit, how will it be reported in the company’s financial statements? 4. Discuss the ethical dilemma John Howard faces.
> General Tools is seeking ways to maintain and improve cash balances. As company controller, you have proposed the sale and leaseback of much of the company’s equipment. As seller-lessee, General Tools would retain the right to essentially all of the rema
> Walmart Inc. is the world’s largest retailer. A large portion of the premises that the company occupies are leased. Its financial statements and disclosure notes revealed the following information: Required: 1. The net asset â
> Interstate Automobiles Corporation leased 40 vans to VIP Transport under a four-year noncancelable lease on January 1, 2021. Information concerning the lease and the vans follows: a. Equal annual lease payments of $300,000 are due on January 1, 2021, and
> “I don’t see that in my intermediate accounting text I saved from college,” you grumble to a colleague in the accounting division of Dowell Chemical Corporation. “This will take some research.” Your comments pertain to the appropriate accounting treatmen
> It is not unusual to issue long-term debt in conjunction with an arrangement under which lenders receive an option to buy common stock during all or a portion of the time the debt is outstanding. Sometimes the vehicle is convertible bonds; sometimes warr
> On August 31, 2018, Chickasaw Industries issued $25 million of its 30-year, 6% convertible bonds dated August 31, priced to yield 5%. The bonds are convertible at the option of the investors into 1,500,000 shares of Chickasaw’s common stock. Chickasaw re
> EDGAR, the Electronic Data Gathering. Analysis, and Retrieval system, performs automated collection, validation, indexing, acceptance and forwarding of submissions by companies and others who are required by law to file forms with the U.S. Securities and
> Refer to the situation described in BE 6–33. Assume that, during the first year the company billed its customer $7 million, of which $5 million was collected before year-end. What would appear in the year-end balance sheet related to this contract? Data
> AGF Foods Company is a large, primarily domestic, consumer foods company involved in the manufacture, distribution, and sale of a variety of food products. Industry averages are derived from Troy’s The Almanac of Business and Industrial
> The Jaecke Group, Inc. manufactures various kinds of hydraulic pumps. In June 2021, the company signed a fouryear purchase agreement with one of its main parts suppliers, Hydraulics, Inc. Over the four-year period, Jaecke has agreed to purchase 100,000 u
> The following appeared in the October 15, 2021, issue of the Financial Smarts Journal: This announcement is not an offer of securities for sale or an offer to buy securities. New Issue: October 15, 2021 $750,000,000 CRAFT FOODS, INC. 7.75% Debentures Du
> In the March 2022 meeting of Valleck Corporation’s board of directors, a question arose as to the way a possible obligation should be disclosed in the forthcoming financial statements for the year ended December 31. A veteran board member brought to the
> “I see an all-nighter coming on,” Gayle grumbled. “Why did Mitch just now give us this assignment?” Your client, Western Manufacturing, is involved with several situations that possibly involve contingencies. The assignment Gayle refers to is to draft ap
> Domestic Transfer and Storage is a large trucking company headquartered in the Midwest. Rapid expansion in recent years has been financed in large part by debt in a variety of forms. In preparing the financial statements for 2018, questions have arisen r
> Outdoors R Us owns several membership-based campground resorts throughout the Southwest. The company sells campground sites to new members, usually during a get-acquainted visit and tour. The campgrounds offer a wider array of on-site facilities than mos
> IGF Foods Company is a large, primarily domestic, consumer foods company involved in the manufacture, distribution and sale of a variety of food products. Industry averages are derived from Troy’s The Almanac of Business and Industrial
> As a second-year financial analyst for A.J. Straub Investments, you are performing an initial analysis on Fizer Pharmaceuticals. A difficulty you’ve encountered in making comparisons with its chief rival is that Fizer uses U.S. GAAP and the competing com
> This was Joel Craig’s first visit to the controller’s corner office since being recruited for the senior accountant position in May. Because he’d been directed to bring with him his preliminary report on year-end adjustments, Craig presumed he’d done som
> Precision Equipment, Inc., specializes in designing and installing customized manufacturing equipment. On February 1, 2021, it signs a contract to design a fully automated wristwatch assembly line for $2 million, which will be settled in cash upon comple
> Morgan Stanley is a leading investment bank founded in 1935. The company’s fiscal year ends December 31, 2013, and it filed its financial statements with the SEC on February 25, 2014. On February 5, 2014, Bloomberg reported that Morgan Stanley would make
> Kevin Brantly is a new hire in the controller’s office of Fleming Home Products. Two events occurred in late 2021 that the company had not previously encountered. The events appear to affect two of the company’s liabil
> EDGAR (Electronic Data Gathering, Analysis, and Retrieval system) performs automated collection, validation, indexing, acceptance, and forwarding of submissions by companies and others who are required by law to file forms with the U.S. Securities and Ex
> Late in 2021, you and two other officers of Curbo Fabrications Corporation just returned from a meeting with officials of the City of Jackson. The meeting was unexpectedly favorable even though it culminated in a settlement with city authorities that req
> A fellow accountant has solicited your opinion regarding the classification of short-term obligations repaid prior to being replaced by a long-term security. Cheshire Foods, Inc., issued $5,000,000 of short-term commercial paper during 2020 to finance co
> Microsoft’s 2017 10-K includes the following information in Note 19—Accumulated Other Comprehensive Income relevant to its available-for-sale investments: Required: 1. Prepare a journal entry to record unrealized gains
> All publicly traded domestic companies use EDGAR, the Electronic Data Gathering, Analysis, and Retrieval system, to make the majority of their filings with the SEC. You can access EDGAR at www.sec.gov. Required: 1. Search for a public company with which
> Obtain the 2016 annual report of FCA Group (www.fcagroup.com), which manufactures Fiat-brand automobiles as well as other products. Required: Find FCA’s discussion of “Basis of Consolidation” in the “Significant Accounting Policies” note that follows the
> The following are excerpts from the 2016 financial statements of Renault, a large French automobile manufacturer. 14 – INVESTMENT IN NISSAN Renault and the Japanese automaker Nissan have chosen to develop a unique type of alliance between two distinct co
> All publicly traded domestic companies use EDGAR, the Electronic Data Gathering, Analysis, and Retrieval system, to make the majority of their filings with the SEC. You can access EDGAR at www.sec.gov. Required: 1. Locate a recent annual report of a publ
> As of December 31, 2021, Cady Construction has one construction job for which the construction in progress (CIP) account has a balance of $20,000 and the billings on construction contract account has a balance of $14,000. Cady has another construction jo
> The following disclosure note appeared in the December 31, 2016, annual report of the Intel Corporation. Note 5: Cash and Investments (partial) Available-for-sale investments as of December 31, 2016, and December 26, 2015, were as follows: Intel also ind
> The company controller, Barry Melrose, has asked for your help in interpreting the authoritative accounting literature that addresses the recognition and measurement of impairment losses for property, plant, and equipment and intangible assets. “We have
> Whaley Distributors is a wholesale distributor of electronic components. Financial statements for the year ended December 31, 2021, reported the following amounts and subtotals ($ in millions): In 2022 the following situations occurred or came to light:
> The focus of the case is the situation described in Judgment Case 11–5. Your instructor will divide the class into two to six groups depending on the size of the class. The mission of your group is to determine the treatment of the overhaul expenditures.
> Redline Publishers, Inc. produces various manuals ranging from computer software instructional booklets to manuals explaining the installation and use of large pieces of industrial equipment. At the end of 2021, the company’s balance sheet reported total
> Amgen, Inc. is an American multinational biopharmaceutical company headquartered in Thousand Oaks, California. Located in the Conejo Valley, Amgen is the world’s largest independent biotechnology firm. Amgen reported the following in a
> At the beginning of 2019, the Healthy Life Food Company purchased equipment for $42 million to be used in the manufacture of a new line of gourmet frozen foods. The equipment was estimated to have a 10-year service life and no residual value. The straigh
> Norfolk Southern Corporation, one of the nation’s premier transportation companies, reported the following amounts in the asset section of its balance sheets for the years ended December 31, 2016 and 2015: In addition, information from
> Your client, Hazelton Mining, recently entered into an agreement to obtain the rights to operate a coal mine in West Virginia for $15 million. Hazelton incurred development costs of $6 million in preparing the mine for extraction, which began on July 1,
> EDGAR, the Electronic Data Gathering, Analysis, and Retrieval system, performs automated collection, validation, indexing, and forwarding of submissions by companies and others who are required by law to file forms with the U.S. Securities and Exchange C
> Refer to the situation described in BE 5–8. What amount did Canliss borrow assuming that the first $10,000 payment was due immediately? Data from BE 5-8: Canliss Mining Company borrowed money from a local bank. The note the company signed requires five
> Pier 1 Imports, Inc., is a leading retailer of domestic merchandise and home furnishings. The company’s 2017 fixed-asset turnover ratio, using the average book value of property, plant, and equipment (PP&E) as the denominator, was a
> Mayer Biotechnical, Inc., develops, manufactures, and sells pharmaceuticals. Significant research and development (R&D) expenditures are made for the development of new drugs and the improvement of existing drugs. During 2021, $220 million was spent on R
> Thomas Plastics is in the process of developing a revolutionary new plastic valve. A new division of the company was formed to develop, manufacture, and market this new product. As of year-end (December 31, 2021), the new product has not been manufacture
> The focus of this case is the situation described in Case 10–9. What is the appropriate accounting for R&D costs? Do you believe that (1) capitalization is the correct treatment of R&D costs, (2) expensing is the correct treatment of R&D costs, or (3) th
> Mayfair Department Stores, Inc., operates over 30 retail stores in the Pacific Northwest. Prior to 2021, the company used the FIFO method to value its inventory. In 2021, Mayfair decided to switch to the dollar-value LIFO retail inventory method. One of
> Fred’s Inc. operates general merchandise retail discount stores and full-service pharmacies in the Southeastern United States. Access the company’s 10-K for the fiscal year ended January 28, 2017. You can find the 10-K by using EDGAR at www.sec.gov (Hint
> Abercrombie & Fitch Co. (A&F) is a specialty retail company operating over 1,000 stores globally. The following disclosure note was included in recent financial statement: 4. Change in Accounting Principle The Company elected to change its method of acco
> The management of the Esquire Oil Company believes that the wholesale price of heating oil that they sell to homeowners will increase again as the result of increased political problems in the Middle East. The company is currently paying $0.80 a gallon.
> Some inventory errors are said to be self-correcting in that the error has the opposite financial statement effect in the period following the error, thereby correcting the original account balance errors. Required: Despite this self-correcting feature,
> Refer to the situation described in BE 5–6. How much will Leslie accumulate in three years by depositing $500 at the beginning of each of the next 12 quarters? Data from BE 5-6: Leslie McCormack is in the spring quarter of her freshman year of college.
> Assume that the opening balances in each of the accounts is zero except for cash, accounts receivable, and accounts payable that had opening balances of $65,000, $43,000, and $22,000, respectively.
> Hudson Company, which is both a wholesaler and a retailer, purchases its inventories from various suppliers. Additional facts for Hudson’s wholesale operations are as follows: a. Hudson incurs substantial warehousing costs. b. Hudson values inventory at
> EDGAR, the Electronic Data Gathering, Analysis, and Retrieval system, performs automated collection, validation, indexing, and forwarding of submission by companies and others who are required by law to file forms with the U.S. Securities and Exchange Co
> Income statement and balance sheet information abstracted from a recent annual report of Wolverine World Wide, Inc., appears below: The significant accounting policies note disclosure contained the following: Inventories The Company used the LIFO method
> In 2020, the Moncrief Company purchased from Jim Lester the right to be the sole distributor in the western states of a product called Zelenex. In payment, Moncrief agreed to pay Lester 20% of the gross profit recognized from the sale of Zelenex in 2021.
> At the end of 2021, the Biggie Company performed its annual physical inventory count. John Lawrence, the manager in charge of the physical count, was told that an additional $22,000 in inventory that had been sold and was in transit to the customer shoul
> Happlia Co. imports household appliances. Each model has many variations and each unit has an identification number. Happlia pays all costs for getting the goods from the port to its central warehouse in Des Moines. After repackaging, the goods are consi
> The table below contains selected financial information included in the 2017 financial statements of Kohl’s Corporation and Dillards, Inc., two companies in the department store industry. Required: 1. Calculate the 2017 gross profit rat
> You were recently hired to work in the controller’s office of the Balboa Lumber Company. Your boss, Alfred Eagleton, took you to lunch during your first week and asked a favor. “Things have been a little slow lately, and we need to borrow a little cash t
> You are spending the summer working for a local wholesale furniture company, Samson Furniture, Inc. The company is considering a proposal from a local financial institution, Old Reliant Financial, to factor Samson’s receivables. The company controller is
> Search on the Internet for the 2016 annual report for Sanofi-Aventis. Find the accounts receivable disclosure note. Required: 1. Has Sanofi-Aventis factored or securitized accounts receivable? How do you know? 2. Assume that Sanofi-Aventis decided to inc
> Refer to the situation described in BE 5–4. Suppose the opportunity requires John to invest $13,200 today. What is the interest rate John would earn on this investment? Data from BE 5-4: John has an investment opportunity that promises to pay him $16,00
> McLaughlin Corporation uses the allowance method to account for bad debts. At the end of the company’s fiscal year, accounts receivable are analyzed and the allowance for uncollectible accounts is adjusted. At the end of 2021, the company reported the fo
> EDGAR, the Electronic Data Gathering, Analysis, and Retrieval system, performs automated collection, validation, indexing, and forwarding of submissions by companies and others who are required by law to file forms with the U.S. Securities and Exchange C
> For each of the following independent situations, indicate whether there is an apparent internal control weakness, and, if one exists, suggest alternative procedures to eliminate the weakness. 1. John Smith is the petty cash custodian. John approves all
> You have recently been hired as the assistant controller for Stanton Industries, a large, publicly held manufacturing company. Your immediate superior is the controller who, in turn, is responsible to the vice president of finance. The controller has ass
> The following is an excerpt from Sam Antar, “Is Green Mountain Coffee Roasters Shuffling the Beans to Beat Earnings Expectations?” (Phil’s Stock World delivered by Newstex, May 9, 2011.) On May 3, 2011, Green Mountain Coffee Roasters (NASDAQ: GMCR) beat
> Hogan Company uses the net method of accounting for sales discounts. Hogan offers trade discounts to various groups of buyers. On August 1, 2021, Hogan factored some accounts receivable on a without recourse basis. Hogan incurred a finance charge. Hogan
> The table below contains selected financial information included in the 2016 financial statements of Tyson Foods Inc. and Pilgrim’s Pride Corp. Required: 1. Calculate the 2016 receivables turnover ratio and average collection period for
> You have been hired as a consultant by a parts manufacturing firm to provide advice as to the proper accounting methods the company should use in some key areas. In the area of receivables, the company president does not understand your recommendation to
> Jerry’s Ice Cream Parlor is considering a marketing plan to increase sales of ice cream cones. The plan will give customers a free ice cream cone if they buy 10 ice cream cones at regular prices. Customers will be issued a card that will be punched each
> Assume that Pfizer, a large research-based pharmaceutical company, enters into a contract with a start-up biotechnology company called HealthPro and promises to 1. Grant HealthPro the exclusive rights to use Pfizer’s Technology A for the life of its pate
> On September 30, 2021, Ferguson Imports leased a warehouse. Terms of the lease require Ferguson to make 10 annual lease payments of $55,000 with the first payment due immediately. Accounting standards require the company to record a lease liability when
> Horizon Corporation manufactures personal computers. The company began operations in 2016 and reported profits for the years 2016 through 2019. Due primarily to increased competition and price slashing in the industry, 2020’s income statement reported a
> The birth of the Internet in the 1990s led to the creation of a new industry of online retailers such as Amazon, Overstock.com, and PCM, Inc. Many of these companies often act as intermediaries between the manufacturer and the customer without ever takin
> EDGAR, the Electronic Data Gathering, Analysis, and Retrieval system, performs automated collection, validation, indexing, and forwarding of submissions by companies and others who are required by law to file forms with the U.S. Securities and Exchange C
> An article published in Accounting Horizons describes various techniques that companies use to manage their earnings. Required: In your library, on the Internet, or from some other source, locate the article “How Are Earnings Managed? Evidence from Audit
> Southwest Airlines provides scheduled air transportation services in the United States. Like many airlines, Southwest leases many of its planes from Boeing Company. In its long-term debt disclosure note included in the financial statements for the year e
> Johnson & Johnson is one of the world’s largest manufacturers of health care products. The company’s July 2, 2017, financial statements included the following information in the long-term debt disclosure note: The
> Harvey Alexander, an all-league professional football player, has just declared free agency. Two teams, the San Francisco 49ers and the Dallas Cowboys, have made Harvey the following offers to obtain his services: 49ers: $1 million signing bonus payable
> GlaxoSmithKline Plc. (GSK) is a global pharmaceutical and consumer health-related products company located in the United Kingdom. The company prepares its financial statements in accordance with International Financial Reporting Standards. Below is a por
> The following events occurred during 2021 for various audit clients of your firm. Consider each event to be independent and the effect of each event to be material. 1. A manufacturing company recognized a loss on the sale of investments. 2. An automobile
> Each of the following situations occurred during 2021 for one of your audit clients: 1. An inventory write-down due to obsolescence. 2. Discovery that depreciation expenses were omitted by accident from 2020’s income statement. 3. The u
> On December 31, 2021, Interlink Communications issued 6% stated rate bonds with a face amount of $100 million. The bonds mature on December 31, 2051. Interest is payable annually on each December 31, beginning in 2022. Determine the price of the bonds on
> Access the FASB Accounting Standards Codification at the FASB website (www.fasb.org). Determine each of the following: 1. The topic number (Topic XXX) that addresses exit or disposal cost obligations. 2. The specific eight-digit Codification citation (XX
> Ralph Lauren Corporation is a global leader in the design, marketing, and distribution of premium lifestyle products, including men’s, women’s and children’s apparel. Below are selected financial statements taken from a recent 10-K filing. Required: Use
> Refer to the income statement of The Home Depot, Inc., in Illustration 4–2 of this chapter. Required: 1. Is this income statement presented in the single-step or multiple-step format? 2. What is the company’s approxima
> Rice Corporation is negotiating a loan for expansion purposes and the bank requires financial statements. Before closing the accounting records for the year ended December 31, 2021, Rice’s controller prepared the following financial sta
> The fiscal year-end for the Northwest Distribution Corporation is December 31. The company’s 2021 financial statements were issued on March 15, 2022. The following events occurred between December 31, 2021, and March 15, 2022. 1. On January 22, 2022, the
> The balance sheet and disclosure of significant accounting policies taken from the 2017 annual report of Walmart Stores Inc. appear below. Use this information to answer the following questions: 1. Does Walmart separately report current assets versus lon
> You recently joined the auditing staff of Best, Best, and Krug, CPAs. You have been assigned to the audit of Clearview, Inc., and have been asked by the audit senior to examine the balance sheet prepared by Clearview’s account. Required
> You recently joined the internal auditing department of Marcus Clothing Corporation. As one of your first assignments, you are examining a balance sheet prepared by a staff accountant. In the course of your examination you uncover the following informati
> EDGAR, the Electronic Data Gathering, Analysis, and Retrieval system, performs automated collection, validation, indexing, and forwarding of submissions by companies and others who are required by law to file forms with the SEC. All publicly traded domes
> Refer to Case 2–1 above. Mr. Pitt has relented and agrees to provide you with the information necessary to convert his cash basis financial statements to accrual basis statements. He provides you with the following transaction information for the fiscal
> Refer to the situation described in BE 5–8. What amount did Canliss borrow assuming that the first of the five annual $10,000 payments was not due for three years? Data from BE 5-8: Canliss Mining Company borrowed money from a local bank. The note the c
> You have recently been hired by Davis & Company, a small public accounting firm. One of the firm’s partners, Alice Davis, has asked you to deal with a disgruntled client, Mr. Sean Pitt, owner of the city’s largest hardware store. Mr. Pitt is applying to
> Consider the question of whether the United States should converge accounting standards with IFRS. Required: 1. Make a list of arguments that favor convergence. 2. Make a list of arguments that favor nonconvergence. 3. Indicate your own conclusion regard
> Access the financial statements for the year ended January 28, 2017, for Gap Inc. by downloading them from www.gapinc.com, and use them to answer the following questions. Required: 1. What amounts did Gap Inc. report for the following items for the fisca
> A new client, the Wolf Company, asks your advice concerning the point in time that the company should recognize revenue from the rental of its office buildings under generally accepted accounting principles. Renters usually pay rent on a quarterly basis
