Question: Doherty Company leased equipment from Lambert

> Short‐term deferrals (prepaids and unearned revenues) are classified as current assets and current liabilities. As such, they are included in working capital. Required: a. Some argue that prepaids will not generate cash and hence are not liquid assets. i

> The theoretical valuation of receivables is the present value of expected future cash flows. However, trade receivables are not discounted owing to materiality considerations; hence, their net realizable value is the closest practical approximation to th

> Specific identification is sometimes said to be the ideal method for assigning cost to inventory and to cost of goods sold. Required: a. List the arguments for and against the foregoing statement. b. FIFO, weighted average, and LIFO methods are often use

> Duffner Corporation is a medium-sized manufacturer of paperboard containers and boxes. The corporation sponsors a noncontributory, defined benefit pension plan that covers its 250 employees. Sid Caesar has recently been hired as president of Duffner Corp

> At the end of the first year of operations, Key Company had a current equity securities portfolio classified as available‐for‐sale securities with a cost of $500,000 and a fair value of $550,000. At the end of its second year of operations, Key had a cur

> On December 31, 2016, Carme Company had significant amounts of accounts receivables as a result of credit sales to its customers. Carme uses the allowance method based on credit sales to estimate bad debts. Based on experience, 1 percent of credit sales

> Accountants generally follow the lower of cost or market (LCM) basis of inventory valuations. Required: a. Define cost as applied to the valuation of inventories. b. Define market as applied to the valuation of inventories. c. Why are inventories valued

> Anth Company has significant amounts of trade accounts receivable. Anth uses the allowance method to estimate bad debts. During the year, some specific accounts were written off as uncollectible, and some that were previously written off as uncollectible

> Steel Company, a wholesaler that has been in business for two years, purchases its inventories from various suppliers. During the two years, each purchase has been at a lower price than the previous purchase. Steel uses the lower of FIFO cost or market m

> Cost for inventory purposes should be determined by the inventory cost‐flow method most clearly reflecting periodic income. Required: a. Describe the fundamental cost‐flow assumptions of the average cost, FIFO, and LIFO inventory cost‐flow methods. b. Di

> Entre Preneur found a site for his new haute cuisine restaurant. The site has a vacant gasoline station. He purchased the property for $900,000 and had the station demolished at a cost of $30,000. A government regulation required that he spend $40,000 to

> In the following debate, take the position of an investor who wants to evaluate the liquidity of a company. Team Debate: Team 1: Argue for including inventory, pre paids, and deferrals in working capital. Team 2: Argue against including inventory, prepa

> MVP Corp uses LIFO to value its inventory. The 2016 inventory records disclose the following: On December 26, 2016, the company had a special, nonrecurring opportunity to purchase 40,000 units at $17 per unit. The purchase can be made and the units deliv

> The statement of cash flows is intended to provide information about the investing, financing, and operating activities of an enterprise during an accounting period. In a statement of cash flows, cash inflows and outflows for interest expense, interest r

> What is the total cash the Ayer Corporation would receive if it issues 1,000 shares of $.02 par value per share common stock at a $9 market price per share? Issue 2 The Waltham Corporation is authorized to issue a total of 10,000 shares of $.10 par value

> The recent emphasis on capital maintenance concepts of income as seen in the FASB’s support for “comprehensive income” implies that balance sheet measurement should determine measures of income. That is, accrual accounting is to focus on measurements in

> Presenting information on cash flows has become an important part of financial reporting. Required: a. What goals are attempted to be accomplished by the presentation of cash‐flow information to investors? b. Discuss the following terms as they relate t

> The measurement of assets and liabilities on the balance sheet was previously a secondary goal to income determination. As a result, various measurement techniques arose to disclose assets and liabilities. Required: Discuss the various measurement techni

> The argument among accountants and financial statement users over the proper valuation procedures for assets and liabilities resulted in the release of SFAS No. 115 (see FASB ASC 320‐19). The statement requires current‐value disclosures for all investmen

> The following financial statement was prepared by employees of your client, Linus Construction Company. The statement is not accompanied by footnotes, but you have discovered the following: • The average completion period for the compan

> SFAS No. 95 (see FASB ASC 230) requires companies to prepare a statement of cash flows. Required: Describe how the FASB’s Conceptual Framework eventually led to the requirement that companies issue statements of cash flows.

> The FASB requires that financial statements report comprehensive income. Team Debate: Team 1: Defend comprehensive income. Your defense should relate to the conceptual framework and to the concept of capital maintenance where appropriate. Team 2: Oppose

> The all‐inclusive and current operating performance concepts of income represent opposing views regarding the inclusion of items to be reported in earnings on the income statement. Team Debate: Team 1: Defend the all‐inclusive concept of income. Team 2:

> According to SFAS No. 34, interest on self‐constructed assets should be capitalized. Team Debate: Team 1: Present arguments in favor of capitalizing interest. Tie your arguments to the concepts and definitions found in the conceptual framework. Team 2: C

> Under current U.S. GAAP, assets that have been donated to a company are recorded at fair value. Team Debate: Team 1: Argue that donated assets should not be reported in a company’s balance sheet. Base your arguments on the conceptual framework. You might

> The transactions listed below relate to Rice Inc. You are to assume that on the date on which each of the transactions occurred, the corporation's accounts showed only common stock ($100 par) outstanding, a current ratio of 2.7:1, and a substantial net i

> On January 1, 2017, Bostock Corporation lends Locker Company $100,000 at 7% interest with the principal payable on December 31, 2020. Interest is payable each December 31. The loan is not secured by collateral subject to foreclosure in the event Locker C

> On June 30, 2016, your client, Steinfield Company, was granted two patents covering plastic cartons that it had been producing and marketing profitably for the past 3 years. One patent covers the manufacturing process, and the other covers the related pr

> Furyk Co. is in the process of developing a revolutionary new product. A new division of the company was formed to develop, manufacture, and market this new product. As of year-end (December 31, 2017), the new product has not been manufactured for resale

> Garcia Co. has the following available-for-sale securities outstanding on December 31, 2016 (its first year of operations). Cost Fair Value Rossi Corp. Stock $20,000 $19,000 Barker Company Stock 9,500 8,800 Boliva Company Stock 20,000

> Newatit Company spent a substantial amount of money organizing and getting ready for business. These costs are considered organization costs. Required: a. Does the incurrence of organization costs meet the definition of assets found in the Conceptual Fra

> Fowler Corporation is a public company with a reporting unit operating in the telecommunications industry. In its qualitative screen, Fowler Corporation determined the following: • The fair value of the reporting unit in the prior year’s quantitative an

> SFAS No. 115 (see FASB ASC 320) was issued in response to concerns by regulators and others regarding the recognition and measurement of investments in debt securities. For the following debate, you may consider tying your arguments to theories of capita

> Under current U.S. GAAP, companies may opt to report financial assets and liabilities at fair value. Team Debate: Team 1: Present arguments in favor of the fair value option for financial assets and liabilities. Team 2: Present arguments against the fair

> Under current U.S. GAAP, goodwill is recorded when purchased. For the following debate, you may consider tying your arguments to theories of capital maintenance and/or the conceptual framework. Team Debate: Team 1: Present arguments in favor of the capit

> The use of derivative financial instruments by companies to manage risk or speculate has increased during the past several years. However, using derivative financial instruments also involves exposure to various types of risk. Required: Define the follow

> ASU 2013-07 required to use the requires organizations to use the liquidation basis for preparing financial statements when liquidation is “imminent.” Required: a. How is liquidation defined in this release? b. When is liquidation considered imminent c.

> Smyle Kaufman Company recently issued bonds with associated bond issue costs of $4.5 million. Required: How should these bond issue costs be accounted for and classified in Kaufman’s financial statements?

> Part I. The appropriate method of amortizing a premium or discount on issuance of bonds is the effective–interest method. Required: a. What is the effective-interest method of amortization and how is it different from and similar to the straight–line

> On March 1, 2017, Morgan Company sold its 5-year, $1,000 face value, 9% bonds dated March 1, 2017, at an effective annual interest rate (yield) of 11%. Interest is payable semiannually, and the first interest payment date is September 1, 2017. Morgan use

> Under what conditions of bond issuance does a discount on bonds payable arise? Under what conditions of bond issuance does a premium on bonds payable arise?

> On January 1, 2017, Weiss Company issued for $1,085,800 its 20-year, 11% bonds that have a maturity value of $1,000,000 and pay interest semiannually on January 1 and July 1. Bond issue costs were not material in amount. Below are three presentations of

> There are a variety of reasons that companies may use derivative financial instruments. Some use derivatives so that the risk of financial operations can be controlled, whereas others attempt to manage foreign exchange rate fluctuation exposure. Speculat

> On January 1, 2017, Von Company entered into two noncancelable leases for new machines to be used in its manufacturing operations. The first lease does not contain a bargain purchase option; the lease term is equal to 80 percent of the estimated economic

> Milton Corporation entered into a lease arrangement with James Leasing Corporation for a certain machine, and neither company has early adopted the new lease standard. James’s primary business is leasing, and it is not a manufacturer or dealer. Milton wi

> Part 1: Capital leases and operating leases are the two classifications of leases described in FASB pronouncements from the standpoint of the lessee. Required: a. Describe how a capital lease would be accounted for by the lessee both at the inception of

> Canning Corporation has an uncertain tax position with a deferred tax benefit of $100,000. The likelihood of realization of this uncertain tax position is illustrated in the following probability distribution: Expected tax benefit Probabili

> Accounting Standards Update 2014-15 requires management to assess a company’s ability to continue as a going concern. This assessment involves the evaluation of whether there are conditions that give rise to substantial doubt about a company’s ability to

> On January 1, prior to the adoption of the FASB’s new lease standard, Borman Company, a lessee, entered into three non-cancelable leases for brand‐new equipment: Lease J, Lease K, and Lease L. None of the three leases transfers ownership of the equipment

> On January 1, 2017, Lani Company entered into a noncancelable lease for a machine to be used in its manufacturing operations. The lease transfers ownership of the machine to Lani by the end of the lease term. The term of the lease is eight years. The min

> In the 1990 discussion memorandum “Distinguishing between Liability and Equity Instruments and Accounting for Instruments with Characteristics of Both,” the FASB presented arguments relating to the presentation and measurement of a company’s stock option

> Snappy Corporation enters into a lease agreement with Long Leasing. Long requires that the lease qualify as a sale. Snappy can fill this requirement by either guaranteeing the residual value itself or having a third party guarantee the residual value. Se

> Investors, creditors, and other users of financial statements often argue that there should be more transparency in published financial statements. This argument is based, at least to some extent, on concerns that management has too much leeway in the se

> In 2002 the SEC investigated Microsoft’s accounting practices that occurred during the late 1990s. The Commission found that Microsoft typically reported budgeted marketing expenses in its interim reports. At year‐ end, Microsoft reported actual marketin

> The proponents of neoclassical, marginal economics (see Chapter 4) maintain that mandatory accounting and auditing standards inhibit contracting arrangements and the ability to report on company operations. Opponents of this view argue that market forces

> The Fillups Company has been in the business of exploring for oil reserves. During 2017, $10 million was spent drilling wells that were dry holes. Under U.S. GAAP, Fillups has the option of accounting for these costs by the successful efforts method or t

> As discussed in Chapter 14, leases that are in‐substance purchases of assets should be capitalized—an asset and associated liability should be recorded for the fair value acquired. Mason Enterprises is considering acquiring a machine and has the option t

> Certified public accountants have imposed on themselves a rigorous code of professional conduct. Required: a. Discuss the reasons that the accounting profession adopted a code of professional conduct. b. One rule of professional ethics adopted by CPAs is

> In its 1990 discussion memorandum on distinguishing between liabilities and equity, the FASB posed the question, “Should the sharp distinction between liabilities and equity be effectively eliminated?” To do so would be consistent with the entity theory

> The Securities Act of 1933 and the Securities Exchange Act of 1934 established guidelines for the disclosures necessary and the protection from fraud when securities are offered to the public for sale. Required: a. Discuss the terms going public and bein

> The concept of adequate disclosure continues to be one of the most important issues facing accountants, and disclosure may take various forms. Required: a. Discuss the various forms of disclosure available in published financial statements. b. Discuss th

> The unaudited quarterly statements of income issued by many corporations to their stockholders are usually prepared on the same basis as annual statements—the statement for each quarter reflects the transactions of that quarter. Required: a. Why do probl

> You have completed your audit of Carter Corporation and its consolidated subsidiaries for the year ended December 31, 2017, and are satisfied with the results of your examination. You have examined the financial statements of Carter for the past three ye

> Lancaster Electronics produces electronic components for sale to manufacturers of radios, television sets, and phonographic systems. In connection with his examination of Lancaster’s financial statements for the year ended December 31, 2017, Don Olds, CP

> Barbara Montgomery is a first‐year auditor for Coppers and Rose, a large public accounting firm. She has been assigned to the audit of Lakes Brothers, a clothing retailer with retail outlets throughout the United States. This audit has proved troublesome

> Eagle Company issues quarterly financial statements on September 30, 2017, and pays its GBP 10,000 account payable to John Bull Company on October 15, 2017. The exchange rates are shown in the following table: Date ………………………………………………. Exchange rate July

> Eagle Company is a U.S. corporation that uses the U.S. dollar (USD) as its reporting currency. On July 1, 2017 Eagle Company purchases office computers (capitalized assets) on account from John Bull Company for 10,000 British pound sterling (GBP). The ex

> Maxwell Company is a U.S. corporation that uses the U.S. dollar as its reporting currency. Gonzalez Company is a wholly-owned subsidiary of Maxwell Company located in Mexico, and functions as a maquiladora facility of Maxwell Company. Consider the follow

> The Securities and Exchange Commission staff has issued guidelines for companies struggling with the problem of breaking up their business into industry segments for their annual reports. The staff noted that the process is a subjective task that “to a c

> Under GAAP, cumulative preferred dividends are reported as liabilities only after they have been declared by the corporation’s board of directors. For the following debate, support your arguments by referring to the SFAC No. 6 definition of liabilities a

> A highly inflationary economy is defined as an economy that has experienced more than 100 percent cumulative inflation over the previous three years/ Required: If a country’s economy is deemed highly inflationary, when should the FSB ASC 830 guidance reg

> Because of irreconcilable differences of opinion, a dissenting group within the management and board of directors of the Algo Company resigned and formed the Bevo Corporation to purchase a manufacturing division of the Algo Company. After negotiation of

> Explain how current practice for consolidations is consistent with the entity theory of consolidation.

> Parent company theory is one of the two prominent theories of consolidation. Required: Under parent company theory, a. How would the value of goodwill be determined? Explain why. b. How would the initial value of non controlling interest be determined? E

> Entity theory is one of the two prominent theories of consolidation. Required: Under entity theory a. How would the value of goodwill be determined? Explain why. b. How would the initial value of noncontrolling interest be determined? Explain why. c. How

> In SFAS No. 52 (see FASB ASC 830), the FASB adopted standards for financial reporting of foreign currency exchanges. This release adopts the functional currency approach to foreign currency translation. Required: a. Discuss the functional currency approa

> Reporting forward exchange contracts continues to be a significant issue in accounting for foreign currency translation adjustments. Required: a. Describe a fair value hedge, and discuss how to account for forward exchange contracts that are entered into

> Several methods of translating foreign currency transactions or accounts are reflected in foreign currency financial statements. Among these methods are the current–noncurrent, monetary– nonmonetary, current rate, and temporal methods. Required: Define t

> The FASB has discussed certain terminology essential to both the translation of foreign currency transactions and foreign currency financial statements. Included in the discussion is a definition of and distinction between the terms measure and denominat

> A central issue in reporting on industry segments of a business enterprise is the determination of which segments are reportable. Required: a. What is a reportable segment? b. Explain how a preparer would determine which operating segments to report segm

> Boston Company has retirement plan which entitles its employees to an amount equivalent to the product of its basic salary and number of years of service at the time of retirement. Worchester Corporation also has a pension plan but its agreement with the

> Purity Company acquired all of the net assets of Soltice Company on November 1, 20x1. As a result Soltice became a 100% percent owned subsidiary of Purity. After allocating the cost of the net acquisition to the net assets of Soltice, the remainder ($100

> The Whit Company, a manufacturer, and the Berry Company, a retailer, entered into a business combination whereby Whit acquired for cash all the outstanding voting common stock of Berry. Required: a. The Whit Company is preparing consolidated financial st

> In its 1995 exposure draft, “Consolidated Financial Statements: Policy and Procedures,” the FASB proposed that a company’s outside interest (“non-controlling interest”) be reported as an element of stockholders’ equity. Current practice now requires that

> SFAS No. 160 (see FASB ASC 810) required that goodwill be measured at 100 percent of its fair value. Team Debate: Team 1: Argue that goodwill reported in balance sheets should be measured only at the value purchased by the parent company. Your arguments

> Current practice requires that the assets acquired in a business combination be measured at fair value as defined by SFAS No. 157 (see FASB ASC 820‐10). Team Debate: Team 1: Argue that the acquiring company should measure the acquired company’s plant ass

> On January 2, 2017, Grant Corporation leases an asset to Pippin Corporation under the following conditions (assume Grant has not early adopted the new lease standard): 1. Annual lease payments are $10,000 for 20 years. 2. At the end of the lease term, th

> When the FASB issues new standards, the implementation date is often 12 months from the date of issuance, and early implementation is encouraged. Becky Hoger, controller, discusses with her financial vice president the need for early implementation of a

> Oriji Company enters into a 5-year lease for 3,000 square feet of warehouse space with Donner Company for $15,000 per month. At the end of year one, Oriji Company and Donner Company agree to amend their lease contract to include an additional 1,000 squar

> Use the same facts contained in Case 13-13 to determine how Major Company should classify the lease. The following additional information is available: The fair value of the leased equipment is $42,000 Major Company’s carrying value of the leased equipme

> Minor Company enters into a lease of non-specialized equipment with Major Company. The following information about the lease and the leased assets is available: The lease term is 5 years, and there is no renewal option The economic life of the leased equ

> Arts Corporation offers a generous employee compensation package that includes employee stock options. The exercise price has always been equal to the market price of the stock at the date of grant. The corporate controller, John Jones, believes that emp

> Zuella Company (lessee) enters into an agreement with Imdieke Corporation (lessor) to lease office space for a term of 60 months. Lease payments during year one of the lease are $10,000 per month. Each year, lease payments increase by an amount equivalen

> SFAS No. 158 no longer allows companies to report the SFAS No. 87 minimum liability in the balance sheet. Instead, the amount reported in the balance sheet is measured using projected benefits rather than accumulated benefits. For the following debate, r

> SFAS No. 87 required that projected benefits be used to measure pension expense, but it allowed companies to report a minimum liability on the balance sheet using accumulated benefits. The result was that financial statements were not articulated. For th

> Pension accounting has become more closely associated with the method of determining pension benefits. Required: a. Discuss the following methods of determining pension benefits: i. Defined contribution plan ii. Defined benefit plan b. Discuss the follow

> Critics of SFAS No. 87 argue that its requirements result in reporting pension expense that is volatile. One of the factors causing volatility is changing the discount rate used to calculate service cost and the projected benefit obligation. The FASB req

> Penny Pincher Company has a defined benefit pension plan for its employees. The following pension data are available at year‐end (in millions): Accumulated benefit obligation ………………………. $142 Projected benefit obligation ……………………………..205 Fair value of pla

> Postretirement benefits other than pensions (OPRBs) are similar to defined benefit pension plans in some respects and different in others. Required: a. Discuss the characteristics of OPRBs that make them different from defined benefit pension plans. b. D

> Carson Company sponsors a single‐employer defined benefit pension plan. The plan provides that pension benefits are determined by age, years of service, and compensation. Among the components that should be included in the net pension cost recognized for