Question: Feherty, Inc., accounts for its investments under

> Under what conditions should an employer accrue an expense and the related liability for employees’ compensation for future absences? How do company custom and practice affect the accrual decision?

> Salaries of $5,000 have been earned by employees by the end of the period but will not be paid to employees until the following period. How should the expense and related liability be recorded? Why?

> How does commercial paper differ from a bank loan? Why is the interest rate often less for commercial paper?

> Banks sometimes loan cash under noninterest-bearing notes. Is it true that banks lend money without interest?

> Bank loans often are arranged under existing lines of credit. What is a line of credit? How does a noncommitted line of credit differ from a committed line?

> Bronson Distributors owes a supplier $100,000 on open account. The amount is payable in three months. What is the theoretically correct way to measure the reportable amount for this liability? In practice, how will it likely be reported? Why?

> What distinguishes current liabilities from long-term liabilities?

> At the beginning of the year, Patrick Company acquired a computer to be used in its operations. The computer was delivered by the supplier, installed by Patrick, and placed into operation. The estimated useful life of the computer is five years, and its

> What are the essential characteristics of liabilities for purposes of financial reporting?

> Refer to the situation described in BE 11–13. Assume that the present value of the estimated future cash flows generated from the division’s assets is $22 million and that their fair value approximates fair value less costs to sell. What amount of impair

> You are the plaintiff in a lawsuit. Your legal counsel advises that your eventual victory is inevitable. “You will be awarded $12 million,” your attorney confidently asserts. Describe the appropriate accounting treatment.

> Suppose the Environmental Protection Agency is in the process of investigating Ozone Ruination Limited for possible environmental damage but has not proposed a penalty as of December 31, 2017, the company’s fiscal year-end. Describe the two-step process

> Identify two advantages of dollar-value LIFO compared with unit LIFO.

> The Kwok Company’s inventory balance on December 31, 2018, was $165,000 (based on a 12/31/2018 physical count) before considering the following transactions: 1. Goods shipped to Kwok f.o.b. destination on December 20, 2018, were received on January 4, 20

> After the end of the reporting period, a contingency comes into existence. Under what circumstances, if any, should the contingency be reported in the financial statements for the period ended?

> At December 31, the end of the reporting period, the analysis of a loss contingency indicates that an obligation is only reasonably possible, though its dollar amount is readily estimable. During February, before the financial statements are issued, new

> Distinguish between the accounting treatment of a manufacturer’s warranty and an extended warranty. Why the difference?

> Name two loss contingencies that almost always are accrued.

> Portland Co. uses the straight-line depreciation method for depreciable assets. All assets are depreciated individually except manufacturing machinery, which is depreciated by the composite method. Required: 1. What factors should have influenced Portla

> Suppose the analysis of a loss contingency indicates that an obligation is not probable. What accounting treatment, if any, is warranted?

> What is the difference between the use of the term contingent liability in U.S. GAAP and IFRS?

> Refer to the situation described in BE 11–13. Assume that the sum of estimated future cash flows is $24 million instead of $28 million. What amount of impairment loss should C&R recognize? In BE 11–13 Collison and Ryder Company (C&R) has been experienci

> List and briefly describe the three categories of likelihood that a future event(s) will confirm the incurrence of the liability for a loss contingency.

> Define a loss contingency. Provide three examples.

> How do IFRS and U.S. GAAP differ with respect to the classification of debt that is expected to be refinanced?

> Campbell Corporation uses the retail method to value its inventory. The following information is available for the year 2018: Required: Determine the December 31, 2018, inventory that approximates average cost. Cost Retail Merchandise inventory, Ja

> How do companies account for gift cards?

> The Playa Company uses a periodic inventory system. The following information is taken from Playa’s records. Certain data have been intentionally omitted ($ in thousands). Required: Determine the missing numbers. Show computations whe

> Target Corporation prepares its financial statements according to U.S. GAAP. Target’s financial statements and disclosure notes for the year ended January 30, 2016, are available Connect. This material also is available under the Investor Relations link

> At a recent luncheon, you were seated next to Mr. Hopkins, the president of a local company that manufactures bicycle parts. He heard that you were a CPA and made the following comments to you: Why is it that I am forced to recognize depreciation expense

> The following disclosure note appeared in the December 26, 2015, annual report of the Intel Corporation. Note 5: Cash and Investments (partial) Available-for-sale investments as of December 26, 2015, and December 27, 2014, were as follows: Intel also i

> Microsoft’s 2015 10-K includes the following information in Note 20—Accumulated Other Comprehensive Income relevant to its available-for-sale investments: Required: 1. Prepare a journal entry to record unrealized gai

> Corporations frequently invest in securities issued by other corporations. Some investments are acquired to secure a favorable business relationship with another company. On the other hand, others are intended only to earn an investment return from the d

> For each of the following inventory errors occurring in 2018, determine the effect of the error on 2018’s cost of goods sold, net income, and retained earnings. Assume that the error is not discovered until 2019 and that a periodic inve

> Obtain the 2015 annual report of FCA Group (www.fcagroup.com), which manufactures Fiat-brand automobiles as well as other products. Required: Find FCA’s discussion of “Interests in other companies” in the “Significant Accounting Policies” note that foll

> The following are excerpts from the 2015 financial statements of Renault, a large French automobile manufacturer. 14 – INVESTMENT IN NISSAN A – Nissan consolidation method Renault’s percentage interest in Nissan is 43.7% and Renault holds 43.4% of voting

> The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2018. The company buys equity securities as investments. None of Ornamental’s investments are large enough to exert significant influence on t

> The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2018. The company buys debt securities, not intending to profit from short-term differences in price and not necessarily to hold debt securiti

> San Lorenzo General Store uses a periodic inventory system and the retail inventory method to estimate ending inventory and cost of goods sold. The following data are available for the month of October 2018: Required: Estimate the average cost of endin

> In 2018, Winslow International, Inc.’s controller discovered that ending inventories for 2016 and 2017 were overstated by $200,000 and $500,000, respectively. Determine the effect of the errors on retained earnings at January 1, 2018. (Ignore income taxe

> Tatum Company has four products in its inventory. Information about the December 31, 2018, inventory is as follows: Required: 1. Determine the carrying value of inventory at December 31, 2018, assuming the lower of cost or net realizable value (LCNRV)

> The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2018. The company buys debt securities, intending to profit from short-term differences in price and maintaining them in an active trading por

> Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2018. Management intends to have the investment available for sale when circumstances warrant. When the company purchased the bon

> The following information is available for the Johnson Corporation for 2018: Beginning inventory ………………………………………………………… $ 25,000 Merchandise purchases (on account) …………………………………. 155,000 Freight charges on purchases (paid in cash) …………………………. 10,000 Merc

> Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2018. Management intends to have the investment available for sale when circumstances warrant. For bonds of similar risk and matu

> Refer to the situation described in BE 11–10. Assume that 2016 depreciation was incorrectly recorded as $32,000. This error was discovered in 2018. How should Robotics account for the error? What is depreciation on the building for 2018 assuming no chang

> Fuzzy Monkey Technologies, Inc., purchased as a short-term investment $80 million of 8% bonds, dated January 1, on January 1, 2018. Management intends to include the investment in a short-term, active trading portfolio. For bonds of similar risk and matu

> Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2018. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the

> Stewart Enterprises has the following investments, all purchased prior to 2018: 1. Bee Company 5% bonds, purchased at face value, with an amortized cost of $4,000,000, and classified as held to maturity. At December 31, 2018, the Bee investment had a fai

> On January 1, 2018, Ithaca Corp. purchases Cortland Inc. bonds that have a face value of $150,000. The Cortland bonds have a stated interest rate of 6%. Interest is paid semiannually on June 30 and December 31, and the bonds mature in 10 years. For bonds

> The terms depreciation, depletion, and amortization all refer to the process of allocating the cost of an asset to the periods the asset is used. Required: Discuss the differences between depreciation, depletion, and amortization as the terms are used i

> Indicate (by letter) the way each of the investments listed below most likely should be accounted for based on the information provided. Reporting Category T. Trading securities Item 1. 35% of the nonvoting preferred stock of American Aircraft Compa

> National Distributing Company uses a periodic inventory system to track its merchandise inventory and the gross profit method to estimate ending inventory and cost of goods sold for interim periods. Net purchases for the month of August were $31,000. The

> On January 2, 2018, Miller Properties paid $19 million for 1 million shares of Marlon Company’s 6 million outstanding common shares. Miller’s CEO became a member of Marlon’s board of directors during the first quarter of 2018. The carrying amount of Marl

> Northwest Paperboard Company, a paper and allied products manufacturer, was seeking to gain a foothold in Canada. Toward that end, the company bought 40% of the outstanding common shares of Vancouver Timber and Milling, Inc., on January 2, 2018, for $400

> Companies can choose the fair value option for investments that otherwise would be accounted for under the equity method. If the fair value option is chosen, the investment is shown at fair value in the balance sheet, and unrealized holding gains and los

> Altira Corporation uses a periodic inventory system. The following information related to its merchandise inventory during the month of August 2018 is available: Aug. 1 Inventory on hand—2,000 units; cost $6.10 each. 8 Purchased 10,000 units for $5.50 ea

> Askew Company uses a periodic inventory system. The June 30, 2018, year-end trial balance for the company contained the following information: In addition, you determine that the June 30, 2018, inventory balance is $40,000. Required: 1. Calculate the

> On January 4, 2018, Runyan Bakery paid $324 million for 10 million shares of Lavery Labeling Company common stock. The investment represents a 30% interest in the net assets of Lavery and gave Runyan the ability to exercise significant influence over Lav

> On January 4, 2018, Runyan Bakery paid $324 million for 10 million shares of Lavery Labeling Company common stock. The investment represents a 30% interest in the net assets of Lavery and gave Runyan the ability to exercise significant influence over Lav

> Amalgamated General Corporation is a consulting firm that also offers financial services through its credit division. From time to time the company buys and sells securities. The following selected transactions relate to Amalgamated’s investment activiti

> GlaxoSmithKline 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. Required: 1. How does th

> American Surety and Fidelity buys and sells securities expecting to earn profits on short-term differences in price. For the first 11 months of 2018, gains from selling trading securities totaled $8 million, losses were $11 million, and the company had e

> On February 18, 2018, Union Corporation purchased 10,000 shares of IBM bonds as a long-term investment for $600,000. Union will hold the bonds indefinitely, and may sell them if their price increases sufficiently. On December 31, 2018, and December 31, 2

> Colah Company purchased $1 million of Jackson, Inc., 5% bonds at par on July 1, 2018, with interest paid semiannually. Colah determined that it should account for the bonds as an available-for-sale investment. At December 31, 2018, the Jackson bonds had

> Royal Gorge Company uses the gross profit method to estimate ending inventory and cost of goods sold when preparing monthly financial statements required by its bank. Inventory on hand at the end of October was $58,500. The following information for the

> Mills Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2018. Company management has the positive intent and ability to hold the bonds until maturity. The market interest rate (yield) was 4% for bonds of si

> Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2018. The market interest rate (yield) was 8% for bonds of similar risk and maturity. Tanner-UNF paid $200 million for the bonds. The company wil

> Refer to the situation described in BE 11–10. Assume that instead of changing the useful life and residual value, in 2018 the company switched to the double-declining-balance depreciation method. How should Robotics account for the change? What is deprec

> Loreal-American Corporation purchased several marketable securities during 2018. At December 31, 2018, the company had the investments in bonds listed below. None was held at the last reporting date, December 31, 2017, and all are considered securities a

> Access the FASB’s Codification Research System at the FASB website www.fasb.org. Required: Determine the specific citation for accounting for each of the following items: 1. Unrealized holding gains for trading securities should be included in earnings.

> John’s Specialty Store uses a periodic inventory system. The following are some inventory transactions for the month of May 2018: 1. John’s purchased merchandise on account for $5,000. Freight charges of $300 were paid in cash. 2. John’s returned some of

> Explain the similarities in and differences among depreciation, depletion, and amortization.

> Rantzow-Lear Company buys and sells debt securities expecting to earn profits on short-term differences in price. The company’s fiscal year ends on December 31. The following selected transactions relating to Rantzow-Lear’s trading account occurred durin

> Mills Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2018. Company management has the positive intent and ability to hold the bonds until maturity. The market interest rate (yield) was 4% for bonds of si

> Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2018. The market interest rate (yield) was 8% for bonds of similar risk and maturity. Tanner-UNF paid $200 million for the bonds. The company wil

> The FASB Accounting Standards Codification represents the single source of authoritative U.S. generally accepted accounting principles. Required: 1. What is the specific citation that describes examples of circumstances under which an investment in debt

> FF&T Corporation is a confectionery wholesaler that frequently buys and sells securities to meet various investment objectives. The following selected transactions relate to FF&T’s investment activities during the last two months of 2018. At November 1,

> A fire destroyed a warehouse of the Goren Group, Inc., on May 4, 2018. Accounting records on that date indicated the following: Merchandise inventory, January 1, 2018 …………………….. $1,900,000 Purchases to date ……………………………………………………….. 5,800,000 Freight-in ……

> Mills Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2018. Company management has the positive intent and ability to hold the bonds until maturity. The market interest rate (yield) was 4% for bonds of si

> At the beginning of 2016, Robotics Inc. acquired a manufacturing facility for $12 million. $9 million of the purchase price was allocated to the building. Depreciation for 2016 and 2017 was calculated using the straight-line method, a 25-year useful life

> Explain the accounting treatment required when a change is made to the estimated service life of a machine.

> Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2018. Company management has the positive intent and ability to hold the bonds until maturity. The market interest rate (yield) was 8% for bonds

> 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

> Rell Corporation reports under IFRS No. 9. Rell has an investment in Tirish, Inc. bonds that Rell accounts for at amortized cost, given that the bonds pay only interest and principal and Rell’s business purpose is to hold the bonds to maturity. Rell purc

> Assume all of the same facts and scenarios as E 12–30, except that Bloom Corporation classifies their Taylor investment as AFS. In E 12–30 Bloom Corporation purchased $1,000,000 of Taylor Company 5% bonds at par with the intent and ability to hold the b

> Bloom Corporation purchased $1,000,000 of Taylor Company 5% bonds at par with the intent and ability to hold the bonds until they matured in 2025, so Bloom classifies their investment as HTM. Unfortunately, a combination of problems at Taylor Company and

> John’s Specialty Store uses a perpetual inventory system. The following are some inventory transactions for the month of May 2018: 1. John’s purchased merchandise on account for $5,000. Freight charges of $300 were paid in cash. 2. John’s returned some o

> Below are two unrelated situations relating to life insurance. Required: Prepare the appropriate journal entry for each situation. 1. Ford Corporation owns a whole life insurance policy on the life of its president. Ford Corporation is the beneficiary.

> Edible Chemicals Corporation owns a $4 million whole life insurance policy on the life of its CEO, naming Edible Chemicals as beneficiary. The annual premiums are $70,000 and are payable at the beginning of each year. The cash surrender value of the poli

> As a long-term investment at the beginning of the 2018 fiscal year, Florists International purchased 30% of Nursery Supplies Inc.’s 8 million shares for $56 million. The fair value and book value of the shares were the same at that time. The company real

> Colah Company purchased $1 million of Jackson, Inc. 5% bonds at par on July 1, 2018, with interest paid semiannually. When the bonds were acquired Colah decided to elect the fair value option for accounting for its investment. At December 31, 2018, the J

> On November 21, 2018, a fire at Hodge Company’s warehouse caused severe damage to its entire inventory of Product Tex. Hodge estimates that all usable damaged goods can be sold for $12,000. The following information was available from the records of Hodg

> On June 28 Lexicon Corporation acquired 100% of the common stock of Gulf & Eastern. The purchase price allocation included the following items: $4 million, patent; $3 million, developed technology; $2 million, in-process research and development; $5 mill

> The Churchill Corporation uses a periodic inventory system and the LIFO inventory cost method for its one product. Beginning inventory of 20,000 units consisted of the following, listed in chronological order of acquisition: 12,000 units at a cost of $8.

> Briefly explain the differences between U.S. GAAP and IFRS in the measurement of an impairment loss for goodwill.

> During 2018, WMC Corporation discovered that its ending inventories reported in its financial statements were misstated by the following material amounts: WMC uses a periodic inventory system and the FIFO cost method. Required: 1. Determine the effect

> What are some of the simplifying conventions a company can use to calculate depreciation for partial years?

> Compare and contrast amortization of intangible assets with depreciation and depletion.

> Briefly explain the differences and similarities between the group approach and composite approach to depreciating aggregate assets.