Hale Hardware takes pride as the “shop around the corner” that can compete with the big-box home improvement stores by providing good service from knowledgeable sales associates (many of whom are retired local handymen). Hale has developed the following two revenue arrangements to enhance its relationships with customers and increase its bottom line. 1. Hale sells a specialty portable winch that is popular with many of the local customers for use at their lake homes (putting docks in and out, launching boats, etc.). The Hale winch is a standard manufacture winch that Hale modifies so the winch can be used for a variety of tasks. Hale sold 70 of these winches during 2017 at a total price of $21,000, with a warranty guarantee that the product was free of any defects. The cost of winches sold is $16,000. The assurance warranties extend for a 3-year period with an estimated cost of $2,100. In addition, Hale sold extended warranties related to 20 Hale winches for 2 years beyond the 3-year period for $400 each. 2. To bolster its already strong customer base, Hale implemented a customer loyalty program that rewards a customer with 1 loyalty point for every $10 of purchases on a select group of Hale products. Each point is redeemable for a $1 discount on any purchases of Hale merchandise in the following 2 years. During 2017, customers purchased select group products for $100,000 (all products are sold to provide a 45% gross profit) and earned 10,000 points redeemable for future purchases. The standalone selling price of the purchased products is $100,000. Based on prior experience with incentives programs like this, Hale expects 9,500 points to be redeemed related to these sales (Hale appropriately uses this experience to estimate the value of future consideration related to bonus points). Instructions a. Identify the separate performance obligations in the Hale warranty and bonus point programs, and briefly explain the point in time when the performance obligations are satisfied. b. Prepare the journal entries for Hale related to the sales of Hale winches with warranties. c. Prepare the journal entries for the bonus point sales for Hale in 2017. d. How much additional sales revenue is recognized by Hale in 2018, assuming 4,500 bonus points are redeemed?
> What are the reporting issues in a sale with a repurchase agreement?
> Under what conditions does a company recognize revenue over a period of time?
> Use the information from BE17-1 but assume the bonds are purchased as an available-for-sale security. Prepare Garfield’s journal entries for a. the purchase of the investment, b. the receipt of annual interest and discount amortization, and c. the yea
> In measuring the transaction price, explain the accounting for a. time value of money, and b. noncash consideration.
> Explain how to account for the impairment of a held-to maturity debt security.
> Explain the accounting for sales with right of return.
> How do companies recognize revenue from a performance obligation over time?
> Where on the asset side of the balance sheet are debt investments classified as trading securities, available-for sale securities, and held-to-maturity securities reported? Explain.
> When does a company satisfy a performance obligation? Identify the indicators of satisfaction of a performance obligation.
> Fuhremann Co. is a full-service manufacturer of surveillance equipment. Customers can purchase any combination of equipment, installation services, and training as part of Fuhremann’s security services. Thus, each of these performance obligations are sep
> On what basis should the transaction price be allocated to various performance obligations? Identify the approaches for allocating the transaction price.
> Refer to the information in Question 14. Assume that Allee has limited experience with a construction project on the same scale as the 10 speedboats. How does this affect the accounting for the variable consideration? From question 14: Allee Corp. is ev
> At December 31, 2017, Reid Company had 600,000 shares of common stock issued and outstanding, 400,000 of which had been issued and outstanding throughout the year and 200,000 of which were issued on October 1, 2017. Net income for 2017 was $2,000,000, an
> Turner, Inc. began work on a $7,000,000 contract in 2017 to construct an office building. During 2017, Turner, Inc. incurred costs of $1,700,000, billed its customers for $1,200,000, and collected $960,000. At December 31, 2017, the estimated additional
> Distinguish between the accounting treatment for marketable versus nonmarketable equity securities.
> Allee Corp. is evaluating a revenue arrangement to determine proper revenue recognition. The contract is for construction of 10 speedboats for a contract price of $400,000. The customer needs the boats in its showrooms by February 1, 2018, for the boat p
> What are some examples of variable consideration? What are the two approaches for estimating variable consideration?
> What is the transaction price? What additional factors related to the transaction price must be considered in determining the transaction price?
> When must multiple performance obligations in a revenue arrangement be accounted for separately?
> Indicate how unrealized holding gains and losses should be reported for debt investments classified as trading, available-for-sale, and held-to-maturity.
> What is a performance obligation? Under what conditions does a performance obligation exist?
> On July 1, 2017, Roberts Corporation issued $3,000,000 of 9% bonds payable in 20 years. The bonds include detachable warrants giving the bondholder the right to purchase for $30 one share of $1 par value common stock at any time during the next 10 years.
> Explain the importance of a contract in the revenue recognition process.
> When is revenue recognized in the following situations? a. Revenue from selling products, b. revenue from services performed, c. revenue from permitting others to use company assets, and d. revenue from disposing of assets other than products.
> Stengel Co. enters into a 3-year contract to perform maintenance service for Laplante Inc. Laplante promises to pay $100,000 at the beginning of each year (the standalone selling price of the service at contract inception is $100,000 per year). At the en
> Describe the critical factor in evaluating whether a performance obligation is satisfied.
> Cardinal Paz Corp. carries an account in its general ledger called Investments, which contained debits for investment purchases, and no credits, with the following descriptions. Instructions (Round all computations to the nearest dollar.) a. Prepare
> On January 1, 2017, Novotna Company purchased $400,000, 8% bonds of Aguirre Co. for $369,114. The bonds were purchased to yield 10% interest. Interest is payable semiannually on July 1 and January 1. The bonds mature on January 1, 2022. Novotna Company u
> Presented below is an amortization schedule related to Spangler Company’s 5-year, $100,000 bond with a 7% interest rate and a 5% yield, purchased on December 31, 2015, for $108,660. The following schedule presents a comparison of the
> Hobbs Co. has the following defined benefit pension plan balances on January 1, 2017. Projected benefit obligation………….$4,600,000 Fair value of plan assetsâ€&brvba
> Lemke Company sponsors a defined benefit pension plan for its employees. The following data relate to the operation of the plan for the years 2017 and 2018. Instructions a. Prepare a pension worksheet presenting both years 2017 and 2018 and accompanyi
> Aykroyd Inc. has sponsored a noncontributory, defined benefit pension plan for its employees since 1994. Prior to 2017, cumulative net pension expense recognized equaled cumulative contributions to the plan. Other relevant information about the pension p
> Hiatt Toothpaste Company initiates a defined benefit pension plan for its 50 employees on January 1, 2017. The insurance company which administers the pension plan provided the following selected information for the years 2017, 2018, and 2019. / There
> Gottschalk Company sponsors a defined benefit plan for its 100 employees. On January 1, 2017, the company’s actuary provided the following information. Accumulated other comprehensive loss (PSC)………………………………….$150,000 Pension plan assets (fair value and m
> Jackson Company adopts acceptable accounting for its defined benefit pension plan on January 1, 2016, with the following beginning balances: plan assets $200,000; projected benefit obligation $250,000. Other data relating to 3 years’ op
> Nate Beggs signs a 1-year contract with BlueBox Video. The terms of the contract are that Nate is required to pay a nonrefundable initiation fee of $100. No annual membership fee is charged in the first year. After the first year, membership can be renew
> Briefly explain the conditions when a contract modification shall be accounted for as a separate performance obligation.
> Elton Co. has the following postretirement benefit plan balances on January 1, 2017. Accumulated postretirement benefit obligation………$2,250,000 Fair value of plan assets…&aci
> Larson Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2018, the following balances related to this plan. Plan assets (market-related value)…….$270,000 Projected benefit obligation…………………340,000 Pension asset/liability……………
> The following data relate to the operation of Kramer Co.’s pension plan in 2018. The pension worksheet for 2017 is provided in P20-10. Service cost…………………………………………..$59,000 Actual return on plan assets……………………32,000 Amortization of prior service cost…………
> Wise Company began operations at the beginning of 2018. The following information pertains to this company. 1. Pretax financial income for 2018 is $100,000. 2. The tax rate enacted for 2018 and future years is 40%. 3. Differences between the 2018 inco
> The following information was disclosed during the audit of Elbert Inc. 1. Amount Due Year……………..per Tax Return 2017………………………$130,000 2018……………………….104,000 2. On January 1, 2017, equipment costing $600,000 is purchased. For financial
> Crosley Corp. sold an investment on an installment basis. The total gain of $60,000 was reported for financial reporting purposes in the period of sale. The company qualifies to use the installment-sales method for tax purposes. The installment period is
> Presented below are two independent situations related to future taxable and deductible amounts resulting from temporary differences existing at December 31, 2017. 1. Mooney Co. has developed the following schedule of future taxable and deductible amoun
> The accounting records of Shinault Inc. show the following data for 2017 (its first year of operations). 1. Life insurance expense on officers was $9,000. 2. Equipment was acquired in early January for $300,000. Straight-line depreciation over a 5-year
> The following information has been obtained for Gocker Corporation. 1. Prior to 2017, taxable income and pretax financial income were identical. 2. Pretax financial income is $1,700,000 in 2017 and $1,400,000 in 2018. 3. On January 1, 2017, equipment
> On May 1, 2017, Mount Company enters into a contract to transfer a product to Eric Company on September 30, 2017. It is agreed that Eric will pay the full price of $25,000 in advance on June 15, 2017. Eric pays on June 15, 2017, and Mount delivers the pr
> Presented below are two independent revenue arrangements for Colbert Company. Instructions Respond to the requirements related to each revenue arrangement. a. Colbert sells 3D printer systems. Recently, Colbert provided a special promotion of zero-int
> Martz Inc. has a customer loyalty program that rewards a customer with 1 customer loyalty point for every $10 of purchases. Each point is redeemable for a $3 discount on any future purchases. On July 2, 2017, customers purchase products for $300,000 (wit
> Ritt Ranch & Farm is a distributor of ranch and farm equipment. Its products range from small tools, power equipment for trench-digging and fencing, grain dryers, and barn winches. Most products are sold direct via its company catalog and Internet site.
> Economy Appliance Co. manufactures low-price, nofrills appliances that are in great demand for rental units. Pricing and cost information on Economy’s main products are as follows. Customers can contract to purchase either individuall
> Grill Master Company sells total outdoor grilling solutions, providing gas and charcoal grills, accessories, and installation services for custom patio grilling stations. Instructions Respond to the requirements related to the following independent rev
> Refer to the Tablet Bundle A revenue arrangement in P18-1. In response to competitive pressure for Internet access for Tablet Bundle A, after 2 years of the 3-year contract, Tablet Tailors offers a modified contract and extension incentive. The extended
> Amigos Burrito Inc. sells franchises to independent operators throughout the northwestern part of the United States. The contract with the franchisee includes the following provisions. 1. The franchisee is charged an initial fee of $120,000. Of this amo
> On March 1, 2017, Pechstein Construction Company contracted to construct a factory building for Fabrik Manufacturing Inc. for a total contract price of $8,400,000. The building was completed by October 31, 2019. The annual contract costs incurred, estima
> Tablet Tailors sells tablet PCs combined with Internet service, which permits the tablet to connect to the Internet anywhere and set up a Wi-Fi hot spot. It offers two bundles with the following terms. 1. Tablet Bundle A sells a tablet with 3 years of I
> Talarczyk Company sold 10,000 Super-Spreaders on December 31, 2017, at a total price of $1,000,000, with a warranty guarantee that the product was free of any defects. The cost of the spreaders sold is $550,000. The assurance warranties extend for a 2-ye
> On January 1, 2017, Acker Inc. had the following balance sheet. The accumulated other comprehensive income related to unrealized holding gains on available-for-sale debt securities. The fair value of Acker Inc.’s available-for-sale de
> On October 15, 2017, Oil Products Co. purchased 4,000 barrels of fuel oil with a cost of $240,000 ($60 per barrel). Oil Products is holding this inventory in anticipation of the winter 2018 heating season. Oil Products accounts for its inventory at the l
> LEW Jewelry Co. uses gold in the manufacture of its products. LEW anticipates that it will need to purchase 500 ounces of gold in October 2017, for jewelry that will be shipped for the holiday shopping season. However, if the price of gold increases, LEW
> Brooks Corp. is a medium-sized corporation specializing in quarrying stone for building construction. The company has long dominated the market, at one time achieving a 70% market penetration. During prosperous years, the company’s profits, coupled with
> Warren Co. purchased a put option on Echo common shares on January 7, 2017, for $360. The put option is for 400 shares, and the strike price is $85 (which equals the price of an Echo share on the purchase date). The option expires on July 31, 2017. The f
> Johnstone Co. purchased a put option on Ewing common shares on July 7, 2017, for $240. The put option is for 200 shares, and the strike price is $70. (The market price of a share of Ewing stock on that date is $70.) The option expires on January 31, 2018
> McElroy Company has the following portfolio of investment securities at September 30, 2017, its most recent reporting date. On October 10, 2017, the Horton shares were sold at a price of $54 per share. In addition, 3,000 shares of Patriot common stock
> Fernandez Corp. invested its excess cash in securities during 2017. As of December 31, 2017, the securities portfolio consisted of the following common stocks. Instructions a. What should be reported on Fernandez’s December 31, 2017,
> Presented below is information taken from a bond investment amortization schedule with related fair values provided. These bonds are classified as available-for-sale. Instructions a. Indicate whether the bonds were purchased at a discount or at a prem
> Christina Corporation is preparing the comparative financial statements to be included in the annual report to stockholders. Christina employs a fiscal year ending May 31. Income from operations before income taxes for Christina was $1,400,000 and $660,
> Leno Computers manufactures tablet computers for sale to retailers such as Fallon Electronics. Recently, Leno sold and delivered 200 tablet computers to Fallon for $20,000 on January 5, 2017. Fallon has agreed to pay for the 200 tablet computers within 3
> The information below pertains to Barkley Company for 2018. Net income for the year…………………………………$1,200,000 7% convertible bonds issued at par ($1,000 per bond); each bond is convertible into 30 shares of common stock…………………………………………..2,000,000 6% convert
> Charles Austin of the controller’s office of Thompson Corporation was given the assignment of determining the basic and diluted earnings per share values for the year ending December 31, 2018. Austin has compiled the information listed below. 1. The com
> Melton Corporation is preparing the comparative financial statements for the annual report to its shareholders for fiscal years ended May 31, 2017, and May 31, 2018. The income from operations for the fiscal year ended May 31, 2017, was $1,800,000 and in
> Amy Dyken, controller at Fitzgerald Pharmaceutical Industries, a public company, is currently preparing the calculation for basic and diluted earnings per share and the related disclosure for Fitzgerald’s financial statements. Below is
> Assume that Amazon.com has a stock-option plan for top management. Each stock option represents the right to purchase a share of Amazon $1 par value common stock in the future at a price equal to the fair value of the stock at the date of the grant. Amaz
> Angela Corporation issues 2,000 convertible bonds at January 1, 2016. The bonds have a 3-year life, and are issued at par with a face value of $1,000 per bond, giving total proceeds of $2,000,000. Interest is payable annually at 6%. Each bond is converti
> Linda Berstler Company sponsors a defined benefit pension plan. The corporation’s actuary provides the following information about the plan. Instructions a. Compute the actual return on the plan assets in 2017. b. Compute the amount
> The financial statements of M&S are presented in Appendix E. The company’s complete annual report, including the notes to the financial statements, is available online. Instructions Refer to M&S’s financial statements and the accompanying notes to ans
> Jack Kelly Company has grown rapidly since its founding in 2007. To instill loyalty in its employees, Kelly is contemplating establishment of a defined benefit plan. Kelly knows that lenders and potential investors will pay close attention to the impact
> The financial statements of M&S are presented in Appendix E. The company’s complete annual report, including the notes to the financial statements, is available online. Instructions Refer to M&S’s financial statements and the accompanying notes to ans
> At January 1, 2017, Hennein Company had plan assets of $280,000 and a projected benefit obligation of the same amount. During 2017, service cost was $27,500, the settlement rate was 10%, actual and expected return on plan assets were $25,000, contributio
> Kleckner Company started operations in 2013. Although it has grown steadily, the company reported accumulated operating losses of $450,000 in its first four years in business. In the most recent year (2017), Kleckner appears to have turned the corner and
> Callaway Corp. has a deferred tax asset account with a balance of $150,000 at the end of 2017 due to a single cumulative temporary difference of $375,000. At the end of 2018, this same temporary difference has increased to a cumulative amount of $500,000
> Komissarov Company has a debt investment in the bonds issued by Keune Inc. The bonds were purchased at par for $400,000 and, at the end of 2017, have a remaining life of 3 years with annual interest payments at 10%, paid at the end of each year. This deb
> Assume the same information as in IFRS17-12 except that Roosevelt has an active trading strategy for these bonds. The fair value of the bonds at December 31 of each year-end is as follows. Instructions a. Prepare the journal entry at the date of the b
> On January 1, 2017, Roosevelt Company purchased 12% bonds, having a maturity value of $500,000, for $537,907.40. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2017, and mature January 1, 2022, with interest received Januar
> The financial statements of M&S are presented in Appendix E. The company’s complete annual report, including the notes to the financial statements, is available online. Instructions Refer to M&S’s financial statements and the accompanying notes to answ
> Your client, Cascade Company, is planning to invest some of its excess cash in 5-year revenue bonds issued by the county and in the shares of one of its suppliers, Teton Co. Teton’s shares trade on the over-the-counter market. Cascade plans to classify t
> The financial statements of M&S are presented in Appendix E. The company’s complete annual report, including the notes to the financial statements, is available online. Instructions Refer to M&S’s financial statements and the accompanying notes to ans
> On December 21, 2017, Zurich Company provided you with the following information regarding its trading investments. During 2018, Carolina Co. shares were sold for $9,500. The fair value of the shares on December 31, 2018, was Stargate Corp. shares&acir
> Assume that Sarazan Company has a share-option plan for top management. Each share option represents the right to purchase a $1 par value ordinary share in the future at a price equal to the fair value of the shares at the date of the grant. Sarazan has
> On June 1, 2017, Mills Company sells $200,000 of shelving units to a local retailer, ShopBarb, which is planning to expand its stores in the area. Under the agreement, ShopBarb asks Mills to retain the shelving units at its factory until the new stores a
> Assume the same information in IFRS16-11, except that Angela Corporation converts its convertible bonds on January 1, 2017. Instructions a. Compute the carrying value of the bond payable on January 1, 2017. b. Prepare the journal entry to record the c
> On January 1, 2017, Gottlieb Corporation issued $4,000,000 of 10-year, 8% convertible debentures at 102. Interest is to be paid semiannually on June 30 and December 31. Each $1,000 debenture can be converted into eight shares of Gottlieb Corporation $100
> The December 31, 2017, balance sheet of Kepler Corp. is as follows. On March 5, 2018, Kepler Corp. called all of the bonds as of April 30 for the principal plus interest through April 30. By April 30, all bondholders had exercised their conversion to c
> On January 1, 2016, when its $30 par value common stock was selling for $80 per share, Plato Corp. issued $10,000,000 of 8% convertible debentures due in 20 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into five
> On January 1, 2017, Hi and Lois Company purchased 12% bonds having a maturity value of $300,000 for $322,744.44. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2017, and mature January 1, 2022, with interest received on Jan
> Aubrey Inc. issued $4,000,000 of 10%, 10-year convertible bonds on June 1, 2017, at 98 plus accrued interest. The bonds were dated April 1, 2017, with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basi
> Presented below are five different situations. Provide an answer to each of these questions. 1. The Kawaski Jeep dealership sells both new and used Jeeps. Some of the Jeeps are used for demonstration purposes; after 6 months, these Jeeps are then sold a
> Respond to the questions related to the following statements. 1. A wholly unperformed contract is one in which the company has neither transferred the promised goods or services to the customer nor received, or become entitled to receive, any considerat
> Refer to the revenue arrangement in E18-13. Instructions Repeat requirements (a) and (b) assuming Crankshaft does not have market data with which to determine the standalone selling price of the installation services. As a result, an expected cost plus
> Crankshaft Company manufactures equipment. Crankshaft’s products range from simple automated machinery to complex systems containing numerous components. Unit selling prices range from $200,000 to $1,500,000 and are quoted inclusive of installation. The
