JJS Corporation purchased a building on January 1, 2009, for a total of $12,000,000. The building has been depreciated using the straight-line method with a 20-year useful life and no residual value. As of January 1, 2013, JJS is evaluating the building for possible impairment. The building has a remaining useful life of 12 years and is expected to generate cash inflows of $850,000 per year. The estimated fair value of the building on January 1, 2013, is $6,800,000. Instructions: 1. Determine whether the building is impaired as of January 1, 2013. Make your determination using the provisions of both U.S. GAAP and IAS 36. Compare your answers. 2. Assume that JJS uses U.S. GAAP. Compute depreciation expense for 2013. (Don’t forget the new information on the expected useful life of the building.) 3. Assume that JJS is a non-U.S. company and uses international accounting standards. Compute depreciation expense for 2013. 4. Assume that JJS is a non-U.S. company and uses international accounting standards. Further assume that the building has a fair value of $14,000,000 on January 1, 2013, and that JJS chooses to upwardly revalue its long-term operating assets when they increase in value. Compute depreciation expense for 2013.
> How does the accounting for convertible debt under IAS 32 differ from the accounting prescribed by U.S. GAAP?
> What two unusual accounting actions are taken when a long-term operating asset is classified as held for sale?
> Under IAS 36, there is basically one impairment test for intangible assets. Briefly describe the structure of that test.
> When a stock-based award calls for settlement in cash, how is the obligation accounted for?
> What are the distinguishing features of convertible debt securities? What questions relate to the nature of this type of security?
> What purpose is served by issuing callable bonds?
> How should mandatorily redeemable preferred shares be reported in the balance sheet?
> How does the international accounting standard for asset impairment differ from the standard used in the United States?
> With a performance-based stock option plan, a catch-up adjustment is necessary when the probable number of options that will vest changes from one year to the next. Describe this catch-up adjustment.
> What option value is used in the computation of compensation expense associated with a basic stock-based compensation plan?
> What criteria must be met for a security to be classified as a trading security?
> How does one compute the interest revenue to be recognized on a debt security if the effective-interest method is being used?
> What was the user response to the FASB proposal, in its November 2007 Preliminary Views document, that preferred stock be classified in the balance sheet as a liability?
> How does the international standard for classification of short-term obligations to be refinanced differ from U.S. GAAP?
> How is stock valued when it is issued in exchange for noncash assets or for services?
> What is the function of the pension disclosure requirement included in the pension standards?
> Distinguish between the functional and physical factors affecting the useful life of a tangible noncurrent operating asset.
> What criteria must be met for a security to be classified as held to maturity?
> Why might a company invest in the securities of another company?
> Distinguish among depreciation, depletion, and amortization expenses.
> The White Wove Corporation began operations in 2013. A summary of the first quarter appears below. The White Wove Corporation used the LIFO perpetual inventory method and correctly computed an inventory value of $38,300 at the end of the first quarter.
> You are the controller of the Ford Steel Co. The economy enters a period of high inflation. Although profits are higher this year than last, you realize that the cost to replace inventory is also higher. You are aware that many companies are changing to
> Charles & Sons, a U.S. computer supplies firm, had the following transactions with foreign companies during December 2012: (a) Goldstar Co., Ltd., a South Korea–based firm, sold 5,000 computer hard drives to Charles & Sons for 1
> On November 17, 2013, Antarctic Airlines entered into a commitment to purchase 3,000 barrels of aviation fuel for $150,000 on March 23, 2014. Antarctic entered into this purchase commitment to protect itself against the volatility in the aviation fuel ma
> In 2010, Van Hover Inc. adopted the dollar-value LIFO retail inventory method. The January 1, 2010, price index was 1.00. The following data are available for the 4-year period ending December 31, 2013. Instructions: Calculate the inventories to be re
> Bob’s Repair Shop began operations on January 1, 2008. After discussing the matter with his accountant, Bob decided dollar-value LIFO should be used for inventory costing. Information concerning the inventory of Bob’s
> List three ways that bonds are commonly retired prior to maturity. How should the early extinguishment of debt be presented on the income statement?
> The Bergman Company sells three different products. Five years ago, management adopted the LIFO inventory method and established three specific pools of goods. Bergman values all incremental layers of inventory at the average cost of purchases within the
> The following information for Whittier Technologies was taken from the company’s financial statements (amounts in thousands): Instructions: 1. Compute the inventory turnover and the number of days’ sales in inventory
> The Sonntag Corporation has adjusted and closed its books at the end of 2012. The company arrives at its inventory position by a physical count taken on December 31 of each year. In March of 2013, the following errors were discovered: (a) Merchandise tha
> In December 2013, JB Masterpiece Merchandise Inc. had a significant portion of its inventory stolen. The company determined the cost of inventory remaining to be $32,400. The following information was taken from the records of the company: Instructions
> The following information was taken from the records of Prairie Company. Instructions: Using the gross profit method, compute the value to be assigned to the inventory as of September 30, 2013, and prepare an income statement for the 9-month period en
> Reagan Manufacturing began operations five years ago. On August 13, 2013, a fire broke out in the warehouse destroying all inventory and many accounting records relating to the inventory. The information available is presented below. All sales and purcha
> The Hansen Company values its inventory at the lower of FIFO cost or market. The inventory accounts at December 31, 2012, had the following balances: Raw materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> The Jamison Appliance Company began business on January 1, 2012. The company decided from the beginning to grant allowances on merchandise traded in as partial payment on new sales. During 2013, the company granted trade-in allowances of $64,035. The who
> Far East Sales Co. uses the first-in, first-out method in calculating cost of goods sold for three of the products that Far East handles. Inventories and purchase information concerning these three products are given for the month of March. On March 31,
> Witte Inc. carries four items in inventory. The following per-unit data relate to these items at the end of 2013: Instructions: 1. Calculate the value of the inventory under each of the following methods: (a) Cost (b) The lower of cost or market applie
> Which pension-related items impact the reported amount of accumulated other comprehensive income?
> The Greenriver Manufacturing Company manufactures two products: Raft and Float. At December 31, 2012, Greenriver used the FIFO inventory method. Effective January 1, 2013, Greenriver changed to the LIFO inventory method. The retroactive effect of this ch
> Norsk Corporation sells household appliances and uses LIFO for inventory costing. The inventory contains 10 different products, and historical LIFO layers are maintained for each of them. The LIFO layers for one of the products, Cook Right, were as follo
> A portion of the Stark Company’s balance sheet appears as follows: Stark Company pays for all operating expenses with cash and purchases all inventory on credit. During 2013, cash totaling $471,700 was paid on accounts payable. Operat
> The Marci Manufacturing Co. was organized in 2011 to produce a single product. The company’s production and sales records for the period 2011–2013 are summarized below. All units produced in a given year are assigned
> Records of the Swain New Products Co. show the following data relative to Product M: March 2 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450 units at $26.00 3 Sale . . . . . . . . . . . . . . . . .
> Information pertaining to Hedlund Corporation’s property, plant, and equipment for 2013 follows. The salvage values of the depreciable assets are immaterial. Depreciation is computed to the nearest month. Transactions during 2013 and
> Wild Expansion Co. acquired the following assets in exchange for various nonmonetary assets. 2013 Mar. 15 Acquired from another company a large lathe in exchange for three small lathes. The small lathes had a total cost of $28,000 and a remaining book va
> A review of the books of Lakeshore Electric Co. disclosed that there were five transactions involving gains and losses on the exchange of fixed assets. The transactions were recorded as indicated in the following ledger accounts: Investigation disclose
> On December 31, 2012, Magily Company acquired the following three intangible assets: (a) A trademark for $30,000. The trademark has seven years remaining in its legal life. It is anticipated that the trademark will be renewed in the future, indefinitely,
> On January 3, 2005, Merris Company spent $89,000 to apply for and obtain a patent on a newly developed product. The patent had an estimated useful life of 10 years. At the beginning of 2009, the company spent $16,000 in successfully prosecuting an attemp
> What is the recommended accounting treatment for bond restructurings effected as (a) An asset swap? (b) An equity swap? (c) A modification of terms?
> Deedle Company purchased four convenience store buildings on January 1, 2007, for a total of $13,000,000. The buildings have been depreciated using the straight-line method with a 20-year useful life and 5% residual value. As of January 1, 2013, Deedle h
> Oakeson Company is a manufacturing firm. Work-in-process and finished goods inventories for December 31, 2013, and December 31, 2012, follow: Depreciation is a major portion of Oakeson’s overhead, and the inventories listed above incl
> The following independent situations describe facts concerning the ownership of various assets. (a) Dickenton Company purchased a tooling machine in 1998 for $85,000. The machine was being depreciated on the straight-line method over an estimated useful
> In 2008, Sunbeam Corporation acquired a silver mine in eastern Alaska. Because the mine is located deep in the Alaskan frontier, Sunbeam was able to acquire the mine for the low price of $50,000. In 2009, Sunbeam constructed a road to the silver mine cos
> In 2009, Heslop Mining Company purchased property with natural resources for $5,400,000. The property was relatively close to a large city and had an expected residual value of $700,000. The following information relates to the use of the property: (a) I
> Roscoe Corp. was organized on January 2, 2013. It was authorized to issue 74,000 shares of common stock. On the date of organization, it sold 20,000 shares at $50 per share and gave the remaining shares in exchange for certain land-bearing recoverable or
> The following independent cases describe facts concerning the ownership of racing bicycles. (a) Piero Niccolo, winner of the 2011 Milan–San Remo cycling classic, purchased a new Fierro bicycle for $6,500 at the beginning of 2011. The bicycle was being de
> Machines are acquired by Milestone Corporation on April 1, 2013, as follows: Instructions: 1. Calculate the group depreciation rate for this group. 2. Calculate the average life in years for the group. 3. Give the entry to record the group depreciation
> Wright Manufacturing Co. acquired 20 similar machines at the beginning of 2008 for a total cost of $150,000. The machines have an average life of five years and no residual value. The group depreciation method is employed in writing off the cost of the m
> The FASB permits the use of an average market value of plan assets for some pension computations. In other cases, the fair market value at a specific measurement date must be used. Under what circumstances is the average market value permissible?
> What role does residual, or salvage, value play in the various methods of time-factor depreciation?
> Lyell Company started a newspaper delivery business on January 1, 2010. On that date, the company purchased a small pickup truck for $14,000. Lyell planned to depreciate the truck over three years and assumed an $800 residual value. During 2010 and 2011,
> A company buys a machine for $61,700 on January 1, 2010. The maintenance costs for the years 2010–2013 are as follows: 2010, $4,900; 2011, $4,700; 2012, $12,400 (includes $7,800 for cost of a new motor installed in December 2012); 2013, $4,800. Instruct
> On January 1, 2010, Ron Shelley purchased a new tractor to use on his farm. The tractor cost $100,000. Ron also had the dealer install a front-end loader on the tractor. The cost of the front-end loader was $7,000. The shipping charges were $600, and the
> A delivery truck was acquired by Navarro Inc. for $80,000 on January 1, 2013. The truck was estimated to have a 3-year life and a trade-in value at the end of that time of $20,000. The following depreciation methods are being considered: (a) Depreciation
> Olympus Equipment Company purchased a new piece of factory equipment on May 1, 2013, for $29,200. For income tax purposes, the equipment is classified as a 7-year asset. Because this is similar to the economic life expected for the asset, Olympus decides
> Rocky Point Foundry purchased factory equipment on March 15, 2012. The equipment will be depreciated for financial purposes over its estimated useful life, counting the year of acquisition as a half-year. The company accountant revealed the following inf
> Feng Company purchased a machine for $180,000 on September 1, 2013. It is estimated that the machine will have a 10-year life and a salvage value of $18,000. Its working hours and production in units are estimated at 36,000 and 750,000, respectively. It
> On January 2, 2013, Joshon Hardware Company traded with a dealer an old delivery truck for a newer model. Data relative to the old and new trucks follow: Old truck: Original cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> Assume that Coaltown Corporation has a machine that cost $52,000, has a book value of $35,000, and has a fair value of $40,000. The machine is used in Coaltown’s manufacturing process. For each of the following situations, indicate the value at which the
> On April 1, 2013, Brandoni Company has a piece of machinery with a cost of $100,000 and accumulated depreciation of $75,000. On April 1, Brandoni decided to sell the machine within one year. As of April 1, 2013, the machine had an estimated selling price
> What distinguishes a troubled debt restructuring from other debt restructurings?
> On December 31, 2013, Debenham Corporation sold an old machine for $15,000, having an original cost of $84,000 and a book value of $9,000. The terms of the sale were as follows: $3,000 down payment, $6,000 payable on December 31 of the next two years. Th
> Largest Company acquired Large Company on January 1. As part of the acquisition, $10,000 in goodwill was recognized; this goodwill was assigned to Largest’s Production reporting unit. During the year, the Production reporting unit repor
> An intangible asset cost $300,000 on January 1, 2013. On January 1, 2014, the asset was evaluated to determine whether it was impaired. As of January 1, 2014, the asset was expected to generate future cash flows of $25,000 per year (at the end of the yea
> The Rockington Co. applied for and received numerous patents at a total cost of $31,195 at the beginning of 2008. It is assumed the patents will have economic value for their remaining legal life of 16 years. At the beginning of 2010, the company paid $9
> Use the information given in Exercise 11-37 and assume that Della Bee Company is located in Hong Kong and uses International Financial Reporting Standards. Della Bee also has chosen to recognize increases in the value of long-term operating assets in acc
> Della Bee Company purchased a manufacturing plant building 10 years ago for $2,600,000. The building has been depreciated using the straight-line method with a 30-year useful life and 10% residual value. Della Bee’s manufacturing operations have experien
> Franklin Company purchased a machine on January 1, 2010, paying $150,000. The machine was estimated to have a useful life of eight years and an estimated salvage value of $30,000. In early 2012, the company elected to change its depreciation method from
> Finn Corporation purchased a machine on July 1, 2010, for $225,000. The machine was estimated to have a useful life of 12 years with an estimated salvage value of $15,000. During 2013, it became apparent that the machine would become uneconomical after D
> Goff Corporation purchased a machine on January 1, 2008, for $250,000. At the date of acquisition, the machine had an estimated useful life of 20 years with no salvage value. The machine is being depreciated on a straight-line basis. On January 1, 2013,
> On January 2, 2012, Adelaide Rose purchased land with valuable natural ore deposits for $13 million. The estimated residual value of the land was $4 million. At the time of purchase, a geological survey estimated 3 million tons of removable ore were unde
> How is the service cost portion of net periodic pension expense to be measured?
> On January 1, 2013, Major Company purchased a uranium mine for $800,000. On that date, Major estimated that the mine contained 1,000 tons of ore. At the end of the productive years of the mine, Major Company will be required to spend $4,200,000 to clean
> Jackson Manufacturing acquired a new milling machine on April 1, 2008. The machine has a special component that requires replacement before the end of the useful life. The asset was originally recorded in two accounts, one representing the main unit and
> Lundquist, Inc., uses the group depreciation method for its furniture account. The depreciation rate used for furniture is 21%. The balance in the furniture account on December 31, 2012, was $125,000, and the balance in Accumulated Depreciationâ
> The Anson Manufacturing Company reviewed its year-end inventory and found the following items. Indicate which items should be included in the inventory balance at December 31, 2013. Give your reasons for the treatment you suggest. (a) A packing case cont
> The management of Kauer Company has engaged you to assist in the preparation of year-end (December 31) financial statements. You are told that on November 30, the correct inventory level was 150,000 units. During the month of December, sales totaled 50,0
> Using the following data, compute the total cash expended for inventory in 2013. Accounts payable: January 1, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 350,000 December
> The following inventory information is for Stevenson Company. Beginning inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200 units @ $8 Purchases . . . . . . . . . . . . . . . . . . . . . .
> Jen and Barry’s Ice Milk Company used cash to purchase a new ice milk mixer on January 1, 2013. The new mixer is estimated to have a 20,000 - hour service life. Jen and Barry’s depreciates equipment on the service-hours method. The total price paid for t
> On November 6 of Year 1, the company purchased inventory (on account) from a supplier located in Indonesia. The purchase price is 100,000,000 Indonesian rupiah. On November 6, the exchange rate was 8,700 rupiah for 1 U.S. dollar. On December 31, the exch
> On November 17 of Year 1, the company entered into a commitment to purchase 250,000 ounces of gold on February 14 of Year 2 at a price of $1,110.20 per ounce. On December 31 of Year 1, the market price of gold is $1,075.10 per ounce. On February 14, the
> What is a joint venture, and how can a joint venture be a form of off-balance-sheet financing?
> The company compiled the following information concerning inventory for the current year: Compute the inventory cost at year-end using the dollar-value LIFO retail method. Year-End Incremental Cost Percentage Price Index Incremental Inventory at Re
> The company exchanged an asset for a similar asset. The exchange was with another company in the same line of business. The old asset had a cost of $1,000 and accumulated depreciation of $850. The old asset had a market value of $400 on the date of the e
> On October 1, 2013, the company has a building with a cost of $375,000 and accumulated depreciation of $225,000. The company commits to a plan to sell the building by February 1, 2014. On October 1, 2013, the building has an estimated selling price of $1
> The company reported the following information relating to inventory for the month of April: Sales for the month totaled $80,000. Compute the estimated cost of inventory on hand at the end of the month using the average cost assumption. Cost Retall
> The company reported the following information for the month: Sales for the month totaled $94,000. Compute the estimated cost of inventory on hand at the end of the month using the average cost assumption. Cost Retail Inventory, January 1 $40,000 $
> The company reported the following information for the year: Beginning accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,000 Sales . . . . . . . . . . . . . . . . . . . . . . . . .
> At the beginning of Year 1, the company’s inventory level was stated correctly. At the end of Year 1, inventory was overstated by $2,200. At the end of Year 2, inventory was understated by $450. At the end of Year 3, inventory was correctly stated. Repor
