Joblonsky Inc. has recently hired a new independent auditor, Karen Ogleby, who says she wants “to get everything straightened out.” Consequently, she has proposed the following accounting changes in connection with Joblonsky Inc.’s 2017 financial statements. 1. At December 31, 2016, the client had a receivable of $820,000 from Hendricks Inc. on its statement of financial position. Hendricks Inc. has gone bankrupt, and no recovery is expected. The client proposes to write off the receivable as a prior period item. 2. The client proposes the following changes in depreciation policies. a. For office furniture and fixtures, it proposes to change from a 10-year useful life to an 8-year life. If this change had been made in prior years, retained earnings at December 31, 2016, would have been $250,000 less. The effect of the change on 2017 income alone is a reduction of $60,000. b. For its new equipment in the leasing division, the client proposes to adopt the sum-of-the-years’-digits depreciation method. The client had never used SYD before. The first year the client operated a leasing division was 2017. If straight-line depreciation were used, 2017 income would be $110,000 greater. 3. In preparing its 2016 statements, one of the client’s bookkeepers overstated ending inventory by $235,000 because of a mathematical error. The client proposes to treat this item as a prior period adjustment. 4. In the past, the client has spread preproduction costs in its furniture division over 5 years. Because its latest furniture is of the “fad” type, it appears that the largest volume of sales will occur during the first 2 years after introduction. Consequently, the client proposes to amortize preproduction costs on a per-unit basis, which will result in expensing most of such costs during the first 2 years after the furniture’s introduction. If the new accounting method had been used prior to 2017, retained earnings at December 31, 2016, would have been $375,000 less. 5. For the nursery division, the client proposes to switch from FIFO to average-cost inventories because it believes that average-cost will provide a better income measure. The effect of making this change on 2017 earnings will be an increase of $320,000. The client says that the effect of the change on December 31, 2016, retained earnings cannot be determined. 6. To achieve an appropriate recognition of revenues and expenses in its building construction division, the client proposes to switch from the cost-recovery method of accounting to the percentage-of-completion method. Had the percentage-of-completion method been employed in all prior years, retained earnings at December 31, 2016, would have been $1,075,000 greater. Instructions a. For each of the changes described above, decide whether: 1. The change involves an accounting policy, accounting estimate, or correction of an error. 2. Restatement of opening retained earnings is required. b. What would be the proper adjustment to the December 31, 2016, retained earnings?
> Use the information for Rick Kleckner Corporation from BE21-3. Assume that at December 31, 2017, Kleckner made an adjusting entry to accrue interest expense of $29,530 on the lease. Prepare Kleckner’s January 1, 2018, journal entry to record the second l
> On January 1, 2017, Millay Inc. paid $700,000 for 10,000 shares of Genso Company’s voting common stock, which was a 10% interest in Genso. At that date, the net assets of Genso totaled $6,000,000. The fair values of all of Genso’s identifiable assets and
> Rick Kleckner Corporation recorded a capital lease at $300,000 on January 1, 2017. The interest rate is 12%. Kleckner Corporation made the first lease payment of $53,920 on January 1, 2017. The lease requires eight annual payments. The equipment has a us
> Waterworld Company leased equipment from Costner Company. The lease term is 4 years and requires equal rental payments of $43,019 at the beginning of each year. The equipment has a fair value at the inception of the lease of $150,000, an estimated useful
> At the beginning of 2017, Wertz Construction Company changed from the completed-contract method to recognizing revenue over time (percentage-of-completion) for financial reporting purposes. The company will continue to use the completed-contract method f
> Whittier Construction Co. had followed the practice of expensing all materials assigned to a construction job without recognizing any salvage inventory. On December 31, 2017, it was determined that salvage inventory should be valued at $52,000. Of this a
> Koch Corporation is in the process of preparing its annual financial statements for the fiscal year ended April 30, 2018. Because all of Koch’s shares are traded intrastate, the company does not have to file any reports with the Securities and Exchange C
> What are the major sources of cash (inflows) in a statement of cash flows? What are the major uses (outflows) of cash?
> Explain the meaning of the following terms: a. commonsize analysis, b. vertical analysis, c. horizontal analysis, and d. percentage analysis.
> On January 2, 2017, $100,000 of 11%, 10-year bonds were issued for $97,000. The $3,000 discount was charged to Interest Expense. The bookkeeper, Mark Landis, records interest only on the interest payment dates of January 1 and July 1. What is the effect
> In January 2017, installation costs of $6,000 on new machinery were charged to Maintenance and Repairs Expense. Other costs of this machinery of $30,000 were correctly recorded and have been depreciated using the straight-line method with an estimated li
> Each of the following items must be considered in preparing a statement of cash flows for Blackwell Inc. for the year ended December 31, 2017. State where each item is to be shown in the statement, if at all. a. Plant assets that had cost $18,000 6½ yea
> Colbert Corporation had the following 2017 income statement. Revenues………$100,000 Expenses…………..60,000 $ 40,000
> Prior to 2017, Heberling Inc. excluded manufacturing overhead costs from work in process and finished goods inventory. These costs have been expensed as incurred. In 2017, the company decided to change its accounting methods for manufacturing inventories
> Broussard Company reported net income of $3.5 million in 2017. Depreciation for the year was $520,000, accounts receivable increased $500,000, and accounts payable increased $300,000. Compute net cash flow from operating activities using the indirect met
> Winston Industries and Ewing Inc. enter into an agreement that requires Ewing Inc. to build three diesel-electric engines to Winston’s specifications. Upon completion of the engines, Winston has agreed to lease them for a period of 10 years and to assume
> Cleveland Inc. leased a new crane to Abriendo Construction under a 5-year noncancelable contract starting January 1, 2017. Terms of the lease require payments of $33,000 each January 1, starting January 1, 2017. Cleveland will pay insurance, taxes, and m
> Glaus Leasing Company agrees to lease machinery to Jensen Corporation on January 1, 2017. The following information relates to the lease agreement. 1. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic l
> On January 1, 2017, Irwin Animation sold a truck to Peete Finance for $33,000 and immediately leased it back. The truck was carried on Irwin’s books at $28,000. The term of the lease is 5 years, and title transfers to Irwin at lease-end. The lease requir
> Matheny Inc. went public 3 years ago. The board of directors will be meeting shortly after the end of the year to decide on a dividend policy. In the past, growth has been financed primarily through the retention of earnings. A stock or a cash dividend h
> Cineplex Corporation is a diversified company that operates in five different industries: A, B, C, D, and E. The following information relating to each segment is available for 2018. Sales of segments B and C included intersegment sales of $20,000 and
> Your firm has been engaged to examine the financial statements of Almaden Corporation for the year 2017. The bookkeeper who maintains the financial records has prepared all the unaudited financial statements for the corporation since its organization on
> Dingel Corporation has contracted with you to prepare a statement of cash flows. The controller has provided the following information. Additional data related to 2017 are as follows. 1. Equipment that had cost $11,000 and was 30% depreciated at time
> An annual report of Crestwood Industries states, “The company and its subsidiaries have long-term leases expiring on various dates after December 31, 2017. Amounts payable under such commitments, without reduction for related rental income, are expected
> Comparative balance sheet accounts of Sharpe Company are presented below. Additional data: 1. Equipment that cost $10,000 and was 60% depreciated was sold in 2017. 2. Cash dividends were declared and paid during the year. 3. Common stock was issued
> You have been asked by a client to review the records of Roberts Company, a small manufacturer of precision tools and machines. Your client is interested in buying the business, and arrangements have been made for you to review the accounting records. Yo
> Shapiro Inc. was incorporated in 2016 to operate as a computer software service firm with an accounting fiscal year ending August 31. Shapiro’s primary product is a sophisticated online inventory-control system; its customers pay a fixed fee plus a usage
> On January 1, 2017, Cage Company contracts to lease equipment for 5 years, agreeing to make a payment of $137,899 (including the executory costs of $6,000) at the beginning of each year, starting January 1, 2017. The taxes, the insurance, and the mainten
> Chapman Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company. The comparative balance sheet and income statement for Chapman as of May 31, 2017, are as follows. The company is preparing its state
> Ludwick Steel Company as lessee signed a lease agreement for equipment for 5 years, beginning December 31, 2017. Annual rental payments of $40,000 are to be made at the beginning of each lease year (December 31). The taxes, insurance, and the maintenance
> The following facts pertain to a noncancelable lease agreement between Faldo Leasing Company and Vance Company, a lessee. Inception date………………………………………January 1, 2017 Annual lease payment due at the beginning of each year, beginning with January 1, 201
> Aston Corporation performs year-end planning in November of each year before its calendar year ends in December. The preliminary estimated net income is $3 million. The CFO, Rita Warren, meets with the company president, J. B. Aston, to review the projec
> Penn Company is in the process of adjusting and correcting its books at the end of 2017. In reviewing its records, the following information is compiled. 1. Penn has failed to accrue sales commissions payable at the end of each of the last 2 years, as f
> Morlan Corporation is preparing its December 31, 2017, financial statements. Two events that occurred between December 31, 2017, and March 10, 2018, when the statements were authorized for issue, are described below. 1. A liability, estimated at $160,00
> Snider Corporation, a publicly traded company, is preparing the interim financial data which it will issue to its shareholders at the end of the first quarter of the 2017–2018 fiscal year. Snider’s financial accounting department has compiled the followi
> 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
> Indiana Jones Corporation enters into a 6-year lease of equipment on January 1, 2017, which requires 6 annual payments of $40,000 each, beginning January 1, 2017. In addition, Indiana Jones guarantees the lessor a residual value of $20,000 at lease-end.
> As part of the year-end audit, you are discussing the disclosure checklist with your client. The checklist identifies the items that must be disclosed in a set of IFRS financial statements. The client is surprised by the disclosure item related to accoun
> Dingel Corporation has contracted with you to prepare a statement of cash flows. The controller has provided the following information. Additional data related to 2017 are as follows. 1. Equipment that had cost $11,000 and was 40% depreciated at time
> Comparative balance sheet accounts of Marcus Inc. are presented below. Additional data (ignoring taxes): 1. Net income for the year was $42,500. 2. Cash dividends declared and paid during the year were $21,125. 3. A 20% stock dividend was declared d
> Following are selected statement of financial position accounts of Sander Bros. Corp. at December 31, 2017 and 2016, and the increases or decreases in each account from 2016 to 2017. Also presented is selected income statement information for the year en
> 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
> Daniel Hardware Co. is considering alternative financing arrangements for equipment used in its warehouses. Besides purchasing the equipment outright, Daniel is also considering a lease. Accounting for the outright purchase is fairly straightforward, but
> A lease agreement between Lennox Leasing Company and Gill Company is described in IFRS21-10. Refer to the data in IFRS21-10 and do the following for the lessor. Instructions (Round all numbers to the nearest cent.) a. Compute the amount of the lease
> The following facts pertain to a non-cancelable lease agreement between Lennox Leasing Company and Gill Company, a lessee. Inception date: May 1, 2017 Annual lease payment due at the beginning of each year, beginning with May 1, 2017: $18,829.49 Bargain-
> 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
> 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
> As part of the year-end accounting process and review of operating policies, Cullen Co. is considering a change in the accounting for its equipment from the straight-line method to an accelerated method. Your supervisor wonders how the company will repor
> As a certified public accountant, you have been contacted by Joe Davison, CEO of Sports-Pro Athletics, Inc., a manufacturer of a variety of athletic equipment. He has asked you how to account for the following changes. 1. Sports-Pro appropriately changed
> You have completed the field work in connection with your audit of Alexander Corporation for the year ended December 31, 2017. The balance sheet accounts at the beginning and end of the year are shown below. Your working papers from the audit contain
> Keystone Corporation’s financial statements for the year ended December 31, 2017, were authorized for issue on March 10, 2018. The following events took place early in 2018. a. On January 10, 10,000 ordinary shares of $5 par value were issued at $66 per
> Taveras Co. decides at the beginning of 2017 to adopt the FIFO method of inventory valuation. Taveras had used the LIFO method for financial reporting since its inception on January 1, 2015, and had maintained records adequate to apply the FIFO method re
> Pam Erickson Construction Company changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts during 2018. For tax purposes, the company employs the completed-contract method and will cont
> On January 1, 2017, Burke Corporation signed a 5-year noncancelable lease for a machine. The terms of the lease called for Burke to make annual payments of $8,668 at the beginning of each year, starting January 1, 2017. The machine has an estimated usefu
> Following are selected balance sheet accounts of Allman Bros. Corp. at December 31, 2017 and 2016, and the increases or decreases in each account from 2016 to 2017. Also presented is selected income statement information for the year ended December 31, 2
> Presented below are the comparative income and retained earnings statements for Denise Habbe Inc. for the years 2017 and 2018. The following additional information is provided: 1. In 2018, Denise Habbe Inc. decided to switch its depreciation method fr
> Kathleen Cole Inc. acquired the following assets in January of 2015. Equipment, estimated service life, 5 years; salvage value, $15,000………$525,000 Building, estimated service life, 30 years; no salvage value…………………$693,000 The equipment has been depreci
> Below is the net income of Anita Ferreri Instrument Co., a private corporation, computed under the three inventory methods using a periodic system. Instructions (Ignore tax considerations.) a. Assume that in 2018 Ferreri decided to change from the FI
> Gordon Company started operations on January 1, 2012, and has used the FIFO method of inventory valuation since its inception. In 2018, it decides to switch to the average-cost method. You are provided with the following information. Instructions a. W
> At January 1, 2017, Beidler Company reported retained earnings of $2,000,000. In 2017, Beidler discovered that 2016 depreciation expense was understated by $400,000. In 2017, net income was $900,000 and dividends declared were $250,000. The tax rate is 4
> Michaels Company had available at the end of 2017 the following information. Instructions Prepare a statement of cash flows for Michaels Company using the direct method accompanied by a reconciliation schedule. Assume the short-term investments are de
> The first audit of the books of Bruce Gingrich Company was made for the year ended December 31, 2018. In examining the books, the auditor found that certain items had been overlooked or incorrectly handled in the last 3 years. These items are: 1. At the
> Dan Aykroyd Corp. was a 30% owner of Steve Martin Company, holding 210,000 shares of Martin’s common stock on December 31, 2016. The investment account had the following entries. On January 2, 2017, Aykroyd sold 126,000 shares of Mart
> On January 1, 2017, Beyonce Co. purchased 25,000 shares (a 10% interest) in Elton John Corp. for $1,400,000. At the time, the book value and the fair value of John’s net assets were $13,000,000. On July 1, 2018, Beyonce paid $3,040,000
> Gerald Englehart Industries changed from the double-declining-balance to the straight-line method in 2018 on all its equipment. There was no change in the assets’ salvage values or useful lives. Plant assets, acquired on January 2, 2015, had an original
> The before-tax income for Lonnie Holdiman Co. for 2017 was $101,000 and $77,400 for 2018. However, the accountant noted that the following errors had been made: 1. Sales for 2017 included amounts of $38,200 which had been received in cash during 2017, b
> A partial trial balance of Julie Hartsack Corporation is as follows on December 31, 2018. Additional adjusting data: 1. A physical count of supplies on hand on December 31, 2018, totaled $1,100. 2. Through oversight, the Salaries and Wages Payable ac
> Peter Henning Tool Company’s December 31 year-end financial statements contained the following errors. An insurance premium of $66,000 was prepaid in 2017 covering the years 2017, 2018, and 2019. The entire amount was charged to expen
> The reported net incomes for the first 2 years of Sandra Gustafson Products, Inc., were as follows: 2017, $147,000; 2018, $185,000. Early in 2019, the following errors were discovered. 1. Depreciation of equipment for 2017 was overstated $17,000. 2. De
> The following are four independent situations. a. On December 31, 2017, Zarle Inc. sold computer equipment to Daniell Co. and immediately leased it back for 10 years. The sales price of the equipment was $520,000, its carrying amount is $400,000, and it
> Assume that on January 1, 2017, Elmer’s Restaurants sells a computer system to Liquidity Finance Co. for $680,000 and immediately leases the computer system back. The relevant information is as follows. 1. The computer was carried on Elmer’s books at a
> The following are Sullivan Corp.’s comparative balance sheet accounts at December 31, 2017 and 2016, with a column showing the increase (decrease) from 2016 to 2017. Additional information: 1. On December 31, 2016, Sullivan acquire
> Mathys Inc. has recently hired a new independent auditor, Karen Ogleby, who says she wants “to get everything straightened out.” Consequently, she has proposed the following accounting changes in connection with Mathys Inc.’s 2017 financial statements.
> On February 20, 2017, Barbara Brent Inc. purchased a machine for $1,500,000 for the purpose of leasing it. The machine is expected to have a 10-year life, no residual value, and will be depreciated on the straight-line basis. The machine was leased to Ru
> On January 1, 2014, Jackson Company purchased a building and equipment that have the following useful lives, salvage values, and costs. Building, 40-year estimated useful life, $50,000 salvage value, $800,000 cost Equipment, 12-year estimated useful lif
> On January 1, 2017, Doug Nelson Co. leased a building to Patrick Wise Inc. The relevant information related to the lease is as follows. 1. The lease arrangement is for 10 years. 2. The leased building cost $4,500,000 and was purchased for cash on Janua
> Laura Leasing Company signs an agreement on January 1, 2017, to lease equipment to Plote Company. The following information relates to this agreement. 1. The term of the noncancelable lease is 5 years with no renewal option. The equipment has an estimat
> Morgan Leasing Company signs an agreement on January 1, 2017, to lease equipment to Cole Company. The following information relates to this agreement. 1. The term of the noncancelable lease is 6 years with no renewal option. The equipment has an estimat
> A lease agreement between Mooney Leasing Company and Rode Company is described in E21-8. Instructions (Round all numbers to the nearest cent.) Refer to the data in E21-8 and do the following for the lessor. a. Compute the amount of the lease receivab
> The following facts pertain to a noncancelable lease agreement between Mooney Leasing Company and Rode Company, a lessee. Inception date…………………………………………………………….May 1, 2017 Annual lease payment due at the beginning of each year, beginning with May 1, 2
> On January 1, 2017, Bensen Company leased equipment to Flynn Corporation. The following information pertains to this lease. 1. The term of the noncancelable lease is 6 years, with no renewal option. The equipment reverts to the lessor at the termination
> Cullen Construction Company, which began operations in 2017, changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts during 2018. For tax purposes, the company employs the completed-co
> Ashley Company is a young and growing producer of electronic measuring instruments and technical equipment. You have been retained by Ashley to advise it in the preparation of a statement of cash flows using the indirect method. For the fiscal year ended
> Presented below are income statements prepared on a LIFO and FIFO basis for Kenseth Company, which started operations on January 1, 2016. The company presently uses the LIFO method of pricing its inventory and has decided to switch to the FIFO method in
> Albertsen Corporation is considering proposals for either leasing or purchasing aircraft. The proposed lease agreement involves a twin-engine turboprop Viking that has a fair value of $1,000,000. This plane would be leased for a period of 10 years beginn
> Castle Leasing Company signs a lease agreement on January 1, 2017, to lease electronic equipment to Jan Way Company. The term of the noncancelable lease is 2 years, and payments are required at the end of each year. The following information relates to t
> Edna Millay Inc. is a manufacturer of electronic components and accessories with total assets of $20,000,000. Selected financial ratios for Millay and the industry averages for firms of similar size are presented below. Millay is being reviewed by seve
> Picasso Company is a wholesale distributor of packaging equipment and supplies. The company’s sales have averaged about $900,000 annually for the 3-year period 2015–2017. The firm’s total assets at th
> Madrasah Corporation issued its financial statements for the year ended December 31, 2017, on March 10, 2018. The following events took place early in 2018. a. On January 10, 10,000 shares of $5 par value common stock were issued at $66 per share. b. O
> Los Lobos Corp. uses the direct method to prepare its statement of cash flows. Los Lobos’s trial balances at December 31, 2017 and 2016, are as follows. Additional information: 1. Los Lobos purchased $5,000 in equipment during 2017.
> Ballard Co. reported $145,000 of net income for 2017. The accountant, in preparing the statement of cash flows, noted the following items occurring during 2017 that might affect cash flows from operating activities. 1. Ballard purchased 100 shares of tr
> Presented below are two independent situations. Situation A: Annie Lennox Co. reports revenues of $200,000 and operating expenses of $110,000 in its first year of operations, 2017. Accounts receivable and accounts payable at year-end were $71,000 and $
> Data for Krauss Company are presented in E23-5. Instructions Prepare the operating activities section of the statement of cash flows using the indirect method. From E23-5: Krauss Company’s income statement for the year ended December
> Lowell Corporation has used the accrual basis of accounting for several years. A review of the records, however, indicates that some expenses and revenues have been handled on a cash basis because of errors made by an inexperienced bookkeeper. Income sta
> Krauss Company’s income statement for the year ended December 31, 2017, contained the following condensed information. Krauss’s balance sheet contained the following comparative data at December 31. (Accounts payab
> Below is the comparative balance sheet for Stevie Wonder Corporation. Dividends in the amount of $15,000 were declared and paid in 2017. Instructions From this information, prepare a worksheet for a statement of cash flows. Make reasonable assumptions
> Tedesco Company changed depreciation methods in 2017 from double-declining-balance to straight-line. Depreciation prior to 2017 under double-declining-balance was $90,000, whereas straight-line depreciation prior to 2017 would have been $50,000. Tedesco’
> The transactions below took place during the year 2017. 1. Convertible bonds payable with a par value of $300,000 were exchanged for unissued common stock with a par value of $300,000. The market price of both types of securities was par. 2. The net in
> Data for Anita Baker Company are presented in E23-18. Instructions Prepare entries in journal form for all adjustments that should be made on a worksheet for a statement of cash flows. From E23-18 The accounts below appear in the ledger of Anita Baker
> The accounts below appear in the ledger of Anita Baker Company. Instructions From the postings in the accounts above, indicate how the information is reported on a statement of cash flows by preparing a partial statement of cash flows using the indire
