On April 1, 2021, Western Communications, Inc., issued 12% bonds, dated March 1, 2021, with face amount of $30 million. The bonds sold for $29.3 million and mature on February 28, 2024. Interest is paid semiannually on August 31 and February 28. Stillworth Corporation acquired $30,000 of the bonds as a long-term investment. The fiscal years of both firms end December 31, and both firms use the straight-line method. Required: 1. Prepare the journal entries to record (a) issuance of the bonds by Western and (b) Stillworth’s investment on April 1, 2021. 2. Prepare the journal entries by both firms to record all subsequent events related to the bonds through maturity.
> The DeVille Company reported pretax accounting income on its income statement as follows: 2021 $350,000 2022 270,000 2023 340,000 2024 380,000 Included in the income of 2021 was an installment sale of property in the amount of $50,000. However, for tax p
> Turner Company owns 10% of the outstanding stock of ICA Company. During the current year, ICA paid a $5 million cash dividend on its common shares. What effect did this dividend have on Turner’s 2021 financial statements? Explain the reasoning for this e
> Zekany Corporation would have had identical income before taxes on both its income tax returns and income statements for the years 2021 through 2024 except for differences in depreciation on an operational asset. The asset cost $120,000 and is depreciate
> Dixon Development began operations in December 2021. When lots for industrial development are sold, Dixon recognizes income for financial reporting purposes in the year of the sale. For some lots, Dixon recognizes income for tax purposes when collected.
> Times-Roman Publishing Company reports the following amounts in its first three years of operation: The difference between pretax accounting income and taxable income is due to subscription revenue for one-year magazine subscriptions being reported for t
> Tru Developers, Inc., sells plots of land for industrial development. Tru recognizes income for financial reporting purposes in the year it sells the plots. For some of the plots sold this year, Tru took the position that it could recognize the income fo
> The long-term liabilities section of CPS Transportation’s December 31, 2020, balance sheet included the following: a. A lease liability with 15 remaining lease payments of $10,000 each, due annually on January 1: Lease liability $76,061
> Fore Farms reported a pretax operating loss of $137 million for financial reporting purposes in 2021. Contributing to the loss were (a) a penalty of $5 million assessed by the Environmental Protection Agency for violation of a federal law and paid in 202
> Fore Farms reported a pretax operating loss of $137 million for financial reporting purposes in 2021. Contributing to the loss were (a) a penalty of $5 million assessed by the Environmental Protection Agency for violation of a federal law and paid in 202
> Alsup Consulting sometimes performs services for which it receives payment at the conclusion of the engagement, up to six months after services commence. Alsup recognizes service revenue for financial reporting purposes when the services are performed. F
> Each of the four independent situations below describes a sales-type lease in which annual lease payments of $10,000 are payable at the beginning of each year. Each is a finance lease for the lessee. Determine the following amounts at the beginning of th
> On January 1, 2021, Rick’s Pawn Shop leased a truck from Corey Motors for a six-year period with an option to extend the lease for three years. Rick’s had no significant economic incentive as of the beginning of the lease to exercise the 3-year extension
> Adams Industries holds 40,000 shares of FedEx common stock, which is not a large enough ownership interest to allow Adams to exercise significant influence over FedEx. On December 31, 2021, and December 31, 2022, the market value of the stock is $95 and
> On January 1, 2021, National Insulation Corporation (NIC) leased equipment from United Leasing under a finance lease. Lease payments are made annually. Title does not transfer to the lessee and there is no purchase option or guarantee of a residual value
> On January 1, 2021, Sweetwater Furniture Company leased office space under a 21-year operating lease agreement. The contract calls for annual lease payments on December 31 of each year. The payments are $10,000 the first year and increase by $500 per yea
> On January 1, 2021, Winn Heat Transfer leased office space under a three-year operating lease agreement. The arrangement specified three annual lease payments of $80,000 each, beginning December 31, 2021, and at each December 31 through 2023. The lessor,
> Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of surgery to eliminate kidney stones. Physicians’ Leasing purchased a lithotripter from Rand for $2,000,000 and leased it to Mid-South Urologists Group, Inc., on January 1, 20
> To raise operating funds, North American Courier Corporation sold its building on January 1, 2021, to an insurance company for $500,000 and immediately leased the building back. The lease is for a 10-year period ending December 31, 2030, at which time ow
> NutraLabs, Inc., leased a protein analyzer to Werner Chemical, Inc., on September 30, 2021. NutraLabs manufactured the machine at a cost of $5 million. The five-year lease agreement calls for Werner to make quarterly lease payments of $391,548, payable e
> On January 1, 2021, Majestic Mantles leased a lathe from Equipment Leasing under a finance lease. Lease payments are made annually. Title does not transfer to the lessee and there is no purchase option or guarantee of a residual value by Majestic. Portio
> Abbott Equipment leased a protein analyzer to Werner Chemical, Inc., on September 30, 2021. Abbott purchased the machine from NutraLabs, Inc., at a cost of $6 million. The five-year lease agreement calls for Werner to make quarterly lease payments of $39
> Werner Chemical, Inc., leased a protein analyzer on September 30, 2021. The five-year lease agreement calls for Werner to make quarterly lease payments of $391,548, payable each September 30, December 31, March 31, and June 30, with the first payment at
> On January 1, 2021, Worcester Construction leased International Harvester equipment from Newton LeaseCorp. Newton LeaseCorp purchased the equipment from Wellesley Harvester at a cost of $958,158. Worcester’s borrowing rate for similar transactions is 10%
> Lance Brothers Enterprises acquired $720,000 of 3% bonds, dated July 1, on July 1, 2021, as a long-term investment. Management has the positive intent and ability to hold the bonds until maturity. The market interest rate (yield) was 4% for bonds of simi
> On January 1, 2021, Harlon Consulting entered into a three-year lease for new office space agreeing to lease payments of $7,000 in 2021, $6,000 in 2022, and $5,000 in 2023. Payments are due on December 31 of each year with the first payment being made on
> On January 1, 2021, Harlon Consulting entered into a three-year lease for new office space agreeing to lease payments of $5,000 in 2021, $6,000 in 2022, and $7,000 in 2023. Payments are due on December 31 of each year with the first payment being made on
> On January 1, 2021, Nguyen Electronics leased equipment from Nevels Leasing for a four-year period ending December 31, 2024, at which time possession of the leased asset will revert back to Nevels. The equipment cost Nevels $824,368 and has an expected e
> Rhone-Metro Industries manufactures equipment that is sold or leased. On December 31, 2021, Rhone-Metro leased equipment to Western Soya Co. for a noncancelable stated lease term of four years ending December 31, 2025, at which time possession of the lea
> Rhone-Metro Industries manufactures equipment that is sold or leased. On December 31, 2021, Rhone-Metro leased equipment to Western Soya Co. for a four-year period ending December 31, 2025, at which time possession of the leased asset will revert back to
> On December 31, 2021, Rhone-Metro Industries leased equipment to Western Soya Co. for a four-year period ending December 31, 2025, at which time possession of the leased asset will revert back to Rhone-Metro. The equipment cost Rhone-Metro $365,760 and h
> Bidwell Leasing purchased a single-engine plane for $400,000 and leased it to Red Baron Flying Club for its fair value of $645,526 on January 1, 2021. Terms of the lease agreement and related facts were a. Eight annual payments of $110,000 beginning Janu
> At the beginning of 2021, VHF Industries acquired a machine with a fair value of $6,074,700 by signing a four-year lease. The lease is payable in four annual payments of $2 million at the end of each year. Required: 1. What is the effective rate of inter
> Bidwell Leasing purchased a single-engine plane for its fair value of $645,526 and leased it to Red Baron Flying Club on January 1, 2021. Terms of the lease agreement and related facts were a. Eight annual payments of $110,000 beginning January 1, 2021,
> On December 31, 2021, Yard Art Landscaping leased a delivery truck from Branch Motors. Branch paid $40,000 for the truck. Its retail value is $45,114. The lease agreement specified annual payments of $11,000 beginning December 31, 2021, the beginning of
> Mondale Winery depreciates its equipment using the group method. The cost of equipment purchased in 2021 totaled $425,000. The estimated residual value of the equipment was $40,000 and the group depreciation rate was determined to be 18%. (1) What is the
> The following account balances were taken from the 2021 post-closing trial balance of the Bowler Corporation: cash, $5,000; accounts receivable, $10,000; inventory, $16,000; equipment, $100,000; accumulated depreciation, $40,000; accounts payable, $20,00
> Branif Leasing leases mechanical equipment to industrial consumers under sales-type leases that earn Branif a 10% rate of return for providing long-term financing. A lease agreement with Branson Construction specified 20 annual payments beginning Decembe
> Terms of a lease agreement and related facts were as follows: a. The lease asset had a retail cash selling price of $100,000. Its useful life was six years with no residual value (straight-line depreciation). b. Annual lease payments at the beginning of
> On January 1, 2021, Lesco Leasing leased equipment to Quality Services under a finance/sales-type lease designed to earn NRC a 12% rate of return for providing long-term financing. The lease agreement specified; a. Ten annual payments of $56,000 beginnin
> Newton Labs leased chronometers from Brookline Instruments on January 1, 2021. Brookline Instruments manufactured the chronometers at a cost of $200,000. The chronometers have a fair value of $260,000. Appropriate adjusting entries are made quarterly. Re
> On January 1, 2021, Allied Industries leased a high-performance conveyer to Karrier Company for a four-year period ending December 31, 2024, at which time possession of the leased asset will revert back to Allied. The equipment cost Allied $956,000 and h
> High Time Tours leased rock-climbing equipment from Adventures Leasing on January 1, 2021. High Time has the option to renew the lease at the end of two years for an additional three years for $8,000 per quarter. Adventures purchased the equipment at a c
> Universal Leasing leases electronic equipment to a variety of businesses. The company’s primary service is providing alternate financing by acquiring equipment and leasing it to customers under long-term leases. Universal earns interest under these arran
> Mid-South Auto Leasing leases vehicles to consumers. The attraction to customers is that the company can offer competitive prices due to volume buying and requires an interest rate implicit in the lease that is one percent below alternate methods of fina
> You are the new controller for Moonlight Bay Resorts. The company CFO has asked you to determine the company’s interest expense for the year ended December 31, 2021. Your accounting group provided you the following information on the company’s debt: 1. O
> On January 1, 2021, Darnell Window and Pane issued $18 million of 10-year, zero-coupon bonds for $5,795,518. Required: 1. Prepare the journal entry to record the bond issue. 2. Determine the effective rate of interest. 3. Prepare the journal entry to rec
> On December 31, 2021, management of Jines Construction committed to a plan for selling an office building and its related equipment. Both are available for immediate sale. The building has a book value of $800,000 and a fair value of $900,000. The equipm
> The fiscal year ends December 31 for Lake Hamilton Development. To provide funding for its Moonlight Bay project, LHD issued 5% bonds with a face amount of $500,000 on November 1, 2021. The bonds sold for $442,215, a price to yield the market rate of 6%.
> McWherter Instruments sold $400 million of 8% bonds, dated January 1, on January 1, 2021. The bonds mature on December 31, 2040 (20 years). For bonds of similar risk and maturity, the market yield was 10%. Interest is paid semiannually on June 30 and Dec
> On February 1, 2021, Cromley Motor Products issued 9% bonds, dated February 1, with a face amount of $80 million. The bonds mature on January 31, 2025 (4 years). The market yield for bonds of similar risk and maturity was 10%. Interest is paid semiannual
> On January 1, 2021, Tennessee Harvester Corporation issued debenture bonds that pay interest semiannually on June 30 and December 31. Portions of the bond amortization schedule appear below: Required: 1. What is the face amount of the bonds? 2. What is t
> On January 1, 2021, Bradley Recreational Products issued $100,000, 9%, four-year bonds. Interest is paid semiannually on June 30 and December 31. The bonds were issued at $96,768 to yield an annual return of 10%. Required: 1. Prepare an amortization sche
> At January 1, 2021, Rothschild Chair Company, Inc., was indebted to First Lincoln Bank under a $20 million, 10% unsecured note. The note was signed January 1, 2018, and was due December 31, 2024. Annual interest was last paid on December 31, 2019. Rothsc
> On March 1, 2021, Baddour, Inc., issued 10% bonds, dated January 1, with a face amount of $160 million. The bonds were priced at $140 million (plus accrued interest) to yield 12%. Interest is paid semiannually on June 30 and December 31. Baddour’s fiscal
> The following transactions relate to bond investments of Livermore Laboratories. The company’s fiscal year ends on December 31. Livermore uses the straight-line method to determine interest. 2021: July 1 Purchased $16 million of Bracecourt Corporation 10
> Appling Enterprises issued 8% bonds with a face amount of $400,000 on January 1, 2021. The bonds sold for $331,364 and mature in 2040 (20 years). For bonds of similar risk and maturity the market yield was 10%. Interest is paid semiannually on June 30 an
> On July 15, 2021, Cottonwood Industries sold a patent and equipment to Roquemore Corporation for $750,000 and $325,000, respectively. On the date of the sale, the book value of the patent was $120,000, and the book value of the equipment was $400,000 (co
> On January 1, 2021, NFB Visual Aids issued $800,000 of its 20-year, 8% bonds. The bonds were priced to yield 10%. Interest is payable semiannually on June 30 and December 31. NFB Visual Aids records interest expense at the effective rate and elected the
> The 2020 annual report of Mills General Corporation (MGC) included the following disclosure note: Note 10: Borrowings (in part) Convertible Debt On July 1, 2020, we issued $125 million of zero coupon convertible unsecured debt due on July 1, 2022 in a pr
> On January 1, 2021, Baddour, Inc., issued 10% bonds with a face amount of $160 million. The bonds were priced at $140 million to yield 12%. Interest is paid semiannually on June 30 and December 31. Baddour’s fiscal year ends September 30. Required: 1. Wh
> Bradley-Link’s December 31, 2021, balance sheet included the following items: Long-Term Liabilities ($ in millions) 9.6% convertible bonds, callable at 101 beginning in 2022, due 2025 (net of unamortized discount of $2) [note 8] = $198 10.4% registered b
> The long-term liability section of Eastern Post Corporation’s balance sheet as of December 31, 2020, included 10% bonds having a face amount of $40 million and a remaining premium of $6 million. On January 1, 2021, Eastern Post retired some of the bonds
> How might your solution for the issuer of the bonds differ if Cupola prepares its financial statements according to International Financial Reporting Standards? Include any appropriate journal entries in your response. Data from P 14-16: Cupola Fan Corp
> Cupola Fan Corporation issued 10%, $400,000, 10-year bonds for $385,000 on June 30, 2021. Debt issue costs were $1,500. Interest is paid semiannually on December 31 and June 30. One year from the issue date (July 1, 2022), the corporation exercised its c
> The long-term liability section of Twin Digital Corporation’s balance sheet as of December 31, 2020, included 12% bonds having a face amount of $20 million and a remaining discount of $1 million. Disclosure notes indicate the bonds were issued to yield 1
> Three years ago American Insulation Corporation issued 10%, $800,000, 10-year bonds for $770,000. American Insulation exercised its call privilege and retired the bonds for $790,000. The corporation uses the straight-line method to determine interest. Re
> Braxton Technologies, Inc., constructed a conveyor for A&G Warehousers that was completed and ready for use on January 1, 2021. A&G paid for the conveyor by issuing a $100,000, four-year note that specified 5% interest to be paid on December 31 of each y
> Funseth Farms Inc. purchased a tractor in 2018 at a cost of $30,000. The tractor was sold for $3,000 in 2021. Depreciation recorded through the disposal date totaled $26,000. (1) Prepare the journal entry to record the sale. (2) Now assume the tractor wa
> At the beginning of 2021, VHF Industries acquired a machine with a fair value of $6,074,700 by issuing a four-year, noninterest-bearing note in the face amount of $8 million. The note is payable in four annual installments of $2 million at the end of eac
> At January 1, 2021, Brant Cargo acquired equipment by issuing a five-year, $150,000 (payable at maturity), 4% note. The market rate of interest for notes of similar risk is 10%. Required: 1. Prepare the journal entry for Brant Cargo to record the purchas
> At the beginning of the year, Lambert Motors issued the three notes described below. Interest is paid at year-end. 1. The company issued a two-year, 12%, $600,000 note in exchange for a tract of land. The current market rate of interest is 12%. 2. Lamber
> On January 1, 2021, Instaform, Inc., issued 10% bonds with a face amount of $50 million, dated January 1. The bonds mature in 2040 (20 years). The market yield for bonds of similar risk and maturity is 12%. Interest is paid semiannually. Required: 1. Det
> The Heinrich Tire Company recalled a tire in its subcompact line in December 2021. Costs associated with the recall were originally thought to approximate $50 million. Now, though, while management feels it is probable the company will incur substantial
> Eastern Manufacturing is involved with several situations that possibly involve contingencies. Each is described below. Eastern’s fiscal year ends December 31, and the 2021 financial statements are issued on March 15, 2022. a. Eastern is involved in a la
> Sometimes compensation packages include bonuses designed to provide performance incentives to employees. The difficulty a bonus can cause accountants is not an accounting problem, but a math problem. The complication is that the bonus formula sometimes s
> The unadjusted trial balance of the Manufacturing Equitable at December 31, 2021, the end of its fiscal year, included the following account balances. Manufacturing’s 2021 financial statements were issued on April 1, 2022. Accounts receivable $ 92,500 Ac
> The balance sheet at December 31, 2021, for Nevada Harvester Corporation includes the liabilities listed below: a. 11% bonds with a face amount of $40 million were issued for $40 million on October 31, 2012. The bonds mature on October 31, 2032. Bondhold
> Camden Biotechnology began operations in September 2021. The following selected transactions relate to liabilities of the company for September 2021 through March 2022. Camden’s fiscal year ends on December 31. Its financial statements are issued in Apri
> Refer to the situation described in BE 11–2. Assume the equipment was purchased on March 31, 2021, instead of January 1. Calculate depreciation expense for 2021 and 2022 using each of the following depreciation methods: (1) straight line, (2) double-decl
> Transit Airlines provides regional jet service in the Mid-South. The following is information on liabilities of Transit at December 31, 2021. Transit’s fiscal year ends on December 31. Its annual financial statements are issued in April. 1. Transit has o
> Van Rushing Hunting Goods’ fiscal year ends on December 31. At the end of the 2021 fiscal year, the company had notes payable of $12 million due on February 8, 2022. Rushing sold 2 million shares of its $0.25 par, common stock on February 3, 2022, for $9
> Blanton Plastics, a household plastic product manufacturer, borrowed $14 million cash on October 1, 2021, to provide working capital for year-end production. Blanton issued a four-month, 12% promissory note to L&T Bank under a prearranged short-term line
> 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
> American Surety and Fidelity buys and sells securities expecting to earn profits on short-term differences in price. For the first 11 months of 2021, gains from selling trading securities totaled $8 million, losses from selling trading securities were $1
> The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2021. The company buys equity securities as noncurrent investments. None of Ornamental’s investments are large enough to exert significant inf
> The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2021. The company buys debt securities, not intending to profit from short-term differences in price and not necessarily to hold debt securiti
> The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2021. 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, 2021. Management intends to have the investment available for sale when circumstances warrant. When the company purchased the bo
> Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2021. 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 11–2. Assume the equipment was purchased on March 31, 2021, instead of January 1. Calculate depreciation expense for 2021 and 2022 using each of the following depreciation methods: (1) straight line, (2) double-decl
> Fuzzy Monkey Technologies, Inc., purchased as a short-term investment $80 million of 8% bonds, dated January 1, on January 1, 2021. Management intends to include the investment in a short-term, active trading portfolio. For bonds of similar risk and matu
> Stewart Enterprises has the following investments, all purchased prior to 2021: 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, 2021, the Bee investment had a fai
> Feherty, Inc., accounts for its investments under IFRS No. 9 and purchased the following investments during December 2021: 1. Fifty of Donald Company’s $1,000 bonds. The bonds pay semiannual interest, return principal in eight years, and include no other
> On January 1, 2021, 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
> On January 2, 2021, 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 2021. 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, 2021, 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
> On January 4, 2021, 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, 2021, 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
> Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2021. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the
