The French energy company, Areva Group, recently won a $2 billion contract to build a uranium enrichment plant. Areva began construction in 2013 and expects to complete it by 2019. Assume that the customer agrees to pay as follows: at the time of signing on December 20, 2012, $20 million; on December 31, 2013–2018, $100 million; and at completion on December 31, 2019, $1,380 million. Assume further that Areva incurs the following costs in constructing the generator: 2013, $340 million; 2014–2018, $238 million per year; and 2019, $170 million. Areva uses a Construction in Process account to accumulate costs. Although the costs involve a mixture of cash payments, credits to assets, and credits to liability accounts, assume for purposes of this problem that all costs are paid in cash. a. Calculate the amount of revenue, expense, and income before income taxes that Areva Group will report for years 2013–2019 under each of the following revenue recognition methods: (1) Percentage-of-completion method. (2) Completed contract method. b. Show the journal entries that Areva Group will make for this contract in 2012, 2013, 2014–2018, and 2019 for each of the revenue recognition methods examined in part a.
> Avery Corporation issues a note payable on January 1, 2013, to a supplier in return for equipment. The note has a face value of $50,000 and bears interest at a variable interest rate; the variable interest rate is 6% on January 1, 2013. Interest is payab
> Sandretto Corporation issues a note payable on January 1, 2013, to a supplier in return for equipment. The note has a face value of $50,000 and bears interest at 6% each year. Interest is payable annually on December 31, and the note matures on December
> On July 1, 2013, Owens Corporation places an order with a European supplier for manufacturing equipment for delivery on June 30, 2014. The purchase is denominated in euros in the amount of €60,000. Owens Corporation purchases a forward c
> Refer to Examples 15 and 19 in the chapter. Delmar holds 10,000 gallons of whiskey in inventory on October 31, 2013, that costs $225 per gallon. Delmar contemplates selling the whiskey on March 31, 2014. Uncertainty about the selling price of whiskey on
> Shiraz Company wants to raise $50 million cash but, for various reasons, does not want to do so in a way that results in a newly recorded liability. It is sufficiently solvent and profitable that its bank will lend up to $50 million at the prime interest
> Exhibit 12.24 presents information from the income tax note of Dime Store, a discount retailer, for its fiscal years ending January 31, 2013, 2012, and 2011. Dime Store applies U.S. GAAP. a. Present the journal entry to recognize Dime Storeâ€&
> Morrison’s Cafeteria sells coupons that customers may use later to purchase meals. Each coupon book sells for $25 and has a face value of $30; that is, the customer can use the book to purchase meals with menu prices of $30. On January
> Indicate the accounting principle or procedure apparently used to record each of the following independent transactions. Also, describe the transaction or event recorded in each case.
> Exhibit 12.23 presents information from the income tax note to the financial statements for E-Drive, a European computer manufacturer, for the years ending December 31, 2013, 2012, and 2011. E-Drive applies IFRS. a. Present the journal entry to recognize
> Exhibit 12.22 presents selected information from the notes to the financial statements of Catiman Limited, a manufacturer of farming equipment, for the years ending October 31, 2013, 2012, and 2011. Catiman applies U.S. GAAP. a. Present the journal entr
> Exhibits 12.20 and 12.21 present selected information from the notes to the financial statements of Tread away, Inc., a tire manufacturing company, regarding its U.S. pension and health care retirement plans. a. Refer to Exhibit 12.20. Why does the inter
> Exhibits 12.18 and 12.19 present selected information from the notes to the financial statements of Juicy-Juice, a U.S. based beverage company, regarding its pension and health care retirement plans. a. What is the likely reason for the actuarial gains i
> Lewis Corporation sold certain timber assets and received cash and notes receivable from the purchaser. Lewis then engaged in a transaction to convert the notes receivable into cash without recognizing a liability on the balance sheet. Exhibit 12.17 pres
> GSB Corporation issued semiannual coupon bonds with a face value of $110,000 several years ago. The annual coupon rate is 8%, with two coupons due each year, six months apart. The historical market interest rate was 10% compounded semiannually when GSB C
> Excerpts from the notes to the financial statements of Northern Airlines for two recent years reveal the following (amounts in millions). Northern Airlines uses the current/old rules of accounting for its leases. Future minimum commitments under leases
> Carom Sports Collectibles Shop plans to acquire, as of January 1, 2013, a computerized cash register system that costs $100,000 and has a five-year life and no salvage value. The company considers two plans for acquiring the system: (1) Outright purchase
> IBM manufactures a particular computer for $6,000 and sells it for $10,000. Adair Corporation needs this computer in its operations and contemplates three ways of acquiring it on January 1, 2013. The computer has a three year estimated useful life and ze
> Exhibit 11.15 presents excerpts from the notes to the financial statements of Home Supply Company. a. The amounts shown for Debentures, Notes, and the Medium-Term Notes appear as the same amounts on February 1, 2012 and 2013. What is the likely interpret
> Assume that Lentiva Group Limited provided the following description of its revenue recognition policies in the notes to its financial statements. ■ Lentiva recognizes revenue from the sale of goods (such as sales of hardware and software) when it effect
> Exhibit 11.14 presents a bond table for 8%, semiannual bonds for various market yields and years to maturity. Don’t overlook that this table presents values for semiannual coupon bonds, the most usual kind. The amounts in the table give
> When Time Warner Inc. announced its intention to borrow about $500 million by issuing 20-year zero coupon (single payment) notes, The Wall Street Journal reported the following: New York—Time Warner announced an offering of debt that could yield the comp
> The notes to the financial statements of Aggarwal Corporation for 2013 reveal the following information with respect to long-term debt. All interest rates in this problem assume semiannual compounding and the effective interest method of amortization usi
> Exhibit 10.4 presents a partial balance sheet for HP3, a creator and manufacturer of computer hardware and software and related services, for its fiscal years ending October 31, 2012 and 2013. a. HP3 uses the straight-line method to depreciate its buildi
> The notes to the financial statements of Bayer Group, a German pharmaceutical company, report a balance of €154 million for Restructuring Provisions on December 31; for the prior year, the ending balance in this liability account was €196 million. During
> Assume that Central Appliance sells appliances, all for cash. It debits all acquisitions of appliances during a year to the Merchandise Inventory account. The company provides warranties on all its products, guaranteeing to make required repairs, within
> Refer to the information in Problem 40 concerning Sedan Corporation’s inventory for the years ended March 31, 2013 and 2012. The notes to Sedan’s financial statements for the year ended March 31, 2013, state that some
> Wilson Company sells chemical compounds made from expensium. The company has used a LIFO inventory flow assumption for many years. The inventory of expensium on December 31, 2012, comprised 4,000 pounds from 2003 through 2012 at prices ranging from $30 t
> Burch Corporation began a merchandising business on January 1, 2010. It acquired merchandise costing $100,000 in 2010, $125,000 in 2011, and $135,000 in 2012. Information about Burch Corporation’s inventory as it would appear on the bal
> Hanover Oil Products (HOP) operates a gasoline outlet. It commenced operations on January 1. It prices its gasoline at 10% above its average purchase price for gasoline. Purchases of gasoline during January, February, and March appear next: Sales for e
> Marks and Spencer Group, Plc., a U.K. retailer, applies IFRS and reports its results in millions of pounds sterling (£). The notes to its financial statements provide the following information: ■ Revenue comprises sales of goods to customers less an appr
> Burton Corporation commenced retailing operations on January 1, 2011. Purchases of merchandise inventory during 2011 and 2012 appear next: Burton Corporation sold 1,000 units during 2011 and 1,500 units during 2012. a. Calculate the cost of goods sold
> Good Luck Brands reported a carrying value of its total inventory as of December 31, 2013, of $2,047.6 million; the corresponding figure for December 31, 2012, was $1,937.8. Good Luck Brands applies U.S. GAAP and reports its results in millions of U.S. d
> The Minevik Group is a Swedish-based, high-technology engineering firm. It follows IFRS and reports its results in millions of Swedish kronor (SEK). For the years ended December 31, 2013 and 2012, Minevik reported the following information pertaining to
> Sedan Corporation, a Japanese automobile manufacturer, follows U.S. GAAP and reports its results in millions of yen (Â¥). On March 31, 2013 and 2012, Sedan reported the following information pertaining to its inventories: Sedan reported Cost
> The following data relate to the manufacturing activities of the Lord Crompton Plc. during June: It incurred factory costs during the month of June as follows: Raw Materials Purchased ………&aci
> Katherine’s Outdoor Furniture, a manufacturer specializing in lawn, deck, and poolside furniture, showed the following amounts in its inventory accounts on January 1: Raw Materials Inventory……………………………………..$226,800 Work-in-Process Inventory…………………………………
> Metso Corporation is a Finnish engineering firm specializing in design and development for the paper and pulp industry. Metso applies IFRS and reports its results in millions of euros (€). For the years ended December 31, 2012 and 2011,
> Aracruz Celulose, a Brazilian pulp manufacturer, applies U.S. GAAP and reports its results in thousands of U.S. dollars. For the years ended December 31, 2012 and 2011, Aracruz reported the following information pertaining to accounts receivable: At De
> The financial statements and notes for Polaris Corporation reveal the following for the four years ending in March 2010–2013 (amounts in millions of US$): Assume that Polaris’s credit sales as a percent of total sale
> Stone Pest Control offers extermination services to customers in various arrangements and packages. For example, a customer could call Stone as needed to come out and spray for insects; for this service, Stone charges $80 per service call. For a separate
> Pret a Manger is a food retailer with stores in the United Kingdom and the United States and is known for its fast but fresh food menu. A customer shopping at a London Heathrow store purchased a ham and cheese baguette (£4.50), a small fruit salad (£2.40
> Assume that during December 2013, Nordstrom sold $20 million of merchandise and another $12 million of gift cards, of which $24 million was on credit and the rest in cash. Nordstrom acquired the merchandise for $7.2 million. Further assume that Nordstrom
> A member of the Audit Committee of a firm asks the chief financial officer (CFO) the following question: “How do you know the Allowance for Uncollectible Accounts is adequate?” Discuss the adequacy or inadequacy of each of the following independent respo
> Most firms recognize at least some revenues at the time of sale or delivery of goods and services and, following the principles of the accrual basis of accounting, match expenses either with associated revenues or with the period when they consume resour
> Pickin Chicken, Inc., and Country Delight, Inc., both sell franchises for their chicken restaurants. The franchisee receives the right to use the franchisor’s products and to benefit from national training and advertising programs. The franchisee agrees
> The J. C. Spangle catalog company began business on January 1, 2012. Activities of the company for the first two years are as follows: a. Prepare income statements for 2012 and 2013, assuming that the company uses the accrual basis of accounting and re
> Appliance Sales and Service sells major household appliances to retail customers, offering extended payment terms. Its fiscal year ends on June 30. In July of 2013, a customer bought a freezer, a refrigerator, and a convection oven on an installment plan
> Furniture Retailers sells furniture to retail customers, offering extended payment terms. In January 2013, a customer buys a full set of dining room and living room furniture for $8,400 on an installment plan, with no down payment and monthly payments of
> On October 15, 2010, Flanikin Construction Company contracted to build a shopping center at a contract price of $180 million. The schedule of expected and actual cash collections and contract costs is as follows: a. Calculate the amount of revenue, exp
> Indicate—using O/S (overstated), U/S (understated), or NO (no effect)—the pretax effect of each of the following errors on (1) the rate of return on assets ratio, (2) the accounts receivable turnover ratio, and (3) the liabilities to assets ratio. Each o
> In the preceding Exercises 10 through 15, you computed a number. To do so, first you must decide on the appropriate factor from the Appendix Tables, and then you use that factor in the appropriate calculation. Notice that you could omit the last step. Yo
> The sales, all on account, of Pins Company in 2013, its first year of operations, were $700,000. Collections totaled $500,000. On December 31, 2013, Pins Company estimated that 2% of all sales would probably be uncollectible. On that date, Pins Company w
> Fast Growth Start-Up Company (FGSUC) has a new successful Internet business. It expects to earn $100 million of after tax free cash flows this year. The company proposes to go public, and the company’s internal financial staff suggests to the board of di
> William Marsh, CEO of Gulf Coast Manufacturing, wishes to know which of two strategies he has chosen for acquiring an automobile has lower present value of cost. Strategy L. Acquire a new Lexus at the beginning of 2013, keep it until the end of 2018, the
> Lexie T. Colleton is the chief financial officer of Ragazze, and one of her duties is to give advice on investment projects. Today’s date is December 31, 2013. Colleton requires that, to be acceptable, new investments must provide a positive net present
> Selected data from the financial statements of Kajima Corporation appear next for the years ended March 31, 2009, through March 31, 2012. Kajima applies Japanese accounting standards and reports its results in millions of yen (Â¥). For purposes
> Refer to the data in the preceding problem. Assume now that the acquisition is taxable, so that the tax basis of the assets acquired changes after the purchase. If the purchase price is $V, then depreciation charges will be $V/20 per year for 20 years. I
> Hilton Garden Inn, a division of Hilton Hotels, offers its customers two choices when reserving rooms. The customer may purchase a nonrefundable internet special of $150 per night, or pay at the refundable rate of $220 per night. Whether a customer purch
> Suppose that yesterday Black & Decker Company purchased and installed a made-to-order machine tool for fabricating parts for small appliances. The machine cost $100,000. Today, Square D Company offers a machine tool that will do exactly the same work but
> Friendly Loan Company advertises that it is willing to lend cash for five years at the low rate of 8% per year. A potential borrower discovers that a five-year, $10,000 loan requires that the borrower pay the 8% interest in advance, with interest deducte
> On January 1, 2013, assume that Levi Strauss opened a new textile plant to produce synthetic fabrics. The plant is on leased land; 20 years remain on the nonrenewable lease. The cost of the plant was $20 million. Net cash flow to be derived from the proj
> Indicate whether each of the following accurately describes the meaning of the Allowance for Uncollectible Accounts account when properly used. If the description does not apply to this account, discuss why it does not. a. Assets available in case custom
> Oberweis Dairy switched from delivery trucks with regular gasoline engines to ones with diesel engines. The diesel trucks cost $6,000 more than the ordinary gasoline trucks but costs $1,800 per year less to operate. Assume that Oberweis saves the operati
> Exhibit 10.3 presents a partial balance sheet for Hargon, Inc., a creator and manufacturer of biotechnology pharmaceutical products, for December 31, 2012 and 2013. a. Does Hargon likely recognize depreciation on the amount in the Construction-in- Progre
> Exhibit 10.2 presents a partial balance sheet for Comerica Mills, Inc., a consumer foods processing company, for its fiscal years ending May 28, 2012, and May 27, 2013. Exhibit 10.2: a. Comerica Mills is not in the business of developing computer soft
> Pfizer, a pharmaceutical company, plans to spend $90 million on research and development (R&D) at the beginning of each of the next several years to develop new drugs. As a result of the R&D expenditure for a given year, it expects pretax income (not cou
> Give the journal entry to recognize an impairment loss, if appropriate, in each of the following cases under U.S. GAAP. If a loss does not qualify as an impairment loss, explain the reason, and indicate the appropriate accounting. a. Commercial Realty Co
> Cloud Airlines has $3 billion of assets, including airplanes costing $2.5 billion with net carrying value of $1.6 billion. It earns net income equal to approximately 6% of total assets. Cloud Airlines depreciates its airplanes for financial reporting pur
> Present journal entries for each of the following transactions of Moon Macro systems: a. Acquired computers costing $400,000 and computer software costing $40,000 on January 1, 2011. Moon expects the computers to have a service life of 10 years and $40,0
> Federal Stores owns several retail store chains. On August 30, 2013, it sold all of the credit card receivables of its department store chains to Community Bank. Exhibit 12.16 reports the sale of these receivables. a. Using information in Exhibit 12.16,
> A bank reports the following information relating to its marketable securities classified as available-for-sale securities for a recent year (amounts in millions of US$): Cash proceeds from sales and maturities of marketable securities totaled $37,600
> Information related to marketable equity securities of Callahan Corporation appears on the next page. a. Assume these securities are trading securities. Indicate the nature and amount of income recognized during 2013 and 2014 and the presentation of in
> Refer to the conceptual revenue recognition guidance given in Appendix 8.1. Applying this conceptual guidance, discuss the timing of revenue recognition and any related measurement issues. a. Company A develops software and sells it to customers for an u
> Exhibit 13.8 reproduces data about marketable equity securities classified as available-for-sale securities by Moonlight Mining Company. Assume that Moonlight held no current marketable securities at the end of 2013, sold no current marketable securities
> The following information summarizes data about Rice Corporation’s investments in equity securities held as noncurrent assets and classified as available-for-sale securities: a. Give all journal entries relating to these equity securi
> The following information summarizes data about Dostal Corporation’s marketable securities held as current assets and classified as available-for-sale securities: a. Give all journal entries relating to these marketable equity securit
> The Layton Ball Corporation has a relatively complicated capital structure—that is, it raises funds using various financing devices. In addition to common shares, it has issued stock options, warrants, and convertible bonds. Exhibit 17.
> Exhibit 17.13 presents a consolidated statement of income and retained earnings for 2013, and Exhibit 17.14 presents a consolidated balance sheet for Tuck Corporation as of December 31, 2012 and 2013. A statement of accounting policies and a set of notes
> Exhibits 17.11 and 17.12 present a partial set of financial statements of Chicago Corporation for 2013, including a consolidated statement of income and retained earnings for 2013 and consolidated comparative balance sheets at December 31, 2012 and 2013.
> Exhibit 16.22 presents financial data, including a partial statement of cash flows, for LKR Company for the year. Fill in the numbers in the statement of cash flows. Then respond to the following questions. Use positive numbers for cash inflows (receipts
> Exhibit 16.21 presents a statement of cash flows for Cypress Corporation. a. What are the likely reasons that net income increased between 2011 and 2013, but cash flow from operations decreased? b. What are the likely reasons for the increased cash flow
> Prime Contracting Services provides various services to government agencies under multi-year contracts. In 2006, the services primarily involved transportation of equipment and furniture. Beginning in 2012, the firm began exiting these transportation ser
> Exhibit 16.19 presents a statement of cash flows for Canned Soup Company for three recent years (based on financial statements of Campbell Soup Company). Canned Soup Company is in the consumer foods industry, a relatively mature industry in the United St
> Discuss when each of the following types of businesses is likely to recognize revenue and related costs of sales: a. A shoe store. b. A shipbuilding firm constructing an aircraft carrier under a government contract. c. A real estate developer selling lot
> Exhibit 16.18 presents a statement of cash flows for Gear Locker, manufacturer of athletic shoes and sportswear, for three recent years. a. What is the likely reason for the negative cash flow from operations? b. How did Gear Locker finance the negative
> Selected information from the accounting records of Breda Enterprises, Inc., appears next. The firm uses a calendar year as its reporting period. Prepare a statement of cash flows for Breda Enterprises for 2014. Use the indirect method. Key all figures i
> Irish Paper Company (Irish) manufactures and markets various paper products around the world. Paper manufacturing is a capital-intensive activity. A firm that does not adequately use its manufacturing capacity will experience poor operating performance.
> Exhibit 16.14 presents a comparative balance sheet and Exhibit 16.15 presents a comparative income statement for Airlines Corporation for 2013 and 2014 (based on financial statements of UAL). Expenditures on new property, plant, and equipment were $1,568
> Exhibit 16.11 presents a comparative statement of financial position for Biddle Corporation as of December 31, 2013 and 2014. Exhibit 16.12 presents an income statement for 2014. Additional information follows after Exhibit 16.11: Exhibit 16.11: (1) O
> The management of Warren Corporation, concerned over a decrease in cash, provides you with the comparative analysis of changes in account balances between June 30, 2013, and June 30, 2014, appearing in Exhibit 16.8. During the year ended June 30, 2014,
> Exhibit 16.7 presents a statement of cash flows from Ingers Company for 2013. Give the entry made on the T-account work sheet for each of the numbered line items. For example, the work sheet entry for line (1) is as follows (amounts in millions of US$):
> Refer to the data in Exhibit 16.6 for Metals Company for 2014 (based on financial statements of Alcoa). Derive a presentation of cash flow from operations using the direct method. Exhibit 16.6: Metals Company (all amounts in millions of US$) (Probl
> Exhibit 16.6 presents an income statement and a statement of cash flows for Metals Company for 2014 (based on financial statements of Alcoa). Give the entry made on the T-account work sheet for each of the numbered line items. For example, the work sheet
> Exhibit 6.12 in Chapter 6 provides a simplified statement of cash flows. For each of the transactions that follow, indicate the number(s) of the line(s) in Exhibit 6.12 affected by the transaction and the amount and direction (increase or decrease) of th
> For each of the items a to d below, describe the accounting treatment using one of the following four approaches, assuming that the firm does not elect the fair value option: (1) Measured at fair value with changes recognized in net income. (2) Measured
> On December 7, 2008, Alpharm issued shares of convertible preferred stock and warrants to purchase additional shares of preferred stock for an aggregate issue price of $46,180,000 in a private placement of securities. Investment bankers estimated the fai
> Kiersten Corporation sells 60,000 common stock warrants for $4 each on February 26, 2013. Each warrant permits its holder to purchase a share of the firm’s $10 par value common stock for $30 per share at any time during the next two years. The market pri
> Symantec has convertible bonds outstanding with a face value of $10,000,000 and a carrying value of $10,255,000. Holders of the bonds convert them into 100,000 shares of $10 par value common stock. The common stock sells for $105 per share on the market.
> Higgins Corporation issues $1 million of 20-year, $1,000 face value, 10% semiannual coupon bonds at par on January 2, 2013. Each $1,000 bond is convertible into 40 shares of $1 par value common stock. Assume that Higgins Corporation’s credit rating is su
> Watson Corporation grants 20,000 stock options to its managerial employees on December 31, 2013, to purchase 20,000 shares of its $10 par value common stock for $25 per share. The market price of a share of common stock on this date is $25 per share. Emp
