The realization principle determines when a business should recognize revenue. Listed are three common business situations involving revenue. After each situation, we give two alternatives as to the accounting period (or periods) in which the business might recognize this revenue. Select the appropriate alternative by applying the realization principle, and explain your reasoning. a. Airline ticket revenue: Most airlines sell tickets well before the scheduled date of the flight. (Period ticket sold; period of flight) b. Sales on account: In June 2021, a San Diego–based furniture store had a big sale, featuring “No payments until 2022.” (Period furniture sold; periods that payments are received from customers) c. Magazine subscriptions revenue: Most magazine publishers sell subscriptions for future delivery of the magazine. (Period subscription sold; periods that magazines are mailed to customers)
> Define current liabilities and long-term liabilities. Under what circumstances a 10-year bond issue might be classified as a current liability? Under what circumstances might a note payable maturing 30 days after the balance sheet date be classified as a
> Caster Corporation is considering implementation of a JIT inventory system. The company’s industrial engineer recently conducted a study to determine the average number of days spent in each activity of the production process. The follo
> Minor, Inc., had revenue of $572,000 and expenses (other than income taxes) of $282,000 for the current year. The company is subject to a 35 percent income tax rate. In addition, Minor had a gain from foreign currency translation of $1,700 before income
> Listed are seven publicly owned corporations and a liability that regularly appears in each corporation’s balance sheet? a. Wells Fargo & Company (banking): Deposits—interest bearing b. The New York Times Company (newspaper publisher): Unexpired subscr
> Explain the relative priority of the claims of owners and of creditors to the assets of a business. Do all creditors have equal priority? Explain.
> Rogers Products uses a periodic inventory system. The company’s records show the beginning inventory of PH4 oil filters on January 1 and the purchases of this item during the current year to be as follows. A physical count indicates 20
> Fick Psychological Services, Inc., closes its temporary accounts once each year on December 31. The company recently issued the following income statement as part of its annual report. Fick’s statement of retained earnings indicates th
> What does the account Unrealized Holding Gain (or Loss) on Investment represent? How is this account presented in the financial statements for short-term marketable equity securities?
> The accounting staff of Welch Company has assembled the following information for the year ended December 31 of the current year. Instructions: Prepare a statement of cash flows in the format illustrated in Exhibit 13–1. Place bracket
> Define liabilities. Identify several characteristics that distinguish liabilities from owners’ equity
> You have now learned about the following financial statements issued by corporations: statementof financial position (balance sheet), income statement, statement of retained earnings, statementof stockholders’ equity, statement of comprehensive income, a
> Delray Industries manufactures plastic wading pools as part of a continuous process through two departments: Molding and Finishing. Direct materials and conversion are added throughout the month in both departments, but at different rates. The informatio
> Sea Travel sells motor boats. One of Sea Travel’s most popular models is the Wing. During the current year, Sea Travel purchased 12 Wings at the following costs. On April 28, Sea Travel sold five Wings to the Jack Sport racing team. Th
> S & X Co. is a retail store owned solely by Joe Saunder. During the month of November, the equity accounts were affected by the following events. Instructions: a. Assuming that the business is organized as a sole proprietorship: 1. Prepare the jou
> On December 31, Richland Farms sold a tract of land, which had cost $930,000, to Skyline Developers in exchange for $150,000 cash and a 5-year, 4 percent note receivable for $900,000. Interest on the note is payable annually, and the principal amount is
> A company’s inventory turnover is one measure of its potential to convert inventory into cash. But what is considered a good inventory turnover? The answer to that question depends on a variety of industry and company characteristics. Access the EDGAR da
> The owners of City Software are offering the business for sale. The income statements of the business for the three years of its existence are summarized as follows. In negotiations with prospective buyers of the business, the owners are calling attenti
> Custom Truck Builders frequently uses long-term capital lease contracts to finance the sale of its trucks (also referred to as Type A leases). On November 1, 2021, Custom Truck Builders leased to Interstate Van Lines a truck carried in the perpetual inve
> What are deferred income tax liabilities? How are these items presented in financial statements?
> Refer to the information in Problem 18.5A. Instructions: a. Complete a production cost report for the Badgersize Company Forming Department for the month of August. b. Discuss how management might use the production cost report to help manage costs. Da
> Davidson, DDS, purchased new furniture for its dental office on May 1, 2021. The furniture is expected to have a 10-year life and no residual value. The following expenditures were associated with the purchase. Instructions: a. Compute depreciation exp
> On December 1, Showcase Interiors purchased a shipment of furniture from Colonial House by paying $10,500 cash and issuing an installment note payable in the face amount of $28,800. The note is to be paid in 24 monthly installments of $1,200 each. Althou
> On June 30 of the current year, Blue Ridge Power issued bonds with a $40,000,000 face value and an annual coupon rate of 9 percent. The bonds mature in 10 years and pay semiannual interest on December 31 and June 30. They were issued when the annual mark
> Use Table PV–1 (in Exhibit B–7) and Table PV–2 (in Exhibit B–9) to determine the present values of the following cash flows. a. $40,000 to be paid annually for 10 years, discounted
> Refer to the information in Problem 18.5B. Instructions: a. Complete a production cost report for the Balfanz Company Finishing Department for the month of September. b. Discuss how management might use the production cost report to help manage costs.
> Brae mar Saddler uses department budgets and performance reports in planning and controlling. its manufacturing operations. The following annual performance report for the custom saddle production department was presented to the president of the company.
> The following income statement and selected balance sheet account data are available for Royce Interiors, Inc., at December 31, 2021. Additional Information: 1. Dividend revenue is recognized on the cash basis. All other income statement amounts are rec
> Dana Martin, president of Mays Electronics, is concerned about the end-of-the-year marketing report. According to Mary O’Brien, marketing manager, a price decrease for the coming year is again needed to maintain the companyâ€
> Late in the year, Software City began carrying Word Crafter, a new word processing software program. At December 31, Software City’s perpetual inventory records included the following cost layers in its inventory of Word Crafter program
> Scheck Company is required by a bond indenture to make equal annual payments to a bond sinking fund at the end of each of the next 20 years. The sinking fund will earn 8 percent interest and must accumulate to a total of $800,000 at the end of the 20-yea
> Ryan Sound uses a periodic inventory system. One of the store’s products is a wireless headphone. The inventory quantities, purchases, and sales of this product for the most recent year are as follows. Instructions: a. Using periodic
> R&R, Inc., purchased a new machine on September 1 of the current year at a cost of $180,000. The machine’s estimated useful life at the time of the purchase was five years, and its expected residual value was $10,000. The company reports on a calendar ye
> Use Table FA–1 (in Exhibit B–2) and Table FA–2 (in Exhibit B–4) to determine the future amounts of the following investments. a. $90,000 invested for 10 years, at 6 percent interest
> The two cases described as follows are independent of each other. Each case provides the information necessary to prepare the stockholders’ equity section of a corporate balance sheet. a. Early in 2019, Wesson Corporation was formed with the issuance of
> William Boost organized Frontier Western Wear, Inc., early in 2020. On January 15, the corporation issued to Bost and other investors 40,000 shares of capital stock at $20 per share. After the revenue and expense accounts (except Income Tax Expense) were
> The Top Hat, Inc., is a chain of magic shops that is organized as a corporation. During the month of June, the stockholders’ equity accounts of The Top Hat were affected by the following events: Instructions: a. Prepare journal entrie
> Snack Shack is a fast-food restaurant that is operated as a partnership of three individuals. The three partners share profits equally. The following selected account balances are for the current year before any closing entries are made. Instructions On
> Balfanz Company has the following information for its Finishing Department for the month of September. Assume materials are added at the start of processing. Instructions: a. Calculate the equivalent units for the Finishing Department for the month of
> Sharon Guenther and Robert Firmin, both of whom are CPAs, form a partnership, with Guenther investing $100,000 and Firmin, $80,000. They agree to share net income as follows: 1. Salary allowances of $80,000 to Guenther and $60,000 to Firmin. 2. Interest
> How is the inventory turnover computed? Why is this measurement of interest to short-term creditors?
> Badgersize Company has the following information for its Forming Department for the month of August. Assume materials are added at the start of processing. Instructions: a. Calculate the equivalent units for the Forming Department for the month of Augu
> Sells is a retail department store. The following cost-volume relationships were used in developing a flexible budget for the company for the current year. Management expected to attain a sales level of $12 million during the current year. At the end of
> Smithfield Hotel recently purchased new exercise equipment for its exercise room. The following information refers to the purchase and installation of this equipment. 1. The list price of the equipment was $42,000; however, Smithfield qualified for a spe
> During the current year, Delta Products Corporation incurred the following expenditures, which Should be recorded either as operating expenses or as intangible assets. a. Expenditures were made for the training of new employees. The average employee rema
> During the current year, Blake Construction disposed of plant assets in the following transactions. Instructions: a. Prepare journal entries to record each of the disposal transactions. Assume that depreciation expense on each asset has been recorded up
> Bush Company budgeted that it would incur $176,000 of manufacturing overhead costs in the upcoming period. By the end of the period, Bush had actually incurred manufacturing overhead costs totaling $200,000. Other information from the company’s accountin
> This problem focuses on the following question: Is it ethical for a CPA (or CPA firm) to provide similar services to companies that compete directly with one another? These services may include assistance in the preparation of financial statements, incom
> Brite Ideas, Inc., mass-produces reading lamps. Materials used in constructing the body of the lamp are added at the start of the process, while the materials used in wiring the lamps are added at the halfway point. All labor and overhead are added evenl
> Barnum Distributors wants a projection of cash receipts and cash payments for the month of November. On November 28, a note will be payable in the amount of $98,500, including interest. The cash balance on November 1 is $29,600. Accounts payable to merch
> Street Smarts, Inc., mass-produces street lights. Materials used in constructing the body of the lights are added at the start of the process, while the materials used in wiring the lights are added at the halfway point. All labor and overhead are added
> Red Robin Gourmet Burgers is an upscale restaurant chain founded in the Pacific Northwest. The chain’s former chairman, Michael Snyder, encouraged employees to be “unbridled”? in everything they did. Unfortunately, Snyder was too unbridled with his use o
> Prudent cash management is an important function in any business. Large amounts of cash sitting idle in non–interest-bearing checking accounts can cost a company thousands—even millions— of dollars annually in foregone revenue. Many businesses invest lar
> What are the pitfalls to avoid when investing in overseas activities? The following key issues have been identified as important. ∙ Lower cost offshore does not always mean gains in efficiency. ∙ Choose your model carefully; either run your own offshore
> Grizzly Community Hospital in central Wyoming provides health care services to families living within a 200-mile radius. The hospital is extremely well equipped for a relatively small, community facility. However, it does not have renal dialysis equipmen
> The management of Metro Printers is considering a proposal to replace some existing equipment with a new highly efficient laser printer. The existing equipment has a current book value of $2,200,000 and a remaining life (if not replaced) of 10 years. The
> Miracle Tool, Inc., sells a single product (a combination screwdriver, pliers, hammer, and crescent wrench) exclusively through television advertising. The comparative income statements and balance sheets are for the past two years. Additional Informati
> To obtain a better understanding of economic value added, visit the website that outlines the EVA philosophy of Stern Stewart & Co www.valuebasedmanagement.net/methods_eva.html. In the center of the page find information about usage of the EVA method. L
> Snug-As-A-Bug manufactures sleeping bags. For the coming year, the company has budgeted the following costs for the production and sale of 80,000 units. Instructions: a. Compute the sales price per unit that would result in a budgeted operating income o
> What is the meaning of the term loss contingency? Give several examples. How are loss contingencies presented in financial statements? Explain.
> Marshall uses a job order costing system to account for projects. It applies manufacturing over head to jobs on the basis of direct labor hours and pays its direct labor workers $30 per hour. The following information relates to the month of December (so
> Compute trend percentages for the following items taken from the financial statements of Lopez Plumbing over a five-year period. Treat 2017 as the base year. State whether the trends are favorable or unfavorable. (Dollar amounts are stated in thousands.)
> D. J. Fletcher, a trusted employee of Bluestem Products, found himself in personal financial difficulties and decided to “borrow” $3,000 from the company and to conceal his theft. As a first step, Fletcher removed $3,000 in currency from the cash registe
> Affections manufactures candy and sells only to retailers. It is not a publicly owned company and its financial statements are not audited. But the company frequently must borrow money. Its creditors insist that the company provide them with unaudited fi
> Nevis Corporation manufactures and sells a single product. In preparing the budget for the first quarter, the company’s cost accountant has assembled the following information. The company uses the first-in, first-out method to report
> Windfall Industries uses straight-line depreciation on all of its depreciable assets. The company records annual depreciation expense at the end of each calendar year. On January 11, 2017, the company purchased a machine costing $90,000. The machine’s us
> The Printer Division is evaluated as an investment center. Wolfe expects all of its investment centers to earn a minimum annual return of 10 percent on average invested capital. Division managers receive a bonus equal to 1 percent of their division’s res
> Wolfe Computer manufactures computers and peripheral equipment. The following data relate to Wolfe’s printer division for the year just ended. The Printer Division is evaluated as an investment center. Wolfe expects all of its investme
> Jams and Jellies, Inc., uses a standard cost system to track inventories and cost of goods sold. The blueberry factory that produces blueberry jams and jellies increased its standard product costs at the beginning of the fourth quarter of its operations
> Data Management, Inc., provided the following information at December 31, year 1. Marketable Securities The company invested $75,000 in a portfolio of marketable securities on December 9, year 1. The portfolio’s market value on Decembe
> Healthy Hound, Inc., makes two lines of dog food: (1) Basic Chunks and (2) Custom Cuts. The Basic Chunks line is a dry food that is processed almost entirely by an automated process. Custom Cuts is a canned food made with real horsemeat. The slabs of mea
> Each year, a large clothing store in New York City sends its top five salespersons on a five-day retreat in Orlando, Florida. The retreat begins on the first Monday in February and ends the following Friday afternoon. The company must purchase five coach
> Armstrong Chemical began operations in January. The company manufactures an acrylic car wax called Tough-Coat. The following standard cost estimates were developed several months before the company began operations, based on an estimated production of 1,
> Cabinets, Inc., is a large manufacturer of modular kitchen cabinets, sold primarily to builders and developers. The company uses a standard cost system. Standard production costs have been developed for each type of cabinet; these costs and any cost vari
> Rock, Inc., sells stereo equipment. Traditionally, the company’s sales have been in the following categories: cash sales, 25 percent; customers using national credit cards, 35 percent; sales on account (due in 30 days), 40 percent. With
> Happy Cat, Inc., makes two lines of cat food: (1) Tabby Treat, and (2) Fresh n’ Fishy. The Tabby Treat line is a dry food that is processed almost entirely by an automated process. Fresh n’ Fishy is a canned food made
> Under the Public Company Accounting Oversight Board (PCAOB) procedures, companies are required to disclose “material weaknesses” in their internal controls. A material weakness means a company’s deficiencies are so bad that there’s more than a remote cha
> Working in small groups, view the following master budgeting video: https://www.youtube.com/watch?v=Wy9MGFjS7ZA Instructions: a. What does the video identify as three primary outputs of the master budgeting process? Are these three outputs the same as t
> The income statement of Walmart reports net sales of $495,761 million and cost of goods sold of $373,396 million for the year ended January 31, 2018. The comparable sales and cost of goods sold figures for the year ended one year earlier were $481,317 mi
> Renfrew International manufactures and sells a single product. In preparing its master budget for the current quarter, the company’s controller has assembled the following information: Renfrew International uses the average cost meth
> Each of the following statements may (or may not) describe these technical terms. For each statement, indicate the term described, or answer “None” if the statement does not correctly describe any of the terms. a. An
> The importance of cash budgets for all types of businesses and individuals cannot be overemphasized. The following six steps to cash flow control are critical. 1. Create a monthly cash flow budget. Determine the amount you need to achieve your business a
> During a period of steadily increasing purchase costs, which inventory flow assumption results in the highest reported profits? The lowest taxable income? The valuation of inventory that is closest to current replacement cost? Briefly explain your answer
> Beta Computers is experiencing financial difficulties attributed to declining sales of its mainframe computer systems. Several years ago, the company obtained a large loan from Midland State Bank. The covenants of the loan agreement strictly state that i
> Hi-tech Manufacturing Company has 1,000,000 shares of $1 par value capital stock outstanding on January 1. The following equity transactions occurred during the current year.
> In each of the situations described, indicate the accounting principles or concepts, if any that have been violated and explain briefly the nature of the violation. If you believe the practice is in accord with generally accepted accounting principles, s
> The purpose of this problem is to demonstrate some of the interrelationships in the budgeting process. Shown as follows is a very simple balance sheet at January 1, along with a simple budgeted income statement for the month. (Assume dollar amounts are s
> Downhill Fast manufactures three ski products: boots, poles, and helmets. The company allocates manufacturing costs to each product line based on machine-hours. A large portion of its manufacturing overhead cost is incurred by the Maintenance Department.
> Ethical dilemmas often face university and college administrators as they attempt to provide students with services and products to make college life easier. For example, the University of Minnesota and University of Illinois issue “U Cards” to students.
> Dixon Robotics manufactures three robot models: the A3B4, the BC11, and the C3PO. Dixon allocates manufacturing overhead to each model based on machine-hours. A large portion of the company’s manufacturing overhead costs is incurred by
> General Mills produces and sells a variety of food products in numerous countries. Access its home page and look at the company overview at the following address: www.generalmills.com. Now consider Kirby Company. It manufactures and sells one product lin
> Researchers suggest that many angioplasties and implanted cardiac pacemaker surgeries done in the United States each year are medically unwarranted. The additional risk to patients’ health posed by these surgeries and the high cost of health care that re
> Osborn Diversified Products, Inc., is a billion-dollar manufacturing company with headquarters in Dayton, Ohio. The company has 15 divisions, two of which are the battery division and the golf cart division. The company’s battery division supplies the go
> McKay Chemical Company is based in the town of Swamp ton. The company is Swamp ton’s “economic lifeblood,” generating annual income of $100 million and employing nearly 75 percent of its workforce. Mc
> You have just been hired as the controller of Land’s End Hotel. The hotel prepares monthly responsibility income statements in which all fixed costs are allocated among the various profit centers in the hotel, based on the relative amounts of revenue gen
> Midtown Distribution sells a variety of merchandise to retail stores on account, but it insists that any customer who fails to pay an invoice when due must replace their account receivable with an interest-bearing note at the current interest rate. The c
> Why is the contribution margin an important concept for incremental decision making?
> Superior Instruments produces two models of instruments. Information for each model is as follows. The demand for either product is sufficient to keep the plant operating at full capacity (15,000machine-hours per month). Assume that only one product is
> A recent annual report of the Kraft Heinz Company reveals the following information (dollar amounts are stated in millions). a. Compute Kraft Heinz’s inventory turnover for the year (round to nearest tenth). b. Compute the number of da
> Ulsan Company has manufacturing subsidiaries in Malaysia and Malta. It is considering shipping the subcomponents of Product Y to one or the other of these countries for final assembly. The final product will be sold in the country where it is assembled.
> The SEC was once reluctant to hit companies with big fines for wrongdoing because the penalties hurt shareholders whose stock prices had already been hammered by scandal. But the Sarbanes–Oxley Act now lets the SEC use the fine funds to repay stockholder
