The Superb Health Studio has been operating for five years but is presently for sale. It has opened 50 salons in various cities in the United States. The normal pattern for a new opening is to advertise heavily and sell different types of memberships: 1-year, 3-year, and 5-year. For the initial membership fee, members may use the pool, exercise rooms, sauna, and other recreational facilities without charge. If special courses or programs are taken, additional fees are charged; however, members are granted certain privileges, and the fees are less than those charged to outsiders. In addition, $10-a-month dues are charged to all members. Nonmembers may use the facilities; however, they must pay a substantial daily charge for services they receive. Your client, Dickson Inc., is considering purchasing the chain of health studios and asks you to give your opinion on its operations. You are provided with financial statements that show a growing revenue and income pattern over the 5-year period. The balance sheet shows that the physical facilities are apparently owned rather than leased. But you are aware that health studios, like all service institutions, have some challenging revenue recognition problems. What questions would you want answered in preparing your report for Dickson?
> The Wernli Manufacturing Company manufactures a single product. The managers, Brandon and Chris Wernli, decided on December 31, 2010, to adopt the dollar-value LIFO inventory method. The inventory value on that date using the newly adopted dollar-value L
> Miller Mfg. has one LIFO pool. Information relating to the products in this pool is as follows: Beginning inventory, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 units @ $10 each Purchase, February 12 . . . .
> Carmel Department Store uses the retail inventory method. On December 31, 2013, the following information relating to the inventory was gathered: Compute the ending inventory value at December 31, 2013, using the: 1. Average cost method 2. Lower-of-cos
> The Help-U-Succeed Bookstore recently received a shipment of accounting textbooks from the publisher. Following the receipt of the shipment, the FASB issued a major new accounting standard that related directly to the contents of one chapter of the text.
> The Evening Out Clothing Store values its inventory using the retail inventory method. The following data are available for the month of November 2013: Compute the estimated inventory at November 30, 2013, assuming: 1. FIFO 2. LIFO 3. Average cost
> The Rigby Supplement Company showed the following data in its financial statements. 1. Compute the number of days’ sales in average inventory for both 2012 and 2013. What can you infer from these numbers? 2. How would you interpret th
> The Manwaring Products Company’s inventory record appears below. The company uses a LIFO cost flow assumption. It reported ending inventories as follows for its first three years of operations: 2011 . . . . . . . . . . . . . . . . .
> The company paid $500,000 to purchase the following: a building with an appraised value of $200,000, an operating permit valued at $100,000, and ongoing research and development projects valued at $150,000. In addition, it is estimated that the fair valu
> The Martin Company reported income before taxes of $370,000 for 2012 and $526,000 for 2013. A later audit produced the following information: (a) The ending inventory for 2012 included 2,000 units erroneously priced at $5.90 per unit. The correct cost wa
> Annual income for the Stoker Co. for the period 2009–2013 appears below. However, a review of the records for the company reveals inventory misstatements as listed. Calculate corrected net income for each year.
> On June 30, 2013, a flash flood damaged the warehouse and factory of Magna Corporation, completely destroying the work-in-process inventory. There was no damage to either the raw materials or finished goods inventories. A physical inventory taken after t
> On May 23, the company purchased $500,000 in inventory on account. The purchase terms are 2/10, n/30. Make the journal entries to record the purchase of and subsequent payment for these goods assuming: (1) The company uses the net method and paid for th
> On August 15, 2013, a hurricane damaged a warehouse of Rheinhart Merchandise Company. The entire inventory and many accounting records stored in the warehouse were completely destroyed. Although the inventory was not insured, a portion could be sold for
> Napali Inc. sells new equipment with a $5,300 list price. A dissatisfied customer returned one piece of equipment. Napali determines that the returned equipment can be resold if it is reconditioned. The expected sales price of the reconditioned equipment
> The Crevier Corporation began business on January 1, 2013. The following table shows information about inventories, as of December 31, for three consecutive years under different valuation methods. Assume that purchases are $60,000 each year. Using this
> Newcomer, Inc., values inventories using the lower-of-cost-or-market method applied to total inventory. Inventory values at the end of the company’s first and second years of operation follow. 1. Prepare the journal entries necessary
> The following inventory data are available for Nordic Ski Shop at December 31. 1. Determine the value of ending inventory using the lower-of-cost-or-market method applied to (a) Individual items and (b) Total inventory. 2. Prepare any journal entries re
> Determine the proper carrying value of the following inventory items.
> Using the following information, compute cash paid for operating expenses. Operating expenses: Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,000 Insurance . . . . . . . . . . .
> Assume the Bullock Corporation had the following purchases and sales of its single product during its first three years of operation. Cost of goods sold is Bullock’s only expense. The income tax rate is 40%. 1. Determine the net incom
> First-in, first-out has been used for inventory valuation by the Bartlett Co. since it was organized in 2010. Using the data that follow, redetermine the net incomes for each year on the assumption of inventory valuation on the last-in, first-out basis:
> A note to the financial statements of Highland Inc. at December 31, 2013, reads as follows: Because of the manufacturer’s production problems for our Humdinger Limited line, our inventories were unavoidably reduced. Under the LIFO inven
> Harrison Lumber Company uses a periodic LIFO method for inventory costing. The following information relates to the plywood inventory carried by Harrison Lumber. Plywood inventory: Plywood purchases: May 8 . . . . . . . . . . . . . . . . . . . . . . .
> The Atlas Company sells product T. During a move to a new location, the inventory records for product T were misplaced. The bookkeeper has been able to gather some information from the sales records and gives you the data shown below. July sales: 82,100
> A flood recently destroyed many of the financial records of Yak Manufacturing Company. Management has hired you to re-create as much financial information as possible for the month of July. You are able to find out that the company uses an average cost i
> White Farm Supply’s records for the first three months of its existence show purchases of commodity Y2 as follows: The inventory of commodity Y2 at the end of October using FIFO is valued at $36,390. 1. Assuming that none of commodity
> Dutch Truck Sales sells semitrailers. The current inventory includes the following five semitrailers (identical except for paint color) along with purchase dates and costs: On May 20, 2013, a trucking firm purchased semitrailer 3 from Dutch for $86,000
> Brooklyn Corporation had the following transactions relating to product X during September. Determine the ending inventory value under each of the following costing methods: 1. FIFO (perpetual) 2. FIFO (periodic) 3. LIFO (perpetual) 4. LIFO (periodic)
> The Webster Store shows the following information relating to one of its products. Inventory, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250 units @ $17.00 Sales, January 8 . . . . . . . . . . .
> Refer to Practice 10-14. Assume that the cash acquisition price is $720,000 instead of $1,400,000. Make the journal entry necessary on the books of Stafford Company to record the acquisition. In Practice 10-14 Stafford Company purchased Deaver Manufactu
> Using the following information, compute cash flow from operating activities, cash flow from investing activities, and cash flow from financing activities. ________________________________________Cash Inflow (Outflow) (a) Cash received from sale of a bu
> On December 3, Ainge Printing purchased inventory listed at $7,400 from Craig Paper Supply. Terms of the purchase were 3/10, n/20. Ainge Printing also purchased inventory from Tippetts Ink Wholesale on December 10 for a list price of $10,300. Terms of th
> The following quarterly cost data have been accumulated for Oakeson Mfg. Inc: Raw materials—beginning inventory (Jan. 1, 2013) . . . . . . . . . . . . . . . . . . . . . . . 80 units @ $6.50 Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . .
> Beginning inventory for the period was $220,000. Purchases for the period totaled $720,000 and sales were $1,250,000. A physical count of ending inventory revealed inventory of $145,000. (1) Compute cost of goods sold assuming that a periodic system is u
> During the month the company purchased inventory on account for $3,000. Sales (all on account) during the period totaled $11,200. The items sold had a cost of $4,500. Cash collections on account during the period totaled $9,750. Make the journal entries
> Refer to Practice 8-7. Assume that the company employs an output measure to estimate the percentage of completion. In particular, the company measures its progress by the number of trail feet that have been completed. Compute the amount of revenue to be
> The company signed an $880,000 contract to build an environmentally friendly access trail to South Willow Lake. The project was expected to take approximately three years. The following information was collected for each year of the projectâ€&
> You are the president and founder of Gold Strike Inc., a mining company that acquires land and mines gold. The success of your company is largely dependent on finding large deposits of gold. To do this requires expensive geological surveys and testing. Y
> Many large electronics retailers offer very easy credit terms when a customer purchases their products. For example, a company might offer its customers a “$0 down, no payments for 12 months” payment option when purchasing a big-screen television. In a c
> Lockheed Martin Corporation “principally researches, designs, develops, manufactures, integrates, operates and sustains advanced technology systems and products, and provides a broad range of management, engineering, technical, scientific, logistic and i
> Ben & Jerry’s Homemade, Inc., an ice cream manufacturer, was acquired by Unilever in 2000. Before that, Ben & Jerry’s was a publicly traded company. Below is the revenue recognition note for Ben & Jerry’s from its 1998 annual report: Revenue Recognition
> Using the following information, compute cash collected from customers. Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,000 End of Year Beginning of Year Accounts recei
> Review the following note relating to revenue recognition for Siskon Gold Corporation, a company “engaged in the business of exploring, acquiring, developing, and exploiting precious mineral properties, principally gold.” 2. SIGNIFICANT ACCOUNTING POLICI
> Locate the 2009 financial statements for The Walt Disney Company on the Internet. 1. Locate Disney’s note on revenue recognition. What is Disney’s revenue recognition policy for the various business segments? 2. Relating to video and video game sales, wh
> The Rain-Soft Water Company distributes its water softeners to dealers upon their request. The contract agreement with the dealers is that they may have 90 days to sell and pay for the softeners. Until the 90-day period is over, any softeners may be retu
> Datarite, a maker of computer hardware systems, sells its products to dealers who in turn sell to the final customer. Datarite offers very liberal credit terms and allows its dealers to take up to 90 days to pay. These terms allow dealers to hold larger
> High school students know how important it is to perform well on the educational tests required by many colleges and universities as part of the admissions process. In fact, an entire industry has developed to prepare students to take these tests. One co
> Green Brothers Furniture sells discount furniture and offers easy credit terms. Its margins are not large, but it deals in heavy volume. Its customers are often low-income individuals who cannot obtain credit elsewhere. Green Brothers retains the title t
> Hertzel Advertising Agency handles advertising for clients under contracts that require the agency to develop advertising copy and layouts and place ads in various media, charging clients a commission of 15% of the media cost as its fee. The agency makes
> The Abbott Construction Company has several contracts to build sections of freeways, bridges, and dams. Because most of these contracts require more than one year to complete, the accountant, Dave Allred, has recommended use of the percentage-of-completi
> As the new controller for Enclave Construction Company, you have been advised that your predecessor classified all revenues and expenses by project, each project being considered a separate venture. All revenues from uncompleted projects were treated as
> Which of the following items would be recorded as expenses and which would be recorded as assets? (a) Cost of installing machinery (b) Cost of unsuccessful litigation to protect patent (c) Extensive repairs as a result of a fire (d) Cost of grading land
> 1. Which of the following is used in calculating the income recognized in the fourth and final year of a contract accounted for by the percentage-of- completion method? 2. When should a lessor recognize in income a nonrefundable lease bonus paid by a l
> The Wasatch Construction Company entered into a $4,500,000 contract in early 2013 to construct a multipurpose recreational facility for the city of Helper. Construction time extended over a 2-year period. The table below describes the pattern of progress
> Potter’s Home Goods sells furniture and electronic items. The majority of its business is on credit, and the following information is available relating to sales transactions for 2012, 2013, and 2014. Instructions: Prepare the journa
> London Corporation has been using the cash method to account for income since its first year of operation in 2013. All sales are made on credit with notes receivable given by the customers. The income statements for 2013 and 2014 included the following a
> Tuscany Boatbuilders was recently awarded a $16,700,000 contract to construct a luxury liner for Queen Cruiseliners Inc. Tuscany estimates it will take 42 months to complete the contract. The company uses the cost-to-cost method to estimate profits. The
> The Kirby Construction Company was the low bidder on a specialized equipment contract. The contract bid was $5,400,000 with an estimated cost to complete the project of $4,800,000. The contract period was 34 months, beginning March 1, 2012. The company u
> Jana Crebs is a contractor for the construction of large office buildings. At the beginning of 2013, three buildings were in progress. The following data describe the status of these buildings at the beginning of the year: During 2013, the following co
> The Pierson Construction Corporation contracted with the City of Plaquemine to construct a dam on the bayou at a price of $15,000,000. Pierson expects to earn $2,270,000 on the contract. The percentage-of-completion method is to be used, and the completi
> Uptown Builders Company commenced doing business in January 2013. Construction activities for the year 2013 are summarized in the following table. The company is your client. The president has asked you to compute the amounts of revenue for the year en
> The Rushing Construction Company obtained a construction contract to build a highway and bridge over the Snake River. It was estimated at the beginning of the contract that it would take three years to complete the project at an expected cost of $50,000,
> The company signed a $1,800,000 contract to build an environmentally friendly access trail to Timpanogas Caves. The project was expected to take approximately three years. The following information was collected for each year of the project, Year 1, Year
> Zamponi’s Construction Company reports its income for tax purposes on a completed-contract basis and income for financial statement purposes on a percentage-of-completion basis. A record of construction activities for 2013 and 2014 foll
> Tingey Industries sells merchandise on a consignment basis to dealers. The selling price of the merchandise averages 25% above cost of merchandise. The dealer is paid a 10% commission on the sales price for all sales made. All dealer sales are made on a
> Hatch Enterprises uses the cost recovery method for all installment sales. Complete the following table. 2012 2013 2014 Installment sales $92,000 $103,000 %24 (1) Cost of installment sales.. (2) 62,830 74,750 Gross profit percentage. 36% (3) 35% Cas
> K. B. Sayer Furnishings Inc. had the following sales and gross profit percentages for the years 2012–2015. Historically, 60% of sales are collected in the year of the sale, 25% in the following year, and 10% in the third year. Assumin
> Complete the following table. 2012 2013 2014 Installment sales $50,000 $80,000 2$ (7) Cost of installment sales. (1) (5) 91,800 Gross profit ... (2) (6) 28,200 Gross profit percentage. (3) 25% (8) Cash collections: 2012 sales. (4) 25,000 10,000 2013
> Jordan Corporation had sales in 2012 of $150,000, in 2013 of $180,000, and in 2014 of $225,000. The gross profit percentage of each year, in order, was 25%, 30%, and 35%. Past history has shown that 20% of total sales are collected in the first year, 40
> The Spectrum Fitness Club charges a nonrefundable annual membership fee of $1,200 for its services. For this fee, each member receives a fitness evaluation (value $200), a monthly magazine (annual value $25), and two hours’ use of the equipment each week
> The Build-It Construction Company enters into a contract on January 1, 2013, to construct a 20-story office building for $42,000,000. During the construction period, many change orders are made to the original contract. The following schedule summarizes
> On January 1, 2012, the Kobe Construction Company entered into a 3-year contract to build a dam. The original contract price was $21,000,000 and the estimated cost was $19,400,000. The following cost data relate to the construction period. Prepare the
> Southern California Builders Inc. entered into a contract to construct an office building and plaza at a contract price of $30,000,000. Income is to be reported using the percentage-of-completion method as determined by estimates made by the architect. T
> The company started business on January 1 and during the year had oil and gas exploration costs of $500,000. Of these costs, $100,000 was associated with successful wells and $400,000 with so-called dry holes. For simplicity, assume that all of the costs
> Kylie Builders Inc. is building a new home for Cassie Proffit at a contracted price of $200,000. The estimated cost at the time the contract is signed (January 2, 2013) is $115,000. At December 31, 2013, the total cost incurred is $60,000 with estimated
> Smokey International Inc. recently acquired the Kurtz Builders Company. Kurtz has incomplete accounting records. On one particular project, only the information below is available. Because the information is incomplete, you are asked the following ques
> Perfectionist Construction Company was the low bidder on an office building construction contract. The contract bid was $9,000,000, with an estimated cost to complete the project of $7,000,000. The contract period was 30 months starting May 1, 2012. The
> Espiritu Construction Co. has used the cost-to-cost percentage-of-completion method of recognizing revenue. Tony Espiritu assumed leadership of the business after the recent death of his father, Howard. In reviewing the records, Tony finds the following
> On June 1, 2013, bids were submitted for a construction project to build a new municipal building and fire station. The lowest bid was $5,000,000, submitted by the Shannon Construction Company. Shannon was awarded the contract. Shannon uses the completed
> How is the fixed asset turnover ratio calculated, and what does the resulting ratio measure?
> BodyTone Company sells lifetime health club memberships. For one up-front, nonrefundable fee, a customer becomes a lifetime member of BodyTone’s network of health clubs. The fee is $2,000. The fee includes full access to all of the club facilities plus a
> Describe the fair value option that is available under IAS 40 to companies that own investment property.
> On December 30, Shady Company segregated goods costing $530,000 for future shipment to one of its customers, Point Company. Point was billed $890,000. Make the journal entry necessary on Shady’s books to record this action in each of the following situat
> How is acquired in-process research and development accounted for under U.S. GAAP?
> Refer to Practice 8-7, Practice 8-10, and Practice 8-12. Indicate how, and in what amount, the following accounts will be reported in the company’s balance sheet for Year 1, Year 2, and Year 3: (1) Accounts Receivable, (2) Progress Bi
> In 2013, Rawlings Wholesalers transferred goods to a retailer on consignment. The transaction was recorded as a sale by Rawlings. The goods cost $45,000 and normally are sold at a 30% markup. In 2014, $12,000 (cost) of merchandise was sold by the retaile
> What are the five general categories of intangible assets?
> The company had installment sales in Year 1 of $350,000, in Year 2 of $270,000, and in Year 3 of $210,000. The gross profit percentage of each year, in order, was 20%, 25%, and 30%. Past history has shown that 40% of total sales are collected in the year
> In general, how is the cost of internally generated intangibles accounted for?
> Transistor Electronics makes all of its sales on credit and accounts for them using the installment sales method. For simplicity, assume that all sales occur on the first day of the year and that all cash collections are made on the last day of the year.
> What happens to the remaining net book value of a component that is replaced?
> The company had sales during the year of $350,000. The gross profit percentage during the year was 20%. Cash collected during the year related to these sales was 40% of the sales. Give all journal entries necessary during the year, assuming use of the in
> Briefly describe the dangers to financial statement users inherent in the use of the fixed asset turnover ratio.
> The Washington Blue Sox is a minor league baseball team. The team has 55 home games during a season and sells season tickets for $600 each. For the most recent season, the Blue Sox sold 1,900 season tickets. The total initial direct costs (in cash) relat
> Under the provisions of IAS 16, what is the credit entry when noncurrent operating assets are written up to reflect an increase in market value?
> Why do some companies expense asset expenditures that are less than an established monetary amount?
> The company signed a $1,450,000 contract to build an environmentally friendly access trail to Stansbury Peak. The project was expected to take approximately three years. The following information was collected for each year of the projectâ€
> What argument is given for reporting noncurrent operating assets at their historical costs instead of at current values?
> Refer to Practice 8-14. Assume that the company uses the percentage of trail feet constructed in estimating the percentage of completion. Make the journal entries to record revenue and cost for the construction project in (1) Year 1, (2) Year 2, and (3
> (a) Under what conditions may goodwill be reported as an asset? (b) Roper Company engages in a widespread advertising campaign on behalf of new products, charging above normal expenditures to goodwill. Do you approve of this practice? Why or why not?
