Ultimate Corporation is a computer products supplier. Ultimate sells products to dealers who then sell the products to the end users. Most of the company’s competitors require dealers to pay for shipments within 45 to 60 days. Ultimate has followed a more relaxed policy; in 2013 the average length of time it took the company to collect its receivables was 158 days. (This average collection period can be computed as average accounts receivable balance/average daily sales.) It has been suggested that in return for this lax collection policy, dealers allowed Ultimate to ship more product than the dealers needed, allowing Ultimate to recognize the excess shipments as sales. In 2014, Ultimate attempted to reduce the level of its accounts receivable by stepping up collection efforts. As a result, product returns from dealers increased significantly. 1. Assume that Ultimate’s sales for the year were $1,000 with cost of sales being $600. For simplicity, also assume that all of the sales occurred on December 31 and that, on average, Ultimate expects about 15% of products sold to be returned by dissatisfied dealers or dealers who are unable to sell the products. What adjusting entry, if any, should be made at year-end to reflect the likelihood of future sales returns? 2. An allowance for sales returns is analogous to an allowance for bad debts. Most companies disclose an allowance for bad debts but very few disclose an allowance for sales returns. Why not? 3. What other more conservative accounting treatment is possible in regard to the potential sales returns?
> 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?
> Refer to Practice 8-7. In addition to the percentage-of-completion information, the following information is available regarding billing and cash collection for the project: Make the journal entries necessary to record the construction cost, the progre
> What two approaches are used in estimating fair values using present value computations? Briefly explain the difference between the two approaches.
> Jackie Wilson, manager of Expert Building Company, is a valued and trusted employee. She has been with the company from its start two years ago. Because of the demands of her job, she has not taken a vacation since she began working. She is in charge of
> (a) What type of activities are considered to be research and development activities? (b) Under what conditions, if any, are research and development costs capitalized?
> During the audit of accounts receivable of Montana Company, the new CEO, Joe Frisco, asked why the company had debited the current-year expense for bad debts on the assumption that some accounts will become uncollectible next year. Frisco believes that t
> Indicate the effects of the following errors on the balance sheet and the income statement in the current year and succeeding years. (a) The cost of a depreciable asset is incorrectly recorded as an expense. (b) An expense expenditure is incorrectly reco
> The company offers a 1-year warranty to its customers. Warranty expenditures are estimated to be 4% of sales. Sales occur evenly throughout the year. The following information relates to the company’s first two years of business: Sales—Year 1 . . . . .
> What amount of interest is capitalized under IAS 23?
> Olin Company currently makes only cash sales. Given the number of potential customers who have requested to buy on credit, Olin is considering allowing credit sales. What factors should Olin consider in making the decision whether to allow credit sales?
> Gaylen Corp. decides to construct a building for itself and plans to use existing plant facilities to assist with such construction. (a) What costs will enter into the cost of construction? (b) What two positions can the company take with respect to gene
> 1. At December 31, 2013, Kale Co. had the following balances in the accounts it maintains at First State Bank: Checking account No. 001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $175,000 Checking acc
> What procedure should be followed to allocate the cost of a basket purchase of assets among specific accounts?
> Strata Company had a $275,000 balance in Accounts Receivable on January 1. The balance in Allowance for Bad Debts on January 1 was $68,000. Sales for the year totaled $2,100,000. All sales were credit sales. Bad debt expense is estimated to be 3% of sale
> Terri Morton has been recently hired as a financial analyst. Her first assignment is to analyze why the reported return on assets (ROA) for Arnold Company is so much different from that of Baker Company. Arnold Company develops and markets innovative con
> On January 1, 2013, Denver Company sold land that originally cost $400,000 to Boise Company. As payment, Boise gave Denver a $600,000 note. The note bears an interest rate of 4% and is to be repaid in three annual installments of $200,000 (plus interest
> Strategy, Inc., was organized by Elizabeth Durrant and Ramona Morales, two students working their way through college. Both Elizabeth and Ramona had used the Internet extensively while in high school and had become very proficient Web surfers. Elizabeth
> What is an asset retirement obligation? What is the proper accounting for an asset retirement obligation?
> On January 1, 2013, Rapid River Realty sold a tract of land to three doctors as an investment. The land, purchased 10 years ago, was carried on Rapid River’s books at a value of $210,000. Rapid River received a non-interest-bearing note for $275,000 from
> Fugate Energy Corp. has recently purchased a small local company, Gleave Inc., for $556,950 cash. Fugate’s chief accountant has been given the assignment of preparing the journal entry to record the purchase. An investigation disclosed the following info
> Freemont Factors provides financing to other companies by purchasing their accounts receivable on a nonrecourse basis. Freemont charges its clients a commission of 15% of all receivables factored. In addition, Freemont withholds 10% of receivables factor
> 1. Cole Co. began constructing a building for its own use in January 2013. During 2013, Cole incurred interest of $50,000 on specific construction debt and $20,000 on other borrowings. The amount of interest that could have been avoided if the building c
> During its second year of operations, Shank Corporation found itself in financial difficulties. Shank decided to use its accounts receivable as a means of obtaining cash to continue operations. On July 1, 2013, Shank sold $75,000 of accounts receivable f
> Progressive Company reported the following asset values in 2012 and 2013: In addition, in 2013, Progressive had sales of $4,800,000; cost of goods sold for the year was $2,900,000. As of the end of 2012, the fair value of Progressive’
> On July 1, 2013, McEnroe Company used receivables totaling $150,000 as collateral on a $100,000, 15% note from Standard One Bank. The transaction is not structured such that receivables are being sold. McEnroe will continue to collect the assigned receiv
> Beecher’s Boston Barbeque Company purchased a customer list and an ongoing research project for a total of $300,000. Beecher uses the expected cash flow approach for estimating the fair value of these two intangibles. The appropriate interest rate is 7%.
> The following data were taken from Tyrone Tardieff’s check register for the month of April. Tyrone’s bank reconciliation for March showed one outstanding check, Check No. 78 for $57.00 (written on March 23), and one de
> Trevor Company completed a program of expansion and improvement of its plant during 2013. You are provided with the following information concerning its buildings account: (a) On October 31, 2013, a 50-foot extension to the present factory building was c
> Using the following information, prepare a complete statement of cash flows. (a) Cash balance, beginning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,500 (b) Cash paid to purchase inventory .
> The cash account of Abstract, Inc., disclosed a balance of $16,348.82 on October 31. The bank statement as of October 31 showed a balance of $19,711.75. Upon comparing the statement with the cash records, the following facts were developed. (a) Abstract&
> As of December 31, 2013, W. W. Cole Company’s total assets were $325 million and total liabilities were $180 million. Net income for 2013 was $38 million. During 2013, W. W. Cole’s chief executive officer had put extreme pressure on employees to meet the
> Krebsbach Company is negotiating a loan with FIS Bank. Krebsbach needs $900,000. As part of the loan agreement, FIS Bank will require Krebsbach to maintain a compensating balance of 15% of the loan amount on deposit in a checking account at the bank. Kre
> Santa Clarita Company reported interest expense in 2013 and 2012 of $470,000 and $410,000, respectively. The balance in Accrued Interest Payable at the end of 2013, 2012, and 2011 was $51,000, $59,000, and $46,000, respectively. In addition, a note to Sa
> The balance sheet for The Itex Corporation on December 31, 2012, includes the following cash and receivables balances. Current liabilities reported in the December 31, 2012, balance sheet included: Obligation on discounted notes receivable . . . . . .
> Aurora Corp. acquired Payette Company on December 31, 2013. The following information concerning Payette’s assets and liabilities was assembled on the acquisition date: Instructions: 1. Make the journal entry necessary for Aurora Corp
> Lafayette Corporation, a client, requests that you compute the appropriate balance of its estimated liability for product warranty account for a statement as of June 30, 2013. Lafayette Corporation manufactures television components and sells them with a
> Madison Company has purchased land that will serve as a temporary repository for nuclear waste. The site will function for 20 years, at which time Madison will be required to completely decontaminate the land. The purchase price for the land is $700,000.
> Sound Portal Corporation sells stereos under a 2-year warranty contract that requires Sound Portal to replace defective parts and provide free labor on all repairs. During 2012, 1,290 units were sold at $950 each. In 2013, Sound Portal sold an additional
> American Corporation received a $400,000 low bid from a reputable manufacturer for the construction of special production equipment needed by American in an expansion program. Because its own plant was not operating at capacity, American decided to const
> What type of asset value increases are recognized under IAS 41?
> The following costs were incurred in the most recent year: (a) Paid $30,000 to purchase a piece of equipment. In addition, paid $1,000 to have the equipment shipped to and installed in its final location. Spent $1,750 to have the equipment tested before
> Rainy Day Company, a wholesaler, uses the aging method to estimate bad debt losses. The following schedule of aged accounts receivable was prepared at December 31, 2013. Age of Accounts _________________________________________Amount 0–
> Oceanwide Enterprises, Inc., is involved in building and operating cruise ships. Each ship is identified as a separate discrete job in the accounting records. At the end of 2012, Oceanwide correctly reported $5,400,000 as Construction in Progress on the
> During 2013, Lacee Enterprises had gross sales of $247,000. At the end of 2013, Lacee had accounts receivable of $83,000 and a credit balance of $5,600 in Allowance for Bad Debts. Lacee has used the percentage-of-gross-sales method to estimate the bad de
> At December 31, 2012, Davis Company’s noncurrent operating asset accounts had the following balances: Category Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 280,
> Stockton Company sold goods on account with a sales price of $70,000 on August 17. The terms of the sale were 2/10, n/30. Instructions: 1. Record the sale using the gross method of accounting for cash discounts. 2. Record the sale using the net method o
> At December 31, 2012, certain accounts included in the Noncurrent Operating Assets section of Salvino Company’s balance sheet had the following balances: Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> The following transactions affecting the accounts receivable of Wonderland Corporation took place during the year ended January 31, 2013: Sales (cash and credit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> Powersoft Company is engaged in developing computer software for the small business and home computer market. Most of the computer programmers are involved in developmental work designed to produce software that will perform fairly specific tasks in a us
> The following selected information is provided for Lynez Company. All sales are credit sales and all receivables are trade receivables. Accounts receivable, January 1 net balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1
> Bridges Wholesale Company incurred the following costs in 2013 for a warehouse acquired on July 1, 2013, the beginning of its fiscal year: Cost of land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> Refer to Practice 5-9. Prepare the Operating Cash Flow section of the statement of cash flows using the indirect method. In Practice 5-9 Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> Abacus, Inc., purchased inventory costing $95,000. Terms of the purchase were 3/10, n/30. Abacus uses a perpetual inventory system. In order to take advantage of the cash discount, Abacus borrowed $75,000 from Commercial First Bank, signing a 2-month, 8%
> Transactions during 2013 of the newly organized Menlove Corporation included the following: Jan. 2 Paid legal fees of $15,000 and stock certificate costs of $8,300 to complete organization of the corporation. 15 Hired a clown to stand in front of the cor
> Zobell Corporation sells equipment with a book value of $8,000, receiving a non-interest bearing note due in three years with a face amount of $10,000. There is no established market value for the equipment. The interest rate on similar obligations is es
> In your audit of the books of Dyer Corporation for the year ended September 30, 2013, you found the following items in connection with the company’s patents account: (a) The company had spent $120,000 during its fiscal year ended September 30, 2012, for
> The following information was included in the bank reconciliation for Bryant, Inc., for June. What was the total of outstanding checks at the beginning of June? Assume all other reconciling items are listed. Checks and charges recorded by bank in June,
> Bylund Corporation was organized in June 2013. In auditing its books, you find the following land, buildings, and equipment account: An analysis of this account and of other accounts disclosed the following additional information: (a) The building acqu
> The accounting department supplied the following data in reconciling the September 30 bank statement for Clegg Auto. Ending cash balance per bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,972.67 Endi
