Question: What are the characteristics of prepayments that

> Bolton Company purchased a plot of land for $90,000 as a factory site. A small office building sits on the plot, conservatively appraised at $20,000. The company plans to use the office building after making some modifications and renovations (item (4) b

> Boslan Group reported having 89.1 million shares outstanding at the end of its most recent fiscal year, ended December 31, 2012. On March 1, 2013, Boslan issued 25.1 million shares of common stock, at a price of $32 per share. On August 1, 2013, Boslan r

> For each of the following expenditures or acquisitions, indicate the type of account debited. Classify the account as (1) asset other than product cost, (2) product cost (Work-in-Process Inventory), or (3) expense. If the account debited is an asset acco

> Outback Steakhouse opened a new restaurant on the site of an existing building. It paid the owner $260,000 for the land and building, of which it attributes $52,000 to the land and $208,000 to the building. Outback incurred legal costs of $12,600 to cond

> On December 31, 2012, Delchamps Group reported a balance in Restructuring Provisions of €50.9 million, of which €12.5 million was expected to be paid in 2013, with the remainder to be settled during 2014–2015. The balance in this account at the start of

> For the fiscal year ended September 30, Sappi Paper Limited, a South African paper company, reported an ending balance in its Restructuring Provision, the balance sheet account, of ZAR16 million (ZAR denotes the South Africa Rand currency). The beginning

> Kingspeed Bikes offers three-year warranties against defects on the sales of its high-end racing bikes. The firm estimates that the total cost of warranty claims over the three-year warranty period on bikes sold will equal 6% of sales revenue. Kingspeed

> Miele Company is a German family-owned appliance business. Assume that Miele provides a two-year warranty on its products and that Miele estimates current year warranty costs to be 4% of sales revenues. At the beginning of last year, Mieleâ€&#

> Hurley Corporation sells household appliances (for example, refrigerators, dishwashers) to customers on account. The firm also provides warranty services on products sold. Hurley estimates that 2% of sales will ultimately become uncollectible and that wa

> During the year ended June 30, McGee Associates’ office employees earned wages of $700,000. McGee withheld 30% of this amount for payments for various income and payroll taxes. In addition, McGee must pay 10% of gross wages for the employer’s share of va

> EKG Company, a manufacturer of medical supplies, began the year with 10,000 units of product that cost $8 each. During the year, it produced another 60,000 units at a cost of $15 each. Sales for the year were expected to total 70,000 units. During Novemb

> Harmon Corporation commenced operations on January 1, 2011. It uses a LIFO cost-flow assumption. Its purchases and sales for the first three years of operations appear next: a. Compute the amount of ending inventory for each of the three years. b. Comp

> Kennett Corporation reported having 214.6 million shares outstanding at the end of its most recent fiscal year, ended December 31, 2012. On April 1, 2013, Kennett issued 36.2 million shares of common stock, at a price of $18 per share. On September 1, 20

> Sun Health Food’s purchases of vitamins during its first year of operations were as follows: The inventory on December 31 was 420 units. Compute the cost of the inventory on December 31 and the cost of goods sold for the year under ea

> Ericsson, a Swedish networks and communications firm, reported a gross value of inventory of SEK25,227 on December 31. It also reported an ending balance in the allowance for impairments of SEK2,752 million. During the year, Ericsson recognized a write-d

> Fun-in-the-Sun Tanning Lotion Company manufactures suntan lotion made from organic materials. During its first year of operations, it purchased raw materials costing $78,200, of which it used $56,300 in manufacturing suntan lotions. It incurred manufactu

> Tesco Plc. is the U.K.’s largest grocery store chain. It applies IFRS and reports its results in millions of pounds sterling (£). For a recent year, Tesco reported at year-end and at the beginning of the year, as follows:

> Target Corporation, a U.S.-based retailer, follows U.S. GAAP and reports its results in millions of U.S. dollars ($). Its balance sheet for the End of Year and Beginning of Year contains the following information: Target’s income stat

> ResellFast purchases residential and commercial real estate for resale. ResellFast has a December 31 year-end and prepares financial statements quarterly. On February 5, 2012, ResellFast acquired an openair mall in Miami, Florida, with space for 15 retai

> Trembly Department Store commenced operations on January 1, 2012. It engaged in the following transactions during January. Identify the amount that the firm should include in the valuation of merchandise inventory. a. Purchases of merchandise on account

> Ringgold Winery is a large U.S.-based winery. In 2012 Ringgold spent $2.2 million to acquire grapes (including transportation costs of $200,000). Ringgold incurred processing costs of $50,000 in materials (such as barrels, bottles, and corks), $145,000 i

> Liquid Crystal Display Corporation (LCD), a Korean multinational firm, reported an ending balance for Prepayments of KRW345,609 million for the year ending December 31, 2012. For the year ended December 31, 2011, the ending balance in this account was KR

> A Belgian food distributor reported ending balances in Prepayments of €30.7 million, €25.8 million, and €42.1 million for the years ended December 31, 2012, 2011, and 2010, respectively. Assume that Prepayments pertain to insurance premiums on warehouses

> Calculating earnings per share. The following information pertains to Hatchet Limited for the years ended December 31, 2012 and 2013: Calculate the missing amounts in the above table: a. Net income, 2012. b. Weighted average number of shares outstandin

> Give the likely transaction or event that would result in making each of the independent journal entries that follow. Bad Debt Expense .... 2,300 а. Allowance for Uncollectible Accounts 2,300 b. Allowance for Uncollectible Accounts 450 Accounts Rece

> The balance sheets of Milton Corporation on December 31, 2013 and 2014, showed gross accounts receivable of $15,200,000 and $17,600,000, respectively. The balances in the Allowance for Uncollectible Accounts account at the beginning and end of 2014 were

> During the year ended December 31, 2012, an aircraft manufacturer sold a jet for $72 million; assume that the cost to produce the jet was $57 million. The customer agreed to pay the manufacturer $24 million per year, for three years, with the first payme

> During the year ended December 31, 2013, Cunningham Realty Partners sold a tract of land costing $80,000 for $120,000. The customer agreed to pay the purchase price in four equal annual installments, with the first payment made on December 31, 2013. Comp

> Raytheon has agreed to construct missile detection system for $900 million. Expected and actual costs to construct the system were as follows: 2011, $200 million; 2012, $200 million; and 2013, $300 million. Raytheon completed the system in 2013. Compute

> The Shannon Construction Company agreed to build a warehouse for $6,000,000. Expected and actual costs to construct the warehouse were as follows: 2012, $1,200,000; 2013, $3,000,000; and 2014, $600,000. The firm completed the warehouse in 2014. Compute r

> Hamilia S.A.’s financial records show the following balances in its accounts receivable: Age of Accounts………………………………………………………..Balance Receivable 0–30 Days……………………………………………………………………………..€980,000 31–60 Days ……………………………………………………………………………….130,000 91–150 D

> Suggest reasons why the total assets and total liabilities of a defined benefit pension plan do not appear, but their net amount does appear, on the employer’s balance sheet.

> U.S. GAAP and IFRS require firms to amortize the fair value of stock options as an expense over the periods the firm expects to receive employee services as a result of granting the options. What is the theoretical rationale for this amortization?

> Common shareholders have voting rights, but preferred shareholders have higher seniority. What does the difference in seniority mean?

> Describe the rationale for why an investor using the equity method must recognize its share of Other Comprehensive Income of the investee.

> Describe the rationale for why an investor using the equity method must amortize any excess purchase price attributable to assets with a definite service life.

> Assume the following data from the accounts of Fujitsu Limited for the years ended March 31, 2012, and March 31, 2011. Fujitsu reports its results in millions of yen (Â¥). For purposes of this problem, assume that Fujitsu applies U.S. GAAP or I

> Dividends received or receivable from another company are revenue in calculating net income, a return of investment, or eliminated, depending on the method of accounting the investor uses.” Explain.

> Why must we eliminate intercompany transactions when preparing consolidated financial statements?

> The Investment in Subsidiary account is an asset. Why must an investor eliminate this account when preparing consolidated financial statements with the subsidiary?

> Adopting the fair value option for marketable securities collapses the accounting methods discussed in this chapter to a single accounting method.” Do you agree? Why or why not?

> Intelliant granted stock options to employees on January 1, 2013, permitting them to purchase 24.6 million shares of Intelliant common stock for $22.63 per share. An option-pricing model indicates that the value of each option on this date is $5.79. Inte

> Of what value is information in the tax reconciliation about the reasons for differences between the statutory tax rate and the effective tax rate?

> The principal issue in accounting for income taxes concerns when firms recognize the tax effects of temporary differences between income for book purposes and income for tax purposes.” Explain.

> Describe the U.S. GAAP rationale for reducing pension expense by the expected return on investments instead of the actual return.

> Refer to the preceding question. How will the retailer treat this lease under the new/proposed rules?

> What does it mean for a firm to reverse a portion of a previously accrued charge, such as the expense creating a warranty liability or a restructuring liability? What is the effect of a reversal on the firm’s income statement, balance sheet, and statemen

> The following data relate to sales made on account by Schneider Corporation. The firm began operations in 2011. Schneider Corporation estimates that 2% of sales on account will ultimately become uncollectible. Uncollectible accounts generally occur wit

> Firms may treat depreciation on equipment either as a product cost or as a period expense, depending on the type of equipment. Explain.

> When the total amount of cash that a firm expects to collect from a customer is highly uncertain, the cost recovery method seems more appropriate than the installment method.” Explain.

> Rather than pay you $1,000 a month for the next 20 years, the person who injured you in an automobile accident is willing to pay a single amount now to settle your claim for injuries. Would you rather use an interest rate of 6% or 12% in computing the pr

> Does the present value of a given amount to be paid in 10 years increase or decrease if the interest rate increases? Suppose that the amount is due in 5 years? 20 years? Does the present value of an annuity to be paid for 10 years increase or decrease if

> Inventory computations require cost-flow assumptions only because specific identification of items sold is costly. Specific identification is theoretically superior to any cost-flow assumption and eliminates the possibility of income manipulation availab

> The allowance method of accounting for uncollectible accounts receivable involves the creation of a contra account that shows the estimated amount of uncollectible receivables. Why would financial statement users want to know both this number and the gro

> Distinguish between the discounted present value of a stream of future payments and their net present value. If there is no distinction, then so state.

> Distinguish between simple and compound interest.

> How does interest equate cash flows over time?

> Data related to sales on account of Heath Company appear next. Heath Company began operating in 2011. Heath Company estimates that 3% of sales on account will ultimately become uncollectible. Uncollectible accounts generally occur within three years of

> Campbell Incorporated reported the following information in their consolidated income statement for the years ended December 31, 2012 and 2013 a. What was Campbell’s basic earnings per share in 2012 and 2013? b. What was Campbell&acir

> Describe the implicit interest rate for a series of cash flows and a procedure for finding it.

> Distinguish between an annuity due and an ordinary annuity.

> Identify the underlying principle that guides the measurement of the acquisition cost of inventories. What is the rationale for this accounting principle?

> The accounting for a multiple-element contract separates the contract with a customer into pieces (components or deliverables) and assigns each component a portion of the total contract revenue. The percentage-of-completion method of accounting for a lon

> The cost recovery method and the completed contract method of recognizing revenues are similar in that both methods delay the recognition of income even if a firm collects cash. In what ways do the two methods differ?

> A firm that sells inventory for more than its acquisition cost realizes an economic gain that accountants include in net income, but a firm that sells treasury stock for more than its acquisition cost realizes an economic gain that accountants exclude fr

> Compare the position of a shareholder who receives a cash dividend, a property dividend, and a stock dividend.

> The accounting for stock options, stock dividends, and treasury stock clouds the distinction between capital transactions and income transactions.” Explain.

> Stock option valuation models indicate that the value of a stock option increases with the volatility of the stock, increases with the time between the grant date and the expected exercise date, and decreases with increases in the discount rate. Explain.

> Compare and contrast a stock option, a stock right, and a stock warrant. How does the accounting for these three differ?

> The terms of sale “2/10, net/30” mean that the buyer can take a discount of 2% from gross invoice price by paying the invoice within 10 days; otherwise, the buyer must pay the full amount within 30 days. a. Write an expression for the implicit annual rat

> A firm contemplates issuing 10,000 shares of $100 par value preferred stock. The preferred stock promises a $4 per share annual dividend. The firm considers making this preferred stock callable or convertible. Will the issue price be the same in the two

> Consider the following statement: “When a firm repurchases its shares, the shares disappear.” Do you agree?

> Distinguish between minority investments in other companies and the non controlling, or minority, interest in a consolidated subsidiary.

> Accounting for an investment in a subsidiary using the equity method and not consolidating it yields the same net income as consolidating the subsidiary. Total assets will differ depending on whether the investor consolidates the subsidiary.” Explain.

> Why is the outcome of applying the equity method sometimes described as a one-line consolidation? Consider both the balance sheet and the income statement in your response.

> Describe the rationale for why an investor using the equity method must eliminate any intercompany profit or loss on transactions between the investor and the investee.

> Distinguish between significant influence and control, and describe how these concepts relate to the method of accounting for inter corporate investments.

> Under what circumstances might majority share ownership of another entity not serve as an indicator of control?

> Distinguish between the non controlling, or minority, interest in net income of a consolidated subsidiary and the non controlling, or minority, interest in net assets of a consolidated subsidiary.

> Define the concept of an economic entity and explain its importance in preparing consolidated financial statements of a parent company with its controlled subsidiaries.

> Berman Company purchased a plot of land for possible future development. The land had fair value of $86,000. Berman Company gave a 3-year interest-bearing note. The note had face value of $100,000 and provided for interest at a stated rate of 8%. The not

> Suggest reasons why a firm would acquire a derivative and not treat it as an accounting hedge.

> Both U.S. GAAP and IFRS require the immediate recognition in net income of unrealized gains and losses on derivatives classified as fair value hedges. Both U.S. GAAP and IFRS delay recognition in net income of unrealized gains and losses on derivatives c

> Recognizing a derivative classified as a fair value hedge of a firm commitment as an asset but not recognizing the commitment that the derivative is hedging as a liability is inconsistent.” Do you agree? Why or why not?

> Distinguish between a fair value hedge and a cash flow hedge.

> When is a derivative also an accounting hedge? When is it not also an accounting hedge?

> Reporting marketable available-for-sale securities at fair value on the balance sheet but not including the unrealized gains and losses in income is inconsistent and provides an opportunity for earnings management.” Do you agree? Why or why not?

> What is the reasoning for including unrealized gains and losses on trading securities in income but including unrealized gains and losses on available-for-sale securities in Other Comprehensive Income?

> Distinguish between the following pairs of terms: a. Debt securities classified as “held-to-maturity” versus “available for sale.” b. Equity securities classified as “trading” versus “available for sale.” c. Amortized cost versus fair value of debt secur

> When an employer firm recognizes the change in either a pension asset or pension liability for a period, the offsetting credit or debit required by U.S. GAAP is usually to Other Comprehensive Income. Why doesn’t this amount immediately affect pension exp

> Under what circumstances would an employer firm report both a net pension asset and a net pension liability on its balance sheet? Why don’t U.S. GAAP and IFRS permit the firm to net these amounts and show only a single net pension asset or net pension li

> During 2013, Pandora Company wrote off $2,200 of accounts receivable as uncollectible. Pandora Company collected no cash during 2013 for amounts it had written off in previous years. The balance in the Allowance for Uncollectible Accounts account on the

> Over sufficiently long periods of time, why is the total amount of an employer’s pension expense equal to the cash the employer pays into a pension plan, instead of the cash the pension plan pays retired employees?

> The principal accounting issue involving deferred compensation relates to when firms recognize compensation cost as an expense.” Explain.

> What role does a special purpose entity or variable interest entity serve in achieving off balance-sheet financing involving the sale of receivables?

> Recognizing rights and obligations embodied in all executory contracts would eliminate a means of off-balance-sheet financing.” How might such an action confuse and possibly mislead financial statement users?

> Compare and contrast the financial statement effects of achieving off-balance-sheet financing through an executory contract versus an asset sale in which the seller of the assets will reimburse the buyer for any shortfall in collections from the purchase

> Of what value is information about the components of deferred tax assets and deferred tax liabilities, given that firms calculate income tax expense on income before taxes and not on individual revenues and expenses?

> The required accounting for deferred taxes delays recognizing in net income the benefits and costs of temporary differences from the period when they originate to the period when they reverse.” Explain.

> Under what circumstances will a firm report a deferred tax asset on the balance sheet? Under what circumstances will a firm report a deferred tax liability on the balance sheet?