What is comprehensive income, and what does it include?
> Curtis Company is facing a potential lawsuit. Curtis’s lawyers think that it is reasonably possible that it will lose the lawsuit. How should Curtis report this lawsuit?
> What is a contingent liability? Provide some examples of contingencies.
> When do businesses record warranty expense, and why?
> What payroll taxes is the employer responsible for paying?
> How might a business use a payroll register?
> Coltrane Company has a $5,000 note payable that is paid in $1,000 installments over five years. How would the portion that must be paid within the next year be reported on the balance sheet?
> What do short-term notes payable represent?
> How do unearned revenues arise?
> Exercise World began January with merchandise inventory of 90 crates of vitamins that cost a total of $5,850. During the month, Exercise World purchased and sold merchandise on account as follows: Requirements: 1. Prepare a perpetual inventory record,
> What are the three main characteristics of liabilities?
> The income statement for Vermont Communications follows. Assume Vermont Communications signed a 3-month, 3%, $6,000 note on June 1, 2018, and that this was the only note payable for the company. Requirements: 1. Fill in the missing information for Verm
> The following transactions of Belkin Howe occurred during 2018: Requirements: 1. Journalize required transactions, if any, in Howe’s general journal. Explanations are not required. 2. What is the balance in Estimated Warranty Payable
> The following transactions of Philadelphia Pharmacies occurred during 2017 and 2018: Journalize the transactions in Philadelphia’s general journal. Explanations are not required. 2017 Purchased computer equipment at a cost of $7,0
> Liam Wallace is general manager of Moonwalk Salons. During 2018, Wallace worked for the company all year at a $13,400 monthly salary. He also earned a year-end bonus equal to 5% of his annual salary. Wallace’s federal income tax withheld during 2018 was
> The general ledger of Prompt Ship at June 30, 2018, the end of the company’s fiscal year, includes the following account balances before payroll and adjusting entries. Accounts Payable ……………………………………………………………………………………...$ 118,000 Interest Payable ………………
> The income statement for California Communications follows. Assume California Communications signed a 3-month, 9%, $3,000 note on June 1, 2018, and that this was the only note payable for the company. Requirements: 1. Fill in the missing information fo
> The following transactions of Jasmine Reef occurred during 2018: Requirements: 1. Journalize required transactions, if any, in Reef ’s general journal. Explanations are not required. 2. What is the balance in Estimated Warranty Payabl
> The following transactions of Plymouth Pharmacies occurred during 2017 and 2018: Journalize the transactions in Plymouth’s general journal. Explanations are not required. Round to the nearest dollar. 2017 Purchased computer equipm
> Logan White is general manager of Valuepoint Salons. During 2018, White worked for the company all year at a $13,600 monthly salary. He also earned a year-end bonus equal to 15% of his annual salary. White’s federal income tax withheld during 2018 was $1
> Futuristic Electronic Center began October with 65 units of merchandise inventory that cost $82 each. During October, the store made the following purchases: Futuristic uses the periodic inventory system, and the physical count at October 31 indicates
> The general ledger of Seal-N-Ship at June 30, 2018, the end of the company’s fiscal year, includes the following account balances before payroll and adjusting entries. Accounts Payable ………….………………….……………………………………….$ 114,000 Interest Payable ………….…………………
> Details about a company’s liabilities appear in a number of places in the annual report. Visit http://www.pearsonhighered.com/Horngren to view a link to Target Corporation’s Annual Report. Use Target Corporation’s fiscal 2015 financial statements to answ
> McNight Industries completed the following transactions during 2018: Journalize the transactions. Explanations are not required. Round to the nearest dollar. Nov. 1 Made sales of $52,000. McNight estimates that warranty expense is 6% of sales. (Rec
> County Company had the following partially completed payroll register: Requirements: 1. Complete the payroll register. Round to two decimals. 2. Journalize County Company’s salaries and wages expense accrual for the current pay period
> Ricardo’s Mexican Restaurant incurred salaries expense of $62,000 for 2018. The payroll expense includes employer FICA tax, in addition to state unemployment tax and federal unemployment tax. Of the total salaries, $22,000 is subject to unemployment tax.
> Hugh Stanley manages a Dairy House drive-in. His straight-time pay is $12 per hour, with time-and-a-half for hours in excess of 40 per week. Stanley’s payroll deductions include withheld income tax of 20%, FICA tax, and a weekly deductionof $5 for a char
> Erin O’Neil Associates reported short-term notes payable and salaries payable as follows: During 2018, O’Neil paid off both current liabilities that were left over from 2017, borrowed cash on short-term notes payable
> Watson Publishing completed the following transactions during 2018: Journalize the transactions (explanations are not required). Round to the nearest dollar. Oct. 1 Sold a six-month subscription (starting on November 1), collecting cash of $240, pl
> Consider the following note payable transactions of Creative Video Productions. Journalize the transactions for the company. 2017 Purchased equipment costing $16,000 by issuing a one-year, 9% note payable. Aug. 1 Dec. 31 Accrued interest on the not
> The following financial information was obtained from the year ended 2018 income statements for Cash Automotive and Pennington Automotive: Requirements: 1. Compute the times-interest-earned ratio for each company. Round to two decimals. 2. Which compan
> Empire State Carpets’s books show the following data. In early 2020, auditors found that the ending merchandise inventory for 2017 was understated by $8,000 and that the ending merchandise inventory for 2019 was overstated by $9,000. Th
> Analyze the following independent situations. a. Weaver, Inc. is being sued by a former employee. Weaver believes that there is a remote chance that the employee will win. The employee is suing Weaver for damages of $40,000. b. Gulf Oil Refinery had a g
> The accounting records of Sculpted Ceramics included the following at January 1, 2018: In the past, Sculpted’s warranty expense has been 9% of sales. During 2018, Sculpted made sales of $113,000 and paid $7,000 to satisfy warranty cla
> Consider the following transactions of Sapphire Software: Journalize the transactions for the company. Ignore cost of goods sold. Recorded cash sales of $230,000, plus sales tax of 7% collected for the state of New Jersey. Mar. 31 Apr. 6 Sent March
> Many small businesses have to squeeze down costs any way they can just to survive. One way many businesses do this is by hiring workers as “independent contractors” rather than as regular employees. Unlike rules for regular employees, a business does not
> Sell-Soft is the defendant in numerous lawsuits claiming unfair trade practices. Sell- Soft has strong incentives not to disclose these contingent liabilities. However, GAAP requires that companies report their contingent liabilities. Requirements: 1. W
> Golden Bear Construction operates throughout California. The owner, Gaylan Beavers, employs 15 work crews. Construction supervisors report directly to Beavers, and the supervisors are trusted employees. The home office staff consists of an accountant and
> Amberand Zack Wilson are continuing their analysis of the company’s position and believe the company will need to borrow $15,000 in order to expand operations. They consult Rivers Nation Bank and secure a 6%, one-year note on September 1, 2019, with inte
> In 150 words or fewer, explain how contingent liabilities are accounted for.
> Berkshire Hathaway, Inc. is a holding company owning subsidiaries that engage in a variety of different business activities including insurance, freight rail transportation, utilities and energy, manufacturing, services and retail. Requirements: With a
> Barot’s 2018 financial statements reported the following items—with 2017 figures given for comparison: Net income for 2018 was $3,910, and interest expense was $240. Compute Barot’s rate of return o
> Some of M and C Electronics’s merchandise is gathering dust. It is now December 31, 2018, and the current replacement cost of the ending merchandise inventory is $24,000 below the business’s cost of the goods, which was $97,000. Before any adjustments at
> The notes are an important part of a company’s financial statements, giving valuable details that would clutter the tabular data presented in the statements. This case will help you learn to use a company’s inventory notes. Visit http://www.pearsonhigher
> On June 1, 2018, Josh’s Restaurant decides to invest excess cash of $54,400 from the tourist season by purchasing a Jackrabbit, Inc. bond at face value. At year- end, December 31, 2018, Jackrabbit’s bond had a market value of $51,200. The investment is c
> On February 1, 2018, Bell Co. decides to invest excess cash of $16,800 by purchasing a Grant, Inc. bond at face value. At year-end, December 31, 2018, the fair value of the Grant bond was $19,600. The investment is categorized as a trading debt investmen
> On January 1, 2018, Bryant, Inc. decides to invest in 3,750 shares of Farrier stock when the stock is selling for $16 per share. On August 1, 2018, Farrier paid a $0.70 per share cash dividend to stockholders. On December 31, 2018, Farrier reports net in
> On January 1, 2018, Bark Company invests $10,000 in Roots, Inc. stock. Roots pays bark a $400 dividend on August 1, 2018. Bark sells the Roots’s stock on August 31, 2018, for $10,450. Assume the investment is categorized as a short-term equity investment
> On January 1, 2018, the Chaucer’s Restaurant decides to invest in Lake Turner bonds. The bonds mature on December 31, 2023, and pay interest on June 30 and December 31 at 4% annually. The market rate of interest was 4% on January 1, 2018, so the $90,000
> Garden Haven has excess cash of $15,000 at the end of the harvesting season. Garden Haven will need this cash in four months for normal operations. Requirements: 1. What are some reasons why Garden Haven may choose to invest in debt or equity securities
> Where on the financial statements is an unrealized holding gain or loss on available for- sale debt investments reported?
> What method is used for investments in equity securities with more than 50% ownership? Briefly describe this method.
> What method is used for investments in equity securities when the investor has significant influence and typically 20% to 50% ownership? Briefly describe how dividends declared and received and share of net income are reported.
> Steel Mill began August with 50 units of iron inventory that cost $35 each. During August, the company completed the following inventory transactions: Requirements: 1. Prepare a perpetual inventory record for the merchandise inventory using the FIFO in
> Briefly describe the specific types of debt and equity securities.
> Why would a company invest in debt or equity securities?
> What does the rate of return on total assets measure, and how is it calculated?
> How are held-to-maturity debt investments reported on the financial statements?
> Where on the financial statements is an unrealized holding gain or loss on trading debt investments reported?
> What adjustment must be made at the end of the period for trading debt investments and available-for-sale debt investments?
> When disposing of an available-for-sale debt investment, where is the gain or loss on disposal reported in the financial statements?
> How is the purchase of a held-to-maturity debt security at face value recorded?
> What is an equity security?
> What is a debt security?
> Fit Gym began January with merchandise inventory of 78 crates of vitamins that cost a total of $4,290. During the month, Fit Gym purchased and sold merchandise on account as follows: Requirements: 1. Prepare a perpetual inventory record, using the FIFO
> The beginning balance sheet of Text Source Co. included a $700,000 investment in Taylor stock (20% ownership). During the year, Text Source completed the following investment transactions: Requirements: 1. Journalize the transactions for the year of Te
> Captain Transfer Corporation generated excess cash and invested in securities as follows: Requirements: 1. Classify each of the investments made during 2018. (Assume the equity investments represent less than 20% of ownership of outstanding voting stoc
> Suppose Hale and Sons purchases $800,000 of 3.5% annual bonds of Tyson Way Corporation at face value on January 1, 2018. These bonds pay interest on June 30 and December 31 each year. They mature on December 31, 2022. Hale and Sons intends to hold the Ty
> The beginning balance sheet of Waterfall Source Co. included a $400,000 investment in Evan stock (20% ownership, Waterfall has significant influence over Evan). During the year, Waterfall Source completed the following investment transactions: Requirem
> Jet way Corporation generated excess cash and invested in securities as follows: Requirements: 1. Classify each of the investments made during 2018. (Assume the equity investments represent less than 20% of ownership of outstanding voting stock.) 2. Jo
> Suppose Solomon Brothers purchases $500,000 of 6% annual bonds of Morin Corporation at face value on January 1, 2018. These bonds pay interest on June 30 and December 31 each year. They mature on December 31, 2022. Solomon intends to hold the Morin bond
> Wild Adventure conducts tours of wildlife reserves around the world. The company recently purchased a lodge in Adelaide, Australia, securing a 4% mortgage from First Bank. In addition to monthly payments, Wild Adventure must provide annual reports to the
> Details about a company’s investments appear in a number of places in the annual report. Use Target Corporation’s Fiscal 2015 annual report to answer the following questions. Visit http://www.pearsonhighered.com/Horngren to view a link to Target Corporat
> Montane Exploration Company reported these figures for 2018 and 2017: Compute the rate of return on total assets for 2018. (Round to two decimals.) Income Statement-partial: 2018 2017 Interest Expense $ 16,700,000 $ 16,500,000 Net Income 16,900,000
> Boston Today Publishers completed the following investment transactions during 2018 and 2019: Requirements: 1. Journalize Boston Today’s investment transactions. Explanations are not required. 2. On December 31, 2018, how would the Lo
> Consider the data of the following companies which use the periodic inventory system: Requirements: 1. Supply the missing amounts in the preceding table. 2. Prepare the income statement for the year ended December 31, 2019, for Large Company, which use
> Suppose that on January 6, 2018, East Coast Motors paid $280,000,000 for its 35% investment in Boxcar Motors. East Coast has significant influence over Boxcar after the purchase. Assume Boxcar earned net income of $90,000,000 and paid cash dividends of $
> Money Man Investments completed the following transactions during 2018: Requirements: 1. Journalize Money Man’s transactions. Explanations are not required. 2. Classify and prepare partial financial statements for Money Manâ
> Captain Investments completed the following investment transactions during 2018: Requirements: 1. Journalize the entries for 2018. Explanations are not required. 2. What account(s) and amount(s), if any, would be reported on Captain’s
> Strategic Investments completed the following investment transactions during 2018: Requirements: 1. Journalize Strategic’s investment transactions. Explanations are not required. 2. Classify and prepare a partial balance sheet for Str
> Peyton Investments completed the following investment transactions during 2018: Requirements: 1. Journalize Peyton’s investment transactions. Explanations are not required. 2. Prepare a partial balance sheet for Peytonâ€
> League Up & Co. owns vast amounts of corporate bonds. Suppose League Up buys $900,000 of Coco Corp bonds at face value on January 2, 2018. The Coco Corp bonds pay interest at the annual rate of 8% on June 30 and December 31 and mature on December 31, 202
> Advance & Co. owns vast amounts of corporate bonds. Suppose Advance buys $1,100,000 of FermaCo bonds at face value on January 2, 2018. The FermaCo bonds pay interest at the annual rate of 3% on June 30 and December 31 and mature on December 31, 2037. Adv
> Griffin purchased a bond on January 1, 2018, for $140,000. The bond has a face value of $140,000 and matures in 20 years. The bond pays interest on June 30 and December 31 at a 3% annual rate. Griffin plans on holding the investment until maturity. Requ
> As a result of the recent mortgage crisis, many banks reported record losses to their mortgage receivables and other assets based on the decline in these assets’ fair values. Requirements: 1. What would the effect be to stakeholders if such losses were
> Rock Designs, Inc. is a jewelry store located in Miramar Beach, Florida. After Valentine’s Day, the store often has excess cash to get it through the three-month slow season. The primary stockholder, Hardy Rock, wants to make this seasonal cash work for
> Assume that Jump Coffee Shop completed the following periodic inventory transactions for a line of merchandise inventory: Requirements: 1. Compute ending merchandise inventory, cost of goods sold, and gross profit using the FIFO inventory costing metho
> Amber and Zack Wilson are pleased with the growth of their business and have decided to invest its temporary excess cash in a brokerage account. The company had the following securities transactions in 2019. Requirements: 1. Journalize the transactions
> In 150 words or fewer, explain the difference between trading debt investments and available-for-sale debt investments.
> McDonald’s Corporation is the world’s leading global food service retailer with more than 36,000 locations worldwide in more than 100 countries. The corporation operates and franchises McDonald’s restaurants, which serve menu items such as the Big Mac, C
> Micron Precision, Inc. purchased a computer for $2,500, debiting Computer Equipment. During 2016 and 2017, Micron Precision, Inc. recorded total depreciation of $1,600 on the computer. On January 1, 2018, Micron Precision, Inc. traded in the computer for
> Decca Publishing paid $230,000 to acquire Thrifty Nickel, a weekly advertising paper. At the time of the acquisition, Thrifty Nickel’s balance sheet reported total assets of $130,000 and liabilities of $70,000. The fair market value of Thrifty Nickel’s a
> On October 1, 2018, Modern Company purchased a patent for $153,600 cash. Although the patent gives legal protection for 20 years, the patent is expected to be used for only eight years. Requirements: 1. Journalize the purchase of the patent. 2. Journali
> Ajax Petroleum holds huge reserves of oil assets. Assume that at the end of 2018, Ajax Petroleum’s cost of oil reserves totaled $27,000,000, representing 3,000,000 barrels of oil. Requirements: 1. Which method does Ajax Petroleum use to compute depletio
> Peter Company purchased equipment on January 1, 2018, for $28,000. Suppose Peter Company sold the equipment for $4,000 on December 31, 2019. Accumulated Depreciation as of December 31, 2019, was $11,000. Journalize the sale of the equipment, assuming str
> Alpha Communication purchased equipment on January 1, 2018, for $27,500. Suppose Alpha Communication sold the equipment for $20,000 on December 31, 2020. Accumulated Depreciation as of December 31, 2020, was $10,000. Journalize the sale of the equipment,
> On October 31, 2018, Alternative Landscapes discarded equipment that had a cost of $26,920. Accumulated Depreciation as of December 31, 2017, was $25,000. Assume annual depreciation on the equipment is $1,920. Journalize the partial-year depreciation exp
> Calm Day reported the following income statement for the year ended December 31, 2019: Requirements: 1. Compute Calm Day’s inventory turnover rate for the year. (Round to two decimal places.) 2. Compute Calm Day’s da
> Assume that Smith’s Auto Sales paid $45,000 for equipment with a 15-year life and zero expected residual value. After using the equipment for six years, the company determines that the asset will remain useful for only five more years. Requirements: 1.
> On January 1, 2018, Advanced Airline purchased a used airplane at a cost of $60,500,000. Advanced Airline expects the plane to remain useful for eight years (5,000,000 miles) and to have a residual value of $5,500,000. Advanced Airline expects the plane
> On January 1, 2018, Air Canadians purchased a used airplane for $37,000,000. Air Canadians expects the plane to remain useful for five years (4,000,000 miles) and to have a residual value of $5,000,000. The company expects the plane to be flown 1,400,000
