You are auditing the December 31, 2017, financial statements of Hockney, Inc., manufacturer of novelties and party favors. During your inspection of the company garage, you discovered that a used automobile not listed in the equipment subsidiary ledger is parked there. You ask Stacy Reeder, plant manager, about the vehicle, and she tells you that the company did not list the automobile because the company was only leasing it. The lease agreement was entered into on January 1, 2017, with Crown New and Used Cars. You decide to review the lease agreement to ensure that the lease should be afforded operating lease treatment, and you discover the following lease terms. 1. Noncancelable term of 4 years. 2. Rental of $3,240 per year (at the end of each year). (The present value at 8% per year is $10,731.) 3. Estimated residual value after 4 years is $1,100. (The present value at 8% per year is $809.) Hockney guarantees the residual value of $1,100. 4. Estimated economic life of the automobile is 5 years. 5. Hockney’s incremental borrowing rate is 8% per year. Instructions You are a senior auditor writing a memo to your supervisor, the audit partner in charge of this audit, to discuss the above situation. Be sure to include a. why you inspected the lease agreement, b. what you determined about the lease, and c. how you advised your client to account for this lease. Explain every journal entry that you believe is necessary to record this lease properly on the client’s books. (It is also necessary to include the fact that you communicated this information to your client.)
> In a test of the effects of low temperatures on the gas mixture, a cylinder filled at 20.0°C to 2000 psi (gauge pressure) is cooled slowly and the pressure is monitored. What is the expected pressure at -5.00°C if the gas remains a homogeneous mixture?
> A large research balloon containing 2.00 × 103 m3 of helium gas at 1.00 atm and a temperature of 15.00C rises rapidly from ground level to an altitude at which the atmospheric pressure is only 0.900 atm (Fig. P19.50). Assume the helium behav
> A monatomic ideal gas that is initially at 1.50 × 105 Pa and has a volume of 0.0800 m3 is compressed adiabatically to a volume of 0.0400 m3. (a). What is the final pressure? (b). How much work is done by the gas? (c). What is the ratio of the final te
> Five moles of monatomic ideal gas have initial pressure 2.50 × 103 Pa and initial volume 2.10 m3. While undergoing an adiabatic expansion, the gas does 1480 J of work. What is the final pressure of the gas after the expansion?
> When you blow on the back of your hand with your mouth wide open, your breath feels warm. But if you partially close your mouth to form an “o” and then blow on your hand, your breath feels cool. Why?
> On a warm summer day, a large mass of air (atmospheric pressure 1.01 × 105 Pa) is heated by the ground to 26.0°C and then begins to rise through the cooler surrounding air. (This can be treated approximately as an adiabatic process; why?) Calculate the t
> A player bounces a basketball on the floor, compressing it to 80.0% of its original volume. The air (assume it is essentially N2 gas) inside the ball is originally at 20.0°C and 2.00 atm. The ball’s inside diameter is 23.9 cm. (a). What temperature does
> Heat Q flows into a monatomic ideal gas, and the volume increases while the pressure is kept constant. What fraction of the heat energy is used to do the expansion work of the gas?
> When a quantity of monatomic ideal gas expands at a constant pressure of 4.00 × 104 Pa, the volume of the gas increases from 2.00 × 10-3 m3 to 8.00 × 10-3 m3. What is the change in the internal energy of the gas?
> During an isothermal compression of an ideal gas, 410 J of heat must be removed from the gas to maintain constant temperature. How much work is done by the gas during the process?
> When a wet cloth is hung up in a hot wind in the desert, it is cooled by evaporation to a temperature that may be 20 C0 or so below that of the air. Discuss this process in light of the second law of thermodynamics.
> Explain why each of the following processes is an example of increasing randomness: mixing hot and cold water; free expansion of a gas; irreversible heat flow; developing heat by mechanical friction. Are entropy increases involved in all of these? Why or
> Does a refrigerator full of food consume more power if the room temperature is 200C than if it is 150C? Or is the power consumption the same? Explain your reasoning.
> A growing plant creates a highly complex and organized structure out of simple materials such as air, water, and trace minerals. Does this violate the second law of thermodynamics? Why or why not? What is the plant’s ultimate source of energy? Explain.
> Some critics of biological evolution claim that it violates the second law of thermodynamics, since evolution involves simple life forms developing into more complex and more highly ordered organisms. Explain why this is not a valid argument against evol
> Compare the pV-diagram for the Otto cycle in Fig. 20.6 with the diagram for the Carnot heat engine in Fig. 20.13. Explain some of the important differences between the two cycles. Fig. 20.6: Fig. 20.13: Otto cycle 2 Heating at constant volume (fu
> Two moles of an ideal gas are heated at constant pressure from T = 27°C to T = 107°C. (a). Draw a pV-diagram for this process. (b). Calculate the work done by the gas.
> Katherine Irving, controller of Lotan Corp., is aware of a pronouncement on accounting changes. After reading the pronouncement, she is confused about what action should be taken on the following items related to Lotan Corp. for the year 2017. 1. In 2017
> The following are three independent, unrelated sets of facts relating to accounting changes. Situation 1: Sanford Company is in the process of having its first audit. The company has used the cash basis of accounting for revenue recognition. Sanford pr
> The following statement is an excerpt from the FASB pronouncement related to interim reporting. Interim financial information is essential to provide investors and others with timely information as to the progress of the enterprise. The usefulness of suc
> Snider Corporation, a publicly traded company, is preparing the interim financial data which it will issue to its stockholders and the Securities and Exchange Commission (SEC) at the end of the first quarter of the 2017–2018 fiscal year. Snider’s financi
> What comprises a lessee’s minimum lease payments? What is excluded?
> The following article appeared in the Wall Street Journal. Washington—The Securities and Exchange Commission staff issued guidelines for companies grappling with the problem of dividing up their business into industry segments for their annual reports.
> Presented in Illustration 21-31 are the financial statement disclosures from the January 31, 2015, annual report of Wal-Mart Stores, Inc. Instructions Answer the following questions related to these disclosures. a. What is the total obligation under ca
> The financial statements of P&G are presented in Appendix B. The company’s complete annual report, including the notes to the financial statements, is available online. Instructions Refer to P&G’s financial statements, accompanying notes, and manageme
> As stated in the chapter, notes to the financial statements are the means of explaining the items presented in the main body of the statements. Common note disclosures relate to such items as accounting policies, segmented information, and interim report
> You are compiling the consolidated financial statements for Winsor Corporation International. The corporation’s accountant, Anthony Reese, has provided you with the following segment information. Instructions Determine which of the a
> Botticelli Inc. was organized in late 2015 to manufacture and sell hosiery. At the end of its fourth year of operation, the company has been fairly successful, as indicated by the following reported net incomes. aIncludes a $10,000 increase because of
> The financial statements of P&G are presented in Appendix B. The company’s complete annual report, including the notes to the financial statements, is available online. Instructions Refer to P&G’s financial statements and the accompanying notes to answ
> The financial statements of P&G are presented in Appendix B. The company’s complete annual report, including the notes to the financial statements, is available online. Instructions Refer to P&G’s financial statements and the accompanying notes to answ
> The financial statements and notes to the financial statements for Delta Air Lines and Southwest Airlines can be found online. Instructions Use information found in the companies’ financial reports to answer the following questions. a. What types of l
> The financial statements of Coca-Cola and PepsiCo are presented in Appendices C and D, respectively. The companies’ complete annual reports, including the notes to the financial statements, are available online. Instructions Use the companies’ financial
> The financial statements of Coca-Cola and PepsiCo are presented in Appendices C and D, respectively. The companies’ complete annual reports, including the notes to the financial statements, are available online. Instructions Use the companies’ financi
> The financial statements of Coca-Cola and PepsiCo are presented in Appendices C and D, respectively. The companies’ complete annual reports, including the notes to the financial statements, are available online. Instructions Use the companies’ financi
> Salaur Company is evaluating a lease arrangement being offered by TSP Company for use of a computer system. The lease is noncancelable, and in no case does Salaur receive title to the computers during or at the end of the lease term. The lease starts on
> Savannah, Inc. is a company that manufactures and sells a single product. Unit sales for each of the four quarters of 2017 are projected as follows. Quarter…………………Units First…………………..80,000 Second……………..150,000 Third………………..550,000 Fourth………………120,000 A
> The income statement for the year ended December 31, 2017, for Laskowski Manufacturing Company contains the following condensed information. Included in operating expenses is a $24,000 loss resulting from the sale of machinery for $270,000 cash. The co
> In preparation for significant expansion of its international operations, ABC Co. has adopted a plan to gradually shift to the same accounting methods as used by its international competitors. Part of this plan includes a switch from LIFO inventory accou
> Goring Dairy leases its milking equipment from King Finance Company under the following lease terms. 1. The lease term is 10 years, noncancelable, and requires equal rental payments of $30,300 due at the beginning of each year starting January 1, 2017.
> At December 31, 2017, Coburn Corp. has assets of $10,000,000, liabilities of $6,000,000, common stock of $2,000,000 (representing 2,000,000 shares of $1 par common stock), and retained earnings of $2,000,000. Net sales for the year 2017 were $18,000,000,
> Equipment was purchased on January 2, 2017, for $24,000, but no portion of the cost has been charged to depreciation. The corporation wishes to use the straight-line method for these assets, which have been estimated to have a life of 10 years and no sal
> An entry to record Purchases and related Accounts Payable of $13,000 for merchandise purchased on December 23, 2018, was recorded in January 2019. This merchandise was not included in inventory at December 31, 2018. What effect does this error have on re
> During 2017, Simms Company redeemed $2,000,000 of bonds payable for $1,880,000 cash. Indicate how this transaction would be reported on a statement of cash flows, if at all.
> Elliott Corp. failed to record accrued salaries for 2016, $2,000; 2017, $2,100; and 2018, $3,900. What is the amount of the overstatement or understatement of Retained Earnings at December 31, 2019?
> The net income for Fallon Company for 2017 was $320,000. During 2017, depreciation on plant assets was $124,000, amortization of patent was $40,000, and the company incurred a loss on sale of plant assets of $21,000. Compute net cash flow from operating
> Use the information for Rick Kleckner Corporation from IFRS21-7. Assume that at December 31, 2017, Kleckner made an adjusting entry to accrue interest expense of $29,530 on the lease. Prepare Kleckner’s January 1, 2018, journal entry to record the second
> Rick Kleckner Corporation recorded a finance lease at $300,000 on January 1, 2017. The interest rate is 12%. Kleckner Corporation made the first lease payment of $53,920 on January 1, 2017. The lease requires eight annual payments. The equipment has a us
> When the records of Debra Hanson Corporation were reviewed at the close of 2018, the following errors were discovered. For each item, indicate by a check mark in the appropriate column whether the error resulted in an overstatement, an understatement, or
> Holder-Webb Company began operations on January 1, 2015, and uses the average-cost method of pricing inventory. Management is contemplating a change in inventory methods for 2018. The following information is available for the years 2015â€
> On January 1, 2017, a machine was purchased for $900,000 by Young Co. The machine is expected to have an 8-year life with no salvage value. It is to be depreciated on a straight-line basis. The machine was leased to St. Leger Inc. on January 1, 2017, at
> Ace Inc. produces electronic components for sale to manufacturers of radios, television sets, and digital sound systems. In connection with her examination of Ace’s financial statements for the year ended December 31, 2018, Gloria Rodd, CPA, completed fi
> The transactions listed below relate to Wainwright Inc. You are to assume that on the date on which each of the transactions occurred, the corporation’s accounts showed only common stock ($100 par) outstanding, a current ratio of 2.7:1, and a substantial
> In 2017, Elbert Corporation had net cash provided by operating activities of $531,000, net cash used by investing activities of $963,000, and net cash provided by financing activities of $585,000. At January 1, 2017, the cash balance was $333,000. Comput
> Moxley Corporation had January 1 and December 31 balances as follows. For 2017, cost of goods sold was $500,000. Compute Moxley’s 2017 cash payments to suppliers. 1/1/17 12/31/17 $95,000 Inventory Accounts payable $113,000 69,000
> At January 1, 2017, Eikenberry Inc. had accounts receivable of $72,000. At December 31, 2017, accounts receivable is $54,000. Sales revenue for 2017 total $420,000. Compute Eikenberry’s 2017 cash receipts from customers.
> Use the information from BE23-4 for Bloom Corporation. Prepare the cash flows from operating activities section of Bloom’s 2017 statement of cash flows using the indirect method. From BE23-4: Bloom Corporation had the following 2017 income statement. S
> Bloom Corporation had the following 2017 income statement. Sales revenue………………….…………$200,000 Cost of goods sold………………………...120,000 Gross profit……………………………………80,000 Operating expenses (includes depreciation of $21,000)…………………………………..50,000 Net income…………
> Stansfield Corporation had the following activities in 2017. 1. Payment of accounts payable $770,000. 2. Issuance of common stock $250,000. 3. Payment of dividends $350,000. 4. Collection of note receivable $100,000. 5. Issuance of bonds payable $51
> Wainwright Corporation had the following activities in 2017. 1. Sale of land $180,000. 2. Purchase of inventory $845,000. 3. Purchase of treasury stock $72,000. 4. Purchase of equipment $415,000. 5. Issuance of common stock $320,000. 6. Purchase of
> On January 3, 2016, Martin Company purchased for $500,000 cash a 10% interest in Renner Corp. On that date, the net assets of Renner had a book value of $3,700,000. The excess of cost over the underlying equity in net assets is attributable to undervalue
> In 2017, Leppard Inc. issued 1,000 shares of $10 par value common stock for land worth $40,000. a. Prepare Leppard’s journal entry to record the transaction. b. Indicate the effect the transaction has on cash. c. Indicate how the transaction is report
> In 2017, Wild Corporation reported a net loss of $70,000. Wild’s only net income adjustments were depreciation expense $81,000, and increase in accounts receivable $8,100. Compute Wild’s net cash provided (used) by operating activities.
> In June 2017, the board of directors for McElroy Enterprises Inc. authorized the sale of $10,000,000 of corporate bonds. Jennifer Grayson, treasurer for McElroy Enterprises Inc., is concerned about the date when the bonds are issued. The company really n
> Hendrickson Corporation reported net income of $50,000 in 2017. Depreciation expense was $17,000. The following working capital accounts changed. Accounts receivable…………………………….$11,000 increase Available-for-sale debt securities………….16,000 increase Inve
> Novak Corporation is preparing its 2017 statement of cash flows, using the indirect method. Presented below is a list of items that may affect the statement. Using the code below, indicate how each item will affect Novak’s 2017 statement of cash flows.
> Indicate the effect—Understate, Overstate, No Effect—that each of the following errors has on 2017 net income and 2018 net income. 2017 2018 (a) Equipment (with a useful life of 5 years) wa purchased and expensed
> In 2017, Bailey Corporation discovered that equipment purchased on January 1, 2015, for $50,000 was expensed at that time. The equipment should have been depreciated over 5 years, with no salvage value. The effective tax rate is 30%. Prepare Bailey’s 201
> Sesame Company purchased a computer system for $74,000 on January 1, 2016. It was depreciated based on a 7-year life and an $18,000 salvage value. On January 1, 2018, Sesame revised these estimates to a total useful life of 4 years and a salvage value of
> Shannon, Inc., changed from the LIFO cost flow assumption to the FIFO cost flow assumption in 2017. The increase in the prior year’s income before taxes is $1,200,000. The tax rate is 40%. Prepare Shannon’s 2017 journal entry to record the change in acco
> Simmons Corporation owns stock of Armstrong, Inc. Prior to 2017, the investment was accounted for using the equity method. In early 2017, Simmons sold part of its investment in Armstrong, and began using the fair value method. In 2017, Armstrong earned n
> The management of Utrillo Instrument Company had concluded, with the concurrence of its independent auditors, that results of operations would be more fairly presented if Utrillo changed its method of pricing inventory from last-in, first-out (LIFO) to a
> Oliver Corporation has owned stock of Conrad Corporation since 2014. At December 31, 2017, its balances related to this investment were: Equity Investments……………………………………………….$185,000 Fair Value Adjustment (AFS)……………………………….34,000 Dr. Accumulated Unrealiz
> Geiberger Corporation manufactures replicators. On January 1, 2017, it leased to Althaus Company a replicator that had cost $110,000 to manufacture. The lease agreement covers the 5-year useful life of the replicator and requires 5 equal annual rentals o
> Use the information for Indiana Jones Corporation from BE21-9. Assume that for Lost Ark Company, the lessor, collectibility is reasonably predictable, there are no important uncertainties concerning costs, and the carrying amount of the equipment is $202
> Nancy Tercek, the financial vice president, and Margaret Lilly, the controller, of Romine Manufacturing Company are reviewing the financial ratios of the company for the years 2017 and 2018. The financial vice president notes that the profit margin on sa
> Refer to the accounting change by Wertz Construction Company in BE22-1. Wertz has a profit-sharing plan, which pays all employees a bonus at year-end based on 1% of pretax income. Compute the indirect effect of Wertz’s change in accounting principle that
> Jennifer Brent Corporation owns equipment that cost $80,000 and has a useful life of 8 years with no salvage value. On January 1, 2017, Jennifer Brent leases the equipment to Donna Havaci Inc. for 1 year with one rental payment of $15,000 on January 1. P
> Use the information for IBM from BE21-6. Assume the direct-financing lease was recorded at a present value of $150,000. Prepare IBM’s December 31, 2017, entry to record interest. From BE21-6: Assume that IBM leased equipment that was carried at a cost o
> Assume that IBM leased equipment that was carried at a cost of $150,000 to Sharon Swander Company. The term of the lease is 6 years beginning January 1, 2017, with equal rental payments of $30,044 at the beginning of each year. All executory costs are pa
> Jana Kingston Corporation enters into a lease on January 1, 2017, that does not transfer ownership or contain a bargain-purchase option. It covers 3 years of the equipment’s 8-year useful life, and the present value of the minimum lease payments is less
> Use the information for Rick Kleckner Corporation from BE21-3. Assume that at December 31, 2017, Kleckner made an adjusting entry to accrue interest expense of $29,530 on the lease. Prepare Kleckner’s January 1, 2018, journal entry to record the second l
> On January 1, 2017, Millay Inc. paid $700,000 for 10,000 shares of Genso Company’s voting common stock, which was a 10% interest in Genso. At that date, the net assets of Genso totaled $6,000,000. The fair values of all of Genso’s identifiable assets and
> Rick Kleckner Corporation recorded a capital lease at $300,000 on January 1, 2017. The interest rate is 12%. Kleckner Corporation made the first lease payment of $53,920 on January 1, 2017. The lease requires eight annual payments. The equipment has a us
> Waterworld Company leased equipment from Costner Company. The lease term is 4 years and requires equal rental payments of $43,019 at the beginning of each year. The equipment has a fair value at the inception of the lease of $150,000, an estimated useful
> At the beginning of 2017, Wertz Construction Company changed from the completed-contract method to recognizing revenue over time (percentage-of-completion) for financial reporting purposes. The company will continue to use the completed-contract method f
> Whittier Construction Co. had followed the practice of expensing all materials assigned to a construction job without recognizing any salvage inventory. On December 31, 2017, it was determined that salvage inventory should be valued at $52,000. Of this a
> Koch Corporation is in the process of preparing its annual financial statements for the fiscal year ended April 30, 2018. Because all of Koch’s shares are traded intrastate, the company does not have to file any reports with the Securities and Exchange C
> What are the major sources of cash (inflows) in a statement of cash flows? What are the major uses (outflows) of cash?
> Explain the meaning of the following terms: a. commonsize analysis, b. vertical analysis, c. horizontal analysis, and d. percentage analysis.
> On January 2, 2017, $100,000 of 11%, 10-year bonds were issued for $97,000. The $3,000 discount was charged to Interest Expense. The bookkeeper, Mark Landis, records interest only on the interest payment dates of January 1 and July 1. What is the effect
> In January 2017, installation costs of $6,000 on new machinery were charged to Maintenance and Repairs Expense. Other costs of this machinery of $30,000 were correctly recorded and have been depreciated using the straight-line method with an estimated li
> Each of the following items must be considered in preparing a statement of cash flows for Blackwell Inc. for the year ended December 31, 2017. State where each item is to be shown in the statement, if at all. a. Plant assets that had cost $18,000 6½ yea
> Colbert Corporation had the following 2017 income statement. Revenues………$100,000 Expenses…………..60,000 $ 40,000
> Prior to 2017, Heberling Inc. excluded manufacturing overhead costs from work in process and finished goods inventory. These costs have been expensed as incurred. In 2017, the company decided to change its accounting methods for manufacturing inventories
> Broussard Company reported net income of $3.5 million in 2017. Depreciation for the year was $520,000, accounts receivable increased $500,000, and accounts payable increased $300,000. Compute net cash flow from operating activities using the indirect met
> Winston Industries and Ewing Inc. enter into an agreement that requires Ewing Inc. to build three diesel-electric engines to Winston’s specifications. Upon completion of the engines, Winston has agreed to lease them for a period of 10 years and to assume
> Cleveland Inc. leased a new crane to Abriendo Construction under a 5-year noncancelable contract starting January 1, 2017. Terms of the lease require payments of $33,000 each January 1, starting January 1, 2017. Cleveland will pay insurance, taxes, and m
> Glaus Leasing Company agrees to lease machinery to Jensen Corporation on January 1, 2017. The following information relates to the lease agreement. 1. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic l
> On January 1, 2017, Irwin Animation sold a truck to Peete Finance for $33,000 and immediately leased it back. The truck was carried on Irwin’s books at $28,000. The term of the lease is 5 years, and title transfers to Irwin at lease-end. The lease requir
> Matheny Inc. went public 3 years ago. The board of directors will be meeting shortly after the end of the year to decide on a dividend policy. In the past, growth has been financed primarily through the retention of earnings. A stock or a cash dividend h
