On January 2, 2011, the Jackson Company purchased equipment to be used in its manufacturing process

E11-10 Double-declining-balance method; switch to straight line

On January 2, 2011, the Jackson Company purchased equipment to be used in its manufacturing process. The equipment has an estimated life of eight years and an estimated residual value of $30,625. The expenditures made to acquire the asset were as follows:

Purchase price $154,000
Freight charges 2,000
Installation charges 4,000

Jackson's policy is to use the double-declining-balance (DDB) method of depreciation in the early years of the equipment's life and then switch to straight line halfway through the equipment's life.

Required:
1. Calculate depreciation for each year of the asset's eight-year life.
2. Discuss the accounting treatment of the depreciation on the equipment.

Click here for the solution: On January 2, 2011, the Jackson Company purchased equipment to be used in its manufacturing process

On January 1, 2010, Novotna Company purchased $400,000, 8% bonds of Aguirre Co for $369,114

P17-2 (Available-for-Sale Debt Securities) On January 1, 2010, Novotna Company purchased $400,000, 8% bonds of Aguirre Co for $369,114. The bonds were purchased to yield 10% interest. Interest is payable semiannually on July 1 and January 1. The bonds mature on January 1, 2015. Novotna Company uses the effective-interest method to amortize discount or premium. On January 1, 2012, Novotna Company sold the bonds for $370,726 after receiving interest to meet its liquidity needs.

a. Prepare journal entry to record purchase of bonds on Jan. 1. (Assume bonds are classified as available-for-sale.)
b. Prepare the amortization schedule for the bonds.
c. Prepare the journal entries to record the semiannual interest on July 1, 2010, and Dec. 31, 2010.
d. If fair value of Aguirre bonds is $372,726 on Dec. 31, 2011, prepare the necessary adjusting entry. (Assume the securities fair value adjustment balance on Jan 1, 2011 is a debit of $3,375.)
e. Prepare journal entry to record the sale of the bonds on Jan 1, 2012.

Click here for the solution: On January 1, 2010, Novotna Company purchased $400,000, 8% bonds of Aguirre Co for $369,114

On January 1, 2008. Phantom Company acquires $200,000 of Spiderman Products Inc,, 9% bonds at a price of $185,589

E17-5 (Effective-Interest versus Straight line bond amortization) On January 1, 2008. Phantom Company acquires $200,000 of Spiderman Products Inc,, 9% bonds at a price of $185,589. The interest is payable each December 31, and the bonds mature December 31, 2010. The investment will provide Phantom Company a 12% yield. The bonds are classified as held to maturity.

Instructions
a.) Prepare a 3 yr schedule of interest revenue and bond discount amortization, applying the straight line method.
b.) Prepare a 3 year schedule of interest revenue and bond discount amortization, applying effective interest method.
c.) Prepare the journal entry for the interest receipt of Dec 31, 2009, and the discount amortization under the straight line method.
d.) Prepare the journal entry for the interest receipt of Dec 31 2008, and the discount amortization under the effective interest method.

Click here for the solution: On January 1, 2008. Phantom Company acquires $200,000 of Spiderman Products Inc,, 9% bonds at a price of $185,589

Zero Mostel Company began operations on January 2, 2008

E13-5 (Compensated Absences) Zero Mostel Company began operations on January 2, 2008. It employs 9 individuals who work 8-hour days and are paid hourly. Each employee earns 10 paid vacation days and 6 paid sick days annually. Vacation days may be taken after January 15 of the year following the year in which they are earned. Sick days may be taken as soon as they are earned; unused sick days accumulate. Additional information is as follows.

Actual Hourly Vacation Days Used Sick Days Used
Wage Rate by each employee by each employee
2008 2009 2008 2009 2008 2009
$10 $11 0 9 4 5

Zero Mostel Company has chosen to accrue the cost of compensated absences at rates of pay in effect during the period when earned and to accrue sick pay when earned.

Instructions
a.) Prepare journal entries to record transactions related to compensated absences during 2008 and 2009.
b.) Compute the amounts of any liability for compensated absences that should be reported on the balance sheet at December 31, 2008 and 2009

Click here for the solution: Zero Mostel Company began operations on January 2, 2008

On January 1, 2011, VKI Corporation awarded 12 million of its $1 par common shares to key personnel, subject to forfeiture if employment is terminated within three years

E 19-2 Restricted stock award plan

On January 1, 2011, VKI Corporation awarded 12 million of its $1 par common shares to key personnel, subject to forfeiture if employment is terminated within three years. On the grant date, the shares have a market price of $2.50 per share.

Required:
1. Determine the total compensation cost pertaining to the restricted shares.
2. Prepare the appropriate journal entry to record the award of restricted shares on January 1, 2011.
3. Prepare the appropriate journal entry to record compensation expense on December 31, 2011.
4. Prepare the appropriate journal entry to record compensation expense on December 31, 2012.
5. Prepare the appropriate journal entry to record compensation expense on December 31, 2013.
6. Prepare the appropriate journal entry to record the lifting of restrictions on the shares at December 31, 2013.

Click here for the solution: On January 1, 2011, VKI Corporation awarded 12 million of its $1 par common shares to key personnel, subject to forfeiture if employment is terminated within three years

On January 4, 2011, Runyan Bakery paid $324 million for 10 million shares of Lavery Labeling Company common stock

P 12-10 Fair value option; equity method investments

[This problem is a variation of Problem 12-9 focusing on the fair value option.]

On January 4, 2011, Runyan Bakery paid $324 million for 10 million shares of Lavery Labeling Company common stock. The investment represents a 30% interest in the net assets of Lavery and gave Runyan the ability to exercise significant influence over Lavery's operations. Runyan chose the fair value option to account for this investment. Runyan received dividends of $2.00 per share on December 15, 2011, and Lavery reported net income of $160 million for the year ended December 31, 2011. The market value of Lavery's common stock at December 31, 2011, was $31 per share. On the purchase date, the book value of Lavery's net assets was $800 million and:

a. The fair value of Lavery's depreciable assets, with an average remaining useful life of six years, exceeded their book value by $80 million.

b. The remainder of the excess of the cost of the investment over the book value of net assets purchased was attributable to goodwill.

Required:
1. Prepare all appropriate journal entries related to the investment during 2011, assuming Runyan accounts for this investment under the fair value option and accounts for the Lavery investment in a manner similar to what they would use for trading securities.
2. What would be the effect of this investment on Runyan's 2011 net income?

Click here for the solution: On January 4, 2011, Runyan Bakery paid $324 million for 10 million shares of Lavery Labeling Company common stock

Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2011

P 12-1 Securities held-to-maturity; bond investment; effective interest

Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2011. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the market yield was 10%. The price paid for the bonds was $66 million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31, 2011, was $70 million.

Required:
1. Prepare the journal entry to record Fuzzy Monkey's investment on January 1, 2011.
2. Prepare the journal entry by Fuzzy Monkey to record interest on June 30, 2011 (at the effective rate).
3. Prepare the journal entries by Fuzzy Monkey to record interest on December 31, 2011 (at the effective rate).
4. At what amount will Fuzzy Monkey report its investment in the December 31, 2011, balance sheet? Why?
5. How would Fuzzy Monkey's 2011 statement of cash flows be affected by this investment?

Click here for the solution: Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2011

Max Weinberg Company discovered the following errors made in January 2008

E4-12 Max Weinberg Company discovered the following errors made in January 2008.

1. A payment of Salaries Expense of $600 was debited to Equipment and credited to Cash, both for $600.
2. A collection of $1,000 from a client on account was debited to Cash $100 and credited to Service Revenue $100.
3. The purchase of equipment on account for $980 was debited to Equipment $890 and credited to Accounts Payable $890.

Instructions
(a) Correct errors by reversing the incorrect entry and preparing the correct entry.
(b) Correct the errors without reversing the incorrect entry.

Click here for the solution: Max Weinberg Company discovered the following errors made in January 2008

Newbirth Coatings Company purchased waterproofing equipment on January 2, 2009, for $380,000

PR 10-2A Newbirth Coatings Company purchased waterproofing equipment on January 2, 2009, for $380,000. The equipment was expected to have a useful life of four years, or 8,000 operating hours, and a residual value of $36,000. The equipment was used for 3,000 hours during 2009, 2,500 hours in 2010, 1,400 hours in 2011, and 1,100 hours in 2012.

Instructions
Determine the amount of depreciation expense for the years ended December 31, 2009, 2010, 2011, and 2012, by (a) the straight-line method, (b) the units-of-production method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the four years by each method. The following columnar headings are suggested for recording the depreciation expense amounts:

Click here for the solution: Newbirth Coatings Company purchased waterproofing equipment on January 2, 2009, for $380,000

Presented is information related to Rogers Co. for the month of January 2008

E5-8 Presented is information related to Rogers Co. for the month of January 2008.

Ending inventory per perpetual records $21,600
Ending inventory actually on hand 21,000
Cost of goods sold 218,000
Freight-out 7,000
Insurance expense 12,000
Rent expense 20,000
Salary Expense 61,000
Sales Discounts 10,000
Sales Returns and Allowances 13,000
Sales 350,000

Instructions
(a) Prepare the necessary adjusting entry for inventory.
(b) Prepare the necessary closing entries.

Click here for the solution: Presented is information related to Rogers Co. for the month of January 2008

On January 1, 2008, a U.S. company purchased 100% of the outstanding stock of Ventana Grains, a company located in Latz City, New Zealand

Problem 13-1 Translation—Local Currency Is the Functional Currency

On January 1, 2008, a U.S. company purchased 100% of the outstanding stock of Ventana Grains, a company located in Latz City, New Zealand. Ventana Grains was organized on January 1, 1994. All the property, plant, and equipment held on January 1, 2008, was acquired when the company was organized. The business combination was accounted for as a purchase transaction. The 2008 financial statements for Ventana Grains, prepared in its local currency, the New Zealand dollar, are given here.

VENTANA GRAINS
Comparative Balance Sheets
January 1 and December 31, 2008
Jan. 1 Dec. 31
Cash and Receivables 500,000 880,000
Inventories 600,000 500,000
Land 400,000 400,000
Buildings (net) 650,000 605,000
Equipment (net) 465,000 470,000
Totals 2,615,000 2,855,000

Jan. 1 Dec. 31
Short-Term Accounts and Notes 295,000 210,000
Long-Term Notes (600,000 issued
September 1, 2000, 80,000 issued
July 1, 2008) 600,000 680,000
Common Stock 800,000 800,000
Additional Paid-in Capital 200,000 200,000
Retained Earnings 720,000 965,000
Total 2,615,000 2,855,000

VENTANA GRAINS
Consolidated Income and Retained Earnings Statement
for the Year Ended December 31, 2008
Revenues 3,225,000
Cost of Goods Sold:
Beginning Inventory 600,000
Purchases 2,100,000
Goods Available for Sale 2,700,000
Less: Ending Inventory 500,000
Cost of Goods Sold 2,200,000
Gross Profit on Sales 1,025,000
Depreciation Expense 140,000
Other Expenses 540,000 680,000
Net Income 345,000

Jan. 1 Retained Earnings 720,000
Total 1,065,000
Less: Dividends Paid 100,000
Dec. 31 Retained Earnings 965,000

The account balances are computed in conformity with U.S. generally accepted accounting standards.

Other information is as follows:
1. Direct exchange rates for the New Zealand dollar on various dates were:
Date Exchange Rate
January 1, 1994 $.8011
September 1, 2004 .5813
January 1, 2008 .7924
July 1, 2008 .7412
December 31, 2008 .7298
Average for 2008 .7480
Average for the last four months of 2008 .7476
2. Ventana Grains purchased additional equipment for 100,000 New Zealand dollars on July 1, 2008, by issuing a note for 80,000 New Zealand dollars and paying the balance in cash.
3. Sales were made and purchases and “Other Expenses” were incurred evenly throughout the year.
4. Depreciation for the period in New Zealand dollars was computed as follows:
Building 45,000
Equipment—Purchased before 1/1/2008 85,000
Equipment—Purchased July 1, 2008 10,000
5. The inventory is valued on a FIFO basis. The beginning inventory was acquired when the exchange rate was $.7480. The ending inventory was acquired during the last four months of 2008.
6. Dividends of 50,000 New Zealand dollars were paid on July 1 and December 31.

Required:
A. Translate the financial statements into dollars assuming that the local currency of the foreign subsidiary was identified as its functional currency.
B. Prepare a schedule to verify the translation adjustment determined in requirement A. Describe how the translation adjustment would be reported in the financial statements.

Click here for the solution: On January 1, 2008, a U.S. company purchased 100% of the outstanding stock of Ventana Grains, a company located in Latz City, New Zealand

Garza Company expects to have a cash balance of $46,000 on January 1, 2008

ACC 560 Week 6 Assignment

E9-12 Garza Company expects to have a cash balance of $46,000 on January 1, 2008. Relevant monthly budget data for the first 2 months of 2008 are as follows.

Collections from customers: January $85,000, February $150,000.
Payments for direct materials: January $50,000, February $70,000.
Direct labor: January $30,000, February $45,000. Wages are paid in the month they are incurred.
Manufacturing overhead: January $21,000, February $25,000. These costs include depreciation of $1,000 per month. All other overhead costs are paid as incurred.
Selling and administrative expenses: January $15,000, February $20,000. These costs are exclusive of depreciation. They are paid as incurred.

Sales of marketable securities in January are expected to realize $10,000 in cash. Garza Company has a line of credit at a local bank that enables it to borrow up to $25,000. The company wants to maintain a minimum monthly cash balance of $20,000.

Instructions
Prepare a cash budget for January and February.

Click here for the solution: Garza Company expects to have a cash balance of $46,000 on January 1, 2008

Hrabik Corporation issued $600,000, 9%, 10-year bonds on January 1, 2011, for $562,613

E10-18 Hrabik Corporation issued $600,000, 9%, 10-year bonds on January 1, 2011, for $562,613. This price resulted in an effective-interest rate of 10% on the bonds. Interest is payable semiannually on July 1 and January 1. Hrabik uses the effective-interest method to amortize bond premium or discount.

Instructions
Prepare the journal entries to record the following. (Round to the nearest dollar.)
a) The issuance of the bonds.
b) The payment of interest and the discount amortization on July 1, 2011, assuming that interest was not accrued on June 30.
c) The accrual of interest and the discount amortization on December 31, 2011.


Click here for the solution: Hrabik Corporation issued $600,000, 9%, 10-year bonds on January 1, 2011, for $562,613

Glaser Services acquired 30% of the outstanding common stock of Nickels Company on January 1, 2008

Glaser Services acquired 30% of the outstanding common stock of Nickels Company on January 1, 2008, by paying $800,000 for the 45,000 shares. Nickels declared and paid $0.30 per share cash dividends on March 15, June 15, September 15, and December 15, 2008. Nickels reported net income of $320,000 for the year. At December 31, 2008, the market price of Nickels common stock was $24 per share.

Instructions
a) Prepare the journal entries for Glaser Services for 2008 assuming Glaser cannot exercise significant influence over Nickels. (Use the cost method and assume that Nickels common stock should be classified as a trading security.)
b) Prepare the journal entries for Glaser Services for 2008, assuming Glaser can exercise significant influence over Nickels. Use the equity method.
c) In tabular form, indicate the investment and income statement account balances at December 31, 2008, under each method of accounting.


Click here for the solution: Glaser Services acquired 30% of the outstanding common stock of Nickels Company on January 1, 2008

On January 1, 2011, Adams-Meneke Corporation granted 25 million incentive stock options to division managers

E 19-6 Stock options; forfeiture of options

On January 1, 2011, Adams-Meneke Corporation granted 25 million incentive stock options to division managers, each permitting holders to purchase one share of the company's $1 par common shares within the next six years, but not before December 31, 2013 (the vesting date). The exercise price is the market price of the shares on the date of grant, currently $10 per share. The fair value of the options, estimated by an appropriate option pricing model, is $3 per option.

Required:
1. Determine the total compensation cost pertaining to the options on January 1, 2011.
2. Prepare the appropriate journal entry to record compensation expense on December 31, 2011.
3. Unexpected turnover during 2012 caused the forfeiture of 6% of the stock options. Determine the adjusted compensation cost, and prepare the appropriate journal entry(s) on December 31, 2012 and 2013.


Click here for the solution: On January 1, 2011, Adams-Meneke Corporation granted 25 million incentive stock options to division managers

Abraham Company completed the construction of a building at a cost of $2,242,000 and first occupied it in January 1984

Abraham Company completed the construction of a building at a cost of $2,242,000 and first occupied it in January 1984. It was estimated that the building will have a useful life of 40 years and a salvage value of $70,800 at the end of that time.

Early in 1994, an addition to the building was constructed at a cost of $554,600. At the time it was estimated that the remaining life of the building would be, as originally estimated, an additional 30 years, and that the addition would have a life of 30 years, and a salvage value of $23,600.

In 2012, it is determined that the probable life of the building and addition will extend to the end of 2043 or 20 years beyond the original estimate.

a) Using the straight-line method, compute the annual depreciation that would have been charged from 1984 through 1993
b) Compute the annual depreciation that would have been charged from 1994 through 2011
c) Is an entry necessary to adjust the account balances because of the revision of the estimated life in 2012?
d) Compute the annual depreciation to be charged beginning with 2012


Click here for the solution: Abraham Company completed the construction of a building at a cost of $2,242,000 and first occupied it in January 1984

McEntire Corporation began operations on January 1, 2007

McEntire Corporation began operations on January 1, 2007. During its first 3 years of operations, McEntire reported net income and declared dividends as follows.

Year - Net Income - Dividends declared
2007 - $40,000 - $ -0
2008 -125,000 -50,000
2009 - 160,000 - 50,000

The following information relates to 2010.

Income before income tax $220,000
Prior period adjustment: understatement of 2008 depreciation expense (before taxes) $ 25,000
Cumulative decrease in income from change in inventory methods (before taxes) $ 45,000
Dividends declared (of this amount, $25,000 will be paid on Jan. 15, 2011) $100,000
Effective tax rate 40%

Instructions
(a) Prepare a 2010 retained earnings statement for McEntire Corporation.
(b) Assume McEntire Corp. restricted retained earnings in the amount of $70,000 on December 31, 2010. After this action, what would McEntire report as total retained earnings in its December 31, 2010, balance sheet?


Click here for the solution: McEntire Corporation began operations on January 1, 2007

In January 2010, the management of Noble Company concludes that it has sufficient cash to permit some short-term investments in debt and stock securities

P16-2A In January 2010, the management of Noble Company concludes that it has sufficient cash to permit some short-term investments in debt and stock securities. During the year, the following transactions occurred.

Feb. 1 Purchased 600 shares of Hiens common stock for $31,800, plus brokerage fees of $600.
Mar. 1 Purchased 800 shares of Pryce common stock for $20,000, plus brokerage fees of $400.
Apr. 1 Purchased 50 $1,000, 7% Roy bonds for $50,000, plus $1,000 brokerage fees. Interest is payable semiannually on April 1 and October 1.
July 1 Received a cash dividend of $0.60 per share on the Hiens common stock.
Aug. 1 Sold 200 shares of Hiens common stock at $58 per share less brokerage fees of $200.
Sept. 1 Received a $1 per share cash dividend on the Pryce common stock.
Oct. 1 Received the semiannual interest on the Roy bonds.
Oct. 1 Sold the Roy bonds for $50,000 less $1,000 brokerage fees.

At December 31, the fair value of the Hiens common stock was $55 per share. The fair value of the Pryce common stock was $24 per share.

Hint: Journalize investment transactions, prepare adjusting entry, and show statement presentation.

Instructions
(a) Journalize the transactions and post to the accounts Debt Investments and Stock Investments. (Use the T-account form.)
Gain on stock sale $600
(b) Prepare the adjusting entry at December 31, 2010, to report the investment securities at fair value. All securities are considered to be trading securities.
(c) Show the balance sheet presentation of investment securities at December 31, 2010.
(d) Identify the income statement accounts and give the statement classification of each account.


Click here for the solution: In January 2010, the management of Noble Company concludes that it has sufficient cash to permit some short-term investments in debt and stock securities

The balance in retained earnings on January 1, 2010, for Persinger Inc, was $800,000

The balance in retained earnings on January 1, 2010, for Persinger Inc, was $800,000. During the year, the corporation paid cash dividends of $90,000 and distributed a stock dividend of $8,000. In addition, the company determined that it had understated its depreciation expense in prior years by $50,000. Net income for 2010 was $120,000.

Prepare retained earnings statement for 2010.


Click here for the solution: The balance in retained earnings on January 1, 2010, for Persinger Inc, was $800,000

Courtside Concepts Co. began business on January 2, 2011

24th Edition

Courtside Concepts Co. began business on January 2, 2011. Salaries were paid to employees on the last day of each month, and social security tax, Medicare tax, and federal income tax were withheld in the required amounts. An employee who is hired in the middle of the month receives half the monthly salary for that month. All required payroll tax reports were filed, and the correct amount of payroll taxes was remitted by the company for the calendar year. Early in 2012, before the Wage and Tax Statements (Form W-2) could be prepared for distribution to employees and for filing with the Social Security Administration, the employees' earnings records were inadvertently destroyed.

None of the employees resigned or were discharged during the year, and there were no changes in salary rates. The social security tax was withheld at the rate of 6.0% and Medicare tax at the rate of 1.5% on salary. Data on dates of employment, salary rates, and employees' income taxes withheld, which are summarized as follows, were obtained from personnel records and payroll records:

Instructions
1. Calculate the amounts to be reported on each employee's Wage and Tax Statement (Form W-2) for 2011 arranging the data in the following form:

Employee Gross Earnings Federal Income Tax Withheld Social Security Tax Withheld Medicare Tax Withheld

2. Calculate the following employer payroll taxes for the year: (a) social security; (b) Medicare; (c) state unemployment compensation at 4.6% on the first $10,000 of each employee's earnings; (d) federal unemployment compensation at 0.8% on the first $10,000 of each employee's earnings; (e) total.


Click here for the solution: Courtside Concepts Co. began business on January 2, 2011