At December 31, 2007, Angie Brandt Corp. has assets of $10,000,000, liabilities of $6,000,000, common stock of $2,000,000

CA24-4 (Post-Balance Sheet Events) At December 31, 2007, Angie Brandt 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 2007 were $18,000,000, and net income was $800,000. As auditors of this company, you are making a review of subsequent events on February 13, 2008, and you find the following.

1. On February 3, 2008, one of Brandt’s customers declared bankruptcy. At December 31, 2007, this company owed Brandt $300,000, of which $40,000 was paid in January, 2008.
2. On January 18, 2008, one of the three major plants of the client burned.
3. On January 23, 2008, a strike was called at one of Brandt’s largest plants, which halted 30% of its production. As of today (February 13) the strike has not been settled.
4. A major electronics enterprise has introduced a line of products that would compete directly with Brandt’s primary line, now being produced in a specially designed new plant. Because of manufacturing innovations, the competitor has been able to achieve quality similar to that of Brandt’s products, but at a price 50% lower. Brandt officials say they will meet the lower prices, which are high enough to cover variable manufacturing and selling costs but which permit recovery of only a portion of fixed costs.
5. Merchandise traded in the open market is recorded in the company’s records at $1.40 per unit on December 31, 2007. This price had prevailed for 2 weeks, after release of an official market report that predicted vastly enlarged supplies; however, no purchases were made at $1.40. The price throughout the preceding year had been about $2, which was the level experienced over several years. On January 18, 2008, the price returned to $2, after public disclosure of an error in the official calculations of the prior December, correction of which destroyed the expectations of excessive supplies. Inventory at December 31, 2007, was on a lower of cost or market basis.
6. On February 1, 2008, the board of directors adopted a resolution accepting the offer of an investment banker to guarantee the marketing of $1,200,000 of preferred stock.

Instructions
State in each case how the 2007 financial statements would be affected, if at all.

Click here for the solution: At December 31, 2007, Angie Brandt Corp. has assets of $10,000,000, liabilities of $6,000,000, common stock of $2,000,000

Actuary and trustee reports indicate the following changes in the PBO and plan assets of Lakeside Cable during 2011

P17-16 Comprehensive-reporting a pension plan; pension spreadsheet; determine changes in balances; two years

Actuary and trustee reports indicate the following changes in the PBO and plan assets of Lakeside Cable during 2011:

Prior service cost at Jan. 1, 2011, from plan amendment at the beginning of 2009 (amortization: $4 million per year) $32 million
Net loss-pensions at Jan. 1, 2011 (previous losses exceeded previous gains) $40million
Average remaining service life of the active employee group 10 years
Actuary's discount rate 8%

($in millions)
PBO Plan Assets
Beginning of 2011 $300 Beginning of 2011 $200
Service cost 48 Return on plan assets
Interest cost, 8% 24 7.5% (10% expected) 15
Loss (gain) on PBO (2) Cash contributions 45
Less: Retiree benefits (20) Less: Retiree benefits (20)
End of 2011 $350 End of 2011 $240

Required:
1. Determine Lakeside’s pension expense for 2011 and prepare the appropriate journal entries to record the expense as well as the cash contribution to plan assets and payment of benefits to retirees.
2. Determine the new gains and/or losses in 2011 and prepare the appropriate journal entry(s) to record them.
3. Prepare a pension spreadsheet to assist you in determining end of 2011 balances in the PBO, plan assets, prior service cost-ACOI, the net loss-ACOI, and the pension liability.

Click here for the solution: Actuary and trustee reports indicate the following changes in the PBO and plan assets of Lakeside Cable during 2011

If intangible assets are acquired for stock, how is the cost of the intangible determined?

If intangible assets are acquired for stock, how is the cost of the intangible determined?

Click here for the solution: If intangible assets are acquired for stock, how is the cost of the intangible determined?

Rolanda Marshall Company, organized in 2007, has set up a single account for all intangible assets

E12-6 (Recording and Amortization of Intangibles) Rolanda Marshall Company, organized in 2007, has set up a single account for all intangible assets. The following summary discloses the debit entries that been recorded during 2008.

1/2/08 Purchased patent (8 yr life) $350,000
4/1/08 Purchased goodwill (indefinite life) $360,000
7/1/08 Purchased franchise with 10 yr life; expires 7/1/18 $450,000
8/1/08 Payment of copyright (5 yr life) $156,00
9/1/08 Research and development costs $215,000
Total: $1,531,000

Instructions:
Prepare the necessary entries to clear the Intangible Assets account and to set up separate accounts for distinct types pf intangibles. Make the entries ad of 12/31/08 recording any necessary amortization and reflecting all balances accurately as of that date. (Use the straight line amortization)

Click here for the solution: Rolanda Marshall Company, organized in 2007, has set up a single account for all intangible assets

On December 31, 2006, the Mallory Corporation had the following activity in its fixed assets record

Minicase 3:  On December 31, 2006, the Mallory Corporation had the following activity in its fixed assets record. Assume all assets were purchased on January 1.

Equipment Cost Salvage Date Life Method of Depreciation
Machine 1 $65,000 $5,000 2002 5 DDB
Building #3 $900,000 not including land $50,000 2004 25 S/L
Mine 316 $1,000,000 $0 2003 1,000,000 tons 30,000 tons extracted
Mine 682 $500,000 $100,000 2001 40,000 barrels 6,000 barrels extracted
Patent $50,000 0 2004 17
Truck 1 $35,000 $3,000 2004 200,000 miles Units of production: total miles depreciated to date are 60,000 as of January 1, 2006. Miles this year 30,000
Truck 2 $50,000 $5,000 2006 150,000 miles Units of production, miles this year are 15,000
Truck 3 $75,000 $10,000 2001 200,000 miles Units of production: total miles depreciated to date are 180,000 as of January 1, 2006. Miles in 2006 are 30,000 miles.
Machine 2 $100,000 $5,000 2003 10 S/L

REQUIRED:
• Compute the depletion, amortization, and depreciation expense on December 31, 2006 for each asset listed above.
• Record the entries for the assets above
• Suppose that we sold machine 2 for $50,000, record the entry
• Suppose that the building life increased from 25 years to 30 years, revise the depreciation and prepare the entry.
• Suppose that the corporation spent $20,000 in 2006 to defend the patent. Record the entry.

Click here for the solution: On December 31, 2006, the Mallory Corporation had the following activity in its fixed assets record

Data related to the acquisition of timber rights and intangible assets during the current year ended December 31 are as follows

PR 10-6A Data related to the acquisition of timber rights and intangible assets during the current year ended December 31 are as follows:

a. On December 31, the company determined that $20,000,000 of goodwill was impaired.
b. Governmental and legal costs of $675,000 were incurred on June 30 in obtaining a patent with an estimated economic life of 10 years. Amortization is to be for one-half year.
c. Timber rights on a tract of land were purchased for $1,665,000 on February 16. The stand of timber is estimated at 9,000,000 board feet. During the current year, 2,400,000 board feet of timber were cut and sold.

Instructions
1. Determine the amount of the amortization, depletion, or impairment for the current year for each of the foregoing items.
2. Journalize the adjusting entries to record the amortization, depletion, or impairment for each item.

Click here for the solution: Data related to the acquisition of timber rights and intangible assets during the current year ended December 31 are as follows

The current conceptual distinction between liabilities and equity defines liabilities independently of assets and equity

Communication Case 18-10 Should the present two-category distinction between liabilities and equity be retained? Group interaction.

The current conceptual distinction between liabilities and equity defines liabilities independently of assets and equity, with equity defined as a residual amount. The present proliferation of financial instruments that combine features of both debt and equity and the difficulty of drawing a distinction have led many to conclude that the present two-category distinction between liabilities and equity should be eliminated. Two opposing viewpoints are:

View 1: The distinction should be maintained.
View 2: The distinction should be eliminated and financial instruments should instead be reported in accordance with the priority of their claims to enterprise assets.

One type of security that often is mentioned in the debate is convertible bonds. Although stock in many ways, such a security also obligates the issuer to transfer assets at a specified price and redemption date. Thus it also has features of debt. In considering this question, focus on conceptual issues regarding the practicable and theoretically appropriate treatment, unconstrained by GAAP.

Required:
1. Which view do you favor? Develop a list of arguments in support of your view prior to the class session for which the case is assigned.
2. In class, your instructor will pair you (and everyone else) with a classmate (who also has independently developed an argument).
a. You will be given three minutes to argue your view to your partner. Your partner likewise will be given three minutes to argue his or her view to you. During these three-minute presentations, the listening partner is not permitted to speak.
b. Then after each person has had a turn attempting to convince his or her partner, the two partners will have a three-minute discussion in which they will decide which view is more convincing and arguments will be merged into a single view for each pair.
3. After the allotted time, a spokesperson for each of the two views will be selected by the instructor. Each spokesperson will field arguments from the class in support of that view's position and list the arguments on the board. The class then will discuss the merits of the two lists of arguments and attempt to reach a consensus view, though a consensus is not necessary.

Click here for the solution: The current conceptual distinction between liabilities and equity defines liabilities independently of assets and equity

Information concerning Sandro Corporation’s intangible assets is as follows

P12-3 Information concerning Sandro Corporation’s intangible assets is as follows.

1. On January 1, 2010, Sandro signed an agreement to operate as a franchisee of Hsian Copy Service, Inc. for an initial franchise fee of $75,000. Of this amount, $15,000 was paid when the agreement was signed, and the balance is payable in 4 annual payments of $15,000 each, beginning January 1, 2011. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. The present value at January 1, 2010, of the 4 annual payments discounted at 14% (the implicit rate for a loan of this type) is $43,700. The agreement also provides that 5% of the revenue from the franchise must be paid to the franchisor annually. Sandro’s revenue from the franchise for 2010 was $900,000. Sandro estimates the useful life of the franchise to be 10 years. (Hint: You may want to refer to Appendix 18A to determine the proper accounting treatment for the franchise fee and payments.)

2. Sandro incurred $65,000 of experimental and development costs in its laboratory to develop a patent that was granted on January 2, 2010. Legal fees and other costs associated with registration of the patent totaled $17,600. Sandro estimates that the useful life of the patent will be 8 years.

3. A trademark was purchased from Shanghai Company for $36,000 on July 1, 2007. Expenditures for successful litigation in defense of the trademark totaling $10,200 were paid on July 1, 2010. Sandro estimates that the useful life of the trademark will be 20 years from the date of acquisition.

Instructions
(a) Prepare a schedule showing the intangible assets section of Sandro’s balance sheet at December 31, 2010. Show supporting computations in good form.

(b) Prepare a schedule showing all expenses resulting from the transactions that would appear on Sandro’s income statement for the year ended December 31, 2010. Show supporting computations in good form.


Click here for the solution: Information concerning Sandro Corporation’s intangible assets is as follows

Would it be considered unusual to find debits to fixed assets coming from a journal entry source

1. Would it be considered unusual to find debits to fixed assets coming from a journal entry source rather than a purchase journal? Explain.

2. Would it be normal to find entries to accumulated depreciation and depreciation expense to come from a journal entry source rather than another source?

3. Assume you were auditing FedEx and in your sample of debits to fixed assets, you find an entry for $500,000 with the following notation: "Capitalization of line capacity per CFO, amounts were originally in corrected recorded as an expense." Explain what you would do to complete the audit of this item. What evidence would you need to see to either corroborate or question the entry?


Click here for the solution: Would it be considered unusual to find debits to fixed assets coming from a journal entry source

For each of the following depreciable assets, determine the missing amount (?)

E11-5 Depreciation methods; solving for unknowns

For each of the following depreciable assets, determine the missing amount (?). Abbreviations for depreciation methods are SL for straight line, SYD for sum-of-the-years' digits, and DDB for double-declining balance.

Asset Cost Residual Value Service of Life Depreciation Method Depreciation (Yr 2)
A ? $20,000 5 DDB $24,000
B $40,000 ? 8 SYD 7,000
C 65,000 5,000 ? SL 6,000
D 230,000 10,000 10 ? 22,000
E 200,000 20,000 8 150% DB ?


Click here for the solution: For each of the following depreciable assets, determine the missing amount (?)

The following expenditures relating to plant assets were made by Spaulding Company during the first 2 months of 2011

ACC 291 Week 2 Assignment

E9‑1 The following expenditures relating to plant assets were made by Spaulding Company during the first 2 months of 2011.

1. Paid $5,000 of accrued taxes at time plant site was acquired.
2. Paid $200 insurance to cover possible accident loss on new factory machinery while the machinery was in transit.
3. Paid $850 sales taxes on new delivery truck.
4. Paid $17,500 for parking lots and driveways on new plant site.
5. Paid $250 to have company name and advertising slogan painted on new delivery truck.
6. Paid $8,000 for installation of new factory machinery.
7. Paid $900 for one-year accident insurance policy on new delivery truck.
8. Paid $75 motor vehicle license fee on the new truck.

Instructions
(a) Explain the application of the cost principle in determining the acquisition cost of plant assets.
(b) List the numbers of the foregoing transactions, and opposite each indicate the account title to which each expenditure should be debited.


Click here for the solution: The following expenditures relating to plant assets were made by Spaulding Company during the first 2 months of 2011

The intangible assets section of Time Company at December 31, 2011, is presented below

ACC 291 Week 2 Assignment

P9-7B The intangible assets section of Time Company at December 31, 2011, is presented below.

Patent ($100,000 cost less $10,000 amortization) $ 90,000
Copyright ($60,000 cost less $24,000 amortization) 36,000
Total $126,000

The patent was acquired in January 2011 and has a useful life of 10 years. The copyright was acquired in January 2008 and also has a useful life of 10 years. The following cash transactions may have affected intangible assets during 2012.

Jan. 2 Paid $45,000 legal costs to successfully defend the patent against infringement by another company.
Jan.–June Developed a new product, incurring $230,000 in research and development costs. A patent was granted for the product on July 1. Its useful life is equal to its legal life.
Sept. 1 Paid $125,000 to an Xgames star to appear in commercials advertising the company’s products. The commercials will air in September and October
Oct. 1 Acquired a copyright for $200,000. The copyright has a useful life of 50 years.

Instructions
(a) Prepare journal entries to record the transactions above.
(b) Prepare journal entries to record the 2012 amortization expense for intangible assets.
(b) Amortization Expense—Patents $15,000;
Amortization Expense—Copyrights $7,000
(c) Prepare the intangible assets section of the balance sheet at December 31, 2012.
(c) Total intangible assets, $349,000
(d) Prepare the note to the financials on Time’s intangibles as of December 31, 2012.


Click here for the solution: The intangible assets section of Time Company at December 31, 2011, is presented below

Which of the following would never require reporting deferred tax assets or deferred tax liabilities?

MULTIPLE CHOICE

1. Which of the following would never require reporting deferred tax assets or deferred tax liabilities? (Points : 1)

2. Which of the following statements typifies defined contribution plans? (Points : 1)

3. Which of the following causes a temporary difference between taxable and pretax accounting income? (Points : 1)

4. Consider the following:
A. I present value of vested benefits at present pay levels
B. II present value of nonvested benefits at present pay levels
C. III present value of additional benefits related to projected pay increases

Which of the above constitutes the accumulated benefit obligation? (Points : 1)

5. Of the following temporary differences, which one ordinarily creates a deferred tax asset? (Points : 1)

6. The annual pension expense for what type of pension plan(s) is recorded by a journal entry that includes a debit to pension expense and a credit to the pension asset or pension liability? (Points : 1)

7. The postretirement benefit obligation is the: (Points : 1)

8. When the service method is used for amortizing prior service costs, the amount recognized each year is (Points : 1)

9. The result of interperiod tax allocation is that: (Points : 1)

10. Which of the following statements is true regarding SFAS 109 and its use of the asset and liability approach? (Points : 1)


Click here for the solution: Which of the following would never require reporting deferred tax assets or deferred tax liabilities?

The amounts of the assets and liabilities of Padre Travel Service as of June 30, 2010, the end of the current year

The amounts of the assets and liabilities of Padre Travel Service as of June 30, 2010, the end of the current year, and its revenue and expenses for the year are listed below. The retained earnings were $210,000, and the capital stock was $90,000 as of July 1, 2009, the beginning of the current year. Dividends of $180,000 were paid during the current year.

Accounts payable $71,500
Accounts receivable 188,100
Cash 318,300
Fees earned 1,579,200
Miscellaneous expense 16,000
Rent expense 226,800
Supplies 20,100
Supplies expense 42,600
Taxes expense 33,600
Utilities expense 135,000
Wages expense 790,200

Instructions
1. Prepare an income statement for the current year ended June 30, 2010.
2. Prepare a retained earnings statement for the current year ended June 30, 2010.
3. Prepare a balance sheet as of June 30, 2010.


Click here for the solution: The amounts of the assets and liabilities of Padre Travel Service as of June 30, 2010, the end of the current year

Jimmy Carter Company has provided information on intangible assets as follows

Jimmy Carter Company has provided information on intangible assets as follows

A patent was purchased from Gerald Ford Company for $2,000,000 on January 1, 2006. Carter estimated the remaining useful life of the patent to be 10 years. The patent was carried in Ford's accounting records at a net book value of $2,000,000 when Ford sold it to Carter.

During 2007, a franchise was purchased from Ronald Reagan Company for $480,000. In addition, 5% of revenue from the franchise must be paid to Reagan. Revenue from the franchise for 2007 was $2,500,000.
Carter estimates the useful life of the franchise to be 10 years and takes a full year's amortization in the year of purchase.

Carter incurred research and development costs in 2007 as follows:
Materials and Equipment 142,000
Personnel 189,000
Indirect Costs 102,000

Carter estimates that these new costs will be recouped by December 31, 2010. The materials and equipment purchased have no alternative uses.

On January 1, 2007, because of recent events in the field, Carter estimates that the remaining life of the patent purchased on January 1, 2006, is only 5 years from January 1, 2007.

Instructions:
(a) Prepare a schedule showing the intangibles section of Carter's balance sheet at December 31, 2007. Show supporting computations in good form.
(b) Prepare a schedule showing the income statement effect for the year ended December 31, 2007, as a result of the facts above. Show supporting computations in good form.


Click here for the solution: Jimmy Carter Company has provided information on intangible assets as follows

An internal control system consists of all policies and procedures used to protect assets, ensure reliable accounting

ACC 225 Week 8

Quick Study Exercise 8-1

An internal control system consists of all policies and procedures used to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies.
1. What is the main objective of internal control procedures, and how is it achieved?
2. Why should recordkeeping for assets be separated from custody over the assets?
3. Why should the responsibility for a transaction be divided between two or more individuals or departments?


Click here for the solution: An internal control system consists of all policies and procedures used to protect assets, ensure reliable accounting

You are the controller of Software Company, a distributor of computer software, which is planning to acquire a portion of the net assets

You are the controller of Software Company, a distributor of computer software, which is planning to acquire a portion of the net assets of a product line of Midge Company, a competitor enterprises. The projected acquisition cost is expected to exceed substantially the current fair value of the identifiable net assets to be acquired, which the competitor has agreed to sell because of its substantial net losses of recent years. The board of directors of Software asks if the excess acquisition costs may appropriately be recognized as goodwill.

Prepare a memorandum to the board of directors in answer to the question


Click here for the solution: You are the controller of Software Company, a distributor of computer software, which is planning to acquire a portion of the net assets

In a business combination, the appropriate accounting for an excess of current fair values the combinee's identifiable net assets over the combinor's cost is to

1. In a business combination, the appropriate accounting for an excess of current fair values the combinee's identifiable net assets over the combinor's cost is to: (Points : 1)

2. Which of the following is not included in the combinor's cost of a combinee in a business combination? (Points : 1)

3. Slocum Corporation and Merton Company, both publicly owned companies, are planning a merger, with Slocum being the survivor. Which of the following is a requirement of the merger? (Points : 1)

4. On January 31, 2006, the home office of Wall Company collected a trade account receivable of Doris Branch. The accounting for this transaction by Wall Company should include a: (Points : 1)

5. Both a home office and a branch use the periodic inventory system. If at the end of an accounting period the balance of the branch's Home Office ledger account does not agree with the balance of the home office's Investment in Branch account because of a shipment of merchandise in transit from the home office to the branch: (Points : 1)

6. If both the home office and the branch of a business enterprise use the periodic inventory system, the home office's Shipments to Branch ledger account: (Points : 1)

7. The Income: Branch ledger account is maintained in the accounting records of: (Points : 1)

8. Among the journal entries (explanation omitted) in the accounting records of the home office of Price Company was the following:
Office Equipment: Lang Branch 12,500
Investment in Lang Branch 12,500
This journal entry indicates that: (Points : 1)

9. The Home Office ledger account in the accounting records of a branch is best described as: (Points : 1)

10. The following journal entry (explanation omitted) appeared in the accounting records of Marty Corporation's only branch:
Operating Expenses 600,000
Home Office 600,000
The journal entry indicates that: (Points : 1)


Click here for the solution: In a business combination, the appropriate accounting for an excess of current fair values the combinee's identifiable net assets over the combinor's cost is to

The following totals were drawn from Independence City’s “Schedule of Changes in Capital Assets by Function and Activity”

P. 7-4 Governments sometimes add to, but do not delete, their capital assets.

The following totals were drawn from Independence City’s “Schedule of Changes in Capital Assets by Function and Activity,” included in the city’s financial statements for the year ending June 30, 2012:

General capital assets, July, 1, 2011 $33,276,151
Additions/transfers-in 459,430
Deletions/transfers-out (265,795)
General capital assets, June 30, 2012 $33,469,786

The complete schedule disaggregates the data by function (e.g., general government, public safety, public works, health and welfare, culture, and recreation) and subfunction (e.g., park maintenance, recreation, tourism). Another schedule, “Schedule of General Capital Assets by Source,” shows the beginning and ending balances of the specific types of assets:

Type of Asset 2012 2011
Land $ 8,209,380 $ 8,209,380
Buildings $ 9,293,847 $ 9,292,611
Improvements other $ 1,088,307 $ 1,088,307
than buildings
Office furniture and $ 4,863,535 $ 4,536,506
equipment
Mobile equipment $ 7,834,277 $ 8,073,945
Other equipment $ 2,180,440 $ 2,075,402
Total $ 33,469,786 $ 33,276,151

1. Assume that the assets, excluding land, had an average useful life of 20 years. What percentage of the total assets, excluding land, would you expect to have been retired each year?

2. What percentage of the assets (beginning of year values). Excluding land, were actually retired during 2012 (assuming that all deletions/transfers out represent retirements?

3. What was the average useful life of the assets as implied by this percentage?

4. Assume that the entire $265,795 of the deletions and transfers-out applied to the mobile equipment. What would have been the useful life of the equipment as suggested by the percentage of the equipment retired?


Click here for the solution: The following totals were drawn from Independence City’s “Schedule of Changes in Capital Assets by Function and Activity”

Denise contributes the following assets to a partnership in exchange for a 25% partnership interest

48. Denise contributes the following assets to a partnership in exchange for a 25% partnership interest:

FMV Basis
Cash $20,000 20,000
Office equipment 12,000 5,000
Auto 20,000 6,000

What is Denise’s beginning basis in her partnership interest?


Click here for the solution: Denise contributes the following assets to a partnership in exchange for a 25% partnership interest