E21-3 (Lessee Entries; Capital Lease with Executory Costs) Assume that on January 1, 2008, Kimberly Clark Corp. signs a 10 year noncancelable lease agreement to lease a storage building from Sheffield Storage Company. The following information pertains to this lease agreement.
1.) The agreement requires equal rental payments of $72,000 beginning on January 1, 2008.
2.) The fair value of the building on January 1, 2008 is $440,000
3.) The building has an estimated economic life of 12 years, with an unguaranteed residual value of $10,000. Kimberly Clark depreciates similar buildings on the straight line method.
4.) The lease is nonrenewable. At the termination of the lease, the building reverts to the lessor.
5.) Kimberly Clark's incremental borrowing rate is 12% per year. The lessor’s implicit rate is not known by Kimberly Clark.
6.) The yearly rental payment includes $2,470.51 of executory costs related to taxes on property.
Instructions
Prepare the journal entries on the lessee's books to reflect the signing of the lease agreement and to record payments and expenses related to this lease for the years 2008 and 2009, Kimberly Clark's corporate year end is December 31.
Click here for the solution: Assume that on January 1, 2008, Kimberly Clark Corp. signs a 10 year noncancelable lease agreement to lease a storage building from Sheffield Storage Company
Showing posts with label assume. Show all posts
Showing posts with label assume. Show all posts
Wednesday, November 11, 2015
Tuesday, September 15, 2015
Assume that in Year 1, the ending merchandise inventory is overstated by $30,000
8. Assume that in Year 1, the ending merchandise inventory is overstated
by $30,000. If this is the only error in Years 1 and 2, fill in the
items below, indicating which items will be understated, overstated, or
correctly stated for Years 1 and 2.
Item Year 1 Year 2
Ending inventory ___________ _____________
Beginning inventory ___________ _____________
Cost of goods sold ___________ _____________
Click here for the solution: Assume that in Year 1, the ending merchandise inventory is overstated by $30,000
Item Year 1 Year 2
Ending inventory ___________ _____________
Beginning inventory ___________ _____________
Cost of goods sold ___________ _____________
Click here for the solution: Assume that in Year 1, the ending merchandise inventory is overstated by $30,000
Sunday, September 13, 2015
For the following independent situations, assume that you are the audit partner on the engagement
Auditing P 3-28
For the following independent situations, assume that you are the audit partner on the engagement:
1. During your audit of Debold.com, Inc. you conclude that there is a possibility that inventory is materially overstated. The client refuses to allow you to expand the scope of your audit sufficiently to verify whether the balance is actually misstated.
2. Four weeks after the year-end date, a major customer of Prince Construction Co. declared bankruptcy. Because the customer had confirmed the balance due to Prince at the balance sheet date, management refuses to charge off the account or otherwise disclose the information. The receivable represents approximately 10% of accounts receivable and 20% of net earnings before taxes.
3. You complete the audit of Johnson Department Store, and in your opinion, the financial statements are fairly presented. On the last day of the audit, you discover that one of your supervisors assigned to the audit has a material investment in Johnson.
4. Auto Delivery Company has a fleet of several delivery trucks. In the past, Auto Delivery had followed the policy of purchasing all equipment. In the current year, they decided to lease the trucks. The method of accounting for the trucks is therefore changed to lease capitalization. This change in policy is fully disclosed in footnotes.
5. You are auditing Woodcolst Linen Services for the first time. Woodcolst has been in business for several years but has never had an audit before. After the audit is completed, you conclude that the current year balance sheet is stated correctly in accordance with GAAP. The client did not authorize you to do test work for any of the previous years.
6. You were engaged to audit the Cutter Steel Company's financial statements after the close of the corporation's fiscal year. Because you were not engaged until after the balance sheet date, you were not able to physically observe inventory, which is highly material. On the completion of your audit, you are satisfied that Cutter's financial statements are presented fairly, including inventory about which you were able to satisfy yourself by the use of alternative audit procedures.
For each situation, do the following:
a. Identify which of the conditions requiring a modification of or a deviation from an unqualified standard report is applicable.
b. State the level of materiality as immaterial, material, or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision.
c. Given your answers in parts a and b, sate the type of audit report that should be issued. If you have not decided on level of materiality in part b, state the appropriate report for each alternative materiality level.
Click here for the solution: For the following independent situations, assume that you are the audit partner on the engagement
For the following independent situations, assume that you are the audit partner on the engagement:
1. During your audit of Debold.com, Inc. you conclude that there is a possibility that inventory is materially overstated. The client refuses to allow you to expand the scope of your audit sufficiently to verify whether the balance is actually misstated.
2. Four weeks after the year-end date, a major customer of Prince Construction Co. declared bankruptcy. Because the customer had confirmed the balance due to Prince at the balance sheet date, management refuses to charge off the account or otherwise disclose the information. The receivable represents approximately 10% of accounts receivable and 20% of net earnings before taxes.
3. You complete the audit of Johnson Department Store, and in your opinion, the financial statements are fairly presented. On the last day of the audit, you discover that one of your supervisors assigned to the audit has a material investment in Johnson.
4. Auto Delivery Company has a fleet of several delivery trucks. In the past, Auto Delivery had followed the policy of purchasing all equipment. In the current year, they decided to lease the trucks. The method of accounting for the trucks is therefore changed to lease capitalization. This change in policy is fully disclosed in footnotes.
5. You are auditing Woodcolst Linen Services for the first time. Woodcolst has been in business for several years but has never had an audit before. After the audit is completed, you conclude that the current year balance sheet is stated correctly in accordance with GAAP. The client did not authorize you to do test work for any of the previous years.
6. You were engaged to audit the Cutter Steel Company's financial statements after the close of the corporation's fiscal year. Because you were not engaged until after the balance sheet date, you were not able to physically observe inventory, which is highly material. On the completion of your audit, you are satisfied that Cutter's financial statements are presented fairly, including inventory about which you were able to satisfy yourself by the use of alternative audit procedures.
For each situation, do the following:
a. Identify which of the conditions requiring a modification of or a deviation from an unqualified standard report is applicable.
b. State the level of materiality as immaterial, material, or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision.
c. Given your answers in parts a and b, sate the type of audit report that should be issued. If you have not decided on level of materiality in part b, state the appropriate report for each alternative materiality level.
Click here for the solution: For the following independent situations, assume that you are the audit partner on the engagement
Tuesday, September 8, 2015
Assume that you recently graduated with a degree in finance and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc
Assume that you recently graduated with a degree in finance and have
just reported to work as an investment advisor at the brokerage firm of
Balik and Kiefer Inc. One of the firm’s clients is Michelle Dellatorre, a
professional tennis player who has just come to the United States from
Chile. Dellatorre is a highly ranked tennis player who would like to
start a company to produce and market apparel that she designs. She also
expects to invest substantial amounts of money through Balik and
Kiefer. Dellatorre is also very bright, and, therefore, she would like
to understand, in general terms, what will happen to her money. Your
boss has developed the following set of questions which you must ask and
answer to explain the U.S. financial system to Dellatorre.
a.Why is corporate finance important to all managers?
b. Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List the advantages and disadvantages of each form.
c. How do corporations go public and continue to grow?
d.What should be the primary objective of managers?
e.What three aspects of cash flows affect the value of any investment?
f. What are free cash flows
g. What is the weighted average cost of capital?
AND SO ON
p. Briefly explain mortgage securitization and how it contributed to the global economic crisis.
Click here for the solution: Assume that you recently graduated with a degree in finance and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc
a.Why is corporate finance important to all managers?
b. Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List the advantages and disadvantages of each form.
c. How do corporations go public and continue to grow?
d.What should be the primary objective of managers?
e.What three aspects of cash flows affect the value of any investment?
f. What are free cash flows
g. What is the weighted average cost of capital?
AND SO ON
p. Briefly explain mortgage securitization and how it contributed to the global economic crisis.
Click here for the solution: Assume that you recently graduated with a degree in finance and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc
Friday, August 21, 2015
Assume that a company wants to hire a sales engineer-that is, fill a position where the major emphasis is on technical product knowledge
Assume that a company wants to hire a sales engineer-that is, fill a position where the major emphasis is on technical product knowledge. Should this firm recruit engineers and train them to sell or recruit sales reps and teach then the necessary technical information and abilities?
Click here for the solution: Assume that a company wants to hire a sales engineer-that is, fill a position where the major emphasis is on technical product knowledge
Click here for the solution: Assume that a company wants to hire a sales engineer-that is, fill a position where the major emphasis is on technical product knowledge
Saturday, August 15, 2015
E14-5 Assume the same information as in E14-4, except that Foreman Company uses the effective-interest method of amortization for bond premium or discount
E14-5 (Entries for Bond Transactions—Effective-Interest) Assume the same information as in E14-4, except that Foreman Company uses the effective-interest method of amortization for bond premium or discount. Assume an effective yield of 9.7705%.
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 related amortization on July 1, 2011.
(c) The accrual of interest and the related amortization on December 31, 2011.
Click here for the solution: Assume the same information as in E14-4, except that Foreman Company uses the effective-interest method of amortization for 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 related amortization on July 1, 2011.
(c) The accrual of interest and the related amortization on December 31, 2011.
Click here for the solution: Assume the same information as in E14-4, except that Foreman Company uses the effective-interest method of amortization for bond premium or discount
Friday, August 14, 2015
Using the data in Exercise 9-15, assume that during the second year of operations Filippi’s Plumbing Supply Co. had net sales of $5,500,000
EX 9-16 Effect of doubtful accounts on net income
Using the data in Exercise 9-15, assume that during the second year of operations Filippi’s Plumbing Supply Co. had net sales of $5,500,000, wrote off $70,000 of accounts as uncollectible using the direct write-off method, and reported net income of $450,000.
a. Determine what net income would have been in the second year if the allowance method (using 1½% of net sales) had been used in both the first and second years.
b. Determine what the balance of the allowance for doubtful accounts would have been at the end of the second year if the allowance method had been used in both the first and second years.
Click here for the solution: Using the data in Exercise 9-15, assume that during the second year of operations Filippi’s Plumbing Supply Co. had net sales of $5,500,000
Using the data in Exercise 9-15, assume that during the second year of operations Filippi’s Plumbing Supply Co. had net sales of $5,500,000, wrote off $70,000 of accounts as uncollectible using the direct write-off method, and reported net income of $450,000.
a. Determine what net income would have been in the second year if the allowance method (using 1½% of net sales) had been used in both the first and second years.
b. Determine what the balance of the allowance for doubtful accounts would have been at the end of the second year if the allowance method had been used in both the first and second years.
Click here for the solution: Using the data in Exercise 9-15, assume that during the second year of operations Filippi’s Plumbing Supply Co. had net sales of $5,500,000
Assume that a country estimates its M1 money supply at $20 million
8. Assume that a country estimates its M1 money supply at $20 million. A broader measure of the money supply, M2, is $50 million. The country’s gross domestic product is $100 million. Production or real output for the country is 500,000 units or products.
a. Determine the velocity of money based on the M1 money supply.
b. Determine the velocity of money based on the M2 money supply.
c. Determine the average price for the real output.
Click here for the solution: Assume that a country estimates its M1 money supply at $20 million
a. Determine the velocity of money based on the M1 money supply.
b. Determine the velocity of money based on the M2 money supply.
c. Determine the average price for the real output.
Click here for the solution: Assume that a country estimates its M1 money supply at $20 million
Let’s assume that you have been asked to calculate risk-based capital ratios for a bank with the following accounts
10. Let’s assume that you have been asked to calculate risk-based capital ratios for a bank with the following accounts:
Cash = $5 million
Government securities = $7 million
Mortgage loans = $30 million
Other loans = $50 million
Fixed assets = $10 million
Intangible assets = $4 million
Loan-loss reserves = $5 million
Owners’ equity = $5 million
Trust-preferred securities = $3 million
Cash assets and government securities are not considered risky. Loans secured by real estate have a 50 percent weighting factor. All other loans have a 100 percent weighting factor in terms of riskiness.
a. Calculate the equity capital ratio.
b. Calculate the Tier 1 Ratio using risk-adjusted assets.
c. Calculate the Total Capital (Tier 1 plus Tier 2) Ratio using risk-adjusted assets.
Click here for the solution: Let’s assume that you have been asked to calculate risk-based capital ratios for a bank with the following accounts
Cash = $5 million
Government securities = $7 million
Mortgage loans = $30 million
Other loans = $50 million
Fixed assets = $10 million
Intangible assets = $4 million
Loan-loss reserves = $5 million
Owners’ equity = $5 million
Trust-preferred securities = $3 million
Cash assets and government securities are not considered risky. Loans secured by real estate have a 50 percent weighting factor. All other loans have a 100 percent weighting factor in terms of riskiness.
a. Calculate the equity capital ratio.
b. Calculate the Tier 1 Ratio using risk-adjusted assets.
c. Calculate the Total Capital (Tier 1 plus Tier 2) Ratio using risk-adjusted assets.
Click here for the solution: Let’s assume that you have been asked to calculate risk-based capital ratios for a bank with the following accounts
Thursday, August 13, 2015
Assume that on January 1, 2012, Kimberly-Clark Corp. signs a 10-year non-cancelable lease agreement to lease a storage building from Trevino Storage Company
E21-3 (Lessee Entries, Capital Lease with Executory Costs and Un-guaranteed Residual Value) Assume that on January 1, 2012, Kimberly-Clark Corp. signs a 10-year non-cancelable lease agreement to lease a storage building from Trevino Storage Company. The following information pertains to this lease agreement.
1. The agreement requires equal rental payments of $90,000 beginning on January 1, 2012.
2. The fair value of the building on January 1, 2012 is $550,000.
3. The building has an estimated economic life of 12 years, with an un-guaranteed residual value of $10,000. Kimberly-Clark depreciates similar buildings on the straight-line method.
4. The lease is nonrenewable. At the termination of the lease, the building reverts to the lessor.
5. Kimberly-Clark’s incremental borrowing rate is 12% per year. The lessor’s implicit rate is not known by Kimberly-Clark.
6. The yearly rental payment includes $3,088 of executory costs related to taxes on the property.
Instructions
Prepare the journal entries on the lessee’s books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2012 and 2013. Kimberly-Clark’s corporate year end is December 31.
Click here for the solution: Assume that on January 1, 2012, Kimberly-Clark Corp. signs a 10-year non-cancelable lease agreement to lease a storage building from Trevino Storage Company
1. The agreement requires equal rental payments of $90,000 beginning on January 1, 2012.
2. The fair value of the building on January 1, 2012 is $550,000.
3. The building has an estimated economic life of 12 years, with an un-guaranteed residual value of $10,000. Kimberly-Clark depreciates similar buildings on the straight-line method.
4. The lease is nonrenewable. At the termination of the lease, the building reverts to the lessor.
5. Kimberly-Clark’s incremental borrowing rate is 12% per year. The lessor’s implicit rate is not known by Kimberly-Clark.
6. The yearly rental payment includes $3,088 of executory costs related to taxes on the property.
Instructions
Prepare the journal entries on the lessee’s books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2012 and 2013. Kimberly-Clark’s corporate year end is December 31.
Click here for the solution: Assume that on January 1, 2012, Kimberly-Clark Corp. signs a 10-year non-cancelable lease agreement to lease a storage building from Trevino Storage Company
Assume a bank has $5 million in deposits and $1 million in vault cash
P4-2 Assume a bank has $5 million in deposits and $1 million in vault
cash. If the bank holds $1 million in excess reserves and the required
reserves ratio is 8 percent, what level of deposits are being held?
Click here for the solution: Assume a bank has $5 million in deposits and $1 million in vault cash
Click here for the solution: Assume a bank has $5 million in deposits and $1 million in vault cash
Assume that Banc One receives a primary deposit of $1 million
P5-1 Assume that Banc One receives a primary deposit of $1 million. The bank must keep reserves of 20 percent against its deposits. Prepare a simple balance sheet of assets and liabilities for Banc One immediately after the deposit is received.
Click here for the solution: Assume that Banc One receives a primary deposit of $1 million
Click here for the solution: Assume that Banc One receives a primary deposit of $1 million
(Dividing the Bill) Assume that you and your friends go to a restaurant as a group
Group Exercise 8-35 (Dividing the Bill) Assume that you and your friends go to a restaurant as a group. At the end of the meal, you must decide how the bill for the group should be shared. One alternative is to figure out the cost of what each individual consumed and divide up the bill accordingly. Another is to split the bill equally among the individuals.
Required:
1. Which system for dividing the bill is more equitable? Which system is easier to use? How does this issue relate to activity based costing?
2. Should ABC always identify the costs? Explain when and when not.
Click here for the solution: (Dividing the Bill) Assume that you and your friends go to a restaurant as a group
Required:
1. Which system for dividing the bill is more equitable? Which system is easier to use? How does this issue relate to activity based costing?
2. Should ABC always identify the costs? Explain when and when not.
Click here for the solution: (Dividing the Bill) Assume that you and your friends go to a restaurant as a group
Friday, July 31, 2015
Use the assets and partners’ bases from Problem 28. Assume the partnership distributes all its assets in a liquidating distribution
Use the assets and partners’ bases from Problem 28. Assume the partnership distributes all its assets in a liquidating distribution. In deciding the allocation of assets, what issues should the partnership consider to minimize each partner’s taxable gains?
Click here for the solution: Use the assets and partners’ bases from Problem 28. Assume the partnership distributes all its assets in a liquidating distribution
Click here for the solution: Use the assets and partners’ bases from Problem 28. Assume the partnership distributes all its assets in a liquidating distribution
Wednesday, June 24, 2015
(Payback Period) Assume a $40,000 investment and the following cash flows for two alternatives
Problem 12-6 (Payback Period). Assume a $40,000 investment and the following cash flows for two alternatives:
Year Investment X Investment Y
1 $ 6,000 $ 15,000
2 8,000 20,000
3 9,000 10,000
4 17,000 –
5 20,000 –
Required:
(a) Calculate the payback for investment X and Y.
(b) Which alternative would you select under the payback method?
Click here for the solution: (Payback Period) Assume a $40,000 investment and the following cash flows for two alternatives
Year Investment X Investment Y
1 $ 6,000 $ 15,000
2 8,000 20,000
3 9,000 10,000
4 17,000 –
5 20,000 –
Required:
(a) Calculate the payback for investment X and Y.
(b) Which alternative would you select under the payback method?
Click here for the solution: (Payback Period) Assume a $40,000 investment and the following cash flows for two alternatives
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