26 questions about accounting
qaz003326
22222222222222222.docx1.Novak Corporation purchases a patent from Wildhorse Company on January 1, 2017, for $76,000. The patent has a remaining legal life of 13 years. Novak feels the patent will be useful for 10 years. Prepare Novak’s journal entries to record the purchase of the patent and 2017 amortization. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
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Account Titles and Explanation |
Debit |
Credit |
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(To record purchase of patents) |
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(To record amortization of patents) |
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2. Windsor, Inc., spent $93,000 in attorney fees while developing the trade name of its new product, the Mean Bean Machine. Prepare the journal entries to record the $93,000 expenditure and the first year’s amortization, using an 10-year life. Use the account title "Trade Names". (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
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Account Titles and Explanation |
Debit |
Credit |
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(To record expenditure of trade names) |
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(To record amortization expense) |
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3. On September 1, 2017, Sheffield Corporation acquired Aumont Enterprises for a cash payment of $780,000. At the time of purchase, Aumont’s balance sheet showed assets of $580,000, liabilities of $230,000, and owners’ equity of $350,000. The fair value of Aumont’s assets is estimated to be $760,000. Compute the amount of goodwill acquired by Sheffield.
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Value assigned to goodwill |
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$
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4.
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5.
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6. Oriole Co., organized in 2016, has set up a single account for all intangible assets. The following summary discloses the debit entries that have been recorded during 2017 and 2018.
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Intangible Assets |
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7/1/17 |
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8-year franchise; expiration date 6/30/25 |
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$50,400 |
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10/1/17 |
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Advance payment on laboratory space (2-year lease) |
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24,000 |
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12/31/17 |
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Net loss for 2017 including state incorporation fee, $2,500, |
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and related legal fees of organizing, $6,500 (all fees incurred in 2017) |
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14,800 |
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1/2/18 |
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Patent purchased (10-year life) |
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82,000 |
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3/1/18 |
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Cost of developing a secret formula (indefinite life) |
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79,000 |
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4/1/18 |
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Goodwill purchased (indefinite life) |
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276,800 |
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6/1/18 |
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Legal fee for successful defense of patent purchased above |
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11,960 |
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9/1/18 |
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Research and development costs |
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148,000 |
Prepare the necessary entries to clear the Intangible Assets account and to set up separate accounts for distinct types of intangibles. Make the entries as of December 31, 2018, recording any necessary amortization. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round all answers to 0 decimal places, e.g. 8,564. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
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Account Titles and Explanation |
Debit |
Credit |
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(To clear the Intangible Assets) |
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(To record current amount for Franchises) |
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(To record current amount for Rents) |
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(To record current amount for Patents) |
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Reflecting all balances accurately as of that date. (Ignore income tax effects.)
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$
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$
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$
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$
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7. Marin Company borrowed $50,400 on November 1, 2017, by signing a $50,400, 9%, 3-month note. Prepare Marin’s November 1, 2017, entry; the December 31, 2017, annual adjusting entry; and the February 1, 2018, entry. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
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Date |
Account Titles and Explanation |
Debit |
Credit |
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2/1/18 |
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8. Novak Corporation’s weekly payroll of $32,000 included FICA taxes withheld of $2,448, federal taxes withheld of $3,060, state taxes withheld of $990, and insurance premiums withheld of $230. Prepare the journal entry to record Novak’s payroll. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
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Account Titles and Explanation |
Debit |
Credit |
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9. Headland Inc. provides paid vacations to its employees. At December 31, 2017, 28 employees have each earned 2 weeks of vacation time. The employees’ average salary is $580 per week. Prepare Headland’s December 31, 2017, adjusting entry. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
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Account Titles and Explanation |
Debit |
Credit |
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10. The payroll of Crane Company for September 2016 is as follows. Total payroll was $458,000, of which $110,000 is exempt from Social Security tax because it represented amounts paid in excess of $118,500 to certain employees. The amount paid to employees in excess of $7,000 was $363,000. Income taxes in the amount of $81,800 were withheld, as was $9,300 in union dues. The state unemployment tax is 3.5%, but Crane Company is allowed a credit of 2.3% by the state for its unemployment experience. Also, assume that the current FICA tax is 7.65% on an employee’s wages to $118,500 and 1.45% in excess of $118,500. No employee for Crane makes more than $125,000. The federal unemployment tax rate is 0.8% after state credit. Prepare the necessary journal entries if the wages and salaries paid and the employer payroll taxes are recorded separately. (Round answers to 0 decimal places, e.g. 5,275. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts .Credit account titles are automatically indented when amount is entered. Do not indent manually.)
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Account Titles and Explanation |
Debit |
Credit |
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(To record wages and salaries paid) |
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(To record employer payroll taxes) |
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11. Whispering Company sold 196 color laser copiers on July 10, 2017, for $3,670 apiece, together with a 1-year warranty. Maintenance on each copier during the warranty period is estimated to be $301. Prepare entries to record the sale of the copiers, the related warranty costs, and any accrual on December 31, 2017. Actual warranty costs (inventory) incurred in 2017 were $17,380. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
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Date |
Account Titles and Explanation |
Debit |
Credit |
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12. Sheffield Company includes 1 coupon in each box of soap powder that it packs, and 10 coupons are redeemable for a premium (a kitchen utensil). In 2017, Sheffield Company purchased 9,500 premiums at 80 cents each and sold 121,000 boxes of soap powder at $3.20 per box; 42,100 coupons were presented for redemption in 2017. It is estimated that 60% of the coupons will eventually be presented for redemption. Prepare all the entries that would be made relative to sales of soap powder and to the premium plan in 2017. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
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Account Titles and Explanation |
Debit |
Credit |
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(To record the premium inventory) |
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(To record the sales) |
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(To record the expense associated with the sale) |
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13. Sheffield Company pays its office employee payroll weekly. Below is a partial list of employees and their payroll data for August. Because August is their vacation period, vacation pay is also listed.
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Employee |
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Earnings to July 31 |
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Weekly Pay |
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Vacation Pay to Be Received in August |
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Mark Hamill |
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$5,520 |
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$200 |
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- |
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Karen Robbins |
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4,820 |
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150 |
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$300 |
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Brent Kirk |
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4,020 |
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110 |
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220 |
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Alec Guinness |
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8,720 |
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250 |
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- |
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Ken Sprouse |
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9,320 |
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330 |
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660 |
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Assume that the federal income tax withheld is 10% of wages. Union dues withheld are 2% of wages. Vacations are taken the second and third weeks of August by Robbins, Kirk, and Sprouse. The state unemployment tax rate is 2.5% and the federal is 0.8%, both on a $7,000 maximum. The FICA rate is 7.65% on employee and employer on a maximum of $118,500 per employee. In addition, a 1.45% rate is charged both employer and employee for an employee’s wages in excess of $118,500. Make the journal entries necessary for each of the four August payrolls. The entries for the payroll and for the company’s liability are made separately. Also make the entry to record the monthly payment of accrued payroll liabilities. (Round answers to 2 decimal places, e.g. 15.25. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
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Account Titles and Explanation |
Debit |
Credit |
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(To record Payroll 1.) |
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(To record Payroll taxes for Payroll 1.) |
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(To record payrolls 2 and 3.) |
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(To record payroll taxes for Payrolls 2 and 3.) |
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(To record payroll 4.) |
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(To record payroll taxes for payroll 4.) |
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(To record the monthly payment of accrued payroll liabilities.) |
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14. Bridgeport Corporation issued $624,000 of 5% bonds on May 1, 2017. The bonds were dated January 1, 2017, and mature January 1, 2020, with interest payable July 1 and January 1. The bonds were issued at face value plus accrued interest. Prepare Bridgeport’s journal entries for (a) the May 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Round intermediate calculations to 6 decimal places, e.g. 1.251247 and final answer to 0 decimal places, e.g. 38,548.)
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No. |
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Account Titles and Explanation |
Debit |
Credit |
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(a) |
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(b) |
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15. Sarasota Corporation issued $590,000 of 9% bonds on November 1, 2017, for $624,376. The bonds were dated November 1, 2017, and mature in 8 years, with interest payable each May 1 and November 1. Sarasota uses the effective-interest method with an effective rate of 8%. Prepare Sarasota’s December 31, 2017, adjusting entry. (Round intermediate calculations to 6 decimal places, e.g. 1.251247 and final answer to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
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Date |
Account Titles and Explanation |
Debit |
Credit |
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December 31, 2017 |
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16. Sheffield Corporation issued a 4-year, $62,000, zero-interest-bearing note to Brown Company on January 1, 2017, and received cash of $35,449. The implicit interest rate is 15%. Prepare Sheffield’s journal entries for (a) the January 1 issuance and (b) the December 31 recognition of interest. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
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No. |
Date |
Account Titles and Explanation |
Debit |
Credit |
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(a) |
January 1, 2017 |
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(b) |
December 31, 2017 |
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17. Presented below are two independent situations.
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1. |
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On January 1, 2017, Ivanhoe Company issued $240,000 of 8%, 10-year bonds at par. Interest is payable quarterly on April 1, July 1, October 1, and January 1. |
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On June 1, 2017, Shamrock Company issued $192,000 of 11%, 10-year bonds dated January 1 at par plus accrued interest. Interest is payable semiannually on July 1 and January 1. |
For each of these two independent situations, prepare journal entries to record the following. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
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(a) |
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The issuance of the bonds. |
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(b) |
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The payment of interest on July 1. |
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(c) |
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The accrual of interest on December 31. |
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Date |
Account Titles and Explanation |
Debit |
Credit |
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1. |
Ivanhoe Company: |
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Shamrock Company: |
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18. Presented below are three independent situations. (a) Grouper Co. sold $2,150,000 of 12%, 10-year bonds at 104 on January 1, 2017. The bonds were dated January 1, 2017, and pay interest on July 1 and January 1. If Grouper uses the straight-line method to amortize bond premium or discount, determine the amount of interest expense to be reported on July 1, 2017, and December 31, 2017. (Round answer to 0 decimal places, e.g. 38,548.)
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Interest expense to be recorded |
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$
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(b) Monty Inc. issued $640,000 of 8%, 10-year bonds on June 30, 2017, for $493,182. This price provided a yield of 12% on the bonds. Interest is payable semiannually on December 31 and June 30. If Monty uses the effective-interest method, determine the amount of interest expense to record if financial statements are issued on October 31, 2017. (Round intermediate calculations to 6 decimal places, e.g. 1.251247 and final answer to 0 decimal places, e.g. 38,548.)
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Interest expense to be recorded |
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$
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19. On January 2, 2012, Ivanhoe Corporation issued $1,200,000 of 10% bonds at 96 due December 31, 2021. Interest on the bonds is payable annually each December 31. The discount on the bonds is also being amortized on a straight-line basis over the 10 years. (Straight-line is not materially different in effect from the preferable “interest method”.) The bonds are callable at 101 (i.e., at 101% of face amount), and on January 2, 2017, Ivanhoe called $720,000 face amount of the bonds and redeemed them. Ignoring income taxes, compute the amount of loss, if any, to be recognized by Ivanhoe as a result of retiring the $720,000 of bonds in 2017. (Round answer to 0 decimal places, e.g. 38,548.)
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Loss on redemption |
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$
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Prepare the journal entry to record the redemption. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
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Date |
Account Titles and Explanation |
Debit |
Credit |
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January 2, 2017 |
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20. Presented below are two independent situations: (a) On January 1, 2017, Kingbird Inc. purchased land that had an assessed value of $372,000 at the time of purchase. A $544,000, zero-interest-bearing note due January 1, 2020, was given in exchange. There was no established exchange price for the land, nor a ready fair value for the note. The interest rate charged on a note of this type is 12%. Determine at what amount the land should be recorded at January 1, 2017, and the interest expense to be reported in 2017 related to this transaction. (Round answers to 0 decimal places, e.g. 38,548.)
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Land to be recorded at January 1, 2017 |
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$
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Interest expense to be reported |
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$
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(b) On January 1, 2017, Oriole Furniture Co. borrowed $5,200,000 (face value) from Gary Sinise Co., a major customer, through a zero-interest-bearing note due in 4 years. Because the note was zero-interest-bearing, Oriole Furniture agreed to sell furniture to this customer at lower than market price. A 8% rate of interest is normally charged on this type of loan. Prepare the journal entry to record this transaction. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
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Account Titles and Explanation |
Debit |
Credit |
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Determine the amount of interest expense to report for 2017. (Round answer to 0 decimal places, e.g. 38,548.)
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Interest expense to be reported for 2017 |
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$
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22.Your client is in the planning phase for a major plant expansion, which will involve the construction of a new warehouse. The assistant controller does not believe that interest cost can be included in the cost of the warehouse, because it is a financing expense. Others on the planning team believe that some interest cost can be included in the cost of the warehouse, but no one could identify the specific authoritative guidance for this issue. Your supervisor asks you to research this issue.
Instructions
If your school has a subscription to the FASB Codification, go to http://aaahq.org/asclogin.cfm to log in and prepare responses to the following. Provide Codification references for your responses.
(a) Is it permissible to capitalize interest into the cost of assets? Provide authoritative support for your answer.
(b) What are the objectives for capitalizing interest?
(c) Discuss which assets qualify for interest capitalization.
(d) Is there a limit to the amount of interest that may be capitalized in a period?
(e) If interest capitalization is allowed, what disclosures are required?
23. Merck & Co., Inc. and Johnson & Johnson are two leading producers of healthcare products. Each has considerable assets, and each expends considerable funds each year toward the development of new products. The development of a new healthcare product is often very expensive, and risky. New products frequently must undergo considerable testing before approval for distribution to the public. For example, it took Johnson & Johnson 4 years and $200 million to develop its 1-DAY ACUVUE contact lenses. Below are some basic data compiled from the financial statements of these two companies.
Instructions
(a) What kinds of intangible assets might a healthcare products company have? Does the composition of these intangibles matter to investors—that is, would it be perceived differently if all of Merck’s intangibles were goodwill than if all of its intangibles were patents?
(b) Suppose the president of Merck has come to you for advice. He has noted that by eliminating research and development expenditures the company could have reported $4 billion more in net income. He is frustrated because much of the research never results in a product, or the products take years to develop. He says shareholders are eager for higher returns, so he is considering eliminating research and development expenditures for at least a couple of years. What would you advise?
(c) The notes to Merck’s financial statements note that Merck has goodwill of $1.1 billion. Where does recorded goodwill come from? Is it necessarily a good thing to have a lot of goodwill on a company‘s books?
24. As a new intern for the local branch office of a national brokerage firm, you are excited to get an assignment that allows you to use your accounting expertise. Your supervisor provides you with the spreadsheet below, which contains data for the most recent quarter for three companies that the firm has been recommending to its clients as “buys.” Each of the companies’ returns on assets has outperformed their industry cohorts in the past. But, given recent challenges in their markets, there is concern that the companies may experience operating challenges and lower earnings. (All numbers in millions, except return on assets.)
Instructions
(a) The fair value for each of these companies is lower than the corresponding book value. What implications does this have for each company’s future prospects?
(b) To date, none of these companies has recorded goodwill impairments. Your supervisor suspects that they will need to record impairments in the near future, but he is unsure about the goodwill impairment rules. Is it likely that these companies will recognize impairments? Explain.
(c) Estimate the amount of goodwill impairment for each company and prepare the journal entry to record the impairment. For each company, you may assume that the book value less the carrying value of the goodwill approximates the fair value of the company’s net assets.
(d) Discuss the effects of your entries in part (c) on your evaluation of these companies based on the return on assets ratio.
25. Richardson Company is contemplating the establishment of a share-based compensation plan to provide long-run incentives for its top management. However, members of the compensation committee of the board of directors have voiced some concerns about adopting these plans, based on news accounts related to a recent accounting standard in this area. They would like you to conduct some research on this recent standard so they can be better informed about the accounting for these plans.
Instructions
If your school has a subscription to the FASB Codification, go to http://aaahq.org/ascLogin.cfm to log in and prepare responses to the following. Provide Codification references for your responses.
(a) Identify the authoritative literature that addresses the accounting for share-based payment compensation plans.
(b) Briefly discuss the objectives for the accounting for stock compensation. What is the role of fair value measurement?
(c) The Richardson Company board is also considering an employee share-purchase plan, but the Board does not want
to record expense related to the plan. What criteria must be met to avoid recording expense on an employee stockpurchase plan?
26. Richardson Company is contemplating the establishment of a share-based compensation plan to provide long-run incentives for its top management. However, members of the compensation committee of the board of directors have voiced some concerns about adopting these plans, based on news accounts related to a recent accounting standard in this area. They
would like you to conduct some research on this recent standard so they can be better informed about the accounting for these plans.
Instructions
Access the IFRS authoritative literature at the IASB website (http://eifrs.iasb.org/). (Click on the IFRS tab and then register for free eIFRS access if necessary.) When you have accessed the documents, you can use the search tool in your Internet browser to respond to the following questions. (Provide paragraph citations.)
(a) Identify the authoritative literature that addresses the accounting for share-based payment compensation plans.
(b) Briefl y discuss the objectives for the accounting for share-based compensation. What is the role of fair value measurement?
