Intermediate Accounting (11)
Intermediate Accounting教科书上习题答案 (by J David Spiceland)
Chapter 7 Cash and ReceivablesQUESTIONS FOR REVIEW OF KEY TOPICSAACSB assurance of learning standards in accounting and business education require documentation of outcomes assessment. Although schools, departments, and faculty may approach assessment and its documentation differently, one approach is to provide specific questions on exams that become the basis for assessment. To aid faculty in this endeavor, we have labeled each question, exercise and problem in Intermediate Accounting, 6e with the following AACSB learning skills:Questions AACSB Tags Exercises (cont.)AACSB Tags 7-1Reflective thinking 7-11Analytic7-2 Reflective thinking 7-12Analytic7-3Reflective thinking 7-13Analytic7-4Reflective thinking, Communications 7-14Analytic7-5Diversity, Reflective thinking 7-15Analytic7-6Reflective thinking 7-16Analytic7-7Reflective thinking 7-17Analytic7-8Reflective thinking 7-18Diversity, Analytic7-9Reflective thinking, Communications 7-19Analytic7-10Reflective thinking 7-20 Reflective thinking7-11Diversity, Reflective thinking 7-21Analytic7-12Reflective thinking 7-22Analytic7-13Reflective thinking 7-23Analytic7-14Diversity, Reflective thinking 7-24 Analytic7-15Reflective thinking, Communications 7-25Analytic7-16 Reflective thinking7-26Analytic7-17 Reflective thinking7-27 Analytic7-18 Reflective thinking7-28 Analytic7-19 Reflective thinking, Communications7-29 Analytic7-20 Diversity, Reflective thinking7-30 Reflective thinking,CommunicationsBrief Exercises 7-31 Reflective thinking,Communications 7-1Reflective thinking CPA/CMA7-2Diversity, Reflective thinking 7-1Analytic7-3Reflective thinking 7-2Analytic7-4 Analytic 7-3Reflective thinking7-5Analytic 7-4 Analytic7-6Analytic 7-5Analytic7-7Diversity, Reflective thinking 7-6Analytic7-8Analytic 7-7Analytic7-9Analytic 7-1Reflective thinking7-10Analytic 7-2Analytic7-11Analytic 7-3Analytic7-12Analytic Problems7-13 Analytic 7-1Analytic7-14Reflective thinking 7-2Analytic7-15 Diversity, Reflective thinking 7-3Analytic7-16 Analytic 7-4 Analytic7-17 Analytic 7-5 AnalyticExercises7-6 Analytic 7-1Analytic7-7Analytic 7-2Analytic 7-8Analytic 7-3 Diversity, Analytic 7-9 Diversity, Analytic 7-4Analytic 7-10Analytic 7-5Analytic 7-11Analytic 7-6 Analytic 7-12Analytic 7-7 Analytic 7-13Analytic 7-8Analytic 7-14Analytic 7-9Analytic 7-15 Analytic 7-10AnalyticQUESTIONS FOR REVIEW OF KEY TOPICSQuestion 7-1Cash equivalents usually include negotiable instruments as well as highly liquid investments that have a maturity date no longer than three months from date of purchase.Question 7-2Internal control procedures involving accounting functions are intended to improve the accuracy and reliability of accounting information and to safeguard the company’s assets. The separation of duties means that employees involved in recordkeeping should not also have physical responsibility for assets.Question 7-3Management must document the company’s internal controls and assess their adequacy. The auditors must provide an opinion on management’s assessment. The Public Company Accounting Oversight Board’s Auditing Standard No. 5, which supersedes Auditing Standard No. 2, further requires the auditor to express its own opinion on whether the company has maintained effective internal control over financial reporting.Question 7-4A compensating balance is an amount of cash a depositor (debtor) must leave on deposit in an account at a bank (creditor) as security for a loan or a commitment to lend. The classification and disclosure of a compensating balance depends on the nature of the restriction and the classification of the related debt. If the restriction is legally binding, then the cash will be classified as either current or noncurrent (investments and funds or other assets) depending on the classification of the related debt. In either case, note disclosure is appropriate. If the compensating balance arrangement is informal and no contractual agreement restricts the use of cash, note disclosure of the arrangement including amounts involved is appropriate. The compensating balance can be included in the cash and cash equivalents category of current assets.Question 7-5Yes, IFRS and U.S. GAAP differ in how bank overdrafts are treated. Under IFRS, overdrafts can be offset against other cash accounts. Under U.S. GAAP overdrafts must be treated as liabilities.Answers to Questions (continued)Question 7-6Trade discounts are reductions below a list price and are used to establish a final price for a transaction. The reduced price is the starting point for initial valuation of the transaction. A cash discount is a reduction, not in the selling price of a good or service, but in the amount to be paid by a credit customer if the receivable is paid within a specified period of time.Question 7-7The gross method of accounting for cash discounts considers discounts not taken as part of sales revenue. The net method considers discounts not taken as interest revenue, because they are viewed as compensation to the seller for allowing the buyer to defer payment.Question 7-8When returns are material and a company can make reasonable estimates of future returns, an allowance for sales returns is established. At a financial reporting date, this provides an estimate of the amount of future returns for prior sales, and involves a debit to sales returns and a credit to allowance for sales returns for the estimated amount. Allowance for sales returns is a contra account to accounts receivable. When returns actually occur in the future reporting period, the allowance for sales returns is debited.Question 7-9Even when specific customer accounts haven’t been proven uncollectible by the end of the reporting period, bad debt expense properly should be matched with sales revenue on the income statement for that period. Likewise, since it’s not expected that all accounts receivable will be collected, the balance sheet should report only the expected net realizable value of that asset. So, to record the bad debt expense and the related reduction of accounts receivable when the amount hasn’t been determined, an estimate is needed. In an adjusting entry, we record bad debt expense and reduce accounts receivable for an estimate of the amount that eventually will prove uncollectible.If uncollectible accounts are immaterial or not anticipated, or it’s not possible to reliably estimate uncollectible accounts, an allowance for uncollectible accounts is not appropriate. In these few cases, any bad debts that do arise simply are written off as bad debt expense at the time they prove uncollectible.Answers to Questions (continued)Question 7-10The income statement approach to estimating bad debts determines bad debt expense directly by relating uncollectible amounts to credit sales. The balance sheet approach to estimating future bad debts indirectly determines bad debt expense by estimating the net realizable value for accounts receivable that exist at the end of the period. In other words, the allowance for uncollectible accounts at the end of the period is estimated and then bad debt expense is determined by adjusting the allowance account to reflect net realizable value.Question 7-11A company has to separately disclose trade receivables and receivables from related parties under U.S. GAAP, but not under IFRS.Question 7-12The assignment of all accounts receivable in general as collateral for debt requires no special accounting treatment other than note disclosure of the agreement. Question 7-13The accounting treatment of receivables factored with recourse depends on whether certain criteria are met. If the criteria are met, the factoring is accounted for as a sale. If they are not met, the factoring is accounted for as a loan. In addition, note disclosure may be required. Accounts receivable factored without recourse are accounted for as the sale of an asset. The difference between the book value and the fair value of proceeds received is recognized as a gain or a loss.Question 7-14U.S. GAAP focuses on whether control of assets has shifted from the transferor to the transferee. In contrast, IFRS focuses on whether the company has transferred “substantially all of the risks and rewards of ownership,” as well as whether the company has transferred control. Under IFRS:If the company transfers substantially all of the risks and rewards of ownership, the transfer is treated as a sale.If the company retains substantially all of the risks and rewards of ownership, the transfer is treated as a secured borrowing.If neither conditions 1 or 2 hold, the company accounts for the transaction as a sale if it has transferred control, and as a secured borrowing if it has retained control.Answers to Questions (continued)Question 7-15When a note is discounted, a financial institution, usually a bank, accepts the note and gives the seller cash equal to the maturity value of the note reduced by a discount. The discount is computed by applying a discount rate to the maturity value and represents the financing fee the bank charges for the transaction.The four-step process used to account for a discounted note receivable is as follows:1. Accrue any interest revenue earned since the last payment date (or date of thenote).2. Compute the maturity value.3. Subtract the discount the bank requires (discount rate times maturity valuetimes the remaining length of time from date of discounting to maturity date) from the maturity value to compute the proceeds to be received from the bank (maturity value less discount).pute the difference between the proceeds and the book value of the noteand related interest receivable. The treatment of the difference will depend on whether the discounting is accounted for as a sale or as a loan. If it’s a sale the difference is recorded as a loss or gain on the sale; if it’s a loan the difference is viewed as interest expense or interest revenue.Question 7-16A company’s investment in receivables is influenced by several related variables, to include the level of sales, the nature of the product or service, and credit and collection policies. The receivables turnover and average collection period ratios are designed to monitor receivables.Question 7-17The items necessary to adjust the bank balance might include deposits outstanding (including undeposited cash), outstanding checks, and any bank errors discovered during the reconciliation process. The items necessary to adjust the book balance mi ght include collections made by the bank on the company’s behalf, service and other charges made by the bank, NSF (nonsufficient funds) check charges, and any company errors discovered during the reconciliation process.Answers to Questions (concluded)Question 7-18A petty cash fund is established by transferring a specified amount of cash from the company’s general checking account to an employee designated as the petty cash custodian. The fund is replenished by writing a check to the petty cash custodian for the sum of the bills paid with petty cash. The appropriate expense accounts are recorded from petty cash vouchers at the time the fund is replenished.Question 7-19When a creditor’s investment in a receivable becomes impaired, due to a troubled debt restructuring or for any other reason, the receivable is re-measured based on the discounted present value of currently expected cash flows at the loan’s original effective rate (regardless of the extent to which expected cash receipts have been reduced). The extent of the impairment is the difference between the carrying amount of the receivable (the present value of the receivable’s cash flows prior to the restructuring) and the present value of the revised cash flows discounted at the loan’s original effective rate. This difference is recorded as a loss at the time the receivable is reduced.Question 7-20No. Under both U.S. GAAP and IFRS, a company can recognize in net income the recovery of impairment losses of accounts and notes receivable.BRIEF EXERCISESBrief Exercise 7-1The company could improve its internal control procedure for cash receipts by segregating the duties of recordkeeping and the handling of cash. Jim Seymour, responsible for recordkeeping, should not also be responsible for depositing customer checks.Brief Exercise 7-2Under IFRS the cash balance would be $245,000, because they could offset the two accounts. Under U.S. GAAP the balance would be $250,000, because they could not offset the two accounts.Brief Exercise 7-3All of these items would be included as cash and cash equivalents except the U.S. Treasury bills, which would be included in the current asset section of the balance sheet as short-term investments.Brief Exercise 7-4Income before tax in 2012 will be reduced by $2,500, the amount of the cash discounts.$25,000 x 10 = $250,000 x 1% = $2,500Brief Exercise 7-5Income before tax in 2011 will be reduced by $2,500, the anticipated amount of cash discounts.$25,000 x 10 = $250,000 x 1% = $2,500Brief Exercise 7-6Estimated returns = $10,600,000 x 8% = $848,000Less: Actual returns (720,000)Remaining estimated returns $128,000Brief Exercise 7-7Singletary cannot combine the two types of receivables under U.S. GAAP, as the director is a related party. Under IFRS a combined presentation would be allowed. Brief Exercise 7-8(1) Bad debt expense = $1,500,000 x 2% = $30,000(2) Allowance for uncollectible accounts:Beginning balance $25,000Add: Bad debt expense 30,000Deduct: Write-offs (16,000)Ending balance $39,000Brief Exercise 7-9(1) A llowance for uncollectible accounts:Beginning balance $ 25,000Deduct: Write-offs (16,000)Required allowance (33,400)*Bad debt expense $24,400(2) Required allowance = $334,000** x 10% = $33,400*Accounts receivable:Beginning balance $ 300,000Add: Credit sales 1,500,000Deduct: Cash collections (1,450,000)Write-offs (16,000)Ending balance $ 334,000** Brief Exercise 7-10Allowance for uncollectible accounts:Beginning balance $30,000Add: Bad debt expense 40,000Deduct: Required allowance (38,000)Write-offs $32,000Brief Exercise 7-11Credit sales $8,200,000Deduct: Cash collections (7,950,000)Write-offs (32,000)* Year-end balance in A/R (2,000,000)Beginning balance in A/R $1,782,000*Allowance for uncollectible accounts:Beginning balance $30,000Add: Bad debt expense 40,000Deduct: Required allowance (38,000)Write-offs $32,000 Brief Exercise 7-122011 interest revenue:$20,000 x 6% x 1/12 =$1002012 interest revenue:$20,000 x 6% x 2/12 =$200Brief Exercise 7-13Assets decrease by $7,000:Cash increases by $100,000 x 85% = $ 85,000Receivable from factor increases by($11,000 – $3,000 fee) 8,000Accounts receivable decrease (100,000)Net decrease in assets $ (7,000)Liabilities would not change as a result of this transaction.Income before income taxes decreases by $7,000(the loss on sales of receivables)The journal entry to record the transaction is as follows:Brief Exercise 7-14Logitech would account for the transfer as a secured borrowing. The receivables remain on the company’s books and a liability is recorded for the amount borrowed plus the bank’s fee.Brief Exercise 7-15Under IFRS, Huling would treat this transaction as a secured borrowing, because they retain substantially all of the risks and rewards of ownership. Under U.S. GAAP, Huling would treat this transaction as a sale, because they have transferred control. Note, however, that in practice we would typically expect for the entity that has the risks and rewards of ownership to also have control over the assets, so we would expect these criteria to usually lead to the same accounting.Brief Exercise 7-16Brief Exercise 7-17Receivables turnover = $320,000 = 5.33$60,000*($50,000 + 70,000) 2 = $60,000*Average collection = 365 = 68 daysperiod 5.33EXERCISESExercise 7-1Requirement 1Cash and cash equivalents includes:a. Balance in checking account $13,500Balance in savings account 22,100b. Undeposited customer checks 5,200c. Currency and coins on hand 580f. U.S. treasury bills with 2-month maturity 15,000Total $56,380Requirement 2d. The $400,000 savings account will be used for future plant expansion andtherefore should be classified as a noncurrent asset, either in other assets orinvestments.e. The $20,000 in the checking account is a compensating balance for a long-term loan and should be classified as a noncurrent asset, either in otherassets or investments.f. The $20,000 in 7-month treasury bills should be classified as a current assetalong with other temporary investments.Exercise 7-2Requirement 1Cash and cash equivalents includes:Cash in bank – checking account $22,500U.S. treasury bills 5,000Cash on hand 1,350Undeposited customer checks 1,840Total $30,690Requirement 2The $10,000 in 6-month treasury bills should be classified as a current asset along with other temporary investments.Exercise 7-3Requirement 1: U.S. GAAPCurrent Assets:Cash $175,000Current Liabilities:Bank Overdrafts $ 15,000 Requirement 2: IFRSCurrent Assets:Cash $160,000(No current liabilities with respect to overdrafts.)Exercise 7-4Requirement 1Sales price = 100 units x $600 = $60,000 x 70% = $42,000Requirement 2Exercise 7-4 (concluded)Requirement 3Requirement 1, using the net method:Requirement 2, using the net method:Exercise 7-5Requirement 1Sales price = 1,000 units x $50 = $50,000Requirement 2Exercise 7-6 Requirement 1Requirement 2Exercise 7-7Requirement 1Estimated returns = 4% x $11,500,000 = $460,000Less: Actual returns (450,000)Remaining estimated returns $10,000Note: another series of journal entries that produce the same end result would be:Exercise 7-7 (continued)Requirement 2Beginning balance in allowance account $300,000 Add: Year-end estimate 460,000 Less: Actual returns (450,000) Ending balance in allowance account $310,000Exercise 7-8Requirement 1Bad debt expense = $67,500 (1.5% x $4,500,000)Requirement 2Allowance for uncollectible accountsBalance, beginning of year $42,000 Add: Bad debt expense for 2011 (1.5% x $4,500,000) 67,500 Less: End-of-year balance (40,000) Accounts receivable written off $69,500 Requirement 3$69,500 — the amount of accounts receivable written off.Exercise 7-9Requirement 1To record the write-off of receivables.To reinstate an account previously written off and to record the collection.Allowance for uncollectible accounts:Balance, beginning of year $32,000Deduct: Receivables written off (21,000) Add: Collection of receivable previously written off 1,200Balance, before adjusting entry for 2011 bad debts 12,200Required allowance: 10% x $625,000 (62,500) Bad debt expense $50,300 To record bad debt expense for the year.Requirement 2Current assets:Accounts receivable, net of $62,500 allowancefor uncollectible accounts $562,500Exercise 7-10Using the direct write-off method, bad debt expense is equal to actual write-offs. Collections of previously written-off receivables are recorded as revenue.Allowance for uncollectible accounts:Balance, beginning of year $17,280Deduct: Receivables written off (17,100)Add: Collection of receivables previously written off 2,200Less: End of year balance (22,410)Bad debt expense for the year 2011 $20,030 Exercise 7-11($ in millions)Allowance for uncollectible accounts:Balance, beginning of year $16Add: Bad debt expense 14Less: End of year balance (18)Write-offs during the year $ 12*Accounts receivable analysis:Balance, beginning of year ($1,084 + 16)$ 1,100Add: Credit sales 4,271Less: Write-offs* (12)Less: Balance end of year ($953 + 18) (971)Cash collections $4,388Exercise 7-12Requirement 1Requirement 22011 income before income taxes would be understated by $900 2012 income before income taxes would be overstated by $900.Exercise 7-13Requirement 1Requirement 2$ 1,800 interest for 9 months÷ $28,200 sales price= 6.383% rate for 9 monthsx 12/9to annualize the rate_______= 8.511% effective interest rateExercise 7-14Requirement 1Book value of stock $16,000Plus gain on sale of stock 6,000= Note receivable $22,000Interest reported for the year $ 2,200= 10% rate Divided by value of note $ 22,000 Requirement 2To record sale of stock in exchange for note receivable.To accrue interest on note receivable for twelve months.Exercise 7-15Exercise 7-16Exercise 7-17Exercise 7-18Mountain High retains significant risks and rewards and therefore must treat the transfer as a secured borrowing. The accounts receivable stay on the balance sheet of Mountain High, and they must record a liability.Exercise 7-19Step 1: Accrue interest earned.Step 2: Add interest to maturity to calculate maturity value.Step 3: Deduct discount to calculate cash proceeds.Step 4: To record a loss for the difference between the cash proceeds and the note’s book value.Exercise 7-20List A List Bc 1. Internal control a. Restriction on cash.j 2. Trade discount b. Cash discount not taken is sales revenue.g 3. Cash equivalents c. Includes separation of duties.h 4. Allowance for uncollectibles d. Bad debt expense a % of credit sales.i 5. Cash discount e. Recognizes bad debts as they occur.l 6. Balance sheet approach f. Sale of receivables to a financial institution.d 7. Income statement approach g. Include highly liquid investments.k 8. Net method h. Estimate of bad debts.a 9. Compensating balance i. Reduction in amount paid by credit customer.m 10. Discounting j. Reduction below list price.b 11. Gross method k. Cash discount not taken is interest revenue.e 12. Direct write-off method l. Bad debt expense determined by estimating realizablevalue.f 13. Factoring m. Sale of note receivable to a financial institution.Exercise 7-21Requirement 1Step 1: To accrue interest earned for two months on note receivableStep 2: Add interest to maturity to calculate maturity value.Step 3: Deduct discount to calculate cash proceeds.Exercise 7-21 (continued)Step 4: To record a loss for the difference between the cash proceeds and the note’s book value.Exercise 7-21 (concluded)Requirement 2To accrue interest earned on note receivable.Exercise 7-22Second quarter:Receivables turnover = $16,629 = 1.62$10,244Average collection = 91 = 56 daysperiod 1.62Third quarter:Receivables turnover = $13,648 =1.36$10,068Average collection = 91 = 67 daysperiod 1.36Exercise 7-23Average collection period = 365 ÷ Accounts receivable turnover = 50 days Accounts receivable turnover = 365 ÷ 50 = 7.3Average accounts receivable = ($400,000 + 300,000) ÷ 2 = $350,000 Accounts receivable turnover = Net sales ÷ Average accounts receivable7.3 = Net sales ÷ $350,000Net sales = 7.3 x $350,000 =$2,555,000Exercise 7-24To establish the petty cash fund.To replenish the petty cash fund.Exercise 7-25Exercise 7-26Compute balance per bank statement:Balance per books $23,820 Deduct: Deposits outstanding (2,340) Add: Checks outstanding 1,890 Deduct: Bank service charges (38) Balance per bank $23,332Exercise 7-27Requirement 1Requirement 2To correct error in recording cash receipt from credit customer.To record credits to cash revealed by the bank reconciliation.Note: Each of the adjustments to the book balance required journal entries.None of the adjustments to the bank balance require entries.Exercise 7-28A NALYSISPrevious Value:Accrued 2010 interest (10% x $12,000,000)$ 1,200,000Principal 12,000,000Carrying amount of the receivable$13,200,000 New Value:Interest $1 million x 1.73554 * = $1,735,540Principal $11 million x 0.82645 ** = 9,090,950Present value of the receivable (10,826,490) Loss:$ 2,373,510* present value of an ordinary annuity of $1: n=2, i=10% (from Table 4)** present value of $1: n=2, i=10% (from Table 2)J OURNAL E NTRIESJanuary 1, 2011Loss on troubled debt restructuring (to balance) ......... 2,373,510Accrued interest receivable (account balance) ........ 1,200,000 Note receivable ($12,000,000 - 10,826,490) ........... 1,173,510 December 31, 2011Cash (required by new agreement) ................. ............ 1,000,000Note receivable (to balance) ....................... ….. ........ 82,649Interest revenue (10% x $10,826,490) ........ ............ 1,082,649December 31, 2012Cash (required by new agreement) ................. ............ 1,000,000Note receivable (to balance) ........................... ............ 90,861Interest revenue (10% x [$10,826,490 + 82,649]) ... 1,090,861*Cash (required by new agreement) ................. ............ 11,000,000Note receivable (balance) ........................... ............ 11,000,000 * rounded to amortize the note to $11,000,000 (per schedule below)Exercise 12-28 (concluded)Amortization Schedule – Not requiredCash Effective Increase in Outstanding Interest Interest Balance Balance by agreement 10% x Outstanding Balance Discount Reduction10,826,4901 1,000,000 .10 (10,826,490) = 1,082,649 82,649 10,909,1392 1,000,000 .10 (10,909,139) = 1,090,861* 90,861 11,000,0002,000,000 2,173,510 173,510* roundedExercise 7-29A NALYSISPrevious Value:Accrued 2010 interest (10% x $240,000)$ 24,000Principal 240,000Carrying amount of the receivable$264,000New Value:$11,555 + 11,555 + 11,555 + 240,000=$274,665$274,665 x 0.82645 * = (226,997) Loss:$37,003* present value of $1: n=2, i=10% (from Table 2)J OURNAL E NTRIESJanuary 1, 2011Loss on troubled debt restructuring (to balance) ......... 37,003Accrued interest receivable (10% x $240,000) ........ 24,000 Note receivable ($240,000 - 226,997) ........ ............ 13,003 December 31, 2011Note receivable (to balance) ........................... ............ 22,700Interest revenue (10% x $226,997) ............. ............ 22,700 December 31, 2012Note receivable (to balance) ........................... ............ 24,968Interest revenue (10% x [$226,997 + 22,700]) ........ 24,968* Cash (required by new agreement) ................. ............ 274,665Note receivable (balance) ........................... ............ 274,665 * rounded to amortize the note to $274,665 (per schedule below)Exercise 7-29 (concluded)Amortization Schedule – Not requiredCash Effective Increase in Outstanding Interest Interest Balance Balance by agreement 10% x Outstanding Balance Discount Reduction226,9971 0 .10 (226,997) = 22,700 22,700 249,6972 0 .10 (249,697) = 24,968* 24,968 274,66547,668 47,668* roundedExercise 7-30Requirement 1The specific citation that specifies these disclosure policies is FASB ACS 310–10–50–9: “Receivables—Overall—Disclosure—Accounting Policies for Credit Losses and Doubtful Accounts.”Requirement 2FASB ACS 310–10–50–9 reads as follows:“In addition to disclosures required by this Subsection and Subtopic 450-20, an entity shall disclose a description of the accounting policies and methodology the entity used to estimate its allowance for loan losses, allowance for doubtful accounts, and any liability for off-balance-sheet credit losses and related charges for loan, trade receivable or other credit losses in the notes to the financial statements. Such a description shall identify the factors that influenced management's judgment (for example, historical losses and existing economic conditions) and may also include discussion of risk elements relevant to particular categories of financial instruments.”。
Intermediate Accounting (10)
Retained Earnings (2014 original) $5,200,000 Less: correction for 2014 inventory 45,000 Retained Earnings (2014 restated) $5,155,000 Note: 2013 inventory error is self-corrected as it was discovered after the books for 2014 were closed
Overstated
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9
Example
Given for the year 2014: COGS = $1.4 million Retained Earnings (R/E) = $5.2 million December 31st inventory errors both discovered after 2014 books were closed: 2013: inventory overstated by $110,000 2014: inventory overstated by $45,000 Calculate correct 2014 COGS and R/E at Dec. 31, 2014
Copyright © John Wiley & Sons Canada, Ltd. 10
Example
COGS (as originally stated in 2014) $1,400,000 Add: December 31, 2014 overstatement error 45,000 1,445,000 Less: December 31, 2013 overstatement error 110,000 Corrected 2014 COGS $1,335,000
Intermediate Accounting 题库
Appendix A Derivatives QuestionsA-1Reflective thinkingA-2Reflective thinkingA-3AnalyticA-4Reflective thinkingA-5Reflective thinkingA-6Reflective thinkingA-7Reflective thinkingExercisesA-1Reflective thinkingA-2AnalyticA-3AnalyticA-4AnalyticA-5AnalyticA-6AnalyticProblemsA-1 AnalyticA-2 Analytic, CommunicationsA-3 AnalyticCasesA-1A-2A-3A-4QUESTIONS FOR REVIEW OF KEY TOPICSQuestion A-1These instruments “derive” their values or contract ually required cash flows from some other security or index.Question A-2The FASB has taken the position that the income effects of the hedge instrument and the income effects of the item being hedged should be recognized at the same time.Question A-3I f interest rates change, the change in the debt’s fair value will be less than the change in the swap’s fair value. The gain or loss on the $500,000 notional difference will not be offset by a corresponding loss or gain on debt. Any increase or decrease in income resulting from a hedging arrangement would be a result of hedge ineffectiveness such as this.Question A-4A futures contract is an agreement between a seller and a buyer that calls for the seller to deliver a certain commodity (such as wheat, silver, or Treasury bond) at a specific future date, at a predetermined price. Such contracts are actively traded on regulated futures exchanges. If the “commodity” is a financial instrument, such as a Treasury bill, commercial paper, or a CD, the contract is called a financial futures agreement.Question A-5An interest rate swap exchanges fixed interest payments for floating rate payments, or vice versa, without exchanging the underlying notional amount.Question A-6All derivatives, without exception, are reported on the balance sheet as either assets or liabilities at fair (or market) value. The rationale is that (a) derivatives create either rights or obligations that meet the FASB’s definition of assets or liabilities and (b) fair value is the most meaningful measurement.Question A-7A gain or loss from a cash flow hedge is deferred as other comprehensive income until it can be recognized in earnings along with the earnings effect of the item being hedged.EXERCISESExercise A-1Indicate (by abbreviation) the type of hedge each activity described below would represent.Hedge TypeFV Fair value hedgeCF Cash flow hedgeFC Foreign currency hedgeN Would not qualify as a hedgeActivityFV 1.An options contract to hedge possible future price changes of inventory.CF 2.A futures contract to hedge exposure to interest rate changes prior to replacing bank notes when they mature.CF 3.An interest rate swap to synthetically convert floating rate debt into fixed rate debt.FV 4.An interest rate swap to synthetically convert fixed rate debt into floating rate debt.FV 5.A futures contract to hedge possible future price changes of timber covered by a firm commitment to sell.CF 6.A futures contract to hedge possible future price changes of a forecasted sale of tin.FC 7.ExxonMobil’s net investment in a Kuwait oil field.CF 8.An interest rate swap to synthetically convert floating rate interest on a stock investment into fixed rate interest.N 9.An interest rate swap to synthetically convert fixed rate interest on a held-to-maturity debt investment into floating rate interest.CF 10.An interest rate swap to synthetically convert floating rate interest on a held-to-maturity debt investment into fixed rate interest.FV 11.An interest rate swap to synthetically convert fixed rate interest on a stock investment into floating rate interest.Exercise A-2Requirement 1January 1 March 31 June 30 Fair value of interest rate swap0 $6,472 $11,394 Fair value of note payable$200,000 $206,472 $211,394 Fixed rate 10% 10% 10% Floating rate 10% 8% 6% Fixed interest receipts $5,000 $5,000 Floating payments 4,000 3,000 Net interest receipts (payments) $1,000 $2,000Exercise A-2 (concluded)Requirement 2January 1Cash 200,000Notes payable 200,000 To record the issuance of the noteMarch 31Interest expense ([10% x ¼] x $200,000) 5,000Cash 5,000 To record interestCash ($5,000 – ([8% x ¼] x $200,000)) 1,000Interest expense 1,000 To record the net cash settlementInterest rate swap [asset] ($6,472 – 0) 6,472Holding gain – interest rate swap 6,472 To record change in fair value of the derivativeHolding loss - hedged note 6,472Note payable ($206,472 – 200,000)6,472 To record change in fair value of the noteJune 30Interest expense ([10% x ¼] x $200,000) 5,000Cash 5,000 To record interestCash ($5,000 – ([6% x ¼] x $200,000)) 2,000Interest expense 2,000 To record the net cash settlementInterest rate swap [asset] ($11,394 – 6,472) 4,922Holding gain – interest rate swap 4,922 To record change in fair value of the derivativeHolding loss - hedged note 4,922Note payable ($211,394 – 206,472)4,922 To record change in fair value of the noteExercise A-3Requirement 1January 1 March 31 June 30Fair value of interest rate swap0 $6,472 $11,394 Fair value of investment$200,000 $206,472 $211,394 Fixed rate 10% 10% 10% Floating rate 10% 8% 6% Fixed interest payments $5,000 $5,000 Floating interest receipts (4,000) (3,000) Net interest payments $1,000 $2,000Exercise A-3 (concluded)Requirement 2January 1Investment in notes 200,000Cash 200,000 To record the investment of the noteMarch 31Cash 5,000Interest revenue ([10% x ¼] x 200,000)5,000 To record interestInterest revenue 1,000Cash ($5,000 – ([8% x ¼] x $200,000))1,000 To record the net cash settlementHolding loss – interest rate swap 6,472Interest rate swap [liability] ($6,472 – 0)6,472 To record change in fair value of the derivativeInvestment in notes ($206,472 – 200,000) 6,472Holding gain - hedged investment 6,472 To record change in fair value of the investmentJune 30Cash 5,000Interest revenue ([10% x ¼] x $200,000)5,000 To record interestInterest revenue 2,000Cash ($5,000 – ([6% x ¼] x $200,000))2,000 To record the net cash settlementHolding loss – interest rate swap 4,922Interest rate swap [liability] ($11,394 – $6,472)4,922 To record change in fair value of the derivativeInvestment in notes ($211,394 – 206,472) 4,922Holding gain - hedged investment 4,922 To record change in fair value of the investmentExercise A-4Requirement 1June 30Fair value of interest rate swap$11,394Fair value of note payable$220,000Fixed rate 10%Floating rate 6%Fixed receipts $5,000 ([10% x ¼] x $200,000) Floating payments (3,000) ([6% x ¼] x $200,000) Net interest receipts (payments) $2,000Exercise A-4 (concluded)Requirement 2Your entries would be the same whether there was or was not an additional rise in the fair value of the note (higher than that of the swap) on June 30 due to investors’ perceptions that the creditworth iness of LLB was improving. When a note’s fair value changes by an amount different from that of a designated hedge instrument for reasons unrelated to interest rates, we ignore those changes. We recognize only the fair value changes in the hedged item that we can attribute to the risk being hedged (interest rate risk in this case). The entries would be:June 30Interest expense ([10% x ¼] x $200,000) 5,000Cash 5,000To record interestCash ($5,000 – ([6% x ¼] x $200,000)) 2,000Interest expense 2,000To record the net cash settlementInterest rate swap [asset] ($11,394 – 6,472) 4,922Holding gain – interest rate swap 4,922To record change in fair value of the derivativeHolding loss - hedged note 4,922Note payable ($211,394 – 206,472)4,922To record change in fair value of the note due to interestExercise A-5January 1Cash 200,000Notes payable 200,000 To record the issuance of the noteMarch 31Interest expense ([10% x ¼] x $200,000)5,000Cash 5,000 To record interestCash ($5,000 – ([8% x ¼] x $200,000))1,000Interest rate swap ($6,472 - 0)6,472Interest revenue ([10% x ¼] x $0)0 Holding gain - interest rate swap (to balance)7,472 To record the net cash settlement, accrued interest on theswap, and change in fair value of the derivativeHolding loss - hedged note 6,472Notes payable ($206,472 – 200,000)6,472 To record change in fair value of the note due to interestJune 30Interest expense ([8% x ¼] x $206,472)4,129Notes payable (difference)871 Cash ([10% x ¼] x $200,000)5,000 To record interestCash ($5,000 – ([6% x ¼] x $200,000))2,000Interest rate swap ($11,394 – 6,472)4,922Interest revenue ([8% x ¼] x $6,472)129 Holding gain - interest rate swap (to balance)6,793 To record the net cash settlement, accrued interest on theswap, and change in fair value of the derivativeHolding loss - hedged note 5,793Notes payable ($211,394 – 206,472 + 871)5,793 To record change in fair value of the note due to interestExercise A-6Requirement 1June 30Fair value of interest rate swap$11,394Fair value of note payable$220,000Fixed rate 10%Floating rate 6%Fixed receipts $5,000 ([10% x ¼] x 200,000) Floating payments (3,000) ([6% x ¼] x 200,000) Net interest receipts (payments) $2,000Exercise A-6 (concluded)Requirement 2Your entries would be the same whether there was or was not an additional rise in the fair value of the note (higher than that of the swap) on June 30 due to investors’ perce ptions that the creditworthiness of LLB was improving. When a note’s fair value changes by an amount different from that of a designated hedge instrument for reasons unrelated to interest rates, we ignore those changes. We recognize only the fair value changes in the hedged item that we can attribute to the risk being hedged (interest rate risk in this case). The entries would be:June 30Interest expense ([8% x ¼] x $206,472)4,129Notes payable (difference)871Cash ([10% x ¼] x $200,000)5,000To record interestCash ($5,000 – ([6% x ¼] x $200,000))2,000Interest rate swap ($11,394 – 6,472)4,922Interest revenue ([8% x ¼] x $6,472)129Holding gain - interest rate swap (to balance)6,793To record the net cash settlement, accrued interest on theswap, and change in fair value of the derivativeHolding loss - hedged note 5,793Notes payable ($211,394 – 206,472 + 871)5,793To record change in fair value of the note due to interestPROBLEMSProblem A-1Requirement 1January 1 December 312011 2011 2012 2013 Fixed rate 8% 8% 8% 8% Floating rate 8% 9% 7% 7% Fixed receipts $ 8,000 $8,000 $8,000 Floating payments 9,000 7,000 7,000 Net interest receipts (payments) $(1,000) $1,000 $ 1,000Requirement 2January 1, 2011Cash 100,000Notes payable 100,000To record the issuance of the noteDecember 31, 2011Interest expense (8% x $100,000)8,000Cash 8,000To record interestInterest expense 1,000Cash ($8,000 – [9% x $100,000])1,000To record the net cash settlementHolding loss–interest rate swap (to balance)1,759Interest rate swap (0 – $1,759)1,759To record the change in fair value of the derivativeNotes payable ($98,241 – 100,000)1,759Holding gain–hedged note 1,759To record change in fair value of the noteProblem A-1 (continued)Requirement 3December 31, 2012Interest expense (8% x $100,000)8,000Cash 8,000 To record interestCash ($8,000 – [7% x $100,000])1,000Interest expense 1,000 To record the net cash settlementInterest rate swap ($935 – [–1,759])2,694Holding gain–interest rate swap (to balance)2,694 To record the change in fair value of the derivativeHolding loss–hedged note ($100,935 – 98,241)2,694Notes payable (to balance)2,694 To record change in fair value of the note due to interestProblem A-1 (continued)Requirement 4December 31, 2013Interest expense (8% x $100,000)8,000Cash 8,000 To record interestCash ($8,000 – [7% x $100,000])1,000Interest expense1,000 To record the net cash settlementHolding loss - interest rate swap (to balance)935Interest rate swap (0 – $935)935 To record the change in fair value of the derivativeNotes payable ($100,000 – 100,935)935Holding gain - hedged note 935 To record change in fair value of the note due to interestNote payable 100,000Cash 100,000 To repay the loanProblem A-1 (continued) Requirement 5Jan. 1, 2011Dec. 31, 2011BalanceDec. 31, 2012BalanceDec. 31, 2013BalanceProblem A-1 (continued)Requirement 6Income Statement + (-)2011(8,000) Interest expense(1,000) Interest expense(1,759) Holding loss – interest rate swap1,759 Holding gain – hedged note(9,000) Net effect – same as floating interest payment on swap 2012(8,000) Interest expense1,000 Interest expense2,694 Holding gain – interest rate swap(2,694) Holding loss – hedged note(7,000) Net effect – same as floating interest payment on swap 2013(8,000) Interest expense1,000 Interest expense(935) Holding loss – interest rate swap935 Holding gain – hedged note(7,000) Net effect – same as floating interest payment on swapProblem A-1 (concluded)Requirement 7Your entries would not be affected. When a note’s fair value changes by an amount different from that of a designated hedge instrument for reasons unrelated to interest rates, we ignore those changes. We recognize only the fair value changes in the hedged item that we can attribute to the risk being hedged (interest rate risk in this case). The entries still would be:Interest expense (8% x $100,000)8,000Cash 8,000To record interestInterest expense 1,000Cash ($8,000 – [9% x $100,000])1,000To record the net cash settlementHolding loss–interest rate swap (to balance)1,759Interest rate swap (0 – $1,759)1,759To record the change in fair value of the derivativeNotes payable ($98,241 – 100,000)1,759Holding gain–hedged note 1,759To record change in fair value of the noteProblem A-2Requirement 1CMOS has an unrealized gain due to the increase in the value of the derivative (not necessarily the same amount). Because interest rates declined, the swap will enable CMOS to pay the lower floating rate (receive cash on the net settlement of interest). The value of the swap (an asset) represents the present value of expected future net cash receipts. That amount has increased, as has the swap’s fair value, creating the unrealized gain. There is an offsetting loss on the bonds(a liability) because the fair value of the company’s debt has increased. Becausethe loss on the bonds exactly offsets the gain on the swap, earnings will neither increase nor decrease due to the hedging arrangement.Requirement 2CMOS would have an unrealized loss due to the decrease in the value of the derivative. Because interest rates increased, the swap will cause CMOS to pay the higher floating rate (pay cash on the net settlement of interest). The value of the swap (an asset) represents the present value of expected future net cash receipts. That amount has decreased, as has the swap’s fair value, creating the unrealized loss. There is an offsetting gain on the bonds (a liability) because the fair value of the company’s debt has decreased. Because the gain on the bonds exactly offsets the loss on the swap, earnings will neither increase nor decrease due to the hedging arrangement.Problem A-2 (continued)Requirement 3The unrealized gain on the swap and loss on the bonds would not be affected.When a hedged debt’s fair value changes by an amount different from that of a designated hedge instrument for reasons unrelated to interest rates, we ignore those changes. We recognize only the fair value changes in the hedged item that we can attribute to the risk being hedged (due to interest rate risk in this case).Because the loss on the bonds exactly offsets the gain on the swap, earnings will neither increase nor decrease due to the hedging arrangement.Requirement 4There would be an unrealized gain due to the increase in the value of the derivative. There is an unrealized loss on the bonds (a liability). However, the gain on the derivative would be $20,000 more than the loss on the bonds. Because the loss on the bonds is less than the gain on the swap, earnings will increase by $20,000 (ignoring taxes) due to the hedging arrangement, an effect resulting from hedge ineffectiveness. This is an intended effect of hedge accounting. To the extent that a hedge is effective, the earnings effect of a derivative cancels out the earnings effect of the item being hedged. All ineffectiveness of a hedge is recognized currently in earnings.Problem A-2 (concluded)Requirement 5There would be an unrealized loss due to a decrease in the value of the derivative,a liability to BIOS. Because interest rates declined, the swap would cause BIOSto receive the lower floating rate (pay cash on the net settlement of interest). The value of the swap represents the present value of expected future net cash payments. That amount has increased, as has the swap’s fair value, creating the unrealized loss. There would be an offsetting gain, though, on the bond investment because the fair value of the company’s investment has increased.Because the gain on the bonds exactly offsets the loss on the swap (a liability), earnings will neither increase nor decrease due to the hedging arrangement.Problem A-3Requirement 1January 1 December 312011 2011 2012 2013 Fixed rate 8% 8% 8% 8% Floating rate 8% 9% 7% 7% Fixed payments $ 8,000 $8,000 $8,000 Floating payments 9,000 7,000 7,000 Net interest receipts (payments) $(1,000) $1,000 $ 1,000Requirement 2January 1, 2011Cash 100,000Notes payable 100,000To record the issuance of the noteDecember 31, 2011Interest expense (8% x $100,000)8,000Cash 8,000To record interestInterest expense (8% x $0)0Holding loss–interest rate swap (to balance)2,759Interest rate swap (0 – $1,759)1,759Cash ($8,000 – [9% x $100,000])1,000To record the net cash settlement, accrued interest on theswap, and change in fair value of the derivativeNotes payable ($98,241 – 100,000)1,759Holding gain–hedged note 1,759To record change in fair value of the note due to interestProblem A-3 (continued)Requirement 3December 31, 2012Interest expense (9% x $98,241)8,842Notes payable (difference)842 Cash (8% x $100,000)8,000 To record interestCash ($8,000 – [7% x $100,000])1,000Interest rate swap ($935 – [– 1,759])2,694Interest expense (9% x $1,759)158Holding gain–interest rate swap (to balance)3,852 To record the net cash settlement, accrued interest on theswap, and change in fair value of the derivativeHolding loss–hedged note ($100,935 – 98,241 – 842)1,852Notes payable (to balance)1,852 To record change in fair value of the note due to interestProblem A-3 (continued)Requirement 4December 31, 2013Interest expense (7% x $100,935)7,065Notes payable (difference)935 Cash (8% x $100,000)8,000 To record interestCash ($8,000 – [7% x $100,000])1,000Holding loss–interest rate swap (to balance)0Interest rate swap (0 – $935)935 Interest revenue (7% x $935)65 To record the net cash settlement, accrued interest on the swap,and change in fair value of the derivativeNotes payable ($100,000 – 100,935 + 935)0Holding gain–hedged note 0 To record change in fair value of the note due to interestNote payable 100,000Cash 100,000 To repay the loanProblem A-3 (continued) Requirement 5Jan. 1, 2011Dec. 31, 2011BalanceDec. 31, 2012BalanceDec. 31, 2013BalanceProblem A-3 (continued)Requirement 6Income Statement + (-)2011(8,000) Interest expense(2,759) Holding loss – interest rate swap1,759 Holding gain – hedged note(9,000) Net effect – same as floating interest payment on swap 2012(8,842) Interest expense(158) Interest expense3,852 Holding gain – interest rate swap(1,852) Holding loss – hedged note(7,000) Net effect – same as floating interest payment on swap 2013(7,065) Interest expense65 Interest revenue(0) Holding loss – interest rate swap0 Holding gain – hedged note(7,000) Net effect – same as floating interest payment on swapProblem A-3 (concluded)Requirement 7Your entries would not be affected. When a note’s fair value changes by an amount different from that of a designated hedge instrument for reasons unrelated to interest rates, we ignore those changes. We recognize only the fair value changes in the hedged item that we can attribute to the risk being hedged (interest rate risk in this case). The entries still would be:Interest expense (8% x $100,000)8,000Cash 8,000To record interestInterest expense (8% x $0)0Holding loss–interest rate swap (to balance)2,759Interest rate swap (0 – $1,759)1,759Cash ($8,000 – [9% x $100,000])1,000To record the net cash settlement, accrued interest on theswap, and change in fair value of the derivativeNotes payable ($98,241 – 100,000)1,759Holding gain–hedged note 1,759CASESReal World Case A-1Requirement 1When Johnson & Johnson indicates that it expects that substantially all of the balance of deferred net gains on derivatives will be reclassified into earnings over the next 12 months as a result of transactions that are expected to occur over that period, it is saying that these as-yet-unrecognized net gains will be included in net income.A gain or loss from certain hedges is deferred as other comprehensive income until it can be recognized in earnings along with the earnings effect of the item being hedged. Requirement 2A gain or loss from a “fair value”hedge is recognized immediately in earnings along with the loss or gain from the item being hedged. On the other hand, a gain or loss from a “cash flow”hedge is deferred in the manner described by Johnson & Johnson until it can be recognized in earnings along with the earnings effect of the item being hedged. The hedging transactions referred to by Johnson & Johnson might also include foreign currency hedges used to hedge foreign currency exposure to a forecasted transaction because they are treated as a cash flow hedge.Communication Case A-2Depending on the assumptions made, different views can be convincingly defended. The process of developing and synthesizing the arguments will likely be more beneficial than any single solution. Each student should benefit from participating in the process, interacting first with his or her partner, then with the class as a whole. It is important that each student actively participate in the process. Domination by one or two individuals should be discouraged.Hedging means taking an action that is expected to produce exposure to a particula r type of risk that’s precisely the opposite of an actual risk to which the company already is exposed. Under existing hedge accounting, if the contract meets specified hedging criteria, the income effects of the hedge instrument and the income effects of the item being hedged should be recognized at the same time.Arguments raised may focus on a variety of issues including:•Which hedges should qualify for special accounting? Hedges of risk of loss? Hedges that reduce the variability of outcomes?•Should treatment be different for fair value hedges and cash flow hedges?•Should only risk exposures arising from existing assets or liabilities qualify for special accounting? Should anticipated transactions be included also?•To what extent if any must there be correlation between the gains and losses on the hedge instrument and the item being hedged?•How should any deferred gain or loss be classified prior to recognition?Real World Case A-3The following is a copy of the 13-Week U.S. Treasury Bill Futures: Settlement Prices as of September 21, 2009:Daily Settlements for 13-Week U.S.Treasury Bill Futures (PRELIMINARY)Trade Date:OCT 09 - - - - UNCH 99.51 - -NOV 09 - - - - UNCH 99.47 - -DEC 09 - - - - UNCH 99.47 - -MAR 10 - - - - UNCH 99.37 - -JUN 10 - - - - UNCH 99.27 - -SEP 10 - - - - UNCH 99.27 - -TotalResearch Case A-4[Note: This case requires the student to reference a journal article.]Requirement 1According to the authors, the primary problems or issues the FASB was attempting to address with the standard are the following:∙Previous accounting guidance for derivatives and hedging was incomplete.Only a few types of derivatives used today were specifically addressed inaccounting standards. SFAS No. 52, Foreign Currency Translation, addresses forward foreign exchange contracts, and SFAS No. 80, Accounting for Futures Contracts, addresses exchange-traded futures contracts. Similarly, those twostandards were the only ones that specifically provided for hedge accounting.The Emerging Issues Task Force (EITF) addressed the accounting for somederivatives and for some hedging activities not covered in Statements 52 or 80;however, that effort was on an ad hoc basis. Large gaps remained in theauthoritative accounting guidance. Accounting practice had filled some ofthose gaps on issues such as "synthetic instrument accounting" without anycommonly understood limitations on their appropriate use. The result of thisaccounting hodgepodge was that a) many derivative instruments were carried "off balance sheet" regardless of whether they are part of a hedging strategy, b) practices were inconsistent among entities and for similar instruments held by the same entity, and c) users of financial reports were confused or even misled.∙Previous accounting guidance for derivatives and hedging was inconsistent.Under the previous accounting guidance (FASB standards and EITFconsensuses), the required accounting treatment may have differed depending on the type of instrument used in hedging and the type of risk being hedged.For example, an anticipated transaction could qualify as a hedged item only if the hedging instrument was a nonforeign currency futures contract or anonforeign currency purchased option. Additionally, derivatives weremeasured differently under the previous accounting standards--futurescontracts were reported at fair value, foreign currency forward contracts atamounts that reflect changes in foreign exchange rates but not other valuechanges, and other derivatives unrecognized or reported at nominal amounts that were a small fraction of the value of their potential cash flows. Otherhedge accounting inconsistencies related to level of risk assessment(transaction-based versus entity-wide) and measurement of hedgeeffectiveness.Case A-4 (concluded)∙Previous accounting guidance for derivatives and hedging was complex. The lack of a single, comprehensive approach to accounting for derivatives andhedging made the accounting guidance very complex. The incompleteness ofthe FASB statements on derivatives and hedging forced entities to look to avariety of different sources, including the numerous EITF issues andnonauthoritative literature, to determine how to account for specificinstruments or transactions. Because there was often nothing directly on point, entities were forced to analogize to existing guidance. Because differentsources of analogy often conflict, a wide range of answers could often besupported, and no answer was safe from later challenge.∙Effects of derivatives were not apparent. Under the previous varied practices, derivatives may or may not have been recognized in the financial statements. If recognized in the financial statements, realized and unrealized gains and losses on derivatives may have been deferred from earnings recognition and reported as part of the carrying amount (or basis) of a related item or as if they arefreestanding assets or liabilities. As a result, users of financial statements found it difficult to determine what an entity has or has not done with derivatives and what the related effects were. It was difficult to understand how financialstatements could purport to present financial position without reporting thematerial benefits and obligations associated with derivative instruments. Requirement 2In considering the issues, the FASB made four fundamental decisions that became the cornerstones of the proposed statement. According to the article, those fundamental decisions were:∙Derivatives are assets or liabilities and should be reported in the financial statements.∙Fair value is the most relevant measure for financial instruments and the only relevant measure for derivatives.∙Only items that are assets or liabilities should be reported as such in the financial statements. A derivative loss should not be reported as an assetbecause it has no future economic benefit associated with it.∙Hedge accounting should be provided for only qualifying transactions, and one aspect of qualification should be an assessment of offsetting changes in fairvalues or cash flows.。
Intermediate Accounting (New Mexico State University)ch11
of asset. • Depreciation expense is computed as: Cost – Salvage Value x Input/Output this period Total Estimated Input/Output
Depreciation Methods: Decreasing Charge (Accelerated)
Chapter 11: Depreciation, Impairments and Depletion
After studying this chapter, you should be able to:
1. Explain the concept of depreciation. 2. Identify the factors involved in the depreciation process. 3. Compare activity, straight-line, and decreasing-charge methods of depreciation. 4. Explain special depreciation methods.
Estimated Service Lives
• An asset’s service life and physical life are not the same. • Assets’ service life are affected by: physical factors, and economic factors • Economic factors include: Inadequacy (asset can not meet current demand) Supercession (by a better asset) Obsolescence (other factors)
Intermediate Accounting Chapter10 课后习题答案
Chapter 10 Property, Plant, and Equipment and Intangible Assets: Acquisition and Disposition QUESTIONS FOR REVIEW OF KEY TOPICSQuestion 10-1The difference between tangible and intangible long-lived, revenue-producing assets is that intangible assets lack physical substance and they primarily refer to the ownership of rights. Question 10-2The cost of property, plant, and equipment and intangible assets includes the purchase price (less any discounts received from the seller), transportation costs paid by the buyer to transport the asset to the location in which it will be used, expenditures for installation, testing, legal fees to establish title, and any other costs of bringing the asset to its condition and location for use. Question 10-3The cost of a developed natural resource includes the acquisition costs for the use of land, the exploration and development costs incurred before production begins, and the restoration costs incurred during or at the end of extraction.Question 10-4Purchased intangibles are valued at their original cost to include the purchase price and all other necessary costs to bring the asset to condition and location for use. Research and development costs incurred to internally develop an intangible asset are expensed in the period incurred. Filing and legal costs for both purchased and developed intangibles are capitalized.Question 10-5Goodwill represents the unique value of the company as a whole over and above all identifiable tangible and intangible assets. This value results from a company’s clientele and reputation, its trained employees and management team, its unique business location, and any other unique features of the company that can’t be associated with a specific asset.Because goodwill can’t b e separated from a company, it is not possible for a buyer to acquire it without also acquiring the whole company or a substantial portion of it. Goodwill will appear as an asset in a balance sheet only when it was paid for in connection with the acquisition of another company. The capitalized cost of goodwill equals the purchase price of the acquired company less the fair value of the net assets acquired. The fair value of the net assets equals the fair value of all identifiable tangible and intangible assets less the fair value of any liabilities of the selling company assumed by the buyer.Answers to Questions (continued)Question 10-6A lump-sum purchase price generally is allocated based on the relative fair values of the individual assets. The relative fair value percentages are multiplied by the lump-sum purchase price to arrive at the initial valuation of each of the separate assets.Question 10-7Assets acquired in exchange for deferred payment contracts are valued at their fair value or the present value of payments using a realistic interest rate. Theoretically, both alternatives should lead to the same valuation.Question 10-8Assets acquired through the issuance of equity securities are valued at the fair value of the securities if known; if not known, the fair value of the assets received is used.Question 10-9Donated assets are valued at their fair values.Question 10-10When an item of property, plant, and equipment is sold, a gain or loss is recognized for the difference betwee n the consideration received and the asset’s book value. Retirements and abandonments are handled in a similar fashion. The only difference is that there will be no monetary consideration received. A loss is recorded for the remaining book value of the asset.Question 10-11The basic principle used to value assets acquired in a nonmonetary exchange is to use the fair value of asset(s) given up plus (minus) monetary consideration - cash - paid (received).Question 10-12The two exceptions are (1) when fair value is not determinable and (2) when the exchange lacks commercial substance.Question 10-13GAAP require the capitalization of interest incurred during the construction of assets for a company’s own use as well as for assets constructed for sale or lease. Assets qualifying for capitalization exclude inventories that are routinely manufactured in large quantities on a repetitive basis and assets that are in use or ready for their intended purpose. Only assets that are constructed as discrete projects qualify for interest capitalization.Answers to Questions (continued)Question 10-14Average accumulated expenditures for a period is an approximation of the average amount of debt the company would have had outstanding if it borrowed all of the funds necessary for construction. If construction expenditures are incurred equally throughout the period, the average accumulated expenditures for the period can be estimated by adding the accumulated expenditures at the beginning of the period to the accumulated expenditures at the end of the period and dividing by two. If expenditures on the project are unequal throughout the period, individual expenditures, perhaps expenditures grouped by month, should be weighted by the amount of time outstanding until the end of the construction period or the end of the company’s fiscal year, whichever comes first. Question 10-15Applying the specific interest method, the interest rate on any construction related debt is used up to the amount of the construction debt and any excess average accumulated expenditures is multiplied by a weighted-average interest rate of all other debt. The weighted-average method multiplies average accumulated expenditures by the weighted-average interest rate of all debt, including any construction-related debt.Question 10-16GAAP defines research and development as follows:Research is planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service or a new process or technique or in bringing about a significant improvement to an existing product or process.Development is the translation of research findings or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or process whether intended for sale or use.Question 10-17GAAP specifically excludes from current R&D expense the cost of property, plant, and equipment and intangible assets that have “alternative future uses” beyond the current R&D project. However, the depreciation or amortization of these assets will be included as R&D expenses in the future periods the assets are used for R&D activities. If the asset has no alternative future use, its cost is expensed as R&D immediately.Question 10-18GAAP requires the capitalization of software development costs incurred after technological feasibility is established. Technological feasibility is established “when the enterprise has completed all planning, designing, coding, and testing activities that are necessary to establish that the product can be produced to meet its design specifications including functions, features, and technical performance requirements.” Costs incurred after technological feasibility but before the product is available for general release to customers are capitalized as an intangible asset. These costs include coding and testing costs and the production of product masters. Costs incurred after commercial production begins usually are not R&D expenditures.Answers to Questions (concluded)Question 10-19The cost of developed technology is capitalized and expensed over its expected useful life. Developed technology relates to those projects that have reached technological feasibility. Before 2009, the cost of in-process R&D was expensed in the period of the acquisition. Now, the cost of in-process R&D is capitalized and treated as an indefinite life intangible asset and not amortized. If the R&D project is completed successfully, we switch to the way we account for developed technology and amortize the capitalized amount over the estimated period the product or process developed will provide benefits. If the project instead is abandoned, we expense the entire balance immediately. Research and development costs incurred after the acquisition to complete the project are expensed as incurred, consistent with the treatment of any other R&D not acquired in an acquisition. Question 10-20Other than software development costs incurred after technological feasibility has been established, U.S. GAAP requires all research and development expenditures to be expensed in the period incurred. IAS No. 38draws a distinction between research activities and development activities. Research expenditures are expensed in the period incurred. However, development expenditures that meet specified criteria are capitalized as an intangible asset.Question 10-21The periodic amortization percentage for capitalized computer software development costs under U.S. GAAP is the greater of (1) the ratio of current revenues to current and anticipated revenues or (2) the straight-line percentage over the useful life of the software. This approach is allowed under IFRS, but not required.Question 10-22The successful efforts method allows companies to capitalize only exploration costs resulting in successful wells. The full-cost method allows companies to capitalize all exploration costs incurred within a geographical area.BRIEF EXERCISESBrief Exercise 10-1Capitalized cost of the machine:Purchase price $35,000Freight 1,500Installation 3,000Testing 2,000Total cost $41,500Note: Personal property taxes on the machine for the period after acquisition are not part of acquisition cost. They are expensed in the period incurred.Brief Exercise 10-2Capitalized cost of land:Purchase price $600,000Broker’s commission30,000Title insurance 3,000Miscellaneous closing costs 6,000Demolition of old building 18,000Total cost $657,000All of the expenditures, including the costs to demolish the old building, are included in the initial cost of the land.Brief Exercise 10-3Cost of land and building:Purchase price $600,000Broker’s commission30,000Title insurance 3,000Miscellaneous closing costs 6,000Total cost $639,000The total must be allocated to the land and building based on their relative fair values:Brief Exercise 10-4Cost of silver mine:Acquisition, exploration, and development $5,600,000Restoration costs 429,675 †$6,029,675† $500,000 x 20% = $100,000550,000 x 45% = 247,500650,000 x 35% = 227,500$575,000 x .74726* = $429,675*Present value of $1, n = 5, i = 6% (from Table 2)Brief Exercise 10-5After one year, the liability will increase to $455,456.($429,675† + ($429,675 x 6%) = $455,456)† $500,000 x 20% = $100,000550,000 x 45% = 247,500650,000 x 35% = 227,500$575,000 x .74726* = $429,675*Present value of $1, n = 5, i = 6% (from Table 2)Actual restoration costs $596,000Less: Asset retirement liability (575,000)Loss on retirement $ (21,000)Brief Exercise 10-6Calculation of goodwill:Consideration exchanged $14,000,000 Less fair value of net assets:Book value of assets $8,300,000Plus: Excess of fair value over book valueof intangible assets 2,500,000 (10,800,000) Goodwill $ 3,200,000Brief Exercise 10-7The initial value of machinery and note will be the present value of the note payment:PV = $60,000 (.85734* ) = $51,440*P resent value of $1: n = 2, i = 8% (from Table 2)Interest expense for July 1 to December 31, 2011:$51,440 x 8% x 6/12= $2,058Brief Exercise 10-8The cost of the patent equals the fair value of the stock given in exchange: 50,000 x $22 = $1,100,000Brief Exercise 10-9Average PP&E for 2011 = ($740,000 + 940,000) ÷ 2 = $840,000Net sales ÷ Average PP&E = Fixed-asset turnover ratio? ÷ $840,000 = 3.25Average PP&E x Fixed-asset turnover ratio = Net sales$840,000 x 3.25 = $2,730,000Brief Exercise 10-10Proceeds $16,000Less book value: $80,000(71,000) 9,000Gain on sale of equipment $ 7,000Journal entry (not required):Cash ................................................................................ 16,000Accumulated depreciation (account balance) .................... 71,000Gain (difference) ........................................................... 7,000 Equipment(account balance).......................................... 80,000Brief Exercise 10-11Pickup trucks = Fair value of machinery plus cash paid$17,000 + 8,000 = $25,000Loss on exchange = $20,000 (book value) – 17,000 (fair value) = $3,000 Journal entry (not required):Pickup trucks (determined above) ..................................... 25,000Accumulated depreciation (account balance) .................... 45,000Loss (difference)................................................................ 3,000Cash ........................................................................... 8,000 Machinery(account balance).......................................... 65,000 Brief Exercise 10-12Pickup trucks = Fair value of machinery plus cash paid$24,000 + 8,000 = $32,000Gain on exchange = $24,000 (fair value) – 20,000 (book value ) = $4,000 Journal entry (not required):Pickup trucks (determined above) ..................................... 32,000Accumulated depreciation (account balance) .................... 45,000Cash ........................................................................... 8,000 Gain (difference) ........................................................... 4,000 Machinery(account balance).......................................... 65,000Brief Exercise 10-13Pickup trucks = Book value of machinery plus cash paid$20,000 + 8,000 = $28,000No gain is recognized in this situation.Journal entry (not required):Pickup trucks (determined above) ..................................... 28,000Accumulated depreciation (account balance) .................... 45,000Cash ........................................................................... 8,000 Machinery(account balance).......................................... 65,000Brief Exercise 10-14Average accumulated expenditures:January 1$500,000 x 12/12 = $ 500,000March 31 600,000 x 9/12 = 450,000June 30400,000 x 6/12 = 200,000 October 30 600,000 x 2/12 = 100,000$1,250,000 Interest capitalized:$1,250,000- 700,000 x 7% = $49,000$ 550,000 x 6.75%* = 37,125$ 86,125 = interest capitalized * Weighted-average rate of all other debt:$3,000,000 x 8% = $240,0005,000,000 x 6% = 300,000$8,000,000 $540,000$540,000= 6.75% weighted average$8,000,000Brief Exercise 10-15Average accumulated expenditures:January 1, 2011 $500,000 x 12/12 = $ 500,000March 31, 2011 600,000 x 9/12 = 450,000June 30, 2011 400,000 x 6/12 = 200,000October 30, 2011 600,000 x 2/12 = 100,000$1,250,000Interest capitalized:$1,250,000 x 6.77%* = $84,625* Weighted-average rate of all other debt:$ 700,000 x 7% = $ 49,0003,000,000 x 8% = 240,0005,000,000 x 6% = 300,000$8,700,000 $589,000$589,000= 6.77% weighted average$8,700,000Brief Exercise 10-16Research and development:Salaries $220,000Depreciation on R & D facilities and equipment 125,000Utilities and other direct costs 66,000Payment to another company 120,000Total R & D expense $531,000 Note: The patent filing and related legal costs and the costs of adapting the product to a particular customer’s needs are not included as research and development expense.EXERCISESExercise 10-1Capitalized cost of land:Purchase price $60,000Demolition of old building $4,000Less: Sale of materials (2,000) 2,000Legal fees for title investigation 2,000Total cost of land $64,000Capitalized cost of building:Construction costs $500,000Architect's fees 12,000Interest on construction loan 5,000Total cost of building $517,000Note: Property taxes on the land for the period after acquisition are not part ofacquisition cost. They are expensed in the period incurred.Exercise 10-2To record the purchase of a machine.To record prepaid insurance for the machine.Exercise 10-3Requirement 1Cost of land and building:Purchase price $4,000,000Title search and insurance 16,000Legal fees 5,000State transfer fees 4,000Total cost $4,025,000Note: The pro-rated property taxes for the period after acquisition are not included in the initial valuation of the land and building. They arerecorded instead as prepaid taxes and expensed over the related period.The total is allocated to the land and building based on their relative fair values:Assets:Land $3,018,750Building 1,006,250Land improvements:Parking lot 82,000Landscaping 40,000Exercise 10-3 (concluded)Requirement 2Cost of land:Purchase price $4,000,000Title search and insurance 16,000Legal fees 5,000State transfer fees 4,000Demolition of old building $250,000Less: Sale of materials (6,000) 244,000 Clearing and grading costs 86,000 Total cost of land $4,355,000 Land improvements:Parking lot 82,000 Landscaping 40,000Exercise 10-4Requirement 1Cost of copper mine:Mining site $1,000,000Development costs 600,000Restoration costs 303,939 †$1,903,939† $300,000 x 25% = $ 75,000400,000 x 40% = 160,000600,000 x 35% = 210,000$445,000 x .68301* = $303,939*Present value of $1, n = 4, i = 10% (from Table 2) Requirement 2Exercise 10-6Calculation of goodwill:Consideration exchanged $17,000,000 Less fair value of net assets:Assets $23,000,000Less: Liabilities assumed (9,500,000) (13,500,000) Goodwill $ 3,500,000 Exercise 10-7Calculation of goodwill:Consideration exchanged $11,000,000 Less fair value of net assets:Book value of net assets $7,800,000Plus: Fair value in excess of book value:Property, plant, and equipment 1,400,000Intangible assets 1,000,000Less: Book value in excess of fair value:Receivables (200,000) 10,000,000 Goodwill $ 1,000,000Exercise 10-8Exercise 10-9Requirement 1† Present value of note payment:PV = $25,000 (.75131* ) = $18,783*P resent value of $1: n = 3, i = 10% (from Table 2) Requirement 22011: Interest expense ($18,783 x 10%) = $1,878 2012: Interest expense [($18,783 + 1,878) x 10%] = 2,066 Requirement 32011: $25,000 – ($6,217 – 1,878) = $20,6612012: $25,000 – ($6,217 – 1,878 – 2,066) = 22,727Exercise 10-10Land:Purchase price $1,200,000Demolition and removal of old building 80,000Clearing and grading 150,000Closing costs 42,000 Total cost of land $1,472,000 Building:Architect’s fees$ 50,000Construction costs 3,250,000 Total cost of building $3,300,000 Machinery:Purchase price $860,000Freight charges 32,000Special platforms and wire installation 12,000Cost of trial runs 7,000 Total cost of machinery $911,000 Land improvements:Landscaping $45,000Sprinkler system 5,000 Fork lifts:PV = $16,000 + 70,000 (.93458* ) = $81,421 *P resent value of $1: n = 1, i = 7% (from Table 2)Prepaid insurance:$24,000Exercise 10-11To record the acquisition of land in exchange for common stock.To record the acquisition of a building through purchase and donation.Exercise 10-12Requirement 1($ in millions)Average PP&E for 2009 = ($4,043 + 4,151) ÷ 2 = $4,097Net sales ÷ Average PP&E = Fixed-asset turnover ratio$36,117 ÷ $4,097 = 8.82Requirement 2The fixed-asset turnover ratio indicates the level of sales generated by the company’s investment in fixed assets.Cisco is able to generate $8.82 in sales for every $1 invested in property, plant, and equipment.Exercise 10-13 Requirement 1Requirement 2Exercise 10-14Exercise 10-15Exercise 10-16Requirement 1Fair value of land + Cash given = F air value of equipment$150,000 + 10,000 = $160,000Requirement 2Exercise 10-17Requirement 1Fair value of land - Cash received = F air value of equipment $150,000 - 10,000 = $140,000Requirement 2Exercise 10-18Requirement 1Fair value of old land + Cash given = F air value of new land $72,000 + 14,000 = $86,000Requirement 2Requirement 3Exercise 10-191.To record the purchase of equipment on account.2.To record the acquisition of equipment in exchange for a note.PV = $27,000 (.90909* ) = $24,545*P resent value of $1: n=1, i=10% (from Table 2)3. To record the exchange of old equipment for new equipment.4. To record the acquisition of equipment by the issuance of stock.Exercise 10-20Requirement 1The Codification topic number for nonmonetary transactions is FASB ASC 845: “Nonmonetary Transactions.”Requirement 2The specific citations that describe the required disclosures for nonmonetary transactions are FASB ASC 845–10–50–1 to 2: “Nonmonetary Transactions–Overall–Disclosure.”Requirement 3An entity that engages in one or more nonmonetary transactions during a period shall disclose in financial statements for the period all of the following:a.The nature of the transactionsb.The basis of accounting for the assets transferredc.Gains or losses recognized on transfers.In accordance with paragraph 845-10-50-1, entities shall disclose, in each period's financial statements, the amount of gross operating revenue recognized as a result of nonmonetary transactions.Exercise 10-21The FASB Accounting Standards Codification represents the single source of authoritative U.S. generally accepted accounting principles. The specific citation for each of the following items is:1.The disclosure requirements in the notes to the financial statements fordepreciation on property, plant, and equipment:FASB ASC 360–10–50–1: “Property, Plant, and Equipment–Overall–Disclosure.”Because of the significant effects on financial position and results of operations of the depreciation method or methods used, all of the following disclosures shall be made in the financial statements or in notes thereto:a. Depreciation expense for the periodb. Balances of major classes of depreciable assets, by nature or function, at the balance sheet datec. Accumulated depreciation, either by major classes of depreciable assets or in total, at the balance sheet dated. A general description of the method or methods used in computing depreciation with respect to major classes of depreciable assets.Exercise 10-21 (continued)2.The criteria for determining commercial substance in a nonmonetaryexchange:FASB ASC 845–10–30–4: “Nonmonetary Transactions–Overall–Initial Measurement.”A nonmonetary exchange has commercial substance if the entity's future cashflows are expected to significantly change as a result of the exchange. The entity's future cash flows are expected to significantly change if either of the following criteria is met:a. The configuration (risk, timing, and amount) of the future cash flows of theasset(s) received differs significantly from the configuration of the future cash flows of the asset(s) transferred. The configuration of future cash flows iscomposed of the risk, timing, and amount of the cash flows. A change in any one of those elements would be a change in configuration.b. The entity-specific value of the asset(s) received differs from the entity-specific value of the asset(s) transferred, and the difference is significant inrelation to the fair values of the assets exchanged. An entity-specific value(referred to as an entity-specific measurement in FASB Concepts Statement No. 7, Using Cash Flow Information and Present Value in Accounting Measurements) is different from a fair value measurement. As described in paragraph 24(b) ofConcepts Statement No. 7, an entity-specific value attempts to capture the value of an asset or liability in the context of a particular entity. For example, an entity computing an entity-specific value of an asset would use its expectations about its use of that asset rather than the use assumed by marketplace participants. If it is determined that the transaction has commercial substance, the exchange would be measured at fair value, rather than at the entity-specific value.A qualitative assessment will, in some cases, be conclusive in determining that theestimated cash flows of the entity are expected to significantly change as a result of the exchange.Exercise 10-21 (continued)3.The disclosure requirements for interest capitalization:FASB ASC 835–20–50–1: “Interest Capitalization–Overall–Disclosure.”An entity shall disclose the following information with respect to interest cost in the financial statements or related notes:a. For an accounting period in which no interest cost is capitalized, the amount ofinterest cost incurred and charged to expense during the periodb. For an accounting period in which some interest cost is capitalized, the totalamount of interest cost incurred during the period and the amount thereof that has been capitalized.Exercise 10-21 (concluded)4.The elements of costs to be included as R&D activities:FASB ASC 730–10–25–2: “Research & Development–Overall–Recognition.”Elements of costs shall be identified with research and development activities as follows:a. Materials, equipment, and facilities. The costs of materials (whether from the entity'snormal inventory or acquired specially for research and development activities) andequipment or facilities that are acquired or constructed for research and development activities and that have alternative future uses (in research and development projects or otherwise) shall be capitalized as tangible assets when acquired or constructed. The cost of such materials consumed in research and development activities and the depreciation of such equipment or facilities used in those activities are research and development costs.However, the costs of materials, equipment, or facilities that are acquired or constructed for a particular research and development project and that have no alternative future uses (in other research and development projects or otherwise) and therefore no separateeconomic values are research and development costs at the time the costs are incurred.b. Personnel. Salaries, wages, and other related costs of personnel engaged in researchand development activities shall be included in research and development costs.c. Intangible assets purchased from others. The costs of intangible assets that arepurchased from others for use in research and development activities and that havealternative future uses (in research and development projects or otherwise) shall beaccounted for in accordance with Topic 350. The amortization of those intangible assets used in research and development activities is a research and development cost. However, the costs of intangibles that are purchased from others for a particular research anddevelopment project and that have no alternative future uses (in other research anddevelopment projects or otherwise) and therefore no separate economic values areresearch and development costs at the time the costs are incurred.d. Contract services. The costs of services performed by others in connection with theresearch and development activities of an entity, including research and development conducted by others in behalf of the entity, shall be included in research and development costs.e. Indirect costs. Research and development costs shall include a reasonable allocation ofindirect costs. However, general and administrative costs that are not clearly related to research and development activities shall not be included as research and development costs.。
会计英文 INTERMEDIATE ACCOUNTING
FAF SEC
AICPA
Other
GASAC GASB FASAC FASB AcSEC U.S. Gov't
IAPC
EITF
IASC
Financial Accounting
22
Standards Board (1973-present)
Seven full-time members comprise this independent body.
accounting profession.
U.S. Accounting Standard- 18 Setting Bodies
Committee on Accounting Procedures (CAP)
Born: 1939 Died: 1959
Pronouncements: Accounting Research Bulletins
Explain the function of accounting standards and describe the role of the FASB in setting these standards in the United States.
Recognize the importance to financial reporting of the SEC, AICPA, AAA, and IRS.
$ 80,000 4,550,000 $4,630,000
Liabilities Stock R/E Total
$2,970,000 900,000 760,000
$4,630,000
Statement of Cash Flows
Cash From Op $ 973,000
intermediate-accounting 练习题 (1)
COMPREHENSIVE EXAMINATION APART 1(Chapters 1-6)Problem A-I— Multiple Choice.Choose the best answer for each of the following questions and enter the identifying letter in the space provided.____ 1. How does failure to record accrued revenue distort the financial reports?a. It understates revenue, net income, and current assets.b. It understates net income, stockholders’ equity, and current liabilities.c. It overstates revenue, stockholders’ equity, and current liabilities.d. It understates cur rent assets and overstates stockholders’ equity.____ 2. A contingent liability which is normally accrued isa. notes receivable discounted.b. accommodation endorsements on customer notes.c. additional compensation that may be payable on a dispute now beingarbitrated.d. estimated claims under a service warranty on new products sold.____ 3. Which of the following items is a current liability?a. Bonds due in three months (for which there is an adequate sinking fundclassified as a long-term investment).b. Bonds due in three years.c. Bonds (for which there is an adequate appropriation of retained earnings)due in eleven months.d. Bonds to be refunded when due in eight months, there being no doubtabout the marketability of the refunding issue.____ 4. On June 15, 2014 Stine Corporation accepted delivery of merchandise which it purchased on account. As of June 30 Stine had not recorded thetransaction or included the merchandise in its inventory. The effect of thiserror on its balance sheet for June 30, 2014 would bea. assets and stockholders’ equity were overstated but liabilities were notaffected.b. stockholders’ equity was the only item affected by the omission.c. assets and liabilities were understated but stockholders’ equity was notaffected.d. assets and stockholders’ equity were understated but liabilities were notaffected.____ 5. Reversing entries are most commonly used in relation to year-end adjusting entries thata. allocate the expired portion of a depreciable asset to expense.b. amortize intangible assets.c. provide for bad debt expense.d. accrue interest revenue on notes receivable.Comprehensive Exam AA-2____ 6. Of the following adjusting entries, which one would cause an increase in assets at the end of the period?a. The entry to record the earned portion of rent received in advance.b. The entry to accrue unrecorded interest expense.c. The entry to accrue unrecorded interest revenue.d. The entry to record expiration of prepaid insurance.____ 7. Why is it necessary to make adjusting entries?a. The accountant has made errors in recording external transactions.b. Certain facts about the affairs of the business are not included in theledger as built up from external transactions.c. The accountant wants to show the largest possible net income for theperiod.d. The accountant wants to show the net cash flow for the year.____ 8. Notes to financial statements should not be used toa. describe the nature and effect of a change in accounting principles.b. identify substantial differences between book and tax income.c. correct an improper financial statement presentation.d. indicate basis for asset valuation.____ 9. Consistency is best demonstrated whena. expenses are reported as charges against the period in which incurred.b. the effect of changes in accounting methods is properly disclosed.c. extraordinary gains and losses are not reported on the income statement.d. accounting procedures are adopted which give a consistent rate of netincome.____ 10. The current assets section of a balance sheet should never includea. a receivable from a customer not collectible for over one year.b. the premium paid on short-term bond investment.c. goodwill arising from the purchase of a going business.d. customers' accounts with credit balances.Comprehensive Exam A A-3 Problem A-II— Adjusting and Reversing Entries.The following list of accounts and their balances represents the unadjusted trial balance of Alt Company at December 31, 2014:Cash $ 27,290Equity Investments (trading) 60,000Accounts Receivable 69,000Allowance for Doubtful Accounts $ 500 Inventory 54,720Prepaid Rent 36,000Plant Assets 160,000Accumulated Depreciation-Plant Assets 14,740 Accounts Payable 11,370 Bonds Payable 90,000 Common Stock 170,000 Retained Earnings 97,180 Sales Revenue 214,800 Cost of Goods Sold 154,400Freight-Out 11,000Salaries and Wages Expense 32,000Interest Expense 2,040Rent Revenue 21,600 Miscellaneous Expense 890Insurance Expense 12,850$620,190 $620,190 Additional Data:Problem A-II— (cont.)1. The balance in the Insurance Expense account contains the premium costs of threepolicies:Policy 1, remaining cost of $2,550, 1-yr. term, taken out on May 1, 2013;Policy 2, original cost of $9,000, 3-yr. term, taken out on Oct. 1, 2014;Policy 3, original cost of $1,300, 1-yr. term, taken out on Jan. 1, 2014.2. On September 30, 2014, Alt received $21,600 rent from its lessee for an eighteenmonth lease beginning on that date.3. The regular rate of depreciation is 10% per year. Acquisitions and retirements duringa year are depreciated at half this rate. There were no purchases during the year. OnDecember 31, 2013, the balance of the Plant and Equipment account was $220,000.4. On December 28, 2014, the bookkeeper incorrectly credited Sales Revenue for areceipt on account in the amount of $20,000.5. At December 31, 2014, salaries and wages accrued but unpaid were $4,200.6. Alt estimates that 1% of sales will become uncollectible.7. On August 1, 2014, Alt purchased, as a short-term investment, 60 $1,000, 6% bondsof Allen Corp. at par. The bonds mature on August 1, 2015. Interest payment dates are July 31 and January 31.Comprehensive Exam AA-48. On April 30, 2014, Alt rented a warehouse for $3,000 per month, paying $36,000 inadvance.Instructions(a) Record the necessary correcting and adjusting entries.(b) Indicate which of the adjusting entries may be reversed at the beginning of the nextaccounting period.Comprehensive Exam A A-5Problem A-III— Key Conceptual Terms.Various accounting assumptions, principles, constraints, and characteristics are listed below. Select those which best justify the following accounting procedures and indicate the corresponding letter(s) in the space(s) provided. A letter may be used more than once or not at all.a. Historical cost f. Economic entity k. Revenue recognitionb. Relevance g. Cost constraint l. Full disclosurec. Monetary unit h. Conservatism m. Faithfuld. Going concern i. Periodicity representatione. Consistency j. Expense recognition____ 1. Chose the solution that will be least likely to overstate assets or income.____ 2. Describing the depreciation methods used in the financial statements.____ 3. Applying the same accounting treatment to similar accounting events.____ 4. The quality which helps users make predictions about present, past, and future events.____ 5. Recording a transaction when goods or services are exchanged for cash or claims to cash.____ 6. Preparing consolidated statements.____ 7. Information must make a difference or a company need not disclose it.____ 8. Provides the figure at which to record a liability.____ 9. The preparation of timely reports on continuing operations.____ 10. Accrual accounting (do not use "going concern").____ 11. Reporting those items which are significant enough to affect decisions. Select two.____ 12. Additivity of financial statement figures relating to different time periods.____ 13. Ignoring the phenomenon of price-level changes (do not use "historical cost"). ____ 14. Not reporting assets at liquidation prices (do not use "historical cost").____ 15. Characterized by completeness, neutrality, and being free from error.____ 16. Establishment of an allowance for doubtful accounts.____ 17. Use of estimating procedures for amortization policies. Select two (do not use "periodicity") (17 and 18).____ 18. See item 17 above.Comprehensive Exam AA-6Problem A-IV— Balance Sheet Form.List the corrections needed to present in good form the balance sheet below. Errors include misclassifications, lack of adequate disclosure, and poor terminology. Do not concern yourself with the arithmetic. If an item can be classified in more than one category, select the category most favored by the authors of your textbook.Tanner CorporationBalance SheetFor the year ended December 31, 2014AssetsCurrent Assets:Cash $ 18,000Equity investments trading (fair value, $32,000) 27,000Accounts receivable 75,000Inventory 60,000Supplies inventory 3,000Investment in subsidiary company 60,000 $243,000 Investments:Treasury stock 78,000 Tangible Fixed Assets:Buildings and land 213,000Less: Reserve for depreciation 60,000 153,000Deferred Charges:Discount on bonds payable 3,000 Other Assets:Cash surrender value of life insurance 54,000$531,000Liabilities and CapitalCurrent Liabilities:Accounts payable $ 45,000Reserve for income taxes 42,000Customer's accounts with credit balances 3 $ 87,003Long-Term Liabilities:Bonds payable 120,000 Total Liabilities 207,003 Capital Stock:Capital stock 225,000Earned surplus 74,997Cash dividends declared 24,000 323,997$531,000Comprehensive Exam A A-7 Problem A-V— Balance Sheet and Income Statement Classifications.Specify, to the left of each account, the letter of the financial statement classification the account would appear in. Use only the classifications shown.Balance Sheet Income and Retained EarningsStatementa. Current Assets j. Sales Revenueb. Investments k. Cost of Goods Soldc. Property, Plant, and Equipment l. Operating Expensesd. Intangible Assets m. Other Revenues and Gainse. Other Assets n. Other Expenses and Lossesf. Current Liabilities o. Extraordinary Itemg. Long-term Debt p. Retained Earnings Sectionh. Capital Stock q. Not on the Statementsi. Retained EarningsAccount balances taken from the ledger of Morin Company on December 31, 2014follow:____ 1. Common Stock, $10 par _____ 16. Inventory____ 2. Loss on Disposal of Equipment _____ 17. Salaries and Wages Expense____ 3. Buildings _____ 18. Merchandise on order with supplier ____ 4. Office Expense _____ 19. Interest Revenue____ 5. Allowance for Doubtful Accounts _____ 20. Selling Expenses____ 6. Notes Payable (Short Term) _____ 21. Interest Expense____ 7. Accum. Depreciation—Buildings _____ 22. Income Taxes Payable____ 8. Mortgage Payable due 2016 _____ 23. Insurance Expense____ 9. Depletion Expense _____ 24. Advertising Expense____ 10. Freight-Out _____ 25. Equity Investments____ 11. Sales Revenue _____ 26. Accounts Receivable____ 12. Dividends _____ 27. Land____ 13. Retained Earnings Dec. 31, _____ 28. Accounts Payable2013_____ 29. Error made in computing 2012____ 14. Cash depreciation expense____ 15. Sales Discounts _____ 30. Gain on Redemption ofDebtComprehensive Exam AA-8Problem A-VI— Future Value and Present Value.In computing your answers to the cases below, you can round your answer to the nearest dollar. Present value tables are provided on the next page.Use the following information in answering Cases 1 and 2 below:On January 1, 2008, Gray Company sold $900,000 of 10% bonds, due January 1, 2018. Interest on these bonds is paid on July 1 and January 1 each year. According to the terms of the bond contract, Gray must establish a sinking fund for the retirement of the bond principal starting no later than January 1, 2016. Since Gray was in a tight cash position during the years 2008 through 2013, the first contribution into the fund was made on January 1, 2014.Case 1: Assume that, starting with the January 1, 2014 contribution, Gray desires to make a total of four equal annual contributions into this fund. Compute theamount of each of these contributions assuming the interest rate is 8%compounded annually.Case 2: Assume, instead, that starting with the January 1, 2016 contribution, Gray desires to make a total of five equal semiannual contributions into this fund.Compute the amount of each of these contributions assuming the annualinterest rate is 12%, compounded semiannually.Case 3: On January 2, 2014, Nelson Company loaned $100,000 to Holt Company. The terms of this loan agreement stipulate that Holt is to make 5 equal annualpayments to Nelson at 10% interest compounded annually. Assume thepayments are to begin on December 31, 2014. Compute the amount of each ofthese payments.Case 4: Jim Marsh, a lawyer contemplating retirement on his 65th birthday, decides to create a fund on an 8% basis which will enable him to withdraw $60,000 peryear beginning June 30, 2017, and ending June 30, 2021. To provide this fund,he intends to make equal contributions on June 30 of each of the years 2012through 2016.(a) How much must the balance of the fund equal after the last contribution onJune 30, 2016 in order for him to satisfy his objective?(b) What are each of his contributions to the fund?Comprehensive Exam A A-9Table 1Future Value of 1Periods 6% 8% 9% 10% 12%1 1.06000 1.08000 1.09000 1.10000 1.12002 1.12360 1.16640 1.18810 1.21000 1.25443 1.19102 1.25971 1.29503 1.33100 1.40494 1.26248 1.36049 1.41158 1.46410 1.57355 1.33823 1.46933 1.53862 1.61051 1.7623Table 2Present Value of 1Periods 6% 8% 9% 10% 12%1 0.94340 0.92593 0.91743 0.90909 0.89282 0.89000 0.85734 0.84168 0.82645 0.79713 0.83962 0.79383 0.77218 0.75132 0.71174 0.79209 0.73503 0.70843 0.68301 0.63555 0.74726 0.68058 0.64993 0.62092 0.5674Table 3Future Value of an Ordinary Annuity of 1Periods 6% 8% 9% 10% 12%1 1.00000 1.00000 1.00000 1.00000 1.00002 2.06000 2.08000 2.09000 2.10000 2.12003 3.18360 3.24640 3.27810 3.31000 3.37444 4.37462 4.50611 4.57313 4.64100 4.77935 5.63709 5.86660 5.98471 6.10510 6.3528Table 4Present Value of an Ordinary Annuity of 1Periods 6% 8% 9% 10% 12%1 0.94340 0.92593 0.91743 0.90909 0.89282 1.83339 1.78326 1.75911 1.73554 1.69003 2.67301 2.57710 2.53130 2.48685 2.40184 3.46511 3.31213 3.23972 3.16986 3.03735 4.21236 3.99271 3.88965 3.79079 3.6047Table 5Present Value of an Annuity Due of 1Periods 6% 8% 9% 10% 12%1 1.00000 1.00000 1.00000 1.00000 1.00002 1.94340 1.92593 1.91743 1.90909 1.89283 2.83339 2.78326 2.75911 2.73554 2.69004 3.67301 3.57710 3.53130 3.48685 3.40185 4.46511 4.31213 4.23972 4.16986 4.0373Comprehensive Exam AA-10Solutions — Comprehensive Examination AProblem A-I— Solution.1. a 4. c 7. b 10. c2. d 5. d 8. c3. c 6. c 9. bProblem A-II— Solution.(a) 1. Prepaid Insurance ....................................................................... 8,250Insurance Expense ......................................................... 8,250 (Both Policies 1 and 3 have expired and their costsbelong in Insurance Expense. The monthly premiumon Policy 2 is $9,000 ÷ 36 = $250. At 12/31/14, 33 mos.of insurance, or $8,250, remains unexpired)2. Rent Revenue ............................................................................. 18,000Unearned Rent ................................................................ 18,000 (Monthly rent is $21,600 ÷ 18 = $1,200. At 12/31/14,15 mos. of rent, or $18,000, remains unearned)3. Depreciation Expense ................................................................. 19,000Accumulated Depreciation .............................................. 19,000 [(Equipment retired during 2014 =$220,000 – $160,000 = $60,000)10% of $160,000 = $16,0005% of $60,000 = 3,000Total depreciation = $19,000]4. Sales Revenue ............................................................................ 20,000Accounts Receivable ....................................................... 20,000 (To correct the entry made in error)5. Salaries and Wages Expense . .................................................... 4,200Salaries and Wages Payable .......................................... 4,2006. Bad Debt Expense ...................................................................... 1,948Allowance for Doubtful Accounts ..................................... 1,948 (Corrected Sales Revenue balance is $214,800 – $20,000= $194,800. 1% of $194,800 is $1,948.)7. Interest Receivable ..................................................................... 1,500Interest Revenue ............................................................. 1,500 (Monthly interest is $60,000 × .06 × 1/12 = $300.5 months' accrued interest is $1,500)8. Rent Expense .......................................................................... 24,000Prepaid Rent ................................................................ 24,000 (To record 8 months' of rent expired at $3,000 per month)(b) 1, 2, 5, and 7. Items No. 1 and No. 2 represent prepaid items that were initiallyrecorded in nominal accounts. Items No. 5 and No. 7 represent accrued items.Comprehensive Exam A A-11 Problem A-III— Solution.1. h 6. f 11. l 16. j2. l 7. g 12. c 17. d3. e 8. a 13. c 18. j4. b 9. i 14. d5. k 10. j or k 15. mProblem A-IV — Solution.1. "For the year ended" in the title should be deleted.2. Equity investments should be reported at their fair value.3. The amount of Allowance for Doubtful Accounts should be disclosed anddeducted from Accounts Receivable.4. The inventory costing method (cost, lower of cost or market) and the basis forpricing the inventory (LIFO, FIFO, etc.) should be disclosed.5. Investment in Subsidiary should be classified as an investment.6. Treasury Stock is misclassified under Investments. It should appear as adeduction from the Stockholders' Equity section.7. Buildings and Land should be separated.8. "Reserve for" Depreciation should be "Accumulated" Depreciation.9. Discount on Bonds Payable should be classified with and deducted from BondsPayable.10. Cash Surrender Value of Life Insurance should be classified among Investments.11. "Reserve" for Income Taxes should be titled Income Taxes Payable.12. The small balance of $3 for customer's accounts with credit balances, while noterroneously classified, might be offset against and buried in the Accounts Receivable account because it is so small in amount.13. The maturity date and the interest rate should be disclosed for the BondsPayable.14. "Capital Stock" listed as a title should be "Stockholders' Equity;" "Capital stock"listed as an account should be “Common stock.”Comprehensive Exam AA-1215. More information relative to the capital stock, such as par value and the numberof shares authorized, issued, and outstanding should be disclosed.16. "Earned surplus" should not be used; Retained Earnings is the preferred title.17. Cash dividends declared is actually Dividends Payable and should be classifiedas a current liability.Problem A-V— Solution.1. h 7. c 13. p 19. m 25. b2. n 8. g 14. a 20. l 26. a3. c 9. k 15. j 21. n 27. c4. l 10. l 16. a, k 22. f 28. f5. a 11. j 17. l 23. l 29. p6. f 12. p 18. q 24. l 30. m Problem A-VI — Solution.Case 1. $900,000 is the amount of an 8% annuity due for 4 periods. Use the table factor for the future value of an 8% ordinary annuity for 4 periods, and multiplyby (1.08):4.50611 × (1.08) = 4.86660.Periodic payments = $900,000 ÷ 4.86660 = $184,934Case 2. Since interest is compounded semiannually, divide the 12% annual interest rate by 2, and use the table factor for the future value of a 6% ordinary annuityfor 5 periods.Periodic payments = $900,000 ÷ 5.63709 = $159,657Case 3. $100,000 is the present value of a 10% ordinary annuity for 5 periods.Periodic payments = $100,000 ÷ 3.79079 = $26,380Case 4. (a) A t June 30, 2016, the balance in the fund is the present value of an 8% ordinary annuity of $60,000 for 5 periods.B alance in the fund = $60,000 × 3.99271 = $239,563(b) A t June 30, 2016, $239,563 is the future value of an 8% ordinary annuityfor five periods.Periodic payments = $239,563 ÷ 5.8666 = $40,835。
Intermediate Accounting I 中级会计Ch 11-2 HW Solutions
Intermediate Accounting IChapter 11-2 HW SolutionsQuestion 31.Mandive makes the following journal entries in year 1, assuming straight-line depreciation.Depreciation Expense ................................................................................ 100,000Accumulated Depreciation—Plant Assets ....................................... 100,000 To record depreciation expense in year 1Accumulated Depreciation—Plant Assets .................................................. 100,000Plant Assets .................................................................................... 40,000Revaluation Surplus ........................................................................ 60,000 To adjust the plant assets to fair value and record revaluation surplusThus, there is a 2-step process. First, record depreciation based on the cost of $400,000. As a result, depreciation expense of $100,000 is reported on the income statement. Secondly, the revaluation of $60,000 which is the difference between the fair value of $360,000 and the book value of $300,000 is recorded.Recall that the revaluation surplus is reported in stockholders’ equity as a component of other comprehensive income. Mandive now reports the following information at the end of year 1 for its plant assets:Plant Assets ($400,000 -$40,000) .............................................................. $360,000Accumulated depreciation—Plant assets 0Book value ................................................................................................. $360,000Revaluation surplus ................................................................................... $ 60,000As indicated, $360,000 is the new basis of the asset. Depreciation expense of $100,000 is reported in the income statement and $60,000 is reported in other comprehensive income. The $60,000 of other comprehensive income then is also reported as revaluation surplus in the balance sheet. Assuming no change in the useful life, depreciation in year 2 will be $120,000 ($360,000 ÷ 3).EXERCISE 11-11 (10–15 minutes)(a) No correcting entry is necessary because changes in estimate are handled in the current andprospective periods.(b) Revised annual chargeBook value as of 1/1/2011 [$52,000 – ($6,000 X 5)] = $22,000Remaining useful life, 5 years (10 years – 5 years)Revised salvage value, $4,500($22,000 – $4,500) ÷ 5 = $3,500Depreciation Expense—Equipment ......................................................3,500Accumulated Depreciation—Equipment ....................................3,500(a) December 31, 2010Loss on Impairment .........................................................................220,000Accumulated Depreciation—Equipment ...............................220,000 Note: The asset fails the recoverability test ($300,000 < $500,000)Cost ................................................................ $900,000Accumulated depreciation ............................... 400,000Carrying amount ............................................. 500,000Fair value ........................................................ 280,000Loss on impairment ........................................ $220,000(b)It may be reported in the other expenses and losses section or it may be highlighted as an unusual itemin a separate section. It is not reported as an extraordinary item.(c)No entry necessary. Restoration of any impairment loss is not permitted.NOT REQUIRED:(d)Management first had to determine whether there was an impairment. To evaluate this step,management does a recoverability test. The recoverability test estimates the future cash flows expected from use of that asset and its eventual disposition. If the sum of the expected future net cash flows (undiscounted) is less than the carrying amount of the asset, an impairment results. If the recoverability test indicates that an impairment has occurred, a loss is computed. The impairment loss is the amount by which the carrying amount of the asset exceeds its fair value.EXERCISE 11-22 (15–20 minutes)Depletion base: $1,250,000 + $90,000 – $100,000 + $200,000 = $1,440,000Depletion rate: $1,440,000 ÷ 60,000 = $24/ton(a) Per unit mineral cost: $24/ton(b) 12/31/10 inventory: $24 X 6,000 tons = $144,000(c) Cost of goods sold 2010: $24 X 24,000 tons = $576,000(a)Asset turnover ratio:2007 2006Kodak is using their assets more efficiently in 2007 to produce sales.(b) Rate of return on assets:Kodak is more profitably using their assets in 2007.(c) Profit margin on sales:Kodak is performing better in 2007 and is more able to control costs.(d) The asset turnover ratio times the profit margin on sales provides the rate of return on assets computedfor Eastman Kodak as follows:Profit margin on sales X Asset Turnover Return on Assets6.56% X .736 = 4.83%Note the answer 4.83% is the same as the rate of return on assets computed in (b)above.$10,301= .736 times$10,568 = .715 times$13,659 + $14,320 $14,320 + $15,2362 2$676= 4.83%$(601) = (4.07%)$13,659 + $14,320 $14,320 + $15,2362 2$676= 6.56%$(601) = (5.69%)$10,301 $10,568。
IntermediateAccounting教科书上习题答案（byJDavidSpiceland）
IntermediateAccounting教科书上习题答案（byJDavidSpiceland）Chapter 7 Cash and ReceivablesQUESTIONS FOR REVIEW OF KEY TOPICSAACSB assurance of learning standards in accounting and business education require documentation of outcomes assessment. Although schools, departments, and faculty may approach assessment and its documentation differently, one approach is to provide specific questions on exams that become the basis for assessment. To aid faculty in this endeavor, we have labeled each question, exercise and problem in Intermediate Accounting, 6e with the following AACSB learning skills:Questions AACSB Tags Exercises (cont.)AACSB Tags 7-1Reflective thinking 7-11Analytic7-2 Reflective thinking 7-12Analytic7-3Reflective thinking 7-13Analytic7-4Reflective thinking, Communications 7-14Analytic7-5Diversity, Reflective thinking 7-15Analytic7-6Reflective thinking 7-16Analytic7-7Reflective thinking 7-17Analytic7-8Reflective thinking 7-18Diversity, Analytic7-9Reflective thinking, Communications 7-19Analytic7-10Reflective thinking 7-20 Reflective thinking7-11Diversity, Reflective thinking 7-21Analytic7-12Reflective thinking 7-22Analytic7-13Reflective thinking 7-23Analytic7-14Diversity, Reflective thinking 7-24 Analytic7-15Reflective thinking, Communications 7-25Analytic7-16 Reflective thinking7-26Analytic7-17 Reflective thinking7-27 Analytic7-18 Reflective thinking7-28 Analytic7-19 Reflective thinking, Communications7-29 Analytic7-20 Diversity, Reflective thinking7-30 Reflective thinking,CommunicationsBrief Exercises 7-31 Reflective thinking,Communications 7-1Reflective thinking CPA/CMA7-2Diversity, Reflective thinking 7-1Analytic7-3Reflective thinking 7-2Analytic7-4 Analytic 7-3Reflective thinking7-5Analytic 7-4 Analytic7-6Analytic 7-5Analytic7-7Diversity, Reflective thinking 7-6Analytic7-8Analytic 7-7Analytic7-9Analytic 7-1Reflective thinking7-10Analytic 7-2Analytic7-11Analytic 7-3Analytic7-12Analytic Problems7-13 Analytic 7-1Analytic7-14Reflective thinking 7-2Analytic7-15 Diversity, Reflective thinking 7-3Analytic7-16 Analytic 7-4 Analytic7-17 Analytic 7-5 AnalyticExercises7-6 Analytic 7-1Analytic7-7Analytic 7-2Analytic 7-8Analytic 7-3 Diversity, Analytic 7-9 Diversity, Analytic 7-4Analytic 7-10Analytic 7-5Analytic 7-11Analytic 7-6 Analytic 7-12Analytic 7-7 Analytic 7-13Analytic 7-8Analytic 7-14Analytic 7-9Analytic 7-15 Analytic 7-10AnalyticQUESTIONS FOR REVIEW OF KEY TOPICSQuestion 7-1Cash equivalents usually include negotiable instruments as well as highly liquid investments that have a maturity date no longer than three months from date of purchase.Question 7-2Internal control procedures involving accounting functions are intended to improve the accuracy and reliability of accounting information and to safeguard the company’s assets. The separation of duties means that employees involved in recordkeeping should not also have physical responsibility for assets.Question 7-3Management must document the company’s internal controls and assess their adequacy. The auditors must provide an opinion on management’s assessment. The Public Company Accounting Oversight Board’s Auditing Standard No. 5, which supersedes Auditing Standard No. 2, further requires the auditor to express its own opinion on whether the company has maintained effective internal control over financial reporting.Question 7-4A compensating balance is an amount of cash a depositor (debtor) must leave on deposit in an account at a bank (creditor) as security for a loan or a commitment to lend. The classification and disclosure of a compensating balance depends on the nature of the restriction and the classification of the related debt. If the restriction is legally binding, then the cash will be classified as either current or noncurrent (investments and funds or other assets) depending on the classification of the related debt. In either case, note disclosure is appropriate. If the compensating balance arrangement is informal and no contractual agreement restricts the use of cash, note disclosure of the arrangement including amounts involved is appropriate. The compensating balance can be included in the cash and cash equivalents category of current assets. Question 7-5Yes, IFRS and U.S. GAAP differ in how bank overdrafts are treated. Under IFRS, overdrafts can be offset against other cash accounts. Under U.S. GAAP overdrafts must be treated as liabilities.Answers to Questions (continued)Question 7-6Trade discounts are reductions below a list price and are used to establish a final price for a transaction. The reduced price is the starting point for initial valuation of the transaction. A cash discount is a reduction, not in the selling price of a good or service, but in the amount to be paid by a credit customer if the receivable is paid within a specified period of time.The gross method of accounting for cash discounts considers discounts not taken as part of sales revenue. The net method considers discounts not taken as interest revenue, because they are viewed as compensation to the seller for allowing the buyer to defer payment.Question 7-8When returns are material and a company can make reasonable estimates of future returns, an allowance for sales returns is established. At a financial reporting date, this provides an estimate of the amount of future returns for prior sales, and involves a debit to sales returns and a credit to allowance for sales returns for the estimated amount. Allowance for sales returns is a contra account to accounts receivable. When returns actually occur in the future reporting period, the allowance for sales returns is debited.Question 7-9Even when specific customer accounts haven’t been proven uncollectible by the end of the reporting period, bad debt expense properly should be matched with sales revenue on the income statement for that period. Likewise, since it’s not expected that all accounts receivable will be collected, the balance sheet should report only the expected net realizable value of that asset. So, to record the bad debt expense and the related reduction of accounts receivable when the amount hasn’t been determined, an estimate is needed. In an adjusting entry, we record bad debt expense and reduce accounts receivable for an estimate of the amount that eventually will prove uncollectible.If uncollectible accounts are immaterial or not anticipated, or it’s not possible to reliably estimate uncollectible accounts, an allowance for uncollectible accounts is not appropriate. In these few cases, any bad debts that do arise simply are written off as bad debt expense at the time they prove uncollectible.Answers to Questions (continued)Question 7-10The income statement approach to estimating bad debts determines bad debt expense directly by relating uncollectible amounts to credit sales. The balance sheet approach to estimating future bad debts indirectly determines bad debt expense by estimating the net realizable value for accounts receivable that exist at the end of the period. In other words, the allowance for uncollectible accounts at the end of the period is estimated and then bad debt expense is determined by adjusting the allowance account to reflect net realizable value.Question 7-11A company has to separately disclose trade receivables and receivables from related parties under U.S. GAAP, but not under IFRS.Question 7-12The assignment of all accounts receivable in general as collateral for debt requires no special accounting treatment other than note disclosure of the agreement. Question 7-13The accounting treatment of receivables factored with recourse depends on whether certain criteria are met. If the criteria are met, the factoring is accounted for as a sale. If they are not met, the factoring is accounted for as a loan. In addition, note disclosure may be required. Accounts receivable factored without recourse are accounted for as the sale of an asset. The difference between the book value and the fair value of proceeds received is recognized as a gain or a loss.Question 7-14U.S. GAAP focuses on whether control of assets has shifted from the transferor to the transferee. In contrast, IFRS focuses on whether the company has transferred “substantially all of the risks and rewards of ownership,” as well as whether the company has transferred control. Under IFRS:If the company transfers substantially all of the risks and rewards of ownership, the transfer is treated as a sale.If the company retains substantially all of the risks and rewards of ownership, the transfer is treated as a secured borrowing. If neither conditions 1 or 2 hold, the company accounts for the transaction as a sale if it has transferred control, and as a secured borrowing if it has retained control.Answers to Questions (continued)When a note is discounted, a financial institution, usually a bank, accepts the note and gives the seller cash equal to the maturity value of the note reduced by a discount. The discount is computed by applying a discount rate to the maturity value and represents the financing fee the bank charges for the transaction.The four-step process used to account for a discounted note receivable is as follows:1. Accrue any interest revenue earned since the last payment date (or date of thenote).2. Compute the maturity value.3. Subtract the discount the bank requires (discount rate times maturity valuetimes the remaining length of time from date of discounting to maturity date) from the maturity value to compute the proceeds to be received from the bank (maturity value less discount)./doc/2db73084591b6bd97f192279168884868762b8ba.html pute the difference between the proceeds and the book value of the noteand related interest receivable. The treatment of the difference will depend on whether the discounting is accounted for as a sale or as a loan. If it’s a sale the difference is recorded as a loss or gain on the sale; if it’s a loan the difference is viewed as interest expense or interest revenue.Question 7-16A company’s investment in receivables is influenced by several related variables, to include the level of sales, the nature of the product or service, and credit and collection policies. The receivables turnover and average collection period ratios are designed to monitor receivables.Question 7-17The items necessary to adjust the bank balance might include deposits outstanding (including undeposited cash), outstanding checks, and any bank errors discovered during the reconciliation process. The items necessary to adjust the book balance mi ght include collections made by the bank on the company’s behalf, service and other charges made by the bank, NSF (nonsufficient funds) check charges, and any company errors discovered during the reconciliation process.Answers to Questions (concluded)Question 7-18A petty cash fund is established by transferring a specified amount of cash from the company’s general checking account to an employee designated as the petty cash custodian. The fund is replenished by writing a check to the petty cash custodian for the sum of the bills paid with petty cash. The appropriate expense accounts are recorded from petty cash vouchers at the time the fund is replenished.Question 7-19When a creditor’s investment in a receivable becomes impaired, due to a troubled debt restructuring or for any other reason, the receivable is re-measured based on the discounted present value of currently expected cash flows at the loan’s original effective rate (regardless of the extent to which expected cash receipts have been reduced). The extent of the impairment is the difference between the carrying amount of the receivable (the present value of the receivable’s cash flows prior to the restructuring) and the present value of the revised cash flows discounted at the loan’s original effective rate. This difference is recorded as a loss at the time the receivable is reduced.Question 7-20No. Under both U.S. GAAP and IFRS, a company can recognize in net income the recovery of impairment losses of accounts and notes receivable.BRIEF EXERCISESBrief Exercise 7-1The company could improve its internal control procedure for cash receipts by segregating the duties of recordkeeping andthe handling of cash. Jim Seymour, responsible for recordkeeping, should not also be responsible for depositing customer checks.Brief Exercise 7-2Under IFRS the cash balance would be $245,000, because they could offset the two accounts. Under U.S. GAAP the balance would be $250,000, because they could not offset the two accounts.Brief Exercise 7-3All of these items would be included as cash and cash equivalents except the U.S. Treasury bills, which would be included in the current asset section of the balance sheet as short-term investments.Brief Exercise 7-4Income before tax in 2012 will be reduced by $2,500, the amount of the cash discounts.$25,000 x 10 = $250,000 x 1% = $2,500Brief Exercise 7-5Income before tax in 2011 will be reduced by $2,500, the anticipated amount of cash discounts.$25,000 x 10 = $250,000 x 1% = $2,500Brief Exercise 7-6Estimated returns = $10,600,000 x 8% = $848,000Less: Actual returns (720,000)Remaining estimated returns $128,000Brief Exercise 7-7Singletary cannot combine the two types of receivables under U.S. GAAP, as the director is a related party. Under IFRS a combined presentation would be allowed. Brief Exercise 7-8(1) Bad debt expense = $1,500,000 x 2% = $30,000(2) Allowance for uncollectible accounts:Beginning balance $25,000Add: Bad debt expense 30,000Deduct: Write-offs (16,000)Ending balance $39,000Brief Exercise 7-9(1) A llowance for uncollectible accounts:Beginning balance $ 25,000Deduct: Write-offs (16,000)Required allowance (33,400)*Bad debt expense $24,400(2) Required allowance = $334,000** x 10% = $33,400* Accounts receivable:Beginning balance $ 300,000Add: Credit sales 1,500,000Deduct: Cash collections (1,450,000)Write-offs (16,000)Ending balance $ 334,000** Brief Exercise 7-10 Allowance for uncollectible accounts:Beginning balance $30,000Add: Bad debt expense 40,000Deduct: Required allowance (38,000)Write-offs $32,000Brief Exercise 7-11Credit sales $8,200,000Deduct: Cash collections (7,950,000)Write-offs (32,000)* Year-end balance in A/R (2,000,000) Beginning balance in A/R $1,782,000*Allowance for uncollectible accounts:Beginning balance $30,000Add: Bad debt expense 40,000Deduct: Required allowance (38,000)Write-offs $32,000 Brief Exercise 7-122011 interest revenue:$20,000 x 6% x 1/12 =$1002012 interest revenue:$20,000 x 6% x 2/12 =$200Brief Exercise 7-13Assets decrease by $7,000:Cash increases by $100,000 x 85% = $ 85,000 Receivable from factor increases by($11,000 – $3,000 fee) 8,000Accounts receivable decrease (100,000)Net decrease in assets $ (7,000)Liabilities would not change as a result of this transaction.Income before income taxes decreases by $7,000(the loss on sales of receivables)The journal entry to record the transaction is as follows:Brief Exercise 7-14Logitech would account for the transfer as a secured borrowing. The receivables remain on the company’s books and a liability is recorded for the amount borrowed plus the bank’s fee.Brief Exercise 7-15Under IFRS, Huling would treat this transaction as a secured borrowing, because they retain substantially all of the risks and rewards of ownership. Under U.S. GAAP, Huling would treat this transaction as a sale, because they have transferred control. Note, however, that in practice we would typically expect for the entity that has the risks and rewards of ownership to also have control over the assets, so we would expect these criteria to usually lead to the same accounting.Brief Exercise 7-16Brief Exercise 7-17Receivables turnover = $320,000 = 5.33$60,000*($50,000 + 70,000) 2 = $60,000*Average collection = 365 = 68 daysperiod 5.33EXERCISESExercise 7-1Requirement 1Cash and cash equivalents includes:a. Balance in checking account $13,500Balance in savings account 22,100b. Undeposited customer checks 5,200c. Currency and coins on hand 580f. U.S. treasury bills with 2-month maturity 15,000Total $56,380Requirement 2d. The $400,000 savings account will be used for future plant expansion andtherefore should be classified as a noncurrent asset, either in other assets orinvestments.e. The $20,000 in the checking account is a compensating balance for a long-term loan and should be classified as a noncurrent asset, either in otherassets or investments.f. The $20,000 in 7-month treasury bills should be classified as a current assetalong with other temporary investments.Exercise 7-2Requirement 1Cash and cash equivalents includes:Cash in bank – checking account $22,500U.S. treasury bills 5,000Cash on hand 1,350Undeposited customer checks 1,840Total $30,690Requirement 2The $10,000 in 6-month treasury bills should be classified as a current asset along with other temporary investments. Exercise 7-3Requirement 1: U.S. GAAPCurrent Assets:Cash $175,000Current Liabilities:Bank Overdrafts $ 15,000 Requirement 2: IFRSCurrent Assets:Cash $160,000(No current liabilities with respect to overdrafts.)Exercise 7-4Requirement 1Sales price = 100 units x $600 = $60,000 x 70% = $42,000Requirement 2Exercise 7-4 (concluded) Requirement 3Requirement 1, using the net method:Requirement 2, using the net method:Exercise 7-5Requirement 1Sales price = 1,000 units x $50 = $50,000Requirement 2。
《中级财务会计(双语)》教案
《中级财务会计（双语）》教案任课教师：唐玲授课班级：课程学分： 4课程总学时：72课程周学时： 4上课周次：16教学进度计划教学内容总学时教学手段教学环境第一章总论 4 多媒体课堂教学第二章货币与金融资产 6 多媒体课堂教学第三章应收及预付款项 4 多媒体课堂教学第四章存货 6 多媒体课堂教学第五章长期股权投资 6 多媒体课堂教学第六章固定资产8 多媒体课堂教学第七章无形资产及其他资产 4 多媒体课堂教学第八章流动负债 6 多媒体课堂教学第九章长期负债 4 多媒体课堂教学第十章所有者权益 2 多媒体课堂教学第十一章收入、费用、利润6多媒体课堂教学第十二章财务报告 6 多媒体课堂教学实习10 课堂实践合计72每节课时分配参见课程教学的基本内容。
参考书目：（一）使用教材：唐纳德.E.基索、杰里.J.韦安特著《Intermediate Accounting》中国人民大学出版社李宝珍、裴淑红编《财务会计学》中国市场出版社（二）主要参考书目：《中级会计实务》财政部会计资格评价中心编经济科学出版社《注册会计师全国统一考试辅导教材——会计》中国财政经济出版社《Financial Accounting》，沃尔特·T·小哈里森、查尔斯·T·亨格瑞，美国：清华大学出版社，课程简介中级财务会计（双语）课程是会计学专业、财务管理专业的一门专业必修课和核心课程，是会计专业知识结构中的主体部分。
本课程的任务是介绍财务会计的基本理论和实务，培养学生从事财务会计工作应具备的基本知识、基本技能和操作能力。
本课程共72学时，4.5个学分，其中62个学时为课堂讲授，10个实习课时。
通过本课程的教学，使学生能够掌握会计核算的相关知识和方法，为其进一步学习打下良好的基础。
教学中应注意对学生基本技能的培养，实现应用型人才的培养目标。
课次 1 课时 2 累计课时 2 教学目的与要求通过教学，应使学生了解该课程的内容；一般掌握理解财务会计的目标、基本假设、会计信息质量要求。
国际会计第七版英文版课后答案(第十一章)
Chapter 11Financial Risk ManagementDiscussion Questions1.Enterprise risk management assesses individual risks in the context of a firm’s business strategy. Risksare viewed from a portfolio perspective with risks of various business functions, e.g., FX risk, interest rate risk, political risk and the like, being coordinated by a senior financial manager responsible for keeping top management apprised of critical risks that could interfere with the accomplishment of a firm’sstrategic objectives and devising risk optimization strategies. The variables that management accountants must track include factors both external and internal to the firm and varies from company to company.2.Market risk refers to the risk of loss due to unexpected changes in the prices of currencies, interest rates,commodities, and equities. It is not confined to price changes. Market risk also includes liquidity risk, market discontinuities, credit risk, regulatory risk, tax risk, and accounting risk. An example of a foreign exchange risk is a situation where an exporter invoices a credit sale to a foreign importer in foreign currency and foreign currency devalues prior to payment.3.An FX risk management program includes the following processes:a.Forecasting the expected movement in the relation between the yuan and your domesticcurrency.b.Measuring on a periodic basis your firm’s exposure to fluctuations in the value of the yuan.c.Designing protection strategies that will minimize losses should the yuan revalue.d.Establishing internal controls to measure your performance in hedging the risk of loss fromchanges in the value of the yuan.4.Translation exposure measures the impact of exchange rate changes on the domestic currency equivalentsof a firm s foreign currency assets and liabilities. It is primarily concerned with currency restatement.Transaction exposure measures the cash flow impact of fluctuating currency values on the settlement of commercial transactions denominated in foreign currencies. Transaction exposure is concerned with acurrency conversion (exchange) process. Economic exposure attempts to measure the impact of changing exchange rates on the future revenues, costs, and sales volume of a multinational entity. It is concerned with the temporal effects of exchange rate changes.Although FAS No. 52 attempts to mitigate concern with translation gains and losses (accounting exposure), it does not totally eliminate it. Companies choosing the U.S. dollar as their functional currency will still use the temporal translation method and report translation gains and losses in period income. Companies designating the local currency as the functional currency will find their asset exposures increased as inventories and fixed assets are translated using current exchange rates. While such translation gains and losses bypass income, the adverse effects of currency fluctuations on a company’s consolidated equity will still exist. This is especially likely where loan covenant and other contractual provisions specify minimum debt-to-equity ratios. This suggests that the issue of accounting versus economic exposure is far from settled.5.The chapter lists 10 specific methods to reduce a firm’s exposure to foreign exchange risk in adevaluation-prone country. These techniques, and possible cost-benefit trade-offs, are summarized in the following table.Methods Trade-Offsa. Minimize cash balances in a. Reduced exposure versusdevaluation-prone country higher business andfinancial risk due to possible "cash-outs."b. Remitting excess cash back b. Same as item a.to the parent company.c. Accelerate the collection c. Reduced exposure versusof local currency receivables possible reduction in salesd. Defer payment of local d. Reduced exposure versuscurrency payables impaired local credit ratinge. Speed up payment of e. Reduced exposure versusforeign currency payables foregone earnings on arelatively cheap creditsourcef. Invest local currency cash f. Reduced exposure versusbalances in inventories and higher transaction costsother assets less prone to and possible mis-devaluation loss allocation of corporateresourcesg. Invest in strong currency g. Reduced exposure versusforeign assets higher transaction costsand possible governmentinterference (e.g.exchange controls)h. Raise selling prices h. Reduced exposure versuspotential erosion ofmarket sharei. Invoice exports in hard i. Reduced exposure versuscurrencies possible reduction insales abroadj. Currency swaps j. Reduced translationexposure versus increasedtransaction exposure ifparent assesses theexposed affiliate aninterest charge in hardcurrency6. A multicurrency transactions exposure report differs from a multicurrency translation exposure report in anumber of ways. First, the transactions exposure report has a cash flow orientation instead of a static balance sheet orientation. It includes off balance sheet items that are executory in nature. Finally, a multicurrency transaction exposure report has a local currency orientation, whereas a multicurrency translation exposure report has a parent currency orientation.7.Derivative instruments are formal agreements that transfer financial risk from one party to another. Thevalue of a derivative is derived from its reference to a basic underlying instrument or variable such as a foreign currency receivable or a quantum of foreign exchange. Thus the value of a forward exchange contract is related to the change in the foreign exchange rate times the notional amount being hedged. An important accounting issue is whether derivatives should receive the same accounting treatment as the basic instruments to which they relate. Specifically, should a derivative instrument hedging a foreign currency asset appear in the financial statements as a foreign currency liability? If so, should its valuation base be identical to basic instruments? Do cash flows associated with derivative instruments have thesame economic meaning as those associated with basic instruments? How should gains and losses associated with derivative instruments be reflected in the income statement? Can and should risks attaching to these financial instruments be recognized and measured?8.Student responses should proceed along the following lines. Pele Corporation, a Brazilian firm, hasborrowed a certain sum of British pounds at 9 percent and is worried that the pound will appreciate relative to the real prior to maturity. To hedge this currency risk, it arranges with a bank to swap the pounds borrowed for an equivalent amount of reals for 3 years bearing the same rate of interest. During the 3-year period, it will make periodic interest payments to the bank in reals, and in return, receive periodic interest payments in pounds. At the end of the 3-year period, it will re-exchange the real principal for pounds at the original exchange rate.9. A futures contract is a commitment to purchase or deliver a specified quantity of a financial instrument orforeign currency at a future date at a price set when the contract is made. It differs from a forward contract in several respects. A futures contract is standardized in terms of size and delivery date whereas a forward contract is tailored to a customer’s needs. Futures contracts are freely traded on organized exchanges. In contrast, there is no secondary market for forward contracts as they are private agreements between two parties. Futures contracts are carried at market values with gains or losses taken immediately to income, whereas profits on a forward contract are realized only at the delivery date. Finally, a party to a futures contract must meet periodic margin requirements. In a forward contract, margins are set once, on the date of the initial transaction.10.Fair value hedges are hedges of a firm’s foreign currency assets and liabilities and firm fore ign currencycommitments. Cash flow hedges are hedges of forecasted transactions such as a future sale or purchase.Net investment hedges are hedges of an exposed balance sheet asset or liability position. For qualifying fair value hedges, all changes in the fair value of the derivative and the underlying item that is being hedged are recognized in earnings. For qualifying cash flow hedges, the change in the fair value of the derivative is recognized in Other Comprehensive Income and recognized in earnings when the hedged cash flows affect earnings. For qualifying hedges of a net investment, changes in the fair value of the derivative are recorded in comprehensive income11.In theory, the term highly effective means that gains or losses on hedging instruments should be shouldexactly offset gains or losses on the item being hedged. In practice, it means that gains or losses on the derivative substantially offset the changes in the value or cash flow of the hedged item. Measurement of this attribute is important. If a hedging instrument does not meet the highly effective test, the hedge is terminated and deferred gains or losses on the derivative are recognized immediately in current earnings.This, in turn, introduces volatility into a firm’s reporte d earnings.12.The notion of an opportunity cost refers to the return associated with your next best opportunity. In thearea of FX risk management, it entails comparing a given risk management strategy with an appropriate standard of comparison. This provides an objective means of assessing the effectiveness of a given risk reduction program. For example, when FX risk management programs are centralized at corporate headquarters, appropriate benchmarks against which to compare the success of corporate risk protection would be programs that local managers could have implemented on their own.Exercises1.Students usually gloss over diagrams without thinking them through. This exercise forces them to thinkthrough each step of the diagram and allows them to better internalize the risk management cycle.Responses might follow the following pattern: Step 1 involves operationalizing a firms strategies intoquantifiable objectives and then identifying developments both external and internal risks that could affect the achievement of these objectives. These risks are measured by the firm’s accountants and quantified in terms of their potential impact on the firm. For example, the firm may have as its strategic objective an increase of 5% of market share in a given country per year given assumptions about the rate of economic growth in that country. The chance that this growth rate may fall short of 5% and the impact of this shortfall for projected sales in that country would be quantified. Response formulation would involve identifying protection strategies to minimize the hit to sales of projected GNP shortfalls such as promotion campaigns to maintain sales or use of alternative sourcing venues to lower sales prices. This strategy would be implemented if projected GNP started to slow beyond a certain cutoff point. The impact of this protection strategy would then be quantified in terms of actual sales relative to forecast sales taking into account the costs of protection. The information contained in risk management performance reports would then be communicated to top management who would be in a position to reaffirm or alter strategic objectives and/or risk identification processes.2.Foreign exchange risk a devaluation of the foreign currency in which an account receivable wasdenominated would cause the domestic currency cash flows to decrease. This would cause current assets to decrease. Alternatively, a revaluation of the foreign currency would cause the account receivable and current assets to increase. Interest rate risk an increase in market rates of interest would cause the price ofa short-term fixed-rate debt instrument being held as a marketable security to decrease. This, in turn,would cause current assets to decrease. A decrease in interest rates would have the opposite effect.Commodity price risk an increase in the price of copper would cause the cost of copper purchases and the resultant unexpired cost of inventories in the current asset section of the balance sheet to increase. A fall in copper prices would have the opposite effect. Equity price risk a fall in stock prices would depress the carrying value of marketable securities (current assets), and conversely.3.The purpose of this exercise is to force students to look at manager ial accounting issues from the user’sperspective. Students may suggest additional information sources with respect to inflation differentials, balance of trade and balance of payments statistics, international monetary reserves, forward exchange quotations, the behavior of related currencies, and interest rate differentials. We recommend that this exercise be assigned to small groups to encourage teamwork. At the time this exercise was prepared, professional forecasters were predicting a rate of 10.5 ecrus to theU.S. dollar.Some groups may contend that exchange markets are efficient and that exchange rate changes are simply random events. Again, they must be prepared to convince management of their case, or at a minimum, identify the consequences of not attempting exchange rate forecasts.4. Current rate Current/Noncurrent Monetary/nonmonetaryExposed assets(PHP):Cash 500,000 500,000 500,000Accounts receivable 1,000,000 1,000,000 1,000,000 Inventories(LCM) 900,000 900,000Fixed assets 1,100,000 -- --Total 3,500,000 2,400,000 1,500,000 Exposed liabilities:Short-term payables 400,000 400,000 400,000Long-term debt 800,000 --- 800,000Total 1,200,000 400,000 1,200,000Positive/(negative) exposure 2,300,000 2,000,000 300,000 Positive exposure X $0.03 $69,000 $60,000 $9,000Positive exposure X $0.02 46,000 40,000 6,000 FX gain/(loss) $(23,000) $(20,000) $(3,000)5.ILS $ £$ EquivalentExposed Assets:Cash & due from banks 100,000 50,000 (40,000) 20,000Loans 200,000 ---- ---- 100,000Fixed assets ---- 30,000 ---- 30,000Exposed Liabilities:Deposits 40,000 ---- 15,000 50,000Owners equity ---- 100,000 ---- 100,000Net exposed assets 260,000 (20,000) (55,000) NIL(liabilities)ILS $ £$ EquivalentExposed Assets:Cash & due from banks 100,000 50,000 (40,000) 20,000Loans 200,000 ---- ---- 100,000Fixed assets ---- 30,000 ---- 30,000Exposed Liabilities:Deposits 40,000 ---- 15,000 50,000Owners equity ---- 100,000 ---- 100,000Net exposed assets 260,000 (20,000) (55,000) NIL(liabilities)6.Trial Balance BeforeILS $ £$ EquivalentCash & due from banks 100,000 50,000 (40,000) 20,000Loans 200,000 ---- ---- 100,000Fixed assets ---- 30,000 ---- 30,000Deposits 40,000 ---- 15,000 50,000 Owners equity ---- 100,000 ---- 100,000Trial Balance After(£/$/ILS = 1/2/8)ILS $ £$ EquivalentCash & due from banks 100,000 50,000 (40,000) (5,000)Loans 200,000 ---- ---- 50,000Fixed assets ---- 30,000 ---- 30,000Deposits 40,000 ---- 15,000 40,000 Owners equity ---- 100,000 ---- 100,000Translation loss $(65,000)7. One recommendation might be to reduce positive exposures by engaging in balance sheet hedging, that is, by remitting excess cash back to the corporate parent, reducing the affiliate bank’s outstanding loans, or increasing its deposits in Israeli shekels.. The trade-offs here are potentially negative effects on operations, such as not satisfying loan demand against hedging translation gains and losses. Another option is to increase the pricing of bank services in Israel to provide a profit margin that can offset any FX losses. Again, the effects of such actions on competitive positioning could far exceed the benefits of hedging. A third option is to buy a forward or currency swap to hedge the exposure. Trade-offs include the out-of-pocket cost of the exchange contract versus the reported losses avoided.1.If the U.S. dollar is the functional currency, the translation gain upon consolidation is aggregated with thetransaction loss on the foreign currency borrowing and disclosed as one line item in the consolidated income statement. This figure is determined as follows:Translation gain = Positive exposure X change in exchange rate= NZD3,000,000 x $.10= $300,000Transaction loss =NZD loan balance X change in exchange rate= NZD1,000,000 x $.10= $ (100,000)Aggregate exchange adjustment = $300,000 + $ (100,000)= $200,000If the New Zealand dollar is the functional currency, the translation gain upon consolidation bypasses income and appears as a separate component in consolidated equity. It is offset by the translation loss on the New Zealand dollar borrowing.9.4/1 CD (¥32,500,000 ÷ ¥120) $250,000Cash $250,000(Purchase of CD)Chips (¥32,500,000 ÷ ¥120) $270,833Cash (¥3,250,000 ÷ ¥120) $ 27,083A/P (¥29,250,000 ÷ ¥120) 243,750(To record credit purchase)7/1 CD (¥30,000,000 ÷ [¥120 - ¥110]) $ 22,727FX gain $ 22,727(To record gain on CD investment)Purchases (¥29,250,000 ÷ [¥120 - ¥110]) 22,159Accts. Payable 22,159(To record increase in purchases and related liability accounts owing to yen appreciation) 7/1 Cash (¥30,000,000 ÷ ¥110) $278,182Interest income (¥30,000,000 X .08 X ¼) ÷ ¥110] $ 5,455CD 272,727(To record maturation of CD)Interest expense [(¥29,250,000 x.08 x 3/12) ÷ ¥110) 5,318Accts. payable (¥29,250,000 ÷ ¥110) 265,909Cash 271,227(To record settlement of purchase transaction)10. Journal entries:6/1 CHF Contract receivable $133,333Deferred premium 3,334$ Contract payable $136,667(To record contract with the foreign currency dealer to exchange $136,667 for CHF 166,667)6/30 CHF Contract receivable 1,667Transaction gain 1,667(To record transaction gain from increased dollar equivalent of forward contract receivable; $.81 - $.80 x SWF 166,667)6/30 Premium expense 1,111Deferred premium 1,111(To amortize deferred premium for 1 month)9/1 SWCHF Contract receivable 3,333Transaction gain 3,333(To record additional transaction gain by adjusting forward contract to the new current rate; $.83 - $.81 x CHF 166,667)9/1 Premium expense 2,223Deferred premium 2,223(Amortization of deferred premium balance)9/1 $ Contract payable 136,667Cash 136,667 Foreign currency 138,333CHF Contract receivable 138,333(To record delivery of $136,667 to foreign currency dealer in exchange for CHF166,667 with a dollar equivalent of $138,334 (=CHF166,667 x $.83). The Swiss francs will, in turn be used to pay for the chocolate supplies).11. Calculations:If the premium on the forward contract is considered an operating expense, and the conditions for hedge treatment are met, i.e., management designates the forward contract as a hedge, documents its risk management objective and strategy, identifies the hedging instrument, the item being hedged and the risk exposure, and that the forward is effective both prospectively and retrospectively in hedging the risk, the gain on the forward can be offset against the loss on the payable as follows:Amount paid to settle the account payable on the purchase $138,333Less Transaction gain on forward contract (5,000)Cost of purchase $133,333The $133,000 is what was originally anticipated, CHF166.667 X $0.80 = $133,333.12. Journal entries:The call option is intended to hedge an uncertain cash flow. Accordingly, gains or losses on the hedging instrument would bedisclosed in comprehensive income and reclassified into earnings in the period the sale actually takes place.June 1 Premium expense $28,125Cash $28,125($.018 X CHF 62,500 X 25)August 31 Cash $40,625Comprehensive income $40,625[($.416 - $.39) X CHF 62,500 X 25]Case 11-1Exposure Identification1. Infosys appears to have several exposures as enumerated below.Foreign Exchange RiskPage Value-Drivers88 Revenues/Selling and administrative expenses89 Cash flows from interest/dividend income96 Revenue recognition/LT leases97 Operating income/foreign currency transactions/FA98 Marketing/Overseas staff expenses99 Derivative values100 Lease obligations101 Investment returns102 Segment revenues/expenses103 Dividends to ADS holders142 Penalties on export obligations149 Valuing intangibles150 Export revenuesCommodity Price RiskPage Value-Drivers98 Power and fuel expenses145 Brand valuation147/48 Current cost disclosures149 Value of intangiblesEquity Price RiskPage Value Drivers87 Share capital98 Diluted eps100 Stock option compensation expense103 Convertible preferreds145 Cost of capital151 Economic value-addedInterest Rate RiskPage Value Drivers88 Interest expense89 Cash flows from security investments/interest income97 Gratuity/Superannuation/Provident obligations143 Employee compensation145 Cost of capital149 Value of intangibles.151 Economic value-addedInformation on the company’s risk management policies are contained on pages 108-109 of their annual report which were not reproduced in Chapter 1. We include the relevant information here. Infosys derives its revenues from 51 countries of which 78 percent were denominated in US dollars. To minimize both transaction and translation risk the company:1.Tries to match expenses in local currency with receipts in the same currency.es forward exchange contracts to cover apportion of outstanding receivables.3.Denominates contracts in non-US and non-EU regions in internationally tradable currencies to minimizeexposures to local currencies that may have non-tradability risks.Case 11-2Value At Risk: What Are Our Options?Students should be asked to play the role of the consultant, and will find it to be a contentious issue. Suggested remedies that have merit are:1. The FASB should permit deferral accounting for rolling options which would take the derivative gain or loss on each option to equity until the anticipated event occurs, as opposed to taking it immediately to income. This, however, might encourage companies to game the system, so students should also suggest ways to keep this from happening.2. Another tack would be to adhere to generally accepted accounting principles and record the gain or loss on the derivative in current income as it is marked to market, but to disclose which transactions were undertaken for hedge purposes. Management could also game the system here as speculative activities could be disclosed as hedge activities.3. Another option that students might suggest is to revert back to the earlier U.S. practice of keeping the option off balance sheet and providing supplementary disclosure of mark-to-market accounting. This might be confusing to lay readers, but it would enable analysts to better understand the components of reported earnings.It is clear from the annual report clipping that management will ignore accounting pronouncements when it is in their interest to do so. Analysts must be alert to situations where management departs from GAAP to better reflect the economics of what transpired as opposed to doing so to manage earnings.精品文档，知识共享！！！。
Intermediate Accounting (11)
Purchase of merchandise inventory on account
600,000 600,000
Returns of inventory are credited to the inventory account. Discounts on inventory purchases can be recorded using the gross or net method.
20,000 20,000
Net Method
Purchases Accounts payable 19,600 19,600
October 14, 2013 Accounts payable 14,000 Purchase discounts Cash November 4, 2013 Accounts payable Cash
2013 Accounts receivable Sales revenue
Record sales on account.
820,000 820,000
No entry is made to record Cost of Goods Sold. A physical count of Ending Inventory shows a balance of $180,000. Let’s calculate Cost of Goods Sold at the end of 2013.
2013 Inventory A来自counts payablePurchase of merchandise inventory on account.
600,000 600,000
intermediate-accounting 练习题 (4)
COMPREHENSIVE EXAMINATION DPART 4(Chapters 15-17)Approximate Problem Topic Time D-I Treasury Stock. 20 min.D-II *Cash Dividends. 10 min.D-III Stock Dividends and Stock Splits. 10 min.D-IV Earnings Per Share Concepts. 10 min.D-V Earnings Per Share Computations. 10 min.D-VI Basic and Diluted Earnings Per Share. 20 min.D-VII Available-for-Sale Equity Securities. 15 min.D-VIII Trading Securities. 30 min.125 min.*Part of this topic is dealt with in an Appendix to the chapter.D - 2Test Bank for Intermediate Accounting, Fifteenth EditionProblem D-I— Treasury StockThe stockholders' equity section of Carey Co.'s balance sheet at December 31, 2014, was as follows:Common stock--$10 par (authorized 1,000,000 shares,issued and outstanding 600,000 shares) $ 6,000,000 Paid-in capital in excess of par 1,500,000Retained earnings 3,250,000$10,750,000InstructionsPrepare journal entries (1, 2, and 4) and show proper disclosure (3) to reflect the following treasury stock transactions showing how each is accounted for under the cost method. (Show computations.)1. On January 4, 2015, having idle cash, Carey Co. repurchased 25,000 shares of its out-standing stock for $500,000.2. On March 4, Carey sold 5,000 of these reacquired shares at $24 per share.3. Show the proper disclosures in the stockholders' equity section of the balance sheet issued atthe end of the first quarter, March 31, 2015. Assume net income of $100,000 during the first quarter.4. On June 30, 2015 the firm sold 10,000 of the reacquired shares for $17 per share.*Problem D-II— Cash DividendsBell Company has stock outstanding as follows: Common, $10 par value per share, 140,000 shares; Preferred, 4%; $100 par value per share, 8,000 shares. The Preferred is cumulative and participating up to an additional 3% of par; two years are in arrears (not including the current year); and the total amount of cash dividends declared for both classes of stock is $192,000. InstructionsPrepare the entry for the dividend declaration, separating the dividend into the common and preferred portions.Comprehensive Examination D D - 3 Problem D-III— Stock Dividends and Stock SplitsStock dividends and stock splits are common forms of corporate stock distribution to stockholders. Consider each of the numbered statements. You are to decide whether it:A. Applies to both stock dividends and stock splits.B. Applies to neither.C. Applies to stock splits only.D. Applies to stock dividends only.E. Applies to stock splits effected in the form of a dividend only.F. Applies to both stock splits effected in the form of a dividend and a stock dividend.(In each instance, the issuing company has only one class of stock.)InstructionsPrint next to the number of each statement below, the single capital letter of the description which applies to the statement.Statements____ 1. The distribution is a multiple as contrasted to a fraction of the number of shares previously outstanding.____ 2. The total number of shares outstanding is increased.____ 3. The individual stockholder's share of net assets is increased.____ 4. There is no transfer between retained earnings and capital stock accounts, other than to the extent occasioned by legal requirements.____ 5. There is no change in the total stockholders' equity of the issuing corporation.____ 6. The retained earnings available for dividends are increased.____ 7. Retained earnings in the amount of the distribution are transferred to capital stock, in some instances in an amount in excess of that required by the laws of the state ofincorporation.____ 8. Subsequent per-share earnings, if any, are decreased.____ 9. The par (or stated value) of the stock is unchanged.D - 4Test Bank for Intermediate Accounting, Fifteenth EditionProblem D-IV— Earnings Per Share ConceptsIndicate which of the following securities would be included in the computation of "basic earnings per share," and which would be included in the computation of "diluted earnings per share." Place a "B" before those which affect only basic EPS, a "D" before those which affect only diluted EPS, a "BD" before those which affect both basic and diluted EPS, and an "N" before those securities which do not affect EPS computations. Assume that, where applicable, the appropriate securities are dilutive.____ 1. Warrants to purchase additional common shares.____ 2. Common stock.____ 3. Nonconvertible debenture bonds.____ 4. Convertible, noncumulative preferred stock.____ 5. Cumulative, nonconvertible preferred stock.____ 6. Convertible bonds.____ 7. Executive stock options.____ 8. Notes payable.Problem D-V— Earnings Per Share ComputationsJones, Inc. has net income (30% tax rate) of $1,400,000 for 2015, and an average number of shares outstanding during the year of 500,000 shares. The corporation issued $2,000,000 par value of 10-year, 9% convertible bonds on January 1, 2013 at a $180,000 discount. The convertible bonds are convertible into 70,000 shares of common stock. Assume the company uses the straight-line method for amortizing bond discount.InstructionsCompute the earnings per share data, excluding any notes if required.Comprehensive Examination D D - 5 Problem D-VI— Basic and Diluted Earnings Per ShareAssume that the following data relate to Rosen, Inc. for the year 2015:Net income (30% tax rate) $3,500,000Average common shares outstanding 2015 1,000,000 shares10% cumulative convertible preferred stock:Convertible into 80,000 shares of common $1,600,0008% convertible bonds; convertible into 75,000shares of common $2,500,000Stock options:Exercisable at the option price of $25 per share;average market price in 2015, $30 84,000 shares InstructionsCompute (a) basic earnings per share, and (b) diluted earnings per share.Problem D-VII—Available-for-Sale Equity InvestmentsOn January 2, 2014, Norwin Company purchased 2,000 shares of Oslo Company common stock for $60,000. The stock has a par value of $10 and is part of the total stock outstanding of 20,000 shares of Oslo Company. Norwin Company intends the stock to be available for sale. Total stockholders' equity of Oslo Company on January 2, 2014 was $600,000.InstructionsPrepare necessary journal entries on the books of Norwin Company for the following transactions. If no entry is required, write "none" in the space provided. (Round all calculations to the nearest cent.)(a) January 2, 2014: Norwin purchases the shares described above.(b) December 31, 2014: Norwin receives a $.75 per share dividend from Oslo, and Osloannounces a net income for 2014 of $250,000.(c) December 31, 2014: According to The Wall Street Journal, Oslo common is selling for $27per share. Norwin's management views this decline as being only temporary in nature.Oslo's common is Norwin's only available-for-sale security.(d) February 15, 2015: Norwin sells 1,000 of the shares purchased on January 2, 2014 at $32per share.D - 6Test Bank for Intermediate Accounting, Fifteenth EditionProblem D-VIII— Trading SecuritiesThe information below relates to Milton Company's trading securities in 2014 and 2015.(a) Prepare the journal entries for the following transactions.January 1, 2014 Purchased $400,000 par value of GLF Company bonds at 97 plus accrued interest. The bonds pay interest annually at 9% each December 31.Broker's commission was $4,000.September 1, 2014 Sold $200,000 par value of GLF Company bonds at 94 plus accrued interest. Broker's commission, taxes, and fees were $2,000.September 5, 2014 Purchased 5,000 shares of Hayes, Inc. common stock for $30 per share.The broker's commission on the purchase amounted to $2,000.December 31, 2014 Make the appropriate entry for the GLF Company bonds.December 31, 2014 The market prices of the trading securities at December 31 were: Hayes, Inc. common stock, $31 per share; and GLF Company bonds, 99. Makethe appropriate entry.July 1, 2015 Milton sold 1/2 of the Hayes, Inc. common stock at $33 per share. Broker's commissions, taxes, and fees were $1,000.December 1, 2015 Milton purchased 600 shares of Ramirez, Inc. common stock at $45 per share. Broker's commission was $500.December 31, 2015 Make the appropriate entry for the GLF Company bonds.December 31, 2015 The market prices of the trading securities at December 31 were: Hayes, Inc. common stock, $34 per share; GLF Company bonds, 98; and Ramirez,Inc. common stock, $47 per share. Make the appropriate entry.(b) Present the financial statement disclosure (balance sheet and income statement) of MiltonCompany's transactions in trading securities for each of the years 2014 and 2015.Appropriate financial statement subheadings must be disclosed.Comprehensive Examination D D - 7 Solutions — Comprehensive Examination DProblem D-I— Solution.1. Treasury Stock .............................................................................. 500,000Cash .................................................................................. 500,000 2. Cash ............................................................................................. 120,000Treasury Stock .................................................................. 100,000Paid-in Capital from Treasury Stock ................................... 20,000 3. Stockholders' equity:Common stock, $10 par, 1,000,000 shares authorized,600,000 shares issued, 580,000 shares outstanding $ 6,000,000 Paid-in capital in excess of par value 1,500,000Paid-in capital from treasury stock 20,000Retained earnings 3,350,00010,870,000 Less: Cost of 20,000 shares held in treasury (400,000)Total stockholders' equity $10,470,0004. Cash ............................................................................................. 170,000Paid-in Capital from Treasury Stock .............................................. 20,000Retained Earnings ......................................................................... 10,000Treasury Stock .................................................................. 200,000*Problem D-II— Solution.Retained Earnings .............................................................................. 192,000 Dividends Payable, Preferred .................................................. 112,000Dividends Payable, Common .................................................. 80,000 Computations:Preferred Common Total Arrears—$800,000 × 4% × 2 $64,000 $ 64,000Preference—$800,000 × 4% 32,000 32,000Common—$1,400,000 × 4% $ 56,000 56,000Participating 2%* 16,000 24,000 40,000$112,000 $ 80,000 $192,000 * [($192,000 – $152,000) ÷ ($600,000 + $1,400,000)]Test Bank for Intermediate Accounting, Fifteenth EditionD - 8Problem D-III— Solution.1. C 4. E 7. F2. A 5. A 8. A3. B 6. B 9. FProblem D-IV— Solution.1. D 5. BD2. BD 6. D3. N 7. D4. D 8. NProblem D-V — Solution.Basic earnings per share($1,400,000 ÷ 500,000 shares) $2.80 Diluted earnings per share$1,400,000 + .7($180,000 + $18,000)—————————————————$2.70 500,000 + 70,000Problem D-VI — Solution.$3,500,000 – $160,000(a) Basic EPS = ——————————— = $2.231,500,000(b) Shares EarningsStart 1,500,000 $3,340,000Convertible preferred 80,000 160,000Convertible bonds 75,000 140,000*Options 14,000** 01,669,000 $3,640,000*($2,500,000 × .08) × (1 – .30)**[($30 – $25) ÷ $30] × 84,000$3,640,000 ÷ 1,669,000 = $2.18 DEPSComprehensive Examination D D - 9 Problem D-VII— Solution.(a) Equity Investments ..................................................................... 60,000Cash ............................................................................... 60,000 (b) Cash .......................................................................................... 1,500Dividend Revenue .......................................................... 1,500 No entry to accrue investee profits because fair value, not equity, method is being used. (c) Unrealized Holding Gain or Loss—Equity ................................... 6,000Fair Value Adjustment (Available-for-Sale) ..................... 6,000 (d) Cash (1,000 × $32) ..................................................................... 32,000Gain on Sale of Securities ............................................... 2,000Equity Investments (1,000 × $30) .................................... 30,000Problem D-VIII— Solution.January 1, 2014*Debt Investments ($400,000 ×.97) + $4,000 ....................................... 392,000 Cash ........................................................................................ 392,000September 1, 2014Cash ($188,000 + $12,000 – $2,000) .................................................. 198,000Loss on Sale of Investments ............................................................... 10,000 Debt Investments .................................................................... 196,000Interest Revenue ..................................................................... 12,000September 5, 2014Equity Investments .............................................................................. 152,000 Cash ........................................................................................ 152,000December 31, 2014*Cash ($150,000 × .09) ......................................................................... 13,500 Interest Revenue ..................................................................... 13,500December 31, 2014Fair Value Adjustment (Trading) .......................................................... 5,000 Unrealized Holding Gain or Loss—Income ($348,000 – $353,000) 5,000D - 10Test Bank for Intermediate Accounting, Fifteenth EditionJuly 1, 2015Cash ($82,500 – $1,000) ..................................................................... 81,500 Gain on Sale of Investments .................................................... 5,500 Equity Investments .................................................................. 76,000December 1, 2015Equity Investments .............................................................................. 27,500 Cash ........................................................................................ 27,500December 31, 2015Cash .................................................................................................... 13,500 Interest Revenue ..................................................................... 13,500December 31, 2015Fair Value Adjustment (Trading) ........................................................... 14,200 Unrealized Holding Gain or Loss—Income ............................. 14,200 ($375,500 – $394,200) - $5,000December 31,Balance Sheet 2014 2015 Current assets:Equity Investments, at fair value $353,000 $394,200Income StatementOther revenue and gains:Interest Revenue $13,500 $13,500 Unrealized holding gain on trading securities 5,000 14,200 Gain on sale of securities 5,500 Other expenses and losses:Loss on sale of securities 10,000。
intermediate accounting(fifteenth edition) ch11
CHAPTER 11Depreciation, Impairments, and Depletion ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC)Topics QuestionsBriefExercises Exercises ProblemsConceptsfor Analysis1. Depreciation methods;meaning of depreciation;choice of depreciationmethods. 1, 2, 3, 4, 5,6, 10, 14,20, 21, 221, 2, 3, 4, 5,8, 14, 151, 2, 3 1, 2, 3, 4, 52. Computation ofdepreciation. 7, 8, 9, 13 1, 2, 3, 4 1, 2, 3, 4,5, 6, 7,10, 151, 2, 3,4, 8, 10,11, 121, 2, 33. Depreciation base. 6, 7 5 8, 14 1, 2, 3,8, 1034. Errors; changes inestimate. 13 7 11, 12,13, 143, 4 35. Depreciation of partialperiods. 15 2, 3, 4 3, 4, 5, 6,7, 151, 2, 3,10, 116. Composite method. 11, 12 6 9 27. Impairment of value. 16, 17,18, 198 16, 17, 18 98. Depletion. 22, 23, 24,25, 26, 27 9 19, 20, 21,22, 235, 6, 79. Ratio analysis. 28 10 24*10. Tax depreciation(MACRS).29 11 25, 26 12 *This material is covered in an Appendix to the chapter.ASSIGNMENT CLASSIFICATION TABLE (BY LEARNING OBJECTIVE)Learning ObjectivesQuestionsBriefExercises Exercises ProblemsConceptsforAnalysis1. Explain the concept ofdepreciation.1 CA11-12. Identify the factors involved in thedepreciation process. 2, 3, 4, 5, 6,71, 2, 3, 4, 5 1, 2, 3, 4, 5,6,7, 8, 9, 10,11, 12, 13,14, 151, 2, 3,4, 8, 10, 11,12CA11-2,CA11-33. Compare activity, straight-lineand decreasing-charge methodsof depreciation. 8, 9, 10 1, 2, 3, 4, 5 1, 2, 3, 4, 5,6,7, 8, 10, 11,12, 13, 14,151, 2, 3, 4, 5,8, 10, 11, 12CA11-44. Explain special depreciationmethods. 11, 12, 13,14, 15, 166, 7 9, 11, 12, 13 CA11-55. Explain the accounting issuesrelated to asset impairment. 17, 18, 19,208 16, 17, 18 96. Explain the accountingprocedures for depletion ofnatural resources. 21, 22, 23,24, 25, 26,279 19, 20, 21,22, 235, 6, 77. Explain how to report andanalyze property, plant,equipment, and naturalresources.28 10 24*8. Describe income tax methods ofdepreciation.29 11 25, 26 12ASSIGNMENT CHARACTERISTICS TABLEItem Description Level ofDifficultyTime(minutes)E11-1 Depreciation computations—SL, SYD, DDB. Simple 15–20 E11-2 Depreciation—conceptual understanding. Moderate 20–25 E11-3 Depreciation computations—SYD, DDB—partial periods. Simple 15–20 E11-4 Depreciation computations—five methods. Simple 15–25 E11-5 Depreciation computations—four methods. Simple 20–25 E11-6 Depreciation computations—five methods, partial periods. Moderate 20–30 E11-7 Different methods of depreciation. Simple 25–35 E11-8 Depreciation computation—replacement, nonmonetaryexchange.Moderate 20–25 E11-9 Composite depreciation. Simple 15–20 E11-10 Depreciation computations, SYD. Simple 10–15 E11-11 Depreciation—change in estimate. Simple 10–15 E11-12 Depreciation computation—addition, change in estimate. Simple 20–25 E11-13 Depreciation—replacement, change in estimate. Simple 15–20 E11-14 Error analysis and depreciation, SL and SYD. Moderate 20–25 E11-15 Depreciation for fractional periods. Moderate 25–35 E11-16 Impairment. Simple 10–15 E11-17 Impairment. Simple 15–20 E11-18 Impairment. Simple 15–20 E11-19 Depletion computations—timber. Simple 15–20 E11-20 Depletion computations—oil. Simple 10–15 E11-21 Depletion computations—timber. Simple 15–20 E11-22 Depletion computations—mining. Simple 15–20 E11-23 Depletion computations—minerals. Simple 15–20 E11-24 Ratio analysis. Moderate 15–20 *E11-25 Book vs. tax (MACRS) depreciation. Moderate 20–25 *E11-26 Book vs. tax (MACRS) depreciation. Moderate 15–20 P11-1 Depreciation for partial period—SL, SYD, and DDB. Simple 25–30 P11-2 Depreciation for partial periods—SL, Act., SYD, and DDB. Simple 25–35 P11-3 Depreciation—SYD, Act., SL, and DDB. Moderate 40–50 P11-4 Depreciation and error analysis. Complex 45–60 P11-5 Depletion and depreciation—mining. Moderate 25–30 P11-6 Depletion, timber, and extraordinary loss. Moderate 25–30 P11-7 Natural resources—timber. Moderate 25–35 P11-8 Comprehensive fixed asset problem. Moderate 25–35 P11-9 Impairment. Moderate 15–25 P11-10 Comprehensive depreciation computations. Complex 45–60ASSIGNMENT CHARACTERISTICS TABLE (Continued)Item Description Level ofDifficultyTime(minutes)P11-11 Depreciation for partial periods—SL, Act., SYD,and DDB.Moderate 30–35 *P11-12 Depreciation—SL, DDB, SYD, Act., and MACRS. Moderate 25–35 CA11-1 Depreciation basic concepts. Moderate 25–35 CA11-2 Unit, group, and composite depreciation. Simple 20–25 CA11-3 Depreciation—strike, units-of-production, obsolescence. Moderate 25–35 CA11-4 Depreciation concepts. Moderate 25–35 CA11-5 Depreciation choice—ethics. Moderate 20–25SOLUTIONS TO CODIFICATION EXERCISESCE11-1(a) The master glossary provides two entries for amortization:AmortizationThe process of reducing a recognized liability systematically by recognizing revenues or reducinga recognized asset systematically by recognizing expenses or costs. In pension accounting,amortization is also used to refer to the systematic recognition in net pension cost over several periods of amounts previously recognized in other comprehensive income, that is, prior service costs or credits, gains or losses, and the transition asset or obligation existing at the date of initial application of Subtopic 715-30.AmortizationThe process of reducing a recognized liability systematically by recognizing revenues or by reducing a recognized asset systematically by recognizing expenses or costs. In accounting for postretirement benefits, amortization also means the systematic recognition in net periodic postre-tirement benefit cost over several periods of amounts previously recognized in other comprehen-sive income, that is, gains or losses, prior service cost or credits, and any transition obligation or asset.(b) Impairment is the condition that exists when the carrying amount of a long-lived asset (assetgroup) exceeds its fair value.(c) Recoverable amount is the current worth of the net amount of cash expected to be recoverablefrom the use or sale of an asset.(d) According to the glossary, the term activities is to be construed broadly. It encompasses physicalconstruction of the asset. In addition, it includes all the steps required to prepare the asset for its intended use. For example, it includes administrative and technical activities during the precon-struction stage, such as the development of plans or the process of obtaining permits from governmental authorities. It also includes activities undertaken after construction has begun in order to overcome unforeseen obstacles, such as technical problems, labor disputes, or litigation. CE11-2According to FASB ASC 360-10-40-4 through 6 (Impairment or Disposal of Long-Lived Assets . . . Long-Lived Assets to Be Exchanged or to Be Distributed to Owners in a Spinoff):40-4For purposes of this Subtopic, a long-lived asset to be disposed of in an exchange measured based on the recorded amount of the nonmonetary asset relinquished or to be distributed to owners in a spinoff is disposed of when it is exchanged or distributed. If the asset (asset group) is tested for recoverability while it is classified as held and used, the estimated future cash flows used in that test shall be based on the use of the asset for its remaining useful life, assuming that the disposal transaction will not occur. In such a case, an undiscounted cash flows recoverability test shall apply prior to the disposal date. In addition to any impairment losses required to be recognized while the asset is classified as held and used, and impairment loss, if any, shall be recognized when the asset is disposed of if the carrying amount of the asset (disposal group) exceeds its fair value. The provisions of this Section apply to nonmonetary exchanges that are not recorded at fair value under the provisions of Topic 845.CE11-2 (Continued)40-5 A gain or loss not previously recognized that results from the sale of a long-lived asset (disposal group) shall be recognized at the date of sale.40-6 See paragraphs 360-10-35-47 through 35-48 for guidance related to the disposition of an asset upon its abandonment.CE11-3According to FASB ASC 360-10-35-1 through 10 (Subsequent Measurement):35-1 This Subsection addresses property, plant, and equipment, subsequent measurement issues related to depreciation and the acquisition of an interest in the residual value of a leased asset.35-2 This guidance addresses the concept of depreciation accounting and the various factors to consider in selecting the related periods and methods to be used in such accounting.35-3 Depreciation expense in financial statements for an asset shall be determined based on the asset’s useful life.35-4The cost of a productive facility is one of the costs of the services it renders during its useful economic life. Generally accepted accounting principles (GAAP) require that this cost be spread over the expected useful life of the facility in such a way as to allocate it as equitably as possible to the periods during which services are obtained from the use of the facility. This procedure is known as depreciation accounting, a system of accounting which aims to distribute the cost or other basic value of tangible capital assets, less salvage (if any), over the estimated useful life of the unit (which may be a group of assets) in a systematic and rational manner. It is a process of allocation, not of valuation.35-5See paragraph 360-10-35-20 for a discussion of depreciation of a new cost basis after recognition of an impairment loss.35-6See paragraph 360-10-35-43 for a discussion of cessation of deprecation on long-lived assets classified as held for sale.35-7The declining-balance method is an example of one of the methods that meet the requirements of being systematic and rational. If the expected productivity or revenue-earning power of the asset is relatively greater during the earlier years of its life, or maintenance charges tend to increase during later years, the declining-balance method may provide the most satisfactory allocation of cost. That conclusion also applies to other methods, including the sum-of-the-years’-digits method, that produce substantially similar results.55-8In practice, experience regarding loss or damage to depreciable assets is in some cases one of the factors considered in estimating the depreciable lives of a group of depreciable assets, along with such other factors as wear and tear, obsolescence, and maintenance and replacement policies. 35-9 If the number of years specified by the Accelerated Cost Recovery System of the Internal Revenue Service (IRS) for recovery deductions for an asset does not fall within a reasonable range of the asset’s useful life, the recovery deduc tions shall not be used as depreciation expense for financial reporting.35-10Annuity methods of depreciation are not acceptable for entities in general.CE11-4According to FASB ASC 210-10-S99 (Balance Sheet-Overall-SEC Materials)SEC Rules, Regulations, and Interpretations>> Regulation S-X>>> Regulations, S-X Rule 5-02, Balance SheetsS99-1The following is the text of Regulation S-X Rule 5-02, Balance Sheets.The purpose of this rule is to indicate the various line items and certain additional disclosures which, if applicable, and except as otherwise permitted by the Commission, should appear on the face of the balance sheets or related notes filed for the persons to whom this article pertains (see § 210.4–01(a)).Assets And Other Debits13. Property, plant and equipment.–(a) State the basis of determining the amount.–(b) Tangible and intangible utility plant of a public utility company shall be segregated so as to show separately the original cost, plant acquisition adjustments, andplant adjustments, as required by the system of accounts prescribed by theapplicable regulatory authorities. This rule shall not be applicable in respect tocompanies which are not required to make much a classification.14. Accumulated depreciation, depletion, and amortization of property, plant and equipment.The amount is to be set forth separately in the balance sheet or in a note thereto.ANSWERS TO QUESTIONS1.The differences among the terms depreciation, depletion, and amortization are that they imply acost allocation of different types of assets. Depreciation is employed to indicate that tangible plant assets have decreased in carrying value. Where natural resources (wasting assets) such as timber, oil, coal, and lead are involved, the term depletion is used. The expiration of intangible assets such as patents or copyrights is referred to as amortization.2. The factors relevant in determining the annual depreciation for a depreciable asset are the initialrecorded amount (cost), estimated salvage value, estimated useful life, and depreciation method.Assets are typically recorded at their acquisition cost, which is in most cases objectively determinable.But cost assignment in other cases—―basket purchases‖ and the selection of an implicit inter est rate in asset acquisitions under deferred-payment plans—may be quite subjective, involving considerable judgment.The salvage value is an estimate of an amount potentially realizable when the asset is retired from service. The estimate is based on judgment and is affected by the length of the useful life of the asset.The useful life is also based on judgment. It involves selecting the ―unit‖ of measure of service life and estimating the number of such units embodied in the asset. Such units may be measured in terms of time periods or in terms of activity (for example, years or machine hours). When selecting the life, one should select the lower (shorter) of the physical life or the economic life. Physical life involves wear and tear and casualties; economic life involves such things as technological obsolescence and inadequacy.Selecting the depreciation method is generally a judgment decision, but a method may be inherent in the definition adopted for the units of service life, as discussed earlier. For example, if such units are machine hours, the method is a function of the number of machine hours used during each period. A method should be selected that will best measure the portion of services expiring each period. Once a method is selected, it may be objectively applied by using a predetermined, objec-tively derived formula.3.Disagree. Accounting depreciation is defined as an accounting process of allocating the costs oftangible assets to expense in a systematic and rational manner to the periods expected to benefit from the use of the asset. Thus, depreciation is not a matter of valuation but a means of cost allocation.4.The carrying value of a fixed asset is its cost less accumulated depreciation. If the company estimatesthat the asset will have an unrealistically long life, periodic depreciation charges, and hence accumulated depreciation, will be lower. As a result the carrying value of the asset will be higher. 5. A change in the amount of annual depreciation recorded does not change the facts about the declinein economic usefulness. It merely changes reported figures. Depreciation in accounting consists of allocating the cost of an asset over its useful life in a systematic and rational manner. Abnormal obsolescence, as suggested by the plant manager, would justify more rapid depreciation, but increasing the depreciation charge would not necessarily result in funds for replacement. It would not increase revenue but simply make reported income lower than it would have been, thus preventing overstatement of net income.Recording depreciation on the books does not set aside any assets for eventual replacement of the depreciated assets. Fund segregation can be accomplished but it requires additional managerial action. Unless an increase in depreciation is accompanied by an increase in sales price of the product, or unless it affects management’s decision on dividend policy, it does not affect funds.Questions Chapter 11 (Continued)Ordinarily higher depreciation will not lead to higher sales prices and thus to more rapid ―recovery‖ of the cost of the asset, and the economic factors present would have permitted this higher price regardless of the excuse given or the particular rationalization used. The price could have been increased without a higher depreciation charge.The funds of a firm operating profitably do increase, but these may be used as working capital policy may dictate. The measure of the increase in these funds from operations is not merely net income, but that figure plus charges to operations which did not require working capital, less credits to operations which did not create working capital. The fact that net income alone does not measure the increase in funds from profitable operations leads some non-accountants to the erroneous conclusion that a fund is being created and that the amount of depreciation recorded affects the fund accumulation.Acceleration of depreciation for purposes of income tax calculation stands in a slightly different category, since this is not merely a matter of recordkeeping. Increased depreciation will tend to postpone tax payments, and thus temporarily increase funds (although the liability for taxes may be the same or even greater in the long run than it would have been) and generate gain to the firm to the extent of the value of use of the extra funds.6.Assets are retired for one of three reasons: physical factors or economic factors—or a combinationof both. Physical factors are the wear and tear, decay, and casualty factors which hinder the asset from performing indefinitely. Economic factors can be interpreted to mean any other constraint that develops to hinder the service life of an asset. Some accountants attempt to classify the economic factors into three groups: inadequacy,supersession, and obsolescence. Inadequacy is defined as a situation where an asset is no longer useful to a given enterprise because the demands of the firm have increased. Supersession is defined as a situation where the replacement of an asset occurs because another asset is more efficient and economical. Obsolescence is the catchall term that encompasses all other situations and is sometimes referred to as the major concept when economic factors are considered.7.Before the amount of the depreciation charge can be computed, three basic questions must beanswered:(1) What is the depreciation base to be used for the asset?(2) What is the asset’s useful life?(3) What method of cost apportionment is best for this asset?8. Cost $800,000 Cost $800,000Depreciation rate X 30%* Depreciation for 2014 (240,000) Depreciation for 2014 $240,000 Undepreciated cost in 2015 560,000Depreciation rate X 30% 2014 Depreciation $240,000 Depreciation for 2015 $168,000 2015 Depreciation 168,000Accumulated depreciationat December 31, 2015 $408,000*(1 ÷ 5) X 150%Questions Chapter 11 (Continued)9. Depreciation base:Cost $162,000 Straight-line, $147,000 ÷ 20 = $ 7,350 Salvage (15,000)$147,000Units-of-output, $147,000 X 20,000= $35,000 84,000Working hours, $147,000 X 14,300= $50,050 42,000Sum-of-the-years’-digits, $147,000 X 20/210* = $14,000Double-declining-balance, $162,000 X 10% = $16,200*20(20+1)2=21010.From a conceptual point of view, the method which best matches revenue and expenses shouldbe used; in other words, the answer depends on the decline in the service potential of the asset. If the service potential decline is faster in the earlier years, an accelerated method would seem to be more desirable. On the other hand, if the decline is more uniform, perhaps a straight-line approach should be used. Many firms adopt depreciation methods for more pragmatic reasons. Some companies use accelerated methods for tax purposes but straight-line for book purposes becausea higher net income figure is shown on the books in the earlier years, but a lower tax is paid to thegovernment. Others attempt to use the same method for tax and accounting purposes because it eliminates some recordkeeping costs. Tax policy sometimes also plays a role.11.The composite method is appropriate for a company which owns a large number of heterogeneousplant assets and which would find it impractical to keep detailed records for them.The principal advantage is that it is not necessary to keep detailed records for each plant asset in the group. The principal disadvantage is that after a period of time the book value of the plant assets may not reflect the proper carrying value of the assets. Inasmuch as the Accumulated Depreciation account is debited or credited for the difference between the cost of the asset and the cash received from the retirement of the asset (i.e., no gain or loss on disposal is recognized), the Accumulated Depreciation account is self-correcting over time.12.Cash ................................................................................................... 14,000Accumulated Depreciation—Plant Assets ........................................... 36,000Plant Assets ....................................................................... 50,000 No gain or loss is recognized under the composite method.13.Original estimate: $2,500,000 ÷ 50 = $50,000 per yearDepreciation to January 1, 2015: $50,000 X 14 = $700,000Depreciation in 2015 ($2,500,000 – $700,000) ÷ 15 years = $120,00014.No, depreciation does not provide cash; revenues do. The funds for the replacement of the assetscome from the revenues; without the revenues no income materializes and no cash inflow results.A separate decision must be made by management to set aside cash to accumulate asset replace-ment funds. Depreciation is added to net income on the statement of cash flows (indirect method) because it is a noncash expense, not because it is a cash inflow.Questions Chapter 11 (Continued)15.25% straight-line rate X 2 = 50% double-declining rate$8,000 X 50% = $4,000 Depreciation for first full year.$4,000 X 6/12 = $2,000 Depreciation for half a year (first year), 2014.$6,000 X 50% = $3,000 Depreciation for 2015.16.The accounting standards require that if events or changes in circumstances indicate that thecarrying amount of such assets may not be recoverable, then the carrying amount of the asset should be assessed. The assessment or review takes the form of a recoverability test that compares the sum of the expected future cash flows from the asset (undiscounted) to the carrying amount. If the cash flows are less than the carrying amount, the asset has been impaired. The impairment loss is measured as the amount by which the carrying amount exceeds the fair value of the asset. The fair value of assets is measured by their market value if an active market for them exists. If no market price is available, the present value of the expected future net cash flows from the asset may be used.17.Under U.S. GAAP, impairment losses on assets held for use may not be restored.18.An impairment is deemed to have occurred if, in applying the recoverability test, the carryingamount of the asset exceeds the expected future net cash flows from the asset. In this case, the expected future net cash flows of $705,000 exceed the carrying amount of the equipment of $700,000 so no impairment is assumed to have occurred; thus no measurement of the loss is made or recognized even though the fair value is $590,000.19. Impairment losses are reported as part of income from continuing operations, generally in the ―Otherexpenses and losses‖ s ection. Impairment losses (and recovery of losses for assets to be disposed of) are similar to other costs that would flow through operations. Thus, gains (recoveries of losses) on assets to be disposed of should be reported as part of income from continuing operations in the ―Other revenues and gains‖ section.20. In a decision to replace or not to replace an asset, the undepreciated cost of the old asset is not afactor to be considered. Therefore, the decision to replace plant assets should not be affected by the amount of depreciation that has been recorded. The relative efficiency of new equipment as compared with that presently in use, the cost of the new facilities, the availability of capital for the new asset, etc., are the factors entering into the decision. Normally, the fact that the asset had been fully depreciated through the use of some accelerated depreciation method, although the asset was still in use, should not cause management to decide to replace the asset. If the new asset under consideration for replacement was not any more efficient than the old, or if it cost a good deal more in relationship to its efficiency, it is illogical for management to replace it merely because all or the major portion of the cost had been charged off for tax and accounting purposes.If depreciation rates were higher it might be true that a business would be financially more able to replace assets, since during the earlier years of the asset’s use a larger portion of its cost would have been charged to expense, and hence during this period a smaller amount of income tax paid.By selling the old asset, which might result in a capital gain, and purchasing a new asset, the higher depreciation charge might be continued for tax purposes. However, if the asset were traded in, having taken higher depreciation would result in a lower basis for the new asset.It should be noted that expansion (not merely replacement) might be encouraged by increased depreciation rates. Management might be encouraged to expand, believing that in the first few years when they are reasonably sure that the expanded facilities will be profitable, they can charge off a substantial portion of the cost as depreciation for tax purposes. Similarly, since a replacement involves additional capital outlays, the tax treatment may have some influence.Also, because of the inducement to expand or to start new businesses, there may be a tendency in the economy as a whole for the accounting and tax treatment of the cost of plant assets to influence the retirement of old plant assets.Questions Chapter 11 (Continued)It should be noted that to the extent that increased depreciation causes management to alter its decision about replacement, and to the extent it results in capital gains at the time of disposition, it is not matching costs and revenues in the closest possible manner.21.In lieu of recording depreciation on replacement costs, management might elect to make annualappropriations of retained earnings in contemplation of replacing certain facilities at higher price levels. Such appropriations might help to eliminate misunderstandings as to amounts available for distribution as dividends, higher wages, bonuses, or lower sales prices. The need for these appropriations can be explained by supplementary financial schedules, explanations, and footnotes accompanying the financial statements. (However, neither depreciation charges nor appropriations of retained earnings result in the accumulation of funds for asset replacement. Fund accumulation is a result of profitable operations and appropriate funds management.)22.(a) Depreciation and cost depletion are similar in the accounting sense in that:1. The cost of the asset is the starting point from which computation of the amount of theperiodic charge to operations is made.2. The estimated life is based on economic or productive life.3. The accumulated total of past charges to operations is deducted from the original cost ofthe asset on the balance sheet.4. When output methods of computing depreciation charges are used, the formulas areessentially the same as those used in computing depletion charges.5. Both represent an apportionment of cost under the process of matching costs with revenue.6. Assets subject to either are reported in the same classification on the balance sheet.7. Appraisal values are sometimes used for depreciation while discovery values are sometimesused for depletion.8. Residual value is properly recognized in computing the charge to operations.9. They may be included in inventory if the related asset contributed to the production of theinventory.10. The rates may be changed upon revision of the estimated productive life used in theoriginal rate computations.(b) Depreciation and cost depletion are dissimilar in the accounting sense in that:1. Depletion is almost always based on output whereas depreciation is usually based on time.2. Many formulas are used in computing depreciation but only one is used to any extent incomputing depletion.3. Depletion applies to natural resources while depreciation applies to plant and equipment.4. Depletion refers to the physical exhaustion or consumption of the asset while depreciationrefers to the wear, tear, and obsolescence of the asset.5. Under statutes which base the legality of dividends on accumulated earnings, depreciationis usually a required deduction but depletion is usually not a required deduction.6. The computation of the depletion rate is usually much less precise than the computation ofdepreciation rates because of the greater uncertainty in estimating the productive life.7. A difference that is temporary in nature arises from the timing of the recognition ofdepreciation under conventional accounting and under the Internal Revenue Code, and itresults in the recording of deferred income taxes. On the other hand, the differencebetween cost depletion under conventional accounting and its counterpart, percentagedepletion, under the Internal Revenue Code is permanent and does not require therecording of deferred income taxes.23.Cost depletion is the procedure by which the capitalized costs, less residual land values, of a naturalresource are systematically charged to operations. The purpose of this procedure is to match the cost of the resource with the revenue it generates. The usual method is to divide the total cost less residual value by the estimated number of recoverable units to arrive at a depletion charge for each unit removed. A change in the estimate of recoverable units will necessitate a revision of the unit charge.。
intermediate-accounting练习题(1)
COMPREHENSIVE EXAMINATION APART 1(Chapters 1-6)Problem A-I —Multiple Choice.Choose the best answer for each of the following questions and enter the identifying letter in the space provided.___ 1. How does failure to record accrued revenue distort the financial reports?a. It understates revenue, net income, and current assets.b. It understates net income, stockholders ' equity, and current liabilities.c. It overstates revenue, stockholders ' equity, and current liabilities.d. It understates cur rent assets and overstates stockholders ' equity.___ 2. A contingent liability which is normally accrued isa. notes receivable discounted.b. accommodation endorsements on customer notes.c. additional compensation that may be payable on a dispute now being arbitrated.d. estimated claims under a service warranty on new products sold.___ 3. Which of the following items is a current liability?a. Bonds due in three months (for which there is an adequate sinking fund classified as along-term investment).b. Bonds due in three years.c. Bonds (for which there is an adequate appropriation of retained earnings) due in elevenmonths.d. Bonds to be refunded when due in eight months, there being no doubt about themarketability of the refunding issue.___ 4. On June 15, 2014 Stine Corporation accepted delivery of merchandise whichit purchased on account. As of June 30 Stine had not recorded the transaction or included themerchandise in its inventory. The effect of this error on its balance sheet for June 30, 2014would bea. assets and stockholders ' equity were overstated but liabilities were notaffected.b. stockholders ' equity was the only item affected by the omission.c. assets and liabilities were understated but stockholders ' equity was notaffected.d. assets and stockholders ' equity were understated but liabilities were not affected.___ 5. Reversing entries are most commonly used in relation to year-end adjustingentries thata. allocate the expired portion of a depreciable asset to expense.b. amortize intangible assets.c. provide for bad debt expense.d. accrue interest revenue on notes receivable.___ 6. Of the following adjusting entries, which one would cause an increase in assets at the end of theA-2 Comprehe nsive Exam Aperiod?a. The entry to record the earned portion of rent received in advance.b. The entry to accrue unrecorded interest expense.c. The entry to accrue unrecorded interest revenue.d. The entry to record expiration of prepaid insurance.___ 7. Why is it necessary to make adjusting entries?a. The accountant has made errors in recording external transactions.b. Certain facts about the affairs of the business are not included in the ledger as built upfrom external transactions.c. The accountant wants to show the largest possible net income for the period.d. The accountant wants to show the net cash flow for the year.___ 8. Notes to financial statements should not be used toa. describe the nature and effect of a change in accounting principles.b. identify substantial differences between book and tax income.c. correct an improper financial statement presentation.d. indicate basis for asset valuation.___ 9. Consistency is best demonstrated whena. expenses are reported as charges against the period in which incurred.b. the effect of changes in accounting methods is properly disclosed.c. extraordinary gains and losses are not reported on the income statement.d. accounting procedures are adopted which give a consistent rate of net income.___ 10. The current assets section of a balance sheet should never includea. a receivable from a customer not collectible for over one year.b. the premium paid on short-term bond investment.c. goodwill arising from the purchase of a going business.d. customers' accounts with credit balances.Comprehe nsive Exam AA-3Problem A-ll — Adjusti ng and Revers ing En tries.$ 500 The follow ing list of acco unts and their bala nces represe nts the un adjusted trial bala nee of Alt Company at December 31,2014:Additio nal Data: Problem A-II — (cont.)1. The bala nce in the In sura nce Expe nse acco unt contains the premium costs of threepolicies:Policy 1, remaining cost of $2,550, 1-yr. term, taken out on May 1,2013; Policy 2, original cost of $9,000, 3-yr. term, taken out on Oct. 1,2014; Policy 3, original cost of $1,300, 1-yr. term, taken out on Jan. 1,2014.2. On September 30, 2014, Alt received $21,600 rent from its lessee for an eighteen month leasebegi nning on that date. 3. The regular rate of depreciation is 10% per year. Acquisitions and retirements during a yearare depreciated at half this rate. There were no purchases during the year. On December 31,2013, the balance of the Plant and Equipment account was $220,000. 4. On December 28, 2014, the bookkeeper in correctly credited Sales Reve nue for a receipt onacco unt in the amount of $20,000. 5. At December 31,2014, salaries and wages accrued but unpaid were $4,200. 6. Alt estimates that 1% of sales will become uncollectible.Cash Equity In vestme nts (tradi ng) Acco unts Receivable Allowa nee for Doubtful Acco unts Inven tory Prepaid Rent Pla nt Assets Accumulated Depreciati on-Pla nt Assets Acco unts Payable Bonds Payable Common Stock Reta ined EarningsSales Reve nueCost of Goods Sold Freight-Out Salaries and Wages Expe nse In terest Expe nse Rent Reve nueMiscella neous Expe nse In sura nee Expe nse $ 27,290 60,000 69,000 54,720 36,000 160,000 154,400 11,000 32,000 2,040890 12,850$620,19014,740 11,370 90,000 170,00097,180 214,800 21,600 $620,190A-4 Comprehe nsive Exam A7. On August 1,2014, Alt purchased, as a short-term investment, 60 $1,000, 6% bonds of Alle nCorp. at par. The bonds mature on August 1,2015. In terest payme nt dates are July 31 and January 31.8. On April 30, 2014, Alt rented a warehouse for $3,000 per month, paying $36,000 in advance. Instructions(a) Record the necessary correcting and adjusting entries.(b) Indicate which of the adjusting entries may be reversed at the beginning of the next accountingperiod.Comprehe nsive Exam AA-5Problem A-III — Key Conceptual Terms.Various accounting assumptions, principles, constraints, and characteristics are listed below. Select those which best justify the following accounting procedures and indicate___ 1. Chose the solution that will be least likely to overstate assets or income. ___ 2. Describing the depreciation methods used in the financial statements. ___ 3. Applying the same accounting treatment to similar accounting events.___ 4. The quality which helps users make predictions about present, past, and future events. ___ 5. Recording a transaction when goods or services are exchanged for cash or claims to cash. ___ 6. Preparing consolidated statements.___ 7. Information must make a difference or a company need not disclose it. ___ 8. Provides the figure at which to record a liability.___ 9. The preparation of timely reports on continuing operations. ___ 10. Accrual accounting (do not use "going concern").___ 11. Reporting those items which are significant enough to affect decisions. Select two. ___ 12. Additivity of financial statement figures relating to different time periods. ___ 13. Ignoring the phenomenon of price-level changes (do not use "historical cost"). ___ 14. Not reporting assets at liquidation prices (do not use "historical cost"). ___ 15. Characterized by completeness, neutrality, and being free from error. ___ 16. Establishment of an allowance for doubtful accounts.___ 17. Use of estimating procedures for amortization policies. Select two (do not use "periodicity") (17and 18). ___ 18. See item 17 above.the corresponding letter(s) in once or not at all.a. Historical costb. Relevancec. Monetary unitd. Going concerne.Consistencythe space(s) provided. A letter f. Economic entity g. Cost constraint h. Conservatism i. Periodicityj.Expense recognitionmay be used more than k. Revenue recognition l. Full disclosure m. FaithfulrepresentationA-6Comprehe nsive Exam AProblem A-IV — Bala nee Sheet Form.List the eorreetions needed to present in good form the balanee sheet below. Errors in elude miselassifieati ons, lack of adequate disclosure, and poor term ino logy. Do not concern yourself with the arithmetie. If an item can be elassified in more than one eategory, select the category most favored by the authors of your textbook.Tanner Corporati on Bala nee SheetFor the year ended December 31,2014AssetsDeferred Charges:Disco unt on bonds payable Other Assets:Cash surre nder value of life in sura neeLiabilities and CapitalCash$ 18,000 Equity in vestme nts -tradi ng (fair value, $32,000) 27,000 Aeeo unts receivable 75,000 Inven tory60,000 Supplies inven tory3,000 In vestme nt in subsidiary eompa ny 60,000In vestme nts:Treasury stockTan gible Fixed Assets:Buildi ngs and land213,000 Less: Reserve for depreeiati on 60,000$243,00078,000153,0003,000 54,000 $531.000Current Liabilities:Aeeo unts payableReserve for in come taxesCustomer's aeeo unts with credit bala ncesLon g-Term Liabilities:Bonds payable Total Liabilities Capital Stock:Capital stock Ear ned surplusCash divide nds declared$ 45,00042,000 ______ 3_$ 87,003120,000 225,000 74,997 24,000323,997 $531,000Curre nt Assets:Comprehe nsive Exam A A-7Problem A-V ——Bala nee Sheet and In come Stateme nt Classificati ons.Specify, to the left of each account, the letter of the financial statement classification the acco unt would appear in. Use only the classificati ons show n.Acco unt bala nces take n from the ledger of Morin Compa ny on December 31,2014 follow:1. Com mon Stock, $10 par 16. Inven tory2. Loss on Disposal of Equipme nt 17. Salaries and Wages Expe nse3. Buildi ngs 18. Mercha ndise on order with supplier4. Office Expe nse19. In terest Reve nue 5. Allowa nee for Doubtful Acco unts 20. Selli ng Expe nses 6. Notes Payable (Short Term) 21. In terest Expe nse 7. Accum. Depreciati on — Buildi ngs 22. In come Taxes Payable 8. Mortgage Payable due 2016 23. In sura nee Expe nse 9. Depleti on Expe nse 24. Advertis ing Expe nse 10. Freight-Out 25. Equity In vestme nts 11. Sales Reve nue 26. Acco unts Receivable 12. Divide nds 27. Land13.Reta ined Ear nings Dec. 31, 201328. 29. Acco unts PayableError made in computing 201214. Cashdepreciati on expe nse 15. Sales Disco unts30.Gain on Redempti on of Debta. Curre nt Assets j. Sales Reve nueb. In vestme ntsk. Cost of Goods Sold c. Property, Pla nt, and Equipme nt l. Operat ing Expe nses d. Intan gible Assets m. Other Reve nues and Gainse. Other Assetsn.Other Expe nses and Losses f. Curre nt Liabilities o. Extraordi nary Itemg. Lon g-term Debt p. Reta ined Ear nings Sectio n h. i.Capital StockReta ined Earningsq. Not on the Stateme ntsBala nee Sheet Stateme nt In come and Reta ined Ear ningsA-8Comprehe nsive Exam AProblem A-VI — Future Value and Prese nt Value.In computing your answers to the cases below, you can round your answer to the n earest dollar. Prese nt value tables are provided on the n ext page.Use the followi ng in formati on in an sweri ng Cases 1 and 2 below:On Jan uary 1,2008, Gray Compa ny sold $900,000 of 10% bon ds, due Jan uary 1,2018.Interest on these bonds is paid on July 1 and January 1 each year. According to the terms of the bond con tract, Gray must establish a sinking fund for the retireme nt of the bond principal starting no later than January 1, 2016. Since Gray was in a tight cash position during the years 2008 through 2013, the first contribution into the fund was made on Jan uary 1,2014.Case ' 1: Assume that, starting with the January 1, 2014 contribution, Gray desires to make a totalof four equal annual contributions into this fund. Compute the amount of each of these contributions assuming the interest rate is 8% compo un ded annu ally.Compute the amount of each of these contributions assuming the annual in terest rate is 12%, compo un ded semia nnu ally.Case 3: On Jan uary 2, 2014, Nelson Compa ny loa ned $100,000 to Holt Compa ny. The terms of thisloan agreement stipulate that Holt is to make 5 equal annual payme nts to Nels on at 10% in terest compo un ded annu ally. Assume the payme nts are to begi n on December 31,2014. Compute the amount of each of these payme nts.Case 4: Jim Marsh, a lawyer contemplating retirement on his 65th birthday, decides to create a fund onan 8% basis which will en able him to withdraw $60,000 per year begi nning June 30, 2017, and ending June 30, 2021. To provide this fund, he intends to make equal con tributi ons on June 30 of each of the years 2012 through 2016.(a) How much must the bala nee of the fund equal after the last con tributi on on June 30,2016 in order for him to satisfy his objective? (b) What are each of his contributions to the fund?Case 2: Assume, in stead, that start ing with the January desires to make a total of five equal semiannual1, 2016 contribution, Graycontributions into this fund.Comprehe nsive Exam A A-9Table 1Future Value of 1Periods 6% 8% 9% 10% 12%1 1.06000 1.08000 1.09000 1.10000 1.12002 1.12360 1.16640 1.18810 1.21000 1.25443 1.19102 1.25971 1.29503 1.33100 1.40494 1.26248 1.36049 1.41158 1.46410 1.57355 1.33823 1.46933 1.53862 1.61051 1.7623Table 2Prese nt Value of 1Periods 6% 8% 9% 10% 12%1 0.94340 0.92593 0.91743 0.90909 0.89282 0.89000 0.85734 0.84168 0.82645 0.79713 0.83962 0.79383 0.77218 0.75132 0.71174 0.79209 0.73503 0.70843 0.68301 0.63555 0.74726 0.68058 0.64993 0.62092 0.5674Table 3Future Value of an Ordi nary Ann uity of 1Periods 6% 8% 9% 10% 12%1 1.00000 1.00000 1.00000 1.00000 1.00002 2.06000 2.08000 2.09000 2.10000 2.12003 3.18360 3.24640 3.27810 3.31000 3.37444 4.37462 4.50611 4.57313 4.64100 4.77935 5.63709 5.86660 5.98471 6.10510 6.3528Table 4Prese nt Value of an Ordi nary Ann uity of 1Periods 6% 8% 9% 10% 12%1 0.94340 0.92593 0.91743 0.90909 0.89282 1.83339 1.78326 1.75911 1.73554 1.69003 2.67301 2.57710 2.53130 2.48685 2.40184 3.46511 3.31213 3.23972 3.16986 3.03735 4.21236 3.99271 3.88965 3.79079 3.6047Table 5PeriodsPrese nt Value of an Ann uitv Due of 16% 8% 9% 10% 12%1 1.00000 1.00000 1.00000 1.00000 1.00002 1.94340 1.92593 1.91743 1.90909 1.89283 2.83339 2.78326 2.75911 2.73554 2.69004 3.67301 3.57710 3.53130 3.48685 3.40185 4.46511 4.31213 4.23972 4.16986 4.0373A-10 Comprehe nsive Exam A Solutio ns ——Comprehe nsive Exam in ati on A Problem A-I —Solution.1. a 4. c 7. b 10. c2. d 5. d 8. c3. c 6. c 9. bProblem A-II —Solutio n.(a) 1. Prepaid In sura nee ....................................................................In sura nee Expe nse ......................................................(Both Policies 1 and 3 have expired and their costs bel ongin In sura nee Expe nse. The mon thly premium on Policy 2is $9,000 36 - $250. At 12/31/14, 33 mos.of in sura nee, or $8,250, remains un expired) 8,2508,2502. Rent Reve nue .............................................................................. 18,000Un ear ned Rent ............................................................... 18,000 (Mon thly rent is $21,600 18 -$1,200. At 12/31/14,15 mos. of rent, or $18,000, remai ns un ear ned)3. Depreciati on Expe nse .................................................................. 19,000Accumulated Depreciati on .............................................[(Equipme nt retired duri ng 2014 =$220,000 -$160,000 = $60,000)10% of $160,000 = $16,0005% of $60,000 = 3,00019,000 Total depreciation = $19,000]4. Sales Reve nue ..........................................................................Acco unts Receivable ......................................................... 20,00020,000(To correct the entry made in error)5. Salaries and Wages Expe nse .......................................................... 4,200Salaries and Wages Payable ......................................... 4,200 6. Bad Debt Expe nse ....................................................................... 1,948Allowance for Doubtful Accounts .................................... 1,948 (Corrected Sales Reve nue bala nee is $214,800 - $20,000=$194,800. 1% of $194,800 is $1,948.)7. In terest Receivable ...................................................................... 1,500In terest Reve nue ............................................................. 1,500 (Mon thly in terest is $60,000 .06 x>t/12 = $300.5 mon ths' accrued in terest is $1,500)8. Rent Expe nse ..........................................................................Prepaid Rent ..................................................................(To record 8 mon ths' of rent expired at $3,000 per mon th)24,00024,000(b) 1, 2, 5, and 7. Items No. 1 and No. 2 represent prepaid items that were initially recorded in nominalacco un ts. Items No. 5 and No. 7 represe nt accrued items.Comprehe nsive Exam AA-11 Problem A-III — Solution.Problem A-IV — Solution.1."For the year ended" in the title should be deleted. 2.Equity investments should be reported at their fair value. 3. The amount of Allowance for Doubtful Accounts should be disclosed and deducted fromAccounts Receivable.4. The inventory costing method (cost, lower of cost or market) and the basis for pricing the inventory (LIFO, FIFO, etc.) should be disclosed.5. Investment in Subsidiary should be classified as an investment.6. Treasury Stock is misclassified under Investments. It should appear as a deduction from the Stockholders' Equity section.7. Buildings and Land should be separated.8. "Reserve for" Depreciation should be "Accumulated" Depreciation.9. Discount on Bonds Payable should be classified with and deducted from Bonds Payable. 10. Cash Surrender Value of Life Insurance should be classified among Investments.11. "Reserve" for Income Taxes should be titled Income Taxes Payable.12. The small balance of $3 for customer's accounts with credit balances, while noterroneously classified, might be offset against and buried in the Accounts Receivable account because it is so small in amount.13. The maturity date and the interest rate should be disclosed for the Bonds Payable.14."Capital Stock" listed as a title should be "Stockholders' Equity;" "Capital stock" listed as an account should be “ Common stock. ”lccd 1234 11k r o fgai 6789 eb 1234 67A-12 Comprehe nsive Exam A15. More information relative to the capital stock, such as par value and the number of sharesauthorized, issued, and outsta nding should be disclosed.16. "Earned surplus" should not be used; Retained Earnings is the preferred title.17. Cash divide nds declared is actually Divide nds Payable and should be classified as acurre nt liability.Problem A-V ——Solutio n.Problem A-VI — Solutio n. Case 1. $900,000 is the amount of an 8% annuity due for 4 periods. Use the table factor for thefuture value of an 8% ordinary annuity for 4 periods, and multiply by (1.08):4.50611 X(1.08) = 4.86660.Periodic payme nts = $900,000 4.86660 = $184,934Case 2. Since interest is compounded semiannually, divide the 12% annual interestrate by 2, and use the table factor for the future value of a 6% ordinary ann uity for 5 periods.Periodic payme nts = $900,000 5.63709 = $159,657Case 3. $100,000 is the prese nt value of a 10% ordinary ann uity for 5 periods.Periodic payme nts = $100,000 3.79079 = $26,380Case 4. (a) At June 30, 2016, the balanee in the fund is the present value of an 8%ordinary annu ity of $60,000 for 5 periods.Bala nee in the fund = $60,000 3.99271 = $239,563(b) At June 30, 2016, $239,563 is the future value of an 8% ordinary annuity for fiveperiods.Periodic payme nts = $239,563 5.666 = $40,835 hn cl a f cgk —jp od9 02pa ・J a I q ^1 ml nf— I9 02 3 4 bacfp m。
Intermediate Accounting (11)
ILLUSTRATION 11-6 Sum-of-the-Years’-Digits Depreciation Schedule— Crane Example
11-14
LO 3
Methods of Depreciation
Diminishing-Charge Methods
11-5
6. Explain the accounting procedures for depletion of mineral resources.
7. Explain the accounting for revaluations. 8. Explain how to report and analyze property, plant, equipment, and mineral resources.
1. Explain the concept of depreciation.
2. Identify the factors involved in the depreciation process.
6. Explain the accounting procedures for depletion of mineral resources.
11-1
PREVIEW OF CHAPTER
11
Intermediate Accounting IFRS 2nd Edition Kieso, Weygandt, and Warfield
11-2
11
Depreciation, Impairments, and Depletion
LEARNING OBJECTIVES
a) Sum-of-the-years’-digits.
intermediate accounting ifrs (11)
Generally, only investments with original maturities of three months or less qualify under this definition.
23-10
LO 2
Product Life Cycle
23-11
Format of the Statement of Cash Flows
LO 2
Cash and Cash Equivalents
The basis recommended by the IASB for the statement of
cash flows is actually “cash and cash equivalents.” Cash
equivalents are short-term, highly liquid investments that are both:
To provide cash-basis information about the company’s operating, investing, and financing activities.
23-4
LO 1
PREPARATION OF STATEMENT OF CASH FLOWS
Usefulness of the Statement of Cash Flows
2. Current income statement data. 3. Selected transaction data.
Three Major Steps:
Step 1. Step 2. Step 3. Determine change in cash. Determine net cash flow from operating activities. Determine net cash flows from investing and financing activities.
intermediate-accounting 练习题 (2)
COMPREHENSIVE EXAMINATION BPART 2(Chapters 7–9)Problem B-I— Multiple Choice — Cash and Receivables.Choose the best answer for each of the following questions and enter the identifying letter in the space provided.____ 1. When should the loss on an uncollectible account receivable be recorded as an expense for accrual accounting purposes?a. When it is determined that an account cannot be collected.b. In the same period in which the sale on account occurs.c. When the balance is past due for more than 3 months.d. When a lawyer indicates that collection efforts would cost more than theaccount is worth.____ 2. How should unearned discounts, finance charges, and interest included in the face amount of installment accounts receivable be presented in the balancesheet?a. As a current liability.b. As a deduction from the related installment accounts receivable.c. Within the net amount of installment accounts receivable.d. As an addition to the related installment accounts receivable.____ 3. Durler Company's account balances at December 31 for Accounts Receivable and the related Allowance for Doubtful Accounts are $1,200,000and $19,500, respectively. From an analysis of accounts receivable, it isestimated that $42,000 of the December 31 receivables will be uncollectible.After adjustment for the above facts, the net realizable value of accountsreceivable would bea. $1,200,000.b. $1,180,500.c. $1,138,500.d. $1,158,000.____ 4. Which group of items listed below should be included in the cash account?a. Silver coins, postage stamps, demand deposits, personal checks.b. Promissory notes, demand deposits, money orders, silver coins.c. Money orders, postdated checks, personal checks, time deposits.d. Silver coins, money orders, demand deposits, personal checks.____ 5. Which of the following methods of accounting for uncollectible accounts does not properly match costs with revenues?a. Percentage of salesb. Percentage of receivablesc. Direct write-offd. Aging scheduleComprehensive Exam BB-2____ 6. Certain information relative to the 2014 operations of Ball Co. follows: Accounts receivable, January 1, 2014 $96,000Accounts receivable collected during 2014 184,000Cash sales during 2014 48,000Inventory, January 1, 2014 72,000Inventory, December 31, 2014 66,000Purchases of inventory during 2014 160,000Gross profit on sales 54,000What is Ball's accounts receivable balance at December 31, 2014?a. $72,000.b. $84,000.c. $96,000.d. $132,000.Problem B-II— Lower of Cost or MarketPresented below is data relative to the 12/31/14 inventory of Lance Company:Number Units Original Cost Total Current Item In Inventory Per Unit Original Cost Replacement CostA 5,000 $1.09 $5,450 $1.08B 5,000 1.30 6,500 1.25C 5,000 1.50 7,500 1.05D 5,000 1.60 8,000 1.65E 5,000 1.80 9,000 1.50Total 25,000 $36,450AppropriateUpper Lower InventoryLimit Limit Designated Valuation Item ("Ceiling") ("Floor") Market (Totals)ABCDETotalAdditional Data:Selling price is $2.00/unit for all items. Disposal costs amount to 10% of selling price anda "normal" profit is 35% of selling price.InstructionsComplete the last four columns above.Comprehensive Exam B B-3Problem B-III— Notes Receivable.On December 31, 2013 Berry Corporation sold some of its product to Flynn Company, accepting a 3%, four-year promissory note having a maturity value of $800,000 (interest payable annually on December 31). Berry Corporation pays 6% for its borrowed funds. Flynn Company, however, pays 8% for its borrowed funds. The product sold is carried on the books of Berry at a manufactured cost of $495,000. Assume Berry uses a perpetual inventory system.Instructions(a) Prepare the journal entries to record the transaction on the books of BerryCorporation at December 31, 2013. (Assume that the effective interest method is used. Use the interest tables below and round to the nearest dollar.)(b) Make all appropriate entries for 2014 on the books of Berry Corporation.(c) Make all appropriate entries for 2015 on the books of Berry Corporation.For Use on Problem B-IIITable 1Future Value of 1Periods 2% 3% 4% 6% 8%1 1.02000 1.03000 1.04000 1.06000 1.080002 1.04040 1.06090 1.08160 1.12360 1.166403 1.06121 1.09273 1.12486 1.19102 1.259714 1.08243 1.12551 1.16986 1.26248 1.360495 1.10408 1.15927 1.21665 1.33823 1.46933Table 2Present Value of 1Periods 2% 3% 4% 6% 8%1 0.98039 0.97087 0.96154 0.94340 0.925932 0.96117 0.94260 0.92456 0.89000 0.857343 0.94232 0.91514 0.88900 0.83962 0.793834 0.92385 0.88849 0.85480 0.79209 0.735035 0.90573 0.86261 0.82193 0.74726 0.68058Table 3Future Value of Ordinary Annuity of 1Periodic Rents 2% 3% 4% 6% 8%1 1.00000 1.00000 1.00000 1.00000 1.000002 2.02000 2.03000 2.04000 2.06000 2.080003 3.06040 3.09090 3.12160 3.18360 3.246404 4.12161 4.18363 4.24646 4.37462 4.506115 5.20404 5.30914 5.41632 5.63709 5.86660Comprehensive Exam BB-4Table 4Present Value of Ordinary Annuity of 1Periodic Rents 2% 3% 4% 6% 8%1 0.98039 0.97087 0.96154 0.94340 0.925932 1.94156 1.91347 1.88609 1.83339 1.783263 2.88388 2.82861 2.77509 2.67301 2.577104 3.80773 3.71710 3.62990 3.46511 3.312135 4.71346 4.57971 4.45182 4.21236 3.99271Comprehensive Exam B B-5Problem B-IV— FIFO vs. LIFO.In comparing and contrasting FIFO vs. LIFO inventory procedures, the following listingwas developed. You are to complete the tabulation with an answer of "YES" or "NO" as demonstrated by the first item. Any combination of yes-no answers is possible in each situation.FIFO LIFO0. Usually matches the actual physical flow of goods. Yes No _1. Emphasizes the income statement in that it matches the morerecent costs with revenue. _____ _____2. Defers tax payments in times of rising prices. _____ _____3. Possibility of liquidating the base may be a significant negativeaspect. _____ _____4. Will probably not be adopted if prices are expected to decline. _____ _____5. Emphasizes the balance sheet in that the more recent costsare contained in the inventory account. _____ _____6. Can use price indexes to cost layers. _____ _____7. Switching to this method could cause problems in the equitymarkets, with loan covenants, etc. _____ _____8. Income figure more accurately reflects cash available fordividends, investments, etc. _____ _____9. Tends to smooth income in periods of fluctuating prices. _____ _____10. Income figure is more "real" in that it doesn't contain "paperprofits." _____ _____ 11. A change to this method must be justified (i.e., to the auditor)other than solely on the basis of the tax effect. _____ _____Comprehensive Exam BB-612. Perpetual inventory results may be different from periodicinventory results. _____ _____13. Is acceptable to the IRS (i.e., for income tax purposes). _____ _____14. Gives lower profits when prices rise. _____ _____15. In a period of rising prices has an adverse effect on assets,working capital, and stockholders' equity. _____ _____16. Quick inventory turnover may have somewhat of a mitigatingeffect on some of the method's claimed disadvantages. _____ _____17. Improves cash flow in periods of rising prices. _____ _____18. If used for tax purposes, it must be used for financial reportingpurposes. _____ _____ 19. Somewhat opens door for profit manipulation and may causepoor purchase decisions. _____ _____ 20. Is a current value, rather than a historical cost, valuation method. _____ _____Problem B-V— Year-end Inventory Cutoff.Abel Company's business year ends on December 31. Listed below are purchase transactions which occurred during the last few days of 2014 or during the first few daysof 2015. The inventory, determined by physical count, was taken after the close of business on December 31, 2014. The only adjusting entry recorded to date has been to enter the December 31 physical inventory on the books and to remove the beginning inventory.Instructions(a) On the accompanying chart, indicate the effect of each of these transactions on theending inventory and on reported net income for 2014, by writing the wordsoverstated, understated, or no effect in the appropriate column. Both columns mustbe answered for each transaction.(b) Prepare all necessary correcting entries for 2014.(c) Indicate which of the correcting entries must be reversed in 2013 by preparing thenecessary reversing entries.Comprehensive Exam B B-712/31/14Physical 2014Inventory Income 1. An invoice for $7,000, terms f.o.b. shipping point, was receivedand entered December 30. The invoice shows that themerchandise was shipped December 29, and the receivingreport indicates the merchandise was received January 2. ______ _______ 2. An invoice for $300, terms f.o.b. shipping point, was receivedand entered December 30. The invoice shows thatmerchandise was shipped December 29, and the receivingreport shows the merchandise was received December 31. ______ _______ 3. An invoice for $4,000, terms f.o.b. shipping point, wasreceived and entered January 2. The invoice shows themerchandise was shipped December 30, and the receivingreport indicates the merchandise was received December 31. ______ _______ 4. An invoice for $800, terms f.o.b. destination, was received andentered December 30. The receiving report shows themerchandise was received January 2. ______ _______ 5. An invoice for $500, terms f.o.b. destination, was received andentered December 29. The receiving report indicates that themerchandise was received December 31. ______ _______ 6. An invoice for $1,500, terms f.o.b. destination, was receivedand entered January 2. The receiving report indicates themerchandise was received December 31. ______ _______ 7. Merchandise costing $15,000 and with a selling price of$18,000 was on consignment to Maris Distributing Companyand was on that company's premises on December 31. Noentry has been made for the consignment. ______ _______Comprehensive Exam BB-8Problem B-VI— Conventional and LIFO Retail Method.**Note to Instructor. Part B is based on Appendix 9-A.A. Landmark Book Store uses the conventional retail method.InstructionsGiven the following data, prepare a neat, labeled schedule showing the computation ofthe cost of inventory on hand at 12/31/14.Cost Retail Inventory 1/1/14 $ 28,900 $ 40,000 Purchases 366,600 610,000 Purchases Returns 9,000 20,000 Purchase Discounts 7,000Sales (Gross) 605,000 Sales Returns 15,000 Employee Discounts 5,000 Freight-in 23,500Freight-out 50,000Loss from Breakage 2,500 Markups 38,000 Markup Cancellations 18,000 Markdowns 13,500 Markdown Cancellations 8,500B. Landmark Book Store has decided to switch to the LIFO retail method for the periodbeginning 1/1/15.InstructionsPrepare a schedule showing the computation of the 12/31/15 inventory under the LIFO retail method adjusted for price level changes (i.e., dollar-value LIFO Retail.) Without prejudice to your answer in requirement A above, assume that the 12/31/14 inventory computed under the LIFO Retail method was $40,000 and $27,500 at retail and cost, respectively, for purposes of this requirement. Data for 2015 follows:Cost Retail Purchases (net) $360,000 $485,000 Sales (net) 420,000 Markups (net) 30,000 Markdowns (net) 15,000 2014 Price Index 1002015 Price Index 120Comprehensive Exam B B-9Problem B-VII— Multiple Choice — InventoryFor each of the following questions, select the letter of the statement which best answers the question and write it on the line to the left of the question.____ 1. Wade Company estimates the cost of its physical inventory at March 31 for use in an interim financial statement. The rate of markup on cost is 25%. Thefollowing account balances are available:Inventory, March 1 $2,000,000Purchases during March 1,000,000Purchase returns 52,000Sales during March 1,700,000The estimate of the cost of inventory at March 31 would bea. $1,248,000.b. $1,360,000.c. $1,588,000.d. $1,673,000.____ 2. Most methods of pricing inventories are in accord with generally accepted accounting principles and generally are permissible for income tax purposes.The method that must be used for financial reporting purposes if used for taxpurposes isa. moving average.b. weighted average.c. LIFO.d. FIFO.____ 3. A company has been using the FIFO cost method of inventory valuation since it was started 10 years ago. Its 2014 ending inventory was $180,000, but itwould have been $130,000 if LIFO had been used. Thus, if LIFO had beenused, this company's income before taxes would have beena. $50,000 less in 2014.b. $50,000 less over the 10-year period.c. $50,000 greater over the 10-year period.d. $50,000 greater in 2014.____ 4. Why are inventories included in the computation of net income?a. To determine cost of goods sold.b. To determine sales revenue.c. To determine merchandise returns.d. Inventories are not included in the computation of net income.____ 5. On December 31, 2014, Hill Company, which sells only one product, adopted the periodic last-in, first-out method of inventory valuation. The inventory wasvalued at $40,000 on the December 31, 2014 balance sheet. The number ofitems in its inventory remained constant during 2015. The December 31,2015 inventory valuation would bea. less than $40,000 if prices were steadily decreasing.b. less than $40,000 if prices were steadily increasing.c. greater than $40,000 if prices were steadily increasing.d. $40,000 regardless of any price changes.Comprehensive Exam BB-10____ *6. Kramer Company values its inventory by using the retail method (LIFO basis, stable prices). The following information is available for the year 2014.Cost Retail Beginning inventory $ 78,000 $140,000Purchases 368,000 628,000Freight-in 16,000Markups (net) —18,000Markdowns (net) —6,000Sales revenue 610,000 At what amount would Kramer Company report its ending inventory?a. $95,700.b. $96,000.c. $100,300.d. $102,000.Solutions — Comprehensive Examination BProblem B-I— Solution.1. b 4. d2. c 5. c3. d 6. bSolutions to computational Multiple Choice Questions.3. $1,200,000 – $42,000 = $1,158,000.6. $160,000 + $6,000 + $54,000 – $48,000 + $96,000 – $184,000 = $84,000.Problem B-II— Solution.AppropriateUpper Lower InventoryLimit Limit Designated Valuation Item ("Ceiling") ("Floor") Market (Totals)A $1.80 $1.10 $1.10 $5,450B 1.80 1.10 1.25 6,250C 1.80 1.10 1.10 5,500D 1.80 1.10 1.65 8,000E 1.80 1.10 1.50 7,500$32,700Problem B-III— Solution.(a) 12/31/13Notes Receivable ....................................................................... 800,000Discount on Notes Receivable ........................................ 132,485Sales Revenve ................................................................. 667,515Computation of Present Value of Note: (using 8%)$800,000 × .73503 = $588,02424,000 × 3.31213 = 79,491Present value of note 667,515Face value of note 800,000Amount of discount $132,48512/31/13Cost of Goods Sold .................................................................... 495,000Inventory ......................................................................... 495,000(b) 12/31/14Cash .......................................................................................... 24,000Interest Revenue ............................................................. 24,000 Discount on Notes Receivable .................................................... 29,401Interest Revenue ............................................................. 29,401($667,515 × .08 = $53,401 – $24,000)(c) 12/31/15Cash .......................................................................................... 24,000Interest Revenue ............................................................. 24,000 Discount on Notes Receivable .................................................... 31,753Interest Revenue ............................................................. 31,753[($667,515 + $29,401) × .08 = $55,753 – $24,000]Problem B-IV — Solution.1. No-Yes 7. No-Yes 13. Yes-Yes 19. No-Yes2. No-Yes 8. No-Yes 14. No-Yes 20. No-No3. No-Yes 9. No-Yes 15. No-Yes4. No-Yes 10. No-Yes 16. Yes-No5. Yes-No 11. Yes-Yes 17. No-Yes6. No-Yes 12. No-Yes 18. No-YesProblem B-V— Solution.(a) 1. Understated/Understated2. No effect/No effect3. No effect/Overstated4. No effect/Understated5. No effect/No effect6. No effect/Overstated7. Understated/Understated(b) 1. Inventory ............................................................................... 7,000Cost of Goods Sold ................................................... 7,0002. None3. Purchases ............................................................................. 4,000Accounts Payable ...................................................... 4,0004. Accounts Payable (800)Purchases . (800)5. None6. Purchases ............................................................................. 1,500Accounts Payable ...................................................... 1,5007. Inventory ............................................................................... 15,000Cost of Goods Sold ................................................... 15,000 (c) 3. Accounts Payable ................................................................. 4,000Purchases ................................................................. 4,0004. Purchases (800)Accounts Payable (800)6. Accounts Payable ................................................................. 1,500Purchases ................................................................. 1,500Problem B-VI — Solution.Cost Retail A. Beginning Inventory $ 28,900 $ 40,000Purchases 366,600 610,000 Purchase Returns (9,000) (20,000) Purchase Discounts (7,000)Freight-In 23,500Markups 38,000 Markup Cancellations (18,000) Goods Available $403,000 650,000 Cost Ratio = 62%Sales $605,000Sales Returns (15,000) (590,000) Employee Discounts (5,000) Goods Broken (2,500) Markdowns 13,500Markdown Cancellations (8,500) (5,000) Ending Inventory @ Retail $ 47,500 Est. Ending Inventory @ Cost (62% × $47,500) $ 29,450*B. Cost Retail__ Inventory, December 31, 2014 $ 27,500 $ 40,000 Net purchases 360,000 485,000 Net markups 30,000 Net markdowns (15,000) Total (excluding beginning inventory) 360,000 500,000 Total (including beginning inventory) $387,500 540,000 Net sales (420,000) Inventory, December 31, 2015, at retail $ 120,000 Cost to retail percentage ($360,000 ÷ $500,000) 72%12/31/15 inventory at base ($120,000 ÷ 1.20) $ 100,000 12/31/14 inventory at base $ 27,500 (40,000) Increase at base $ 60,000 Increase at current prices, at cost ($60,000 × 1.20 × .72) 51,84012/31/15 inventory at LIFO cost $ 79,340Problem B-VII — Solution.1. c 4. a2. c 5. d3. b *6. bSolutions to computational Multiple Choice Questions.1. $2,948,000– (80% × $1,700,000) = $1,588,000.6. $384,000 ÷ $640,000 = 60%. $78,000 + (60% × $30,000) = $96,000.。
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TENTH CANADIAN EDITION
Kieso • Weygandt • Warfield • Young • Wiecek • McConomy
CHAPTER 9 Investments
Prepared by:
Dragan Stojanovic, CA
Rotman School of Management, University of Toronto
CHAPTER 9:
INVESTMENTS
After studying this chapter you should be able to: • Understand the nature of investments including which types of companies have significant investments. • Explain and apply the cost/amortized cost model of accounting for investments. • Explain and apply the fair value through net income model of accounting for investments. • Explain and apply the fair value through other comprehensive income model of accounting for investments. • Explain and apply the incurred loss, expected loss, and fair value loss impairment models. • Explain the concept of significant influence and apply the equity method. • Explain the concept of control and when consolidation is appropriate. • Explain how investments are presented and disclosed in the financial statements noting how this facilitates analysis. • Identify differences in accounting between IFRS and ASPE, and what changes are expected in the near future.
Net income
OCI Transfer total realized to net income (recycling), or to retained earnings 7
Realized holding gains/losses reported in:
Net income Net income Copyright John Wiley & Sons Canada,
Measurement
•Cost / amortized cost model •Fair value through net income model •Fair value through OCI model •Impairment models
Presentation, IFRS / ASPE Disclosure, Comparison •Investments in and Analysis •Comparison Strategic Investments
Copyright John Wiley & Sons Canada, Ltd. 2
Investments
Understanding Investments
•Types of investments •Types of companies that have investments •Information for decision-making
Copyright John Wiley & Sons Canada, Ltd. 9
Amortized Cost Model: Example
Given:
Face amount: $100,000 Purchase date: January 1, 2014 Maturity date: January 1, 2019 Interest paid: July 1st and January 1st Coupon (stated) rate of interest: 8% Market (effective) rate of interest: 10% What is the approximate purchase price? PV of $100,000 (n=10, i=5%) + PVA of ($100,000 X 4%) where n=10, i = 5% PV is approximately equal to $92,278
Copyright John Wiley & Sons Canada, Ltd.
5
Accounting Models
• There are three main models of accounting for investments:
– Cost/amortized cost model – Fair value through net income model (FV-NI) – Fair value through other comprehensive income model (FV-OCI)
Copyright John Wiley & Sons Canada, Ltd. 8
Cost/Amortized Cost Model: Investments in Debt Securities
• Amortized cost model for investments in debt securities of another entity:
பைடு நூலகம்
Fair value
Fair value
At each reporting Cost or amortized date, measure at: cost Unrealized holding gains/losses reported in:
Fair value
Fair value
Not applicable
• Debt investments include investments in government debt, corporate bonds, convertible debt, and commercial paper • Equity instruments represent ownership interests in companies (e.g., common stock, preferred stock) • Motivations for investments include: to obtain short-term returns or long-term returns on investments, and for corporate strategy
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Bond Discount Amortization
•Presentation associates •Investments in and disclosure •Analysis subsidiaries •Looking ahead
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3
Type of Investments
1. Recognize cost of investment at fair value (plus direct transaction costs) 2. Report at amortized cost as well as interest receivable (unless impaired) 3. Recognize interest income as earned, and also amortize any discount/premium by adjusting carrying amount of investment 4. When dispose of investment, first bring accrued interest and discount/premium amortization up to date. Derecognize investment and report a gain/loss on disposal in net income.
Copyright John Wiley & Sons Canada, Ltd. 4
Measurement
• Method of accounting for a particular investment can depend on:
– Type of instrument (debt vs. equity) – Management’s intent – Company strategy – Ability to reliably measure instrument’s fair value, or
Ltd.
Cost/Amortized Cost Model: Investments in Shares
• Cost model for investments in shares of another entity: