ACC 422 Final Exam Guide (New 2019, With EXCEL FILE,

Score 29 30)
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This Tutorial contains excel File which can be used to solve for any
change in values Brief Exercise 7-1 Brief Exercise 7-7 Brief Exercise 7-
14 Brief Exercise 7-15 Brief Exercise 8-4 (Part Level Submission) Brief
Exercise 8-5 Brief Exercise 8-6 Multiple Choice Question 21 Question
14 Brief Exercise 9-4 Exercise 9-4 Brief Exercise 10-6 Brief Exercise
10-8 Exercise 10-1 Question 9 Brief Exercise 11-8 Brief Exercise 12-2
Brief Exercise 12-8 Exercise 12-3 Brief Exercise 13-2 Brief Exercise
13-5 Brief Exercise 13-10 Brief Exercise 13-13 Brief Exercise 14-3
Brief Exercise 14-12
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ACC 422 Final Exam Guide 1

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1. Kraft Enterprises owns the following assets at December 31, 2012.

Cash in bank–savings account 67,516 Checking account balance
26,445 Cash on hand 9,478 Postdated checks 753 Cash
refund due from IRS 40,324 Certificates of deposit (180-day)
94,754 What amount should be reported as cash? Question 2
Presented below is information related to Rembrandt Inc.’s inventory.
(per unit) Skis Boots
Parkas Historical Cost 273.79 152.75
76.37 Selling Price 312.70 208.95
106.27 Cost to distribute 27.38 11.53
3.60 Current replacement cost 292.52 151.31
73.49 Normal profit margin 46.11 41.79
30.62 Determine the following:
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ACC 422 Final Exam Guide 2

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SET 2 1) Which of the following is considered cash? 2) Bank overdrafts,

if material, should be 3) Which of the following is NOT considered cash
for financial reporting purposes? 4) If a company employs the gross
method of recording accounts receivable from customers, then sales
discounts taken should be reported as 5) Which of the following
methods of determining annual bad debt expense best achieves the
matching concept? 6) The advantage of relating a company's bad debt
expense to its outstanding accounts receivable is that this approach
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ACC 422 Final Exam Guide 3

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SET 3 1) Which of the following is NOT considered cash for financial

reporting purposes? 2) What is the preferable presentation of accounts
receivable from officers, employees, or affiliated companies on a
balance sheet? 3) Which of the following items should NOT be included
in the Cash caption on the balance sheet?
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ACC 422 Final Exam Guide All 3 Sets

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Details of All 180 Questions Given Below SET 1 1. Kraft Enterprises

owns the following assets at December 31, 2012. Cash in bank–savings
account 67,516 Checking account balance 26,445 Cash on hand
9,478 Postdated checks 753 Cash refund due from IRS
40,324 Certificates of deposit (180-day) 94,754 What amount
should be reported as cash? Question 2 Presented below is information
related to Rembrandt Inc.’s inventory. (per unit) Skis Boots Parkas
Historical Cost 273.79 152.75 76.37 Selling Price 312.70 208.95 106.27
Cost to distribute
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ACC 422 Week 1 DQ 1

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Consider how an organization must manage cash, receivables, and

inventory. Which of the three variables is the most important to manage?
Is one more susceptible to fraud and errors than the others? Explain your
answer.
How would a misstatement in each affect the organization?
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ACC 422 Week 1 DQ 2

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What is the perpetual method of tracking inventory?
How does it differ from the periodic method of tracking inventory?
Why would a company choose one method over the other method?
Which is the best method? Why?
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ACC 422 Week 1 DQ 3

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What are the different ways to estimate bad debt?

How does this affect net income?
What does Generally Accepted Accounting Principles (GAAP) require?
Why?
Should all companies have bad debt? Explain your answer.
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ACC 422 Week 1 Individual Assignment Disclosure Analysis

Paper (2 Papers)

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This Tutorial contains 2 Papers Resource: Internet Select a publicly held

company to use as the basis for this assignment. Research your selected
company and acquire the company’s most recent financial statements
using the Internet. Prepare a 700- to 1,050-word paper analyzing the
disclosures contained within the notes to the financial statements related
to cash and cash equivalents, receivables, and inventories. Include a list
identifying the components of the organization’s cash and cash
equivalents. Format your paper consistent with APA guidelines.
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ACC 422 Week 1 Team Assignment Audited Financial

Statements (Nordstrom Inc.)

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Each team is assigned a publically traded company that they will use to
answer the questions in the Financial Scavenger Hunt assigned each
week. Team A: Nordstrom Inc. Team B: Macy's Inc. Locate your
assigned company's latest audited financial statements and post them on
the assignment tab. Review the financial statements, including any notes
and supplemental information, and answer the following questions.
Indicate where you found the answer to the questions. If calculations are
required, show your work. Post your answers to the assignment tab.
Who are the auditors and have the auditors changed in the past 2 years?
If yes, who were the previous auditors and why was there a change? 1.
What kind of opinion did the auditors issue on 1. The company as
a whole 2. The internal control system 3. What is the date of the
audit opinion? This is the date that fixes the auditor's liability. 4. Have
the financials been restated in the past 2 years? 5. Have there been any
changes in the following positions in the past 2 years? 1. Chief
Executive Officer 2. Chief Financial Officer
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ACC 422 Week 1 Wileyplus BE 7-1, BE 7-7, Ex 7-4, Ex 7-9, Ex

7-22, Ex 7-24, CA 7-2, Pr 7-4 (with Excel File)

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This Tutorial contains Excel File which can be used to solve for any
values Complete the following assignments in WileyPLUS: • Brief
Exercise 7-1 • Brief Exercise 7-7 • Exercise 7-4 • Exercise 7-9 •
Exercise 7-22 • Exercise 7-24 (Part Level Submission) •
Concept for Analysis 7-2 (Essay) • Problem 7-4 (Part Level
Submission) Brief Exercise 7-1 Marin Enterprises owns the following
assets at December 31, 2017. Cash in bank—savings account 65,800
Checking account balance 23,800 Cash on hand 8,920
Postdated checks 900 Cash refund due from IRS 36,000
Certificates of deposit (180-day)
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ACC 422 Week 2 DQ 1

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Under what circumstances would a company need to estimate its

inventory?
What are the differences between using the gross profit method and
retail inventory method for estimating inventory?
Which method of estimation, gross profit or retail inventory, is best?
Explain your answer.
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ACC 422 Week 2 DQ 2

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What are the criteria for capitalization of fixed assets?

What items are included in the cost of a fixed asset?
Should interest be included in the cost of a fixed asset? Explain why or
why not.
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ACC 422 Week 2 DQ 3

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How do we account for the disposition of fixed assets?

What are the differences in how the exchanges of assets are handled,
pending on whether they are similar or dissimilar?
What is the rationale for these differences?
What is the impact to the companies’ financial statements?
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ACC 422 Week 2 Learning Team Assignment (New Syllabus)

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Complete the following three deliverables for this assignment as a team:

1. The Financial Reporting, Procter & Gamble Company, p. 379. 2.
The Financial Statement Analysis Cases, Case 1: Occidental
Petroleum Corporation, p. 379. 3.Problem 7-6, p. 374 Compile all team
member’s input. Click the Assignment Files tab to submit your
assignment. Financial Reporting The Procter & Gamble Company
(P&G) The financial statements of P&G are presented in Appendix B.
The company’s complete annual report, including the notes to the
financial statements, is available online.
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 ACC 422 Week 2 Wileyplus Ex 8-2, Ex 8-9, Ex 8-12, Ex 9-2,
Ex 9-7, Ex 9-17, Ex 9-18, Ex 9-20, Ex 9-22 (with Excel File)

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This Tutorial contains Excel File which can be used to solve for any
values Complete the following assignments i • Exercise 8-2 • Exercise
8-9 (Part Level Submission) • Exercise 8-12 (Part Level Submission)
• Exercise 9-2 • Exercise 9-7 • Exercise 9-17 • Exercise 9-18 •
Exercise 9-20 • Exercise 9-22 Exercise 8-2 In your audit of Leon
Company, you find that a physical inventory on December 31, 2017,
showed merchandise with a cost of $400,500 was on hand at that date.
You also discover the following items were all excluded from the
$400,500.
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ACC 422 Week 3 DQ 1

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What is the purpose of depreciation?

Does the book value of a fixed asset (cost minus accumulated
depreciation) communicate to a user what the asset is worth? Explain
why or why not.
Should the financial statements reflect the value of fixed assets? Explain
why or why not.
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ACC 422 Week 3 DQ 2

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What are the different methods used to calculate depreciation?

How does a company decide which method it should utilize?
How does its choice affect the financial statements?
Should companies standardize the method of depreciation to enhance
comparability? Explain your answer.
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ACC 422 Week 3 DQ 3

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What is an intangible asset?

Should all intangible assets be subject to amortization? Explain why or
why not.
Why are some intangible assets not amortized?
What is the implication to the financial statements?
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ACC 422 Week 3 Team Assignment (Case 3, CA 8-10, Problem

9-3, Problem 9-13)

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Complete the following four deliverables for this assignment as a team:

1. Case 3: The Kroger Company, p. 440 Complete the following
individually and discuss your individual answers as a team: 1. CA
8-10, p. 437 2. Problem 9-3, p. 483 3.Problem 9-13, p. 487 After
discussing your answers, compile each into a team response. Click the
Assignment Files tab to submit your assignment. The Kroger Company
reported the following data in its annual report
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ACC 422 Week 3 Wileyplus BE 10-10, Ex 10-3, Ex 10-13, Ex

11-6 Ex 11-15, Ex 11-24, Ex 12-1, Ex 12-4, Ex 12-14 (with
Excel File)

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This Tutorial contains Excel File which can be used to solve for any
values Complete the following assignments in WileyPLUS: • Brief
Exercise 10-10 • Exercise 10-3 • Exercise 10-13 • Exercise 11-6 •
Exercise 11-15 • Exercise 11-15 (Essay) • Exercise 11-24 • Exercise 12-
1 • Exercise 12-4 • Exercise 12-14 (Part Level Submission) Brief
Exercise 10-10 Larkspur Company traded a used welding machine (cost
$10,620, accumulated depreciation $3,540) for office equipment with an
estimated fair value of $5,900. Larkspur also paid $3,540 cash in the
transaction. Prepare the journal entry to record the exchange.
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ACC 422 Week 4 DQ 1

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What are the criteria for classifying an item as a current liability?

What are some examples of current liabilities?
Why is it important to classify a portion of long-term debt on a yearly
basis as a current liability?
What is the implication of misclassifying a liability as current or long-
term?
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ACC 422 Week 4 DQ 2

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What is a contingency?
Why are contingencies important to users of financial statements?
What are the criteria for recording contingencies?
Should companies record a liability for threatened litigation? Explain
why or why not.
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ACC 422 Week 4 DQ 3

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What is a bond? What are some features of a bond? How do you value
bonds? What factors can affect that value?
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ACC 422 Week 4 Team Assignment Financial Scavenger Hunt

#3

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Review the financial statements, including any notes and supplemental

information, and answer the following questions. Indicate where you
found the answer to the questions. If calculations are required, show
your work. Fixed Assets and Intangibles 1. How are plant and
equipment recorded? 2. How are leasehold improvements accounted
for? 3. How are assets depreciated? 4. How is impairment
determined and were there any impairments reported? 5. Were any new
stores added and if yes, where. 6. Were any stores or facilities closed and
if yes, where. 7. How is goodwill accounted for? Was the carrying value
of goodwill written down in the past two years? 8. Have any recent
pronouncements affected the accounting for property, plant, and
equipment and/ or intangibles?
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ACC 422 Week 4 Team Assignment Problem 10-4, Problem 10-

6, CA 11-5, Problem 12-2

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Complete the following individually and discuss your individual

answers as a team: • Problem 10-4, p. 543 • Problem 10-6, p. 544
• CA 11-5, p. 597 • Problem 12-2, p. 644 After discussing your
answers, compile each into a team response. Click the Assignment Files
tab to submit your assignment. Problem 10-4- Problem 10-4, p. 543 P10-
4 (LO1,4,6) GROUPWORK (Dispositions, Including Condemnation,
Demolition, and Trade-In) Presented below is a schedule of property
dispositions for Hollerith Co. Schedule of Property Dispositions Cost
Accumulated Depreciation Cash Proceeds Fair Value Nature of
Disposition Land $40,000 -- $31,000 $31,000
Condemnation Building 15,000 --   3,600 --
 Demolition Warehouse 70,000 $16,000  74,000  
74,000 Destruction by fire Machine 8,000   2,800     
900   7,200 Trade-in Furniture 10,000   7,850 --   
3,100 Contribution Automobile 9,000   3,460   2,960
  2,960 Sale The following additional information is available.
Land: On February 15, a condemnation award was received as
consideration for unimproved land held primarily as an investment, and
on March 31, another parcel of unimproved land to be held as an
investment was purchased at a cost of $35,000. Building: On April 2,
land and building were purchased at a total cost of $75,000, of which
20% was allocated to the building on the corporate books. The real
estate was acquired with the intention of demolishing the building, and
this was accomplished during the month of November. Cash proceeds
received in November represent the net proceeds from demolition of the
building. Warehouse: On June 30, the warehouse was destroyed by fire.
The warehouse was purchased January 2, 2014, and had depreciated
$16,000. On December 27, the insurance proceeds and other funds were
used to purchase a replacement warehouse at a cost of $90,000.
Machine: On December 26, the machine was exchanged for another
machine having a fair value of $6,300 and cash of $900 was received.
(The exchange lacks commercial substance.) Furniture: On August 15,
furniture was contributed to a qualified charitable organization. No other
contributions were made or pledged during the year. Automobile: On
November 3, the automobile was sold to Jared Winger, a stockholder.
Instructions P10-6 (LO1,3) (Interest During Construction) Grieg
Landscaping began construction of a new plant on December 1, 2017.
On this date, the company purchased a parcel of land for $139,000 in
cash. In addition, it paid $2,000 in surveying costs and $4,000 for a title
insurance policy. An old dwelling on the premises was demolished at a
cost of $3,000, with $1,000 being received from the sale of materials.
Architectural plans were also formalized on December 1, 2017, when
the architect was paid $30,000. The necessary building permits costing
$3,000 were obtained from the city and paid for on December 1 as well.
The excavation work began during the first week in December with
payments made to the contractor in 2018 as follows. CA 11-5 Jerry
Prior, Beeler Corporation’s controller, is concerned that net income may
be lower this year. He is afraid upper-level management might
recommend cost reductions by laying off accounting staff, including
him. Prior knows that depreciation is a major expense for Beeler. The
company currently uses the double-declining-balance method for both
financial reporting and tax purposes, and he’s thinking of selling
equipment that, given its age, is primarily used when there are periodic
spikes in demand. The equipment has a carrying value of $2,000,000
and a fair value of $2,180,000. The gain on the sale would be reported in
the income statement. He doesn’t want to highlight this method of
increasing income. He thinks, “Why don’t I increase the estimated
useful lives and the salvage values? That will decrease depreciation
expense and require less extensive disclosure, since the changes are
accounted for prospectively. I may be able to save my job and those of
my staff.” Instructions: a. Who are the stakeholders in this situation? b.
What are the ethical issues involved? c. What should Prior
do? Problem 12-2 P12-2 (LO1,2,4,5) EXCEL (Accounting for
Patents) Fields Laboratories holds a valuable patent (No. 758-6002-1A)
on a precipitator that prevents certain types of air pollution. Fields does
not manufacture or sell the products and processes it develops. Instead, it
conducts research and develops products and processes which it patents,
and then assigns the patents to manufacturers on a royalty basis.
Occasionally it sells a patent. The history of Fields patent number 758-
6002-1A is as follows. Compute the carrying value of patent No. 758-
6002-1A on each of the following dates: (a)December 31, 2011.
(b)December 31, 2015.
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ACC 422 Week 4 WileyPlus Ex 13-2, Ex 13-7, Ex 13-16, Ex

14-4, Ex 14-6, Ex 14-9, Problem 14-2 (With Excel File)

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This Tutorial contains Excel File which can be used to solve for any
values Complete the following assignments in WileyPLUS: • Exercise
13-2 (Part Level Submission) • Exercise 13-7 (Part Level Submission)
• Exercise 13-16 • Exercise 14-4 • Exercise 14-6 • Exercise 14-9
(Part Level Submission) • Problem 14-2 (Part Level submission)
Exercise 13-2 (Part Level Submission) The following are selected 2017
transactions of Riverbed Corporation. Sept. 1 Purchased inventory from
Encino Company on account for $43,600. Riverbed records purchases
gross and uses a periodic inventory system. Oct. 1 Issued a $43,600, 12-
month, 8% note to Encino in payment of account. Oct. 1 Borrowed
$43,600 from the Shore Bank by signing a 12-month, zero-interest-
bearing $48,600 note. Prepare journal entries for the selected
transactions above. Prepare adjusting entries at December 31. Compute
the total net liability to be reported on the December 31 balance sheet
for: Exercise 13-7 (Part Level Submission) Pharoah Hardware
Company’s payroll for November 2017 is summarized below. At this
point in the year, some employees have already received wages in
excess of those to which payroll taxes apply. Assume that the state
unemployment tax is 2.5%. The FICA rate is 7.65% on an employee’s
wages to $118,500 and 1.45% in excess of $118,500. Of the $194,300
wages subject to FICA tax, $21,300 of the sales wages is in excess of
$118,500. Federal unemployment tax rate is 0.8% after credits. Income
tax withheld amounts to $16,800 for factory, $7,700 for sales, and
$6,800 for administrative. Exercise 13-16 Presented below is a list of
possible transactions. Analyze the effect of the 18 transactions on the
financial statement categories indicated. 1. Purchased inventory for
$80,000 on account (assume perpetual system is used). 2. Issued an
$80,000 note payable in payment on account (see item 1 above). 3.
Recorded accrued interest on the note from item 2 above. 4.
Borrowed $100,000 from the bank by signing a 6-month,
$112,000, zero-interest-bearing note. 5. Recognized 4 months’
interest expense on the note from item 4 above. 6. Recorded cash
sales of $75,260, which includes 6% sales tax. 7. Recorded wage
expense of $35,000. The cash paid was $25,000; the difference was due
to various amounts withheld. 8. Recorded employer’s payroll taxes.
9. Accrued accumulated vacation pay. 10. Recorded an
asset retirement obligation. 11. Recorded bonuses due to employees.
12. Recorded a contingent loss on a lawsuit that the company
will probably lose. 13. Accrued warranty expense (assume expense
warranty approach). 14. Paid warranty costs that were accrued in
item 13 above. 15. Recorded sales of product and related service-type
warranties.16. Paid warranty costs under contracts from item 15
above. 17. Recognized warranty revenue (see item 15 above).
18. Recorded estimated liability for premium claims outstanding.
Exercise 14-4 Ivanhoe Company issued $444,000 of 10%, 20-year bonds
on January 1, 2017, at 104. Interest is payable semiannually on July 1
and January 1. Ivanhoe Company uses the straight-line method of
amortization for bond premium or discount. Prepare the journal entries
to record the following. (If no entry is required, select "No Entry" for the
account titles and enter 0 for the amounts. Credit account titles are
automatically indented when amount is entered. Do not indent
manually.) (a) The issuance of the bonds. (b) The payment of
interest and the related amortization on July 1, 2017. (c) The accrual of
interest and the related amortization on December 31, 2017. Exercise
14-6 Culver Company sells 9% bonds having a maturity value of
$2,050,000 for $1,828,314. The bonds are dated January 1, 2017, and
mature January 1, 2022. Interest is payable annually on January 1.
Prepare the journal entries to record the following transactions. (Round
answer to 0 decimal Exercise 14-9 (Part Level Submission) On June 30,
2017, Monty Company issued $3,200,000 face value of 13%, 20-year
bonds at $3,440,734, a yield of 12%. Monty uses the effective-interest
method to amortize bond premium or discount. The bonds pay
semiannual interest on June 30 and December 31. (Round answer to 0
decimal places, e.g. 38,548. If no entry is required, select "No Entry" for
the account titles and enter 0 for the amounts. Credit account titles are
automatically indented when amount is entered. Do not indent
manually.) (1) The issuance of the bonds on June 30, 2017. (2) The
payment of interest and the amortization of the premium on December
31, 2017. (3) The payment of interest and the amortization of the
premium on June 30, 2018. (4) The payment of interest and the
amortization of the premium on December 31, 2018. Set up a schedule
of interest expense and discount amortization under the straight-line
method. (b) Show the proper balance sheet presentation for the liability
for bonds payable on the December 31, 2018, balance sheet. (1) What
amount of interest expense is reported for 2018? (Round answer to 0
decimal places, e.g. 38,548.) Interest expense reported for 2018 (2)
Will the bond interest expense reported in 2018 be the same as, greater
than, or less than the amount that would be reported if the straight-line
method of amortization were used? The bond interest expense reported
in 2018 will be (3) Determine the total cost of borrowing over the life of
the bond. (Round answer to 0 decimal places, e.g. 38,548.) Total cost of
borrowing over the life of the bond (4) Will the total bond interest
expense for the life of the bond be greater than, the same as, or less than
the total interest expense if the straight-line method of amortization were
used? The total bond interest expense for the life of the bond will be
Problem 14-2 (Part Level Submission) Swifty Co. is building a new
hockey arena at a cost of $2,310,000. It received a downpayment of
$490,000 from local businesses to support the project, and now needs to
borrow $1,820,000 to complete the project. It therefore decides to issue
$1,820,000 of 12%, 10-year bonds. These bonds were issued on January
1, 2016, and pay interest annually on each January 1. The bonds yield
11%. (a) Prepare the journal entry to record the issuance of the bonds on
January 1, 2016.
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ACC 422 Week 5 DQ 1

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What are the differences between a direct-financing and a sales-type

lease for a lessor?
Why would a lessor provide direct-financing to a lessee?
What types of organizations provide direct-financing leases?
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ACC 422 Week 5 DQ 2

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What are the criteria for classifying a lease as operating or capital?

Why is there a difference between the two?
What are the implications of an operating lease versus a capital lease on
an entity’s financial statements?
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ACC 422 Week 5 DQ 3

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What is residual value?

What is the implication to the lessee if the residual value is guaranteed
or unguaranteed?
What is the implication to the lessor?
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ACC 422 Week 5 DQ 4

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Week 5 – DQ 4
What are the advantages of operating and capital leases? What are the
disadvantages?
Why would a company pick one over the other?
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ACC 422 Week 5 Learning Team Problem Presentation

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Collaborate as a team to provide written responses to a facilitator-

assigned problem.
Prepare a 5- to 10-minute oral presentation accompanied by a 7- to 9-
slide Microsoft® PowerPoint® presentation illustrating your team’s
solution to the assigned problem.

Note. Each week, the facilitator assigns one Learning Team a problem to
present that the team must complete during the succeeding Learning
Team Meeting.
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ACC 422 Week 5 Signature Assignment Presentation (Procter

and Gamble)

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Create a 5- to 10-slide presentation and use the same publicly traded

company selected in Week 2 to address the following: • Be sure to use
the most recent SEC 10-k or Annual report. • Identify the
Company's current liabilities for the past two years? • Compare the
current portion of long-term debt for the past two years? • Discuss
some of the items found in the current liability section. • Describe
any lease obligations the Company disclosed. • Explain what
contingency liabilities are disclosed in the financial statements? •
Recommend, from the perspective of a bank, whether or not you
would support this company. • Compute the Debt ratio and Debt to
Equity ratio. Click the Assignment Files tab to submit your assignment.
==============================================

ACC 422 Week 5 Team Assignment Problem 13-7, 13-11, CA

13-3, CA 14-1, CA 14-4, CA 21-4

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Complete the following individually and discuss your individual

answers as a team: • Problem 13-7, p. 700 • Problem 13-11, p. 701
• CA 13-3, p. 703 • CA 14-1, p. 763 • CA 14-4, p. 765 •
CA 21-4, p. 1252 After discussing your answers, compile each into
a team response. Click the Assignment Files tab to submit your
assignment. P13-7 (LO3) (Warranties) Alvarado Company sells a
machine for $7,400 with a 12-month warranty agreement that requires
the company to replace all defective parts and to provide the repair labor
at no cost to the customers. With sales being made evenly throughout the
year, the company sells 600 machines in 2017 (warranty expense is
incurred half in 2017 and half in 2018). As a result of product testing,
the company estimates that the warranty cost is $390 per machine ($170
parts and $220 labor). Instructions Assuming that actual warranty costs
are incurred exactly as estimated, what journal entries would be made
relative to the following facts? (a)Sale of machinery and warranty
expense incurred in 2017. (b)Warranty accrual on December 31, 2017.
(c)Warranty costs incurred in 2018. (d)What amount, if any, is disclosed
in the balance sheet as a liability for future warranty costs as of
December 31, 2017? P13-11 (LO3) WRITING (Loss Contingencies:
Entries and Essays) Polska Corporation, in preparation of its December
31, 2017, financial statements, is attempting to determine the proper
accounting treatment for each of the following situations. 1. As a result
of uninsured accidents during the year, personal injury suits for
$350,000 and $60,000 have been filed against the company. It is the
judgment of Polska's legal counsel that an unfavorable outcome is
unlikely in the $60,000 case but that an unfavorable verdict
approximating $250,000 will probably result in the $350,000 case.
2.Polska owns a subsidiary in a foreign country that has a book value of
$5,725,000 and an estimated fair value of $9,500,000. The foreign
government has communicated to Polska its intention to expropriate the
assets and business of all foreign investors. On the basis of settlements
other firms have received from this same country, Polska expects to
receive 40% of the fair value of its properties as final settlement.
3.Polska's chemical product division consisting of five plants is
uninsurable because of the special risk of injury to employees and losses
due to fire and explosion. The year 2017 is considered one of the safest
(luckiest) in the division's history because no loss due to injury or
casualty was suffered. Having suffered an average of three casualties a
year during the rest of the past decade (ranging from $60,000 to
$700,000), management is certain that next year the company will
probably not be so fortunate. Instructions (a)Prepare the journal entries
that should be recorded as of December 31, 2017, to recognize each of
the situations above. (b)Indicate what should be reported relative to each
situation in the financial statements and accompanying notes. Explain
why. CA13-3 WRITING (Refinancing of Short-Term Debt)
DumarsCorporation reports in the current liability section of its balance
sheet at December 31, 2017 (its year-end), short-term obligations of
$15,000,000, which includes the current portion of 12% long-term debt
in the amount of $10,000,000 (matures in March 2018). Management
has stated its intention to refinance the 12% debt whereby no portion of
it will mature during 2018. The date of issuance of the financial
statements is March 25, 2018. (a)Is management's intent enough to
support long-term classification of the obligation in this situation?
(b)Assume that Dumars Corporation issues $13,000,000 of 10-year
debentures to the public in January 2018 and that management intends to
use the proceeds to liquidate the $10,000,000 debt maturing in March
2018. Furthermore, assume that the debt maturing in March 2018 is paid
from these proceeds prior to the issuance of the financial statements.
Will this have any impact on the balance sheet classification at
December 31, 2017? Explain your answer. (c)Assume that Dumars
Corporation issues common stock to the public in January and that
management intends to entirely liquidate the $10,000,000 debt maturing
in March 2018 with the proceeds of this equity securities issue. In light
of these events, should the $10,000,000 debt maturing in March 2018 be
included in current liabilities at December 31, 2017? CA14-1 (Bond
Theory: Balance Sheet Presentations, Interest Rate, Premium) On
January 1, 2017, Nichols Company issued for $1,085,800 its 20-year,
11% bonds that have a maturity value of $1,000,000 and pay interest
semiannually on January 1 and July 1. The following are three
presentations of the long-term liability section of the balance sheet that
might be used for these bonds at the issue date. Instructions (a)Discuss
the conceptual merit(s) of each of the date-of-issue balance sheet
presentations shown above for these bonds. (b)Explain why investors
would pay $1,085,800 for bonds that have a maturity value of only
$1,000,000. (c)Assuming that a discount rate is needed to compute the
carrying value of the obligations arising from a bond issue at any date
during the life of the bonds, discuss the conceptual merit(s) of using for
this purpose: CA14-4 WRITING (Off-Balance-Sheet Financing) Matt
Ryan Corporation is interested in building its own soda can
manufacturing plant adjacent to its existing plant in Partyville, Kansas.
The objective would be to ensure a steady supply of cans at a stable
price and to minimize transportation costs. However, the company has
been experiencing some financial problems and has been reluctant to
borrow any additional cash to fund the project. The company is not
concerned with the cash flow problems of making payments, but rather
with the impact of adding additional long-term debt to its balance sheet.
The president of Ryan, Andy Newlin, approached the president of the
Aluminum Can Company (ACC), its major supplier, to see if some
agreement could be reached. ACC was anxious to work out an
arrangement, since it seemed inevitable that Ryan would begin its own
can production. The Aluminum Can Company could not afford to lose
the account. After some discussion, a two-part plan was worked out.
First, ACC was to construct the plant on Ryan’s land adjacent to the
existing plant. Second, Ryan would sign a 20-year purchase agreement.
Under the purchase agreement, Ryan would express its intention to buy
all of its cans from ACC, paying a unit price which at normal capacity
would cover labor and material, an operating management fee, and the
debt service requirements on the plant. The expected unit price, if
transportation costs are taken into consideration, is lower than current
market. If Ryan did not take enough production in any one year and if
the excess cans could not be sold at a high enough prices on the open
market, Ryan agrees to make up any cash shortfall so that ACC could
make the payments on its debt. The bank will be willing to make a 20-
year loan for the plant, taking the plant and the purchase agreement as
collateral. At the end of 20 years, the plant is to become the property of
Ryan. Instructions (a)What are project financing arrangements using
special-purpose entities? (b)What are take-or-pay contracts? (c)Should
Ryan record the plant as an asset together with the related obligation?
(d)If not, should Ryan record an asset relating to the future
commitment? (e)What is meant by off-balance-sheet financing? CA21-4
(Comparison of Different Types of Accounting by Lessee and Lessor)
Part 1: Capital leases and operating leases are the two classifications of
leases described in FASB pronouncements from the standpoint of the
lessee. Instructions (a)Describe how a capital lease would be accounted
for by the lessee both at the inception of the lease and during the first
year of the lease, assuming the lease transfers ownership of the property
to the lessee by the end of the lease (b)Describe how an operating lease
would be accounted for by the lessee both at the inception of the lease
and during the first year of the lease, assuming equal monthly payments
are made by the lessee at the beginning of each month of the lease.
Describe the change in accounting, if any, when rental payments are not
made on a straight-line basis. Part 2: Sales-type leases and direct-
financing leases are two of the classifications of leases described in
FASB pronouncements from the standpoint of the lessor. Instructions
Compare and contrast a sales-type lease with a direct-financing lease as
follows. (a)Lease receivable. (b)Recognition of interest revenue.
(c)Manufacturer's or dealer's profit.
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