ACC 312 Exam 2
Bramble Company invests $2,840,000 in 6% fixed rate corporate bonds on January 1, 2020. All the bonds are classified as available-for-sale and are purchased at par. At year-end, market interest rates have declined, and the fair value of the bonds is now $2,951,000. Prepare journal entries for Bramble Company to (a) record the change in fair value at 12/31/20, assuming Bramble does not elect the fair value option; (b) record the transactions related to these bonds in 2020, assuming that Bramble Company elects the fair option to account for these bonds.
Fair Value Adjustment 111,000 Unrealized Holding Gain or Loss - Equity 111,000 Debt Investments 111,000 Unrealized Holding Gain or Loss - Income 111,000
Cullumber Company has a stock portfolio valued at $3,800. Its cost was $3,300. If the Fair Value Adjustment account has a debit balance of $310, prepare the journal entry at year-end.
Fair Value Adjustment 190 Unrealized Holding Gain or Loss - Income 190
Which type of transaction generally results in revenue being recognized with the passage of time?
Customer controls the asset as it is created or the company does not have an alternative use for the asset.
Sally collects a nonrefundable up-front fee of $192 when a new customer signs up for a 24-month contract for services. A monthly fee of $32 is also assessed for each customer. How much revenue does Sally record on the date the contract is signed?
$0
The service period is for three years beginning January 1, 2021. As a result of the option granted to Wine, using the fair value method, Sheridan should recognize compensation expense for 2021 on its books in the amount of
$1,780
During 2017, Grambling Company purchased 10,000 shares of Southern Corp. common stock for $215,000 as a passive interest investment. The fair value of these shares was $289,000 at December 31, 2017. During 2018, Grambling sold all of the Southern stock for $226,000. Grambling Company should report a realized gain on the sale of stock in 2018 of
$11,000
Boulder's 2017 comprehensive income is
$120,000
On January 1, Year 2, Miller Company purchased 25% of Wall Corporation's common stock; no goodwill resulted from the purchase, Miller uses the equity method to account for this investment, and the balance in Miller's investment account was $190,000 at December 31, Year 2. Wall reported net income of $120,000 for the year ended December 31, Year 2, and paid common stock dividends totaling $48,000 during Year 2. How much did Miller pay for its 25% interest in Wall?
$172,000
On January 1, Year 1, Justo purchases 30,000 shares of the 100,000 outstanding shares of stock in Bonita Corp. for $5 per share. During the year, Bonita Corp. has $20,000 of net income and pays $4,000 in dividends. On December 31, Year 1, the value of a share of Bonita Corp. stock is $6 per share. Assuming Justo elects the fair value option to account for its investment in Bonita, what is the amount recorded as Investment in Bonita on the December 31, Year 1, balance sheet?
$180,000
What amount should Ivanhoe report in its 2021 income statement for unrealized holding loss?
$19,200
What amount should Pare report in its December 31, Year 1, Balance Sheet as investment in Tot?
$200,000
Before income taxes, what amount should Grant include in it 2015 Income Statement as a result of the investment?
$24,000
Ott's December 31 Balance Sheet should report the equity securities as
$28,000
The Mann investment is classified as held-to-maturity, while the remaining securities are classified as available-for-sale. Ott does not elect the fair value option for reporting financial assets. Ott's December 31, Year 1, balance sheet should report total marketable debt securities as
$29,000
At December 31, 2020, Coronado Industries had 1,110,000 shares of commons stock outstanding. In addition, Coronado had 452,000 shares of preferred stock which were convertible into 749,000 shares of common stock. During 2021, Coronado paid $1,130,000 cash dividends on the common stock and $803,000 cash dividends on the preferred stock. Net income for 2021 was $6,740,000 and the income tax rate was 40%. The diluted earnings per share for 2021 is
$3.63
How much investment income should Dexter report in 2021?
$352,800
On August 1, 2021, Sunland Company acquired 1140, $1000, 10% bonds at 96 plus accrued interest. The bonds were dated May 1, 2018, and mature on April 30, 2027, with interest paid each October 31 and April 30. The bonds will be added to Sunland's available-for-sale portfolio. The preferred entry to record the purchase of the bonds on August 1, 2021 is
DR Debt Investments 1,094,400 DR Interest Revenue 28,500 CR Cash 1,122,900
Headland Co. had purchased 190 shares of Washington Co. for $41 each this year (Oregon Co. does not have significant influence). Headland Co. sold 95 shares of Washington Co. stock for $46 each. At year-end, the price per share of the Washington Co. stock had dropped to $36
DR Equity Investments 7,790 CR Cash 7,790 (to record the purchase) DR Cash 4,370 CR Equity Investments 3,895 CR Gain on Sale 475 (to record the sale) DR Unrealized holding - income 475 CR Fair Value Adjustment 475 (to record the fair value)
Sherman Company enters into a contract with a customer to build a warehouse for $400,000, with a performance bonus of $100,000 that will be paid based on the timing of completion. The amount of the performance bonus decreases by 20% per week for every week beyond the agreed-upon completion date. The contract requirements are similar to contracts that Sherman has performed previously, and management believes that such experience is predictive for this contract. Management estimates that there is a 50% probability that the contract will be completed by the agreed-upon completion date, a 30% probability that it will be completed 1 week late, and a 20% probability that it will be completed 2 weeks late. What is the total transaction price for this revenue arrangement?
$486,000
Foucault Company owns 40,000 of the 100,000 outstanding shares os Mango Inc. common stock. During 2018, Mango earns $640,000 and pays cash dividends of $480,000. If the beginning balance in Foucault's investment account was $430,000, the balance at December 31, 2018 should be
$494,000
Foghorn Company entered into a sales transaction in which it agreed to receive common stock from Leghorn Corporation as payment for services provided to Leghorn Corporation. The journal entry to record the receipt of payment for the sales transaction will include a
Debit to Leghorn Investment.
During 2017, Jackson Company purchased 17,000 shares of Monticello Corp. common stock for $382,500 as a passive interest investment. The fair value of these shares was $373,150 at December 31, 2017. Jackson sold all of the Monticello stock for $27.25 per share on July 3, 2018, incurring $15,000 in brokerage commissions. Jackson Company should report a realized gain on the sale of stock in 2018 of
$65,750
Ignoring income taxes, what amount should be reported as a charge against income in Rosenblum's 2017 income statement is 2017 is Rosenblum's first year of operation
$7,000
The service period is for three years beginning January 1, 2017.As a result of the option granted to Eggers, using the fair value method, Western Carolina should recognize compensation expense for 2017 on its books in the amount of
$7,000
ClipClop Company sells horseshoes to customers at a discount of 4% if the customer orders more than 10,000 horseshoes in a year. The price per shoe is $2. In April, Oats Company orders 4,000 horseshoes from ClipClop. Based on past experience with Oats Company, ClipClop expects Oats to meet the volume threshold of 10,000 horseshoes by the end of the year. What amount of revenue should ClipClop record in connection with the April sale?
$7,680
For the assets the following impairment model is used: Impairment measured as the difference between the lower of amortized cost of fair value
Debt securities measured at fair value with gains and losses recorded in net income
If Sandhill Company uses the equity method of accounting forits investment in Blue Company, its Equity Investments (Blue) account at December 31, 2021 should be
$709,000
Shaw Company engages Maya Company to produce a large machine, install the machine, and train their employees on the machine. The machine, installation, and training are distinct, and Maya determine that the contract includes three separate performance obligations. The machine, installation, and training typically cost $800,000, $100,000 and $100,000 respectively when each is provided in a separate contract. Shaw and Maya agree to a total contract price of $920,000. How much of the contract price should Maya allocate to the machine, installation, and training, respectively
$736,000; $92,000; $92,000
At December 31, 2021, the fair value of the Nash, Inc. bonds was $2,530,000. What should Blossom Company report as other comprehensive income and as a separate component of stockholders' equity
$74,260
Savannah Corporation purchased 35,000 shares of common stock of the Boulet Corporation for $50 per share on January 2, 2017, During 2017, Boulet Corporation had 140,000 shares of common stock outstanding, paid cash dividends of $120,000, and reported net income of $320,000. Savannah Corporation should report revenue from investment for 2017 in the amount of
$80,000
Meyer & Smith is a full-service technology company. They provide equipment, installation services as well as training. Customers can purchase any product or service separately or as a bundled package. Crane Corporation purchased computer equipment, installation and training for a total cost of $175680 on March 15, 2021. Estimated standalone fair values of the equipment, installation, and training are $106500, $73200, and $39900 respectively. The transaction price allocated to equipment, installation and training is
$85200, $58560, $31920 respectively.
On June 1, 2021, Oriole & Sons sold equipment to James Landscaping Service in exchange for a zero-interest bearing note with a face value of $112800, with payment due in 12 months. The fair value of the equipment on the date of sale was $97200. The amount of revenue to be recognized on this transaction in 2021 is
$97200 sales revenue and $9100 interest revenue.
Prepare Concord's journal entries to record (a) the purchase of the investment, (b) the dividends received, and (c) the fair value adjustment
(a) DR Equity Investments 10,800 CR Cash 10,800 (b) DR Cash 1,260 CR Dividend Revenue 1,260 (c) DR Fair Value Adjustment 900 CR Unrealized holding - income 900
Headland Corp. enters into a contract with a customer to build an apartment building for $928,900. The customer hopes to rent apartments at the beginning of the school year and provides a performance bonus of $148,500 to be paid if the building is ready for rental beginning August 1, 2021. The bonus is reduced by $49,500 each week that completion is delayed. Headland commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes: Completed byProbabilityAugust 1, 202170%August 8, 202120August 15, 20214After August 15, 20216
1,077,400 928,900
Monty Corp. enters into a contract with a customer to build an apartment building for $1,079,000. The customer hopes to rent apartments at the beginning of the school year and provides a performance bonus of $153,000 to be paid if the building is ready for rental beginning August 1, 2021. The bonus is reduced by $51,000 each week that completion is delayed. Monty commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes: Completed byProbabilityAugust 1, 202170%August 8, 202120August 15, 20215After August 15, 20215 Determine transaction price
1,209,050
Kingbird Corporation reported net income of $421,590 in 2020 and had 203,000 shares of common stock outstanding throughout the year. Also outstanding all year were 49,500 options to purchase common stock at $11 per share. The average market price of the stock during the year was $15.Compute diluted earnings per share.
1.95
On January 1, 2017 (the date of grant), Bridgeport Corporation issues 7,500 shares of restricted stock to its executives. The fair value of these shares is $174,375, and their par value is $7,500. The stock is forfeited if the executives do not complete 3 years of employment with the company. Prepare the journal entry (if any) on January 1, 2017, and on December 31, 2017, assuming the service period is 3 years.
1/1/17: debit unearned comp 174375 common stock 7500 pic excess of par- common stock 166875 12/31/17: comp exp 58125 unearned comp 58125
On January 1, 2020 (the date of grant), Pharoah Corporation issues 2,000 shares of restricted stock to its executives. The fair value of these shares is $93,000, and their par value is $10,000. The stock is forfeited if the executives do not complete 3 years of employment with the company.Prepare journal entries for January 1, 2020, and on December 31, 2020, assuming the service period is 3 years. (
1/1/20 unearned comp debit 93000 cr common 10000 cr pic excess of par- common 83000 12/31/20 comp exp 31000 unearned comp 31,000
On January 1, 2020, Marigold Corporation granted 5,100 options to executives. Each option entitles the holder to purchase one share of Marigold's $5 par value common stock at $50 per share at any time during the next 5 years. The market price of the stock is $64 per share on the date of grant. The fair value of the options at the grant date is $155,000. The period of benefit is 2 years.Prepare Marigold's journal entries for January 1, 2020, and December 31, 2020 and 2021.
1/1/20- no entry 12/31/20- comp exp 77500 pic- stock options 77500 12/31/21 comp exp 77500 pic- stock options 77500
Bret Company sold 3,000 Holsks during 2017 at a total price of $12,000,000, with a warranty guarantee that the product was free of any defects. The cost of Holsks sold is $7,200,000. The term of the assurance warranty is two years, with an estimated cost of $80,000. In addition, Bret sold extended warranties related to 1,100 Holsks for 3 years beyond the 2-year period for $110,000. Bret should recognize Unearned Warranty Revenue in 2017 of
110,000
Sarasota Company sells goods to Ivanhoe Company during 2020. It offers Ivanhoe the following rebates based on total sales to Ivanhoe. If total sales to Ivanhoe are 9,400 units, it will grant a rebate of 2%. If it sells up to 18,900 units, it will grant a rebate of 4%. If it sells up to 31,700 units, it will grant a rebate of 6%. In the first quarter of the year, Sarasota sells 12,000 units to Ivanhoe at a sales price of $132,000. Sarasota, based on past experience, has sold over 37,800 units to Ivanhoe, and these sales normally take place in the third quarter of the year.What amount of revenue should Sarasota report for the sale of the 12,000 units in the first quarter of the year.
124,080
Lavender Corporation sells 100 jars of essential oil to Bed, Bath, and Relax on December 1, 2015, for $10 each on account. Lavender offers a right to return the product for any reason. Based on past sales, Lavender expects Bed, Bath, and Relax to return 5 jars. What adjusting journal entry, if any, should Lavender record on December 31, 2015, to reflect Bed, Bath, and Relax's expected sales returns?
Dr Sales Returns and Allowances Cr Allowance for Sales Returns and Allowances $50
A shoe retailer allows customers to return shoes within 90 days of purchase. The company estimates that 5% of sales will be returned within the 90-day period. During the month, the company has sales of $200,000 and returns of sales made in prior months of $5,000. What amount should the company record as net sales revenue for new sales made during the month?
190,000
Wildhorse Corporation reported net income of $681,000 in 2017 and had 218,000 shares of common stock outstanding throughout the year. Also outstanding all year were 59,100 options to purchase common stock at $10 per share. The average market price of the stock during the year was $15. Compute diluted earnings per share.
2.86
Stossel Company sells 300 units for $200 each to Liberty Inc. for cash. Stossel allows Liberty to return any unused product within 30 days and receive a full refund. The cost of each product is $120. To determine the transaction price, Stossel decides that the approach that is most predictive of the amount of consideration to which it will be entitled is the most likely amount. Using the most likely amount, Stossel estimates that ten (10) units will be returned, the costs of recovering the units will be immaterial, and the returned units are expected to be resold at a profit. What amount of refund liability should Stossel record at the time of sale?
2000
Faucet Company has 2,500,000 shares of common stock outstanding on December 31, year 1. An additional 500,000 shares of common stock were issued on April 1, year 2, and 250,000 more on July 1, year 2. On October 1, year 2, Faucet issued 5,000, $1,000 face value, 7% convertible bonds. Each bond is convertible into 40 shares of common stock. No bonds were converted into common stock in year 2. What is the number of shares to be used in computing basic earnings per share and diluted earnings per share, respectively, for the year ended December 31, year 2?
3,000,000 and 3,050,000
Mocha purchases equipment, installation, and training from Lynne for a price of $1,000,000 and chooses Lynne to do the installation. Lynne charges the same price for the equipment irrespective of whether it does the installation or not. (Some companies do the installation themselves because they either prefer their own employees to do the work or because of relationships with other customers.) The price of the installation service is estimated to have a fair value of $20,000. The fair value of the training sessions is estimated at $40,000. Other companies can also provide these training services. Mocha is obligated to pay Lynne the $1,000,000 upon the delivery and installation of the equipment. Lynne delivers the equipment on May 1, 2017, and completes the installation of the equipment on July 1, 2017. Training related to the equipment starts once the installation is completed and lasts for 1 year. The equipment has a useful life of 8 years. What amount is recorded by Lynne as Unearned Service Revenue at 7/1/17?
37,736
Sweet Corporation earned net income of $561,700 in 2020 and had 116,000 shares of common stock outstanding throughout the year. Also outstanding all year was $750,000 of 9% bonds, which are convertible into 15,000 shares of common. Sweet's tax rate is 20 percent.Compute Sweet's 2020 diluted earnings per share.
4.70
On January 1, 2017, Fullbright Company sold goods to Blue Dirt Company for $400,000 in exchange for a 4-year, zero-interest-bearing note with a face amount of $629,406 (imputed rate of 12%). The goods have an inventory cost on Fullbright's books of $240,000. What amount of Sales Revenue should Fullbright recognize in 2017?
400,000
Concord Construction Inc. agrees to construct a boat dock at the Smooth Sailing Marina for $37,300. In addition, under the terms of the contract, Smooth Sailing will pay Concord a performance bonus of up to $12,000 based on the timing of completion. The performance bonus will be paid fully if construction is completed by the agreed-upon date. The performance bonus decreases by $2,400 per week for every week beyond the agreed-upon completion date. Concord has constructed a number of boat docks under similar agreements. Concord's management estimates, that it has a 60% probability of completing the project on time, a 20% probability of completing the project one week late, and a 20% probability of completing the project two weeks late. Management does not believe the project will be more than two weeks late.Determine the transaction price that Concord should compute for this agreement.
47,860
On January 1, 2017, Fullbright Company sold goods to Blue Dirt Company for $400,000 in exchange for a 4-year, zero-interest-bearing note with a face amount of $629,406 (imputed rate of 12%). The goods have an inventory cost on Fullbright's books of $240,000. What amount of Interest Revenue should Fullbright recognize in 2017?
48000
Ivanhoe Company had 490,000 shares of common stock outstanding during the year 2021. In addition, at December 31, 2021, 79,000 shares were issuable upon exercise of executive stock options which require a $42 cash payment upon exercise (options granted in 2021). The average market price during 2021 was $50.Compute the number of shares to be used in determining diluted earnings per share for 2021.
502,640
Crane Pharmaceuticals entered into a licensing agreement with Zenith Lab for a new drug under development. Crane will receive $8650000 if the new drug receives FDA approval. Based on prior approval, Crane determines that it is 85% likely that the drug will gain approval. The transaction price of this arrangement should be
8650000.
The following information is available about a signed agreement between two entities: •The entities have agreed to specific performance obligations.•The entities have agreed on a price related to the performance obligations.•No work has begun on the performance obligations, and the contract is cancelable without payment of penalty or other consideration.•It is probable that the company completing the work will collect the agreed-upon consideration. Does a contract exist between the entities to which the revenue recognition criteria may be applied?
A contract to which the revenue recognition criteria applies does not exist because it is cancelable without penalty and no work on the performance obligations has begun.
Blossom Co. has a held-to-maturity investment in the bonds of Schuyler Corp. with a carrying value of $78,300. Blossom determined that due to poor economic prospects for Schuyler, the bonds have decreased in value to $68,800. It is determined that this loss in value is uncollectible.Prepare the journal entry, if any, to record the reduction in value.
Allowance for doubtful accounts 9500 debt investments 9500
Allocating a transaction price to multiple performance obligations includes which of the following steps:
Identify distinct goods and/or services as separate performance obligations.
On November 1, 2017, Ivanhoe Company adopted a stock-option plan that granted options to key executives to purchase 18,000 shares of the company's $10 par value common stock. The options were granted on January 2, 2018, and were exercisable 2 years after the date of grant if the grantee was still an employee of the company. The options expired 6 years from date of grant. The option price was set at $43, and the fair value option-pricing model determines the total compensation expense to be $328,000.All of the options were exercised during the year 2020: 4,500 on January 3 when the market price was $67, and 13,500 on May 1 when the market price was $76 a share.Prepare journal entries relating to the stock option plan for the years 2018, 2019, and 2020. Assume that the employee performs services equally in 2018 and 2019.
too long to copy but its chapter 16 question 36
Marin Locomotive Corporation purchased for $574,000 a 40% interest in Lopez Railways, Inc. This investment enables Marin Locomotive to exert significant influence over Lopez Railways. During the year, Lopez Railways earned net income of $153,000 and paid dividends of $22,000. Prepare Marin Locomotive's journal entries related to this investment.
too long- chp 17 #85
On December 21, 2020, Grouper Company provided you with the following information regarding its equity investments. December 31, 2020 Investments (Trading) Cost Fair Value Unrealized Gain (Loss) Clemson Corp. stock $18,700$17,600$(1,100)Colorado Co. stock9,2008,300(900)Buffaloes Co. stock18,70019,240540 Total of portfolio$46,600$45,140(1,460)Previous fair value adjustment balance0 Fair value adjustment—Cr.$(1,460) During 2021, Colorado Co. stock was sold for $8,770. The fair value of the stock on December 31, 2021, was Clemson Corp. stock—$17,690; Buffaloes Co. stock—$19,130. None of the equity investments result in significant influence. (a)Prepare the adjusting journal entry needed on December 31, 2020.(b)Prepare the journal entry to record the sale of the Colorado Co. stock during 2021.(c)Prepare the adjusting journal entry needed on December 31, 2021.
too long- chp 17 number 83
Presented below is information taken from a bond investment amortization schedule with related fair values provided. These bonds are classified as available-for-sale. 12/31/20 12/31/21 12/31/22 Amortized cost$500,200$508,200$544,100Fair value$506,200$497,400$544,100 (a) Indicate whether the bonds were purchased at a discount or at a premium.
too long- chp 17 number 88
On May 10, 2020, Sweet Co. enters into a contract to deliver a product to Greig Inc. on June 15, 2020. Greig agrees to pay the full contract price of $1,890 on July 15, 2020. The cost of the goods is $1,170. Sweet delivers the product to Greig on June 15, 2020, and receives payment on July 15, 2020. Prepare the journal entries for Sweet related to this contract. Either party may terminate the contract without compensation until one of the parties performs.
too long- chp 18 number 72
Unrealized holding gains or losses which are recognized in income are from debt securities classified as
trading
A debt security is transferred from one category to another, Generally accepted accounting principles require that for this particular reclassification (1) the security be transferred at fair value at the date of transfer, and (2) the unrealized gain or loss at the date of transfer currently carried as a separate component of stockholders' equity be amortized over the remaining life of the security. What type of transfer is being described
transfer from available-for-sale to held-to-maturity
A contract is an agreement between two parties that creates enforceable rights or obligations.
true
A performance obligation may be based on customary business practice.
true
Antidilutive securities are securities that upon conversion or exercise increase earnings per share
true
Companies recognize revenue over a period of time if (1) the customer controls the asset as it is created or (2) the company does not have an alternative use for the asset, with the following conditions: (a) the customer receives benefits as the company performs, and (b) the company has a right to payment.
true
Conditional rights should be reported separately on the balance sheet as contract assets.
true
Derivatives are used to manage risk
true
GAAP requires that both the best and the fair value of all financial instruments be reported in the notes to the financial statements
true
Holdings between 20% and 50% of another company's voting stock are accounted for using the equity method
true
In a complex capital structure, diluted earnings per share is not reported when the securities included in the capital structure are antidilutive
true
Most revenue transactions pose few problems for revenue recognition because often the transaction is initiated and completed at the same time.
true
No expected credit loss is recognized on available-for-sale debt securities if the fair value is greater than amortized cost
true
Recovery of impairment is prohibited by US GAAP for held-to-maturity securities
true
The holding period for trading securities is generally less than three months
true
The revenue recognition principle states that revenue is recognized when the performance obligation is satisfied.
true
The transaction price is the amount of consideration that a company expects to receive from a customer in exchange for transferring a good or service.
true
When a sales transaction involves a significant financing component, the fair value is determined either by measuring the consideration received or by discounting the payment using an imputed interest rate.
true
On its December 31, 2017, balance sheet, Estes Co. reported its investment in trading securities, which has cost $500,000 at fair value of $475,000. At December 31, 2018, the fair value of the securities was $492,500. What should Estes report on its 2018 income statement as a result of the increase in fair value of the investments in 2018?
unrealized gain of $17,500
In determining the transaction price, the company must consider:
variable consideration, non-cash consideration, time value of money, and consideration payable.
The following information relates to Grouper Co. for the year ended December 31, 2020: net income $1,138 million; unrealized holding loss of $10.3 million related to available-for-sale debt securities during the year; accumulated other comprehensive income of $52.1 million on December 31, 2019. Assuming no other changes in accumulated other comprehensive income.Determine (a) other comprehensive income for 2020, (b) comprehensive income for 2020, and (c) accumulated other comprehensive income at December 31, 2020.
OCI: -10.3 mil CI: 1,127.7 mil AOCI: 41.8 mil
Appliance Center is an experienced home appliance dealer. Appliance Center also offers a number of services for the home appliances that it sells. Assume that Appliance Center sells ovens on a standalone basis. Appliance Center also sells installation services and maintenance services for ovens. However, Appliance Center does not offer installation or maintenance services to customers who buy ovens from other vendors. Pricing for ovens is as follows. Oven only$790Oven with installation service850Oven with maintenance services970Oven with installation and maintenance services990 In each instance in which maintenance services are provided, the maintenance service is separately priced within the arrangement at $180. Additionally, the incremental amount charged by Appliance Center for installation approximates the amount charged by independent third parties. Ovens are sold subject to a general right of return. If a customer purchases an oven with installation and/or maintenance services, in the event Appliance Center does not complete the service satisfactorily, the customer is only entitled to a refund of the portion of the fee that exceeds $790.Assume that a customer purchases an oven with both installation and maintenance services for $990. Based on its experience, Appliance Center believes that it is probable that the installation of the equipment will be performed satisfactorily to the customer. Assume that the maintenance services are priced separately (i.e., the three components are distinct). Indicate the amount of revenue that should be allocated to the oven, the installation, and to the maintenance contract.
Oven 759.32 installation 57.67 Maintenance 173.01
A company incurred costs to fulfill a contract that has a four-year life. The costs are a direct result of the contract and would not have been incurred had the contract not existed. How should the costs to fulfill the contract be accounted for?
Recorded as an asset and amortized over four years
Earnings per share can affect market prices of common stock. Can market prices affect earnings per share?
yes
To address inconsistencies and weaknesses in revenue recognition, a comprehensive revenue recognition standard was developed entitled the
Revenue from Contracts with Customers.
Kinnamont Company manufactures farming equipment that includes navigational systems as part of the standard equipment package and offers optional training on any navigational systems for an additional fee. Smith Company enters into a contract with Kinnamont that includes a combine, a navigational system, and training. Identify the performance obligations to which Smith should allocate the transaction price
The combine including the navigational system and the training as two separate performance obligations
A company enters into a contract that includes three separate performance obligations. The standalone prices are not readily available for the performance obligations. How should the company proceed in allocating the transaction price?
The company should estimate the standalone prices of the performance obligations in order to allocate the transaction price based on the proportion of the total standalone price represented by each performance obligation.
In a bill-and-hold arrangement, which of the following is not one of the criteria which must be met for the customer to have obtained control of the product?
The product must be physically located in the seller's warehouse.
Select the correct statement regarding the impact on stockholders' equity of a transfer from available-for-sale to trading
The unrealized gain or loss at the date of transfer increases of decreases stockholders' equity
Chelsea sells equipment to a customer. The total selling price includes installation and training services. Companies other than Chelsea also provide installation and training services, but the customer has chosen to have Chelsea perform these tasks. What is (are) Chelsea's performance obligation(s)?
Three separate performance obligations: the sale of the equipment, the sale of its installation and the sale of training services.
Waterway Corporation purchases equity securities costing $73,800. At December 31, the fair value of the portfolio is $65,600.Prepare the adjusting entry to report the securities properly, assuming that the investments purchased represent less than a 5% interest in the other companies.
Unrealized Holding Gain or Loss - Income 8200 Fair Value Adjustment 8200
Companies can use the expected value to estimate variable consideration when
a company has a large number of contracts with similar characteristics.
Seadrill Engineering licensed software to oil-drilling firms for 5 years. In addition to providing the software, the company also provides consulting services and support to ensure smooth operation of the software. The total transaction price is $420,000. Based on standalone values, the company estimates the consulting services and support have a value of $120,000 and the software license has a value of $300,000. Assuming the performance obligations are not interdependent, the journal entry to record the transaction includes
a credit to Sales Revenue for $300,000 and a credit to Unearned Service Revenue of $120,000.
New Age Computers manufactures and sells pagers and radio paging systems which include a 180 day warranty on product defects. It also sells an extended warranty which provides an additional two years of protection. On May 10, it sold a paging system for $4,500 and an extended warranty for another $1,400. The journal entry to record this transaction would include
a credit to Unearned Warranty Revenue of $1,400.
Hendrix Inc., an equipment dealer, sells equipment on January 1, 2016, to Jimi Company for $200,000. Also, on January 1, 2016, Hendrix agrees to repurchase this equipment from Jimi Company on December 31, 2017, for a price of $233,280. At 1/1/16, Hendrix should record
a liability of $200,000.
When an investor company owns 25% of an invested company's common stock, the investor is said to have
a significant influence over the investee company
The new standard, Revenue from Contracts with Customers
adopts an asset-liability approach for revenue recognition.
A requirement for a security to be classified as held-to-maturity is
all of these answer choices are correct
Debt securities may be classified as
all of these answer choices are correct
If a company uses the fair value option for investment that otherwise follow the equity method of accounting
all of these answer choices are correct
Which of the following is included as part of comprehensive income
all of these answer choices are correct
Examples of the ability to exercise significant influence over an investee include all of the following except
all of these answer choices are examples of significant influence
The fourth step in the process for revenue recognition is to
allocate transaction price to the separate performance obligations.
Compensation expense resulting from a compensation stock option plan is generally
allocated to the periods benefited by the employee's required service
Heal-to-maturity securities are reported at their
amortized cost
The role of the agent in a Principal-Agent relationship is to
arrange for the principal to provide goods or services to a customer.
Unrealized golding gains or losses are recognized as other comprehensive income for
available-for-sale securities
The unrealized gain (loss) at the date of transfer is recognized in income for transfers from
available-for-sale to trading
A transaction price for multiple performance obligations should be allocate
based on what the company could sell the goods for on a standalone basis
Crane Company purchase Wildhorse Co. and agreed to give stockholders of Wildhorse Co. 50,400 additional shares in 2023 of Wildhorse Co.'s net income in 2022 is $596,000 or more; in 2021 Wildhorse Co.'s net income is $613,000. Crane has net income for 2021 of $1,509,000 and has an average number of common shares outstanding for 2021 of 490,000 shares. What should Crane reports as earnings per share for 2021?
basic earnings: $3.08 diluted earnings: $2.79
In the diluted earnings per share computation, the treasury stock method is used for options and warrants to reflect assumed reacquisition of common stock at the average market price during the period. If the exercise price of the options or warrants exceeds the average market price, the computation would
be antidilutive
The if-converted method of computing earnings per share data assumes conversion of convertible securities as of the
beginning of the earliest period reported (or at time of issuance, if later)
When a customer purchases a product but is not yet ready for delivery, this is referred to as
bill and hold
Revenue from a contract with a customer
cannot be recognized until a contract exists.
Coronado Company is involved in the design, manufacture, and installation of various types of wood products for large construction projects. Coronado recently completed a large contract for Stadium Inc., which consisted of building 35 different types of concession counters for a new soccer arena under construction. The terms of the contract are that upon completion of the counters, Stadium would pay $2,167,000. Unfortunately, due to the depressed economy, the completion of the new soccer arena is now delayed. Stadium has therefore asked Coronado to hold the counters for 2 months at its manufacturing plant until the arena is completed. Stadium acknowledges in writing that it ordered the counters and that they now have ownership. The time that Coronado Company must hold the counters is totally dependent on when the arena is completed. Because Coronado has not received additional progress payments for the counters due to the delay, Stadium has provided a deposit of $331,000.(c) Prepare the journal entry that Coronado should make, assuming it signed a valid sales contract to sell the counters and received at the time the $331,000 deposit.
cash 331,000 a/r 1,836,00 sales rev 2,167,000
Presented below are three revenue recognition situations. (a)Groupo sells goods to MTN for $919,000, payment due at delivery.(b)Groupo sells goods on account to Grifols for $770,000, payment due in 30 days.(c)Groupo sells goods to Magnus for $483,000, payment due in two installments, the first installment payable in 18 months and the second payment due 6 months later. The present value of the future payments is $443,700. Indicate the transaction price for each of these situations and when revenue will be recognized.
chp 18 #75
On January 2, 2020, Oriole Inc. sells goods to Geo Company in exchange for a zero-interest-bearing note with face value of $10,700, with payment due in 12 months. The fair value of the goods at the date of sale is $9,600 (cost $5,760).Prepare the journal entry to record this transaction on January 2, 2020.
chp 18 #76
On March 1, 2020, Shamrock Company sold goods to Goosen Inc. for $648,000 in exchange for a 5-year, zero-interest-bearing note in the face amount of $997,028 (an inputed rate of 9%). The goods have an inventory cost on Shamrock's books of $417,000.(a) Prepare the journal entries for Shamrock on March 1, 2020.
chp 18 #77
On July 10, 2020, Crane Music sold CDs to retailers on account and recorded sales revenue of $684,000 (cost $567,720). Crane grants the right to return CDs that do not sell in 3 months following delivery. Past experience indicates that the normal return rate is 15%. By October 11, 2020, retailers returned CDs to Crane and were granted credit of $82,000.Prepare Crane's journal entries to record (a) the sale on July 10, 2020, and (b) $82,000 of returns on October 11, 2020, and on October 31, 2020. Assume that Crane prepares financial statement on October 31, 2020.
chp 18 #79
Bridgeport Company sells goods that cost $314,000 to Ricard Company for $411,500 on January 2, 2020. The sales price includes an installation fee, which has a standalone selling price of $37,000. The standalone selling price of the goods is $374,500. The installation is considered a separate performance obligation and is expected to take 6 months to complete.(a) Prepare the journal entries (if any) to record the sale on January 2, 2020.
chp 18 #80
On July 18, 2017, Oriole Company enters into a contract to deliver a product to Burg Corporation on September 1, 2017. Burg agrees to pay the full contract price of $5,420 on September 15, 2017. The cost of the goods is $4,130. Oriole delivers the product to Burg on September 1, 2017, and receives payment on September 15, 2017. Prepare the journal entries for Oriole related to this contract. Either party may terminate the contract without compensation until one of the parties performs.
chp 18 #83
On May 1, 2020, Waterway Inc. entered into a contract to deliver one of its specialty mowers to Kickapoo Landscaping Co. The contract requires Kickapoo to pay the contract price of $944 in advance on May 15, 2020. Kickapoo pays Waterway on May 15, 2020, and Waterway delivers the mower (with cost of $620) on May 31, 2020.(a) Prepare the journal entry on May 1, 2020, for Waterway.
chp 18 #86
A company has satisfied its performance obligation when the
company has transferred physical possession of the asset.
Investment in debt securities should be recorded on the date of acquisition at
cost plus brokerage fees and other costs incidental to the purchase
P & G Auto Parts sells parts to Ivanhoe Car Repair during 2021. P&G offers rebates of 2% on purchases up to $60000 and 3% on purchases above $60000 if the customer's purchases for the year exceed $200000. In the past, Ivanhoe normally purchases $300000 in parts during a calendar year. On March 25, 2021, Ivanhoe Car Repair purchased $76000 of parts. The journal entry to record the purchase includes a
credit to Sales Revenue for $74320.
On November 1, 2021, Carla Vista Farm entered into a contract to buy a $157000 harvester from John Deere. The contract required Carla Vista Farm to pay $157000 in advance on November 1, 2021. The harvester (cost of $117000) was delivered on November 30, 2021. The journal entry to record the contract on November 1, 2021 includes a
credit to Unearned Sales Revenue for $157000
Meyer & Smith is a full-service technology company. They provide equipment, installation services as well as training. Customers can purchase any product or service separately or as a bundled package. Blossom Corporation purchased computer equipment, installation and training for a total cost of $156825 on March 15, 2021. Estimated standalone fair values of the equipment, installation and training are $88500, $66000 and $30000 respectively. The journal entry to record the transaction on March 15, 2021 will include a
credit to Unearned Service Revenue of $25500.
Ivanhoe Choice sells natural supplements to customers with an unconditional sales return if they are not satisfied. The sales returns extends 60 days. On February 10, 2021, a customer purchases $4200 of products (cost $2100). Assuming that based on prior experience, estimated returns are 20%. The journal entry to record the expected sales return and cost of goods sold includes a
debit to Allowance for Sales Returns of $840 and a credit to Cost of Goods sold of $420.
An available-for-sale debt security is purchase at a discount. The entry to record the amortization of the discount includes a
debit to debt investments
The current expected credit loss (CECL) model is used to measure impairment of
debt investments reported at amortized cost
Under the equity method, the investment account is decreased by all of the following except the investor's proportionate share of
declines in the fair value of the investment
The third step in the process for revenue recognition is to
determine the transaction price
Dilutive convertible securities must be used in the computation of
diluted earnings per share only
One criteria that indicates that a company should disregard revenue guidance for contracts is when
each party can unilaterally terminate the contract without compensation.
A contract should be treated as having multiple performance obligations if
each performance obligation is not highly dependent on other promises in the contract.
The seller of a good or service should recognize revenue when
each performance obligation is satisfied.
When multiple performance obligations exist in a contract, they should be accounted for as a single performance obligation when
each service is interdependent and interrelated.
Under the equity method of accounting for investments, an investor recognizes its share oft he earnings the period in which the
earnings are reported be the investee in its financial statements
An option to convert a convertible bond into shares of common stock is a(n)
embedded derivative
Debt securities that are bought and held primarily for sale in the near term are reported at
fair value
Transfers between categories of investment are accounted for at
fair value
An ownership interest of 15% in another company's voting stock should be accounted for using the
fair value method
Which of the following methods has the FASB historically preferred in accounting for stock-based compensation?
fair value method
An investor has a long-term investment in stocks. Regular cash dividends received by the investor are recorded as
fair value method: income equity method: a reduction of the investment
Santo Corporation declares and distributes a cash dividend that is a result of current earnings. How will the receipt of those dividends affect the investment account of the investor under each of the following accounting methods?
fair value method: no effect equity method: decrease
Investments in debt securities should be recorded on the date of acquisition at
fair value plus brokerage fees and other costs incidental to the purchase
A debt security is transferred from the held-for-trading portfolio to the available-for-sale portfolio. At the transfer date, the security's cost exceeds its fair value. What amount is used at the transfer date to record the security in the available-for-sale portfolio?
fair value, regardless of whether the decline in fair value below cost in considered permanent or temporary
Held-to-maturity (GAAP) and held-for-collection (IFRS) investments are accounted for at fair value
false
In a principal-agent relationship, the agent should use the gross method to recognize revenue.
false
Investments are reported at market value on the balance sheet under the equity method
false
Sales with rights of return should not be recognized as revenue due to the contingent refund liability.
false
The first step of the revenue recognition process is to determine the transaction price.
false
Under the equity method, dividends received by the investor are reported as dividend revenue on the income statement
false
Unrealized gains and losses on held-to-maturity securities are reported on the income statement
false
When a company has an obligation or right to repurchase an asset for an amount greater than or equal to its selling price, the transaction should be treated as a
financing transaction.
As a result of a(n) __________, a company has the right to receive 1,000 shares of Xenon Company stock in 3 months and has the obligation to pay $50 per share at that time
forward contract
A correct valuation is
held-to-maturity securities at amortized cost
The first step in the process for revenue recognition is to
identify the contract with customers.
The second step in the process for revenue recognition is to
identify the separate performance obligations in the contract.
All market declines are considered temporary. Fair value adjustments at December 31, 2021 should be established with a corresponding charge against
income: $19,000 stockholders' equity: $22,000
Under the fair-value method of accounting for stock option plans, total compensation recognized
is based on the value of the option at the grant date, adjusted for forfeitures
The date on which to measure the compensation element in a stock option granted to a corporate employee ordinarily is the date on which the employee
is granted the option
The transaction price
is the amount of consideration that a company expects to receive from a customer.
The use of the net method of recognizing revenue by an agent
is the correct method in a principal-agent relationship
Which of the following is an advantage of a restricted-stock plan
it never becomes completely worthless
When an investment in a held-to-maturity security is transferred to an available-for-sale security, the carrying value assigned to the available-for-sale security should be
its fair value at the date of the transfer
When an investor's accounting period ends on a date that does not coincide with an interest receipt date for bonds held as an investment, the investor must
make an adjusting entry to debit interest receivable and to credit interest revenue for the amount of interest accrued since the last interest receipt date
Securities which could be classified as held-to-maturity are
municipal bonds
Unrealized gains and losses on held-to-maturity securities are
not recognized because these securities are reported at their amortized cost
An unrealized holding gain on a company's available-for-sale securities should be reflected in the current financial statements as
other comprehensive income and included in the equity section of the balance sheet
The unrealized holding gain or loss on trading securities is reported as
part of net income
The last step in the process for revenue recognition is to
recognize revenue when each performance obligation is satisfied.
On January 15, 2021, Bella Vista Company enters into a contract to build custom equipment for ABC Carpet Company. The contract specified a delivery date of March 1. The equipment was not delivered until March 31. The contract required full payment of $75,000 30 days after delivery. The revenue for this contract should be
recorded on March 31, 2021
In a consignment sale, the consignee
records a payable when consigned merchandise is sold
Under the equity method, if an investee company generates net income, the investor company
records its proportionate share as an increase in its investment account
Consideration paid or payable to customers
reduces the consideration received and the revenue to be recognized
The fair value option allows a company to
report most financial instruments at fair value at any point of time
Unrealized gains and losses on available-for-sale securities are
reported on the balance sheet
The unrealized gains and losses on available-for-sale securities are
reported on the portfolio of investments
Which method of measuring the fair value of a performance obligation is dependent on the standalone selling prices of other goods or services promised in the contract?
residual value.
The best measure of the fair value of a performance obligation is
standalone selling price
A reclassification adjustment is reported in the
statement of comprehensive income as other comprehensive income
An indication that the customer has not taken control of the good or service is
the customer has no significant risks or rewards of ownership.
When a company holds between 20% and 50% of the outstanding stock of an investee, which of the following statements applies
the investor should use the equity method to account for its investment unless circumstances indicate that it is unable to exercise "significant influence" over the investee
A company accounts for a contract modification as a new contract if
the promised goods and services are distinct and the company has the right to receive an amount of consideration that reflects the standalone selling price of the promised goods or services.
An indication that the customer has taken control of the good or service is that
the selling company has transferred legal title to the asset
If a contract involves a significant financing component,
the time value of money is used to determine the fair value of the transaction.