Intermediate accounting answer chapter3

1、 The McGraw-Hill Companies, Inc., 2009Solutions Manual, Vol.1, Chapter 33-1AACSB 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, on

2、e 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, 5e with the following AACSB learning skills:QuestionsAACSB TagsExercises (cont.)AACSB Tags3-1Ref

3、lective thinking3-4Analytic3-2Reflective thinking3-5Analytic3-3Reflective thinking3-6Analytic3-4Reflective thinking3-7Analytic3-5Reflective thinking3-8Analytic3-6Reflective thinking3-9Analytic3-7Reflective thinking3-10Reflective thinking3-8Reflective thinking3-11Reflective thinking3-9Reflective thin

4、king3-12Reflective thinking3-10Reflective thinking3-13Analytic3-11Reflective thinking3-14Analytic3-12Reflective thinking3-15Analytic3-13Reflective thinking3-16Analytic3-14Reflective thinking3-17Analytic3-15Reflective thinking3-18Reflective thinking, Diversity3-16Reflective thinkingCPA/CMA3-17Reflect

5、ive thinking3-1Analytic3-18Reflective thinking3-2Analytic3-19Reflective thinking3-3Reflective thinking3-20Reflective thinking3-4AnalyticBrief Exercises3-5Reflective thinking3-1Reflective thinking3-6Analytic3-2Analytic3-1Reflective thinking3-3Analytic3-2Analytic3-4Analytic3-3Reflective thinking3-5Ana

6、lyticProblems3-6Analytic3-1Analytic3-7Analytic3-2Analytic3-8Reflective thinking3-3Analytic3-9Analytic3-4Analytic3-10Analytic3-5Analytic3-11Analytic3-6Analytic, Reflective thinkingExercises3-7Analytic3-1Analytic3-8Analytic3-2Reflective thinking3-9Analytic3-3Reflective thinking3-10Analytic Chapter 3 T

7、he Balance Sheet and Financial Disclosures The McGraw-Hill Companies, Inc., 20093-2Intermediate Accounting, 5/eQuestion 3-1The purpose of the balance sheet, also known as the statement of financial position, is to present the financial position of the company on a particular date. Unlike the income

8、statement, which is a change statement that reports events occurring during a period of time, the balance sheet is a statement that presents an organized array of assets, liabilities, and shareholders equity at a point in time. It is a freeze frame or snapshot picture of financial position at the en

9、d of a particular day marking the end of an accounting period. Question 3-2 The balance sheet does not portray the market value of the entity (number of common stock shares outstanding multiplied by price per share) for a number of reasons. Most assets are not reported at fair value, but instead are

10、 measured according to historical cost. Also, there are certain resources, such as trained employees, an experienced management team, and a good reputation, that are not recorded as assets at all. Therefore, the assets of a company minus its liabilities, as shown in the balance sheet, will not be re

11、presentative of the companys market value.Question 3-3 Current assets include cash and other assets that are reasonably expected to be converted to cash or consumed during one year, or within the normal operating cycle of the business if the operating cycle is longer than one year. The typical asset

12、 categories classified as current assets include: Cash and cash equivalents Short-term investments Accounts receivable Inventories Prepaid expensesQuestion 3-4Current liabilities are those obligations that are expected to be satisfied through the use of current assets or the creation of other curren

13、t liabilities. So, this classification will include all liabilities that are scheduled to be liquidated within one year or the operating cycle, whichever is longer, except those that management intends to refinance on a long-term basis. The typical liability categories classified as current liabilit

14、ies include: Accounts payable Short-term notes payable Accrued liabilities Current maturities of long-term debtQUESTIONS FOR REVIEW OF KEY TOPICS The McGraw-Hill Companies, Inc., 2009Solutions Manual, Vol.1, Chapter 33-3Answers to Questions (continued)Question 3-5 The operating cycle for a typical m

15、anufacturing company refers to the period of time required to convert cash to raw materials, raw materials to a finished product, finished product to receivables, and then finally receivables back to cash.Question 3-6 Investments in equity securities are classified as current if the companys managem

16、ent (1) intends to liquidate the investment in the next year or operating cycle, whichever is longer, and (2) has the ability to do so, i.e., the investment is marketable. If either of these criteria does not hold, the investment is classified as noncurrent.Question 3-7 The common characteristics th

17、at these assets have in common are that they are tangible, long-lived assets used in the operations of the business. They usually are the primary revenue-generating assets of the business. These assets include land, buildings, equipment, machinery, furniture and other assets used in the operations o

18、f the business, as well as natural resources, such as mineral mines, timber tracts and oil wells.Question 3-8 Property, plant, and equipment and intangible assets each represent assets that are long-lived and are used in the operations of the business. The difference is that property, plant, and equ

19、ipment represent physical assets, while intangibles lack physical substance. Generally, intangibles represent the ownership of an exclusive right, such as a patent, copyright or franchise.Question 3-9 A note payable of $100,000 due in five years would be classified as a long-term liability. A $100,0

20、00 note due in five annual installments of $20,000 each would be classified as a $20,000 current liability current maturities of long-term debt and an $80,000 long-term liability.Question 3-10 Paid-in-capital consists of amounts invested by shareholders in the corporation. Retained earnings equals n

21、et income less dividends paid to shareholders from the inception of the corporation. The McGraw-Hill Companies, Inc., 20093-4Intermediate Accounting, 5/eAnswers to Questions (continued)Question 3-11Disclosure notes provide additional detail concerning specific financial statement items. Included are

22、 such data as the fair values of financial instruments and off-balance-sheet risk associated with financial instruments and details of pension plans, leases, debt, and assets. Common to all companies disclosures are certain specific notes such as a summary of significant accounting policies, descrip

23、tions of subsequent events, and related third-party transactions. However, many notes are designed to fit the disclosure needs of the particular reporting company. In fact, any explanation that helps investors and creditors make decisions should be included. Question 3-12 The disclosure of the compa

24、nys significant accounting policies is extremely important to external users in terms of their ability to compare financial information across companies. It is critical to a financial analyst involved in assessing future cash flows of two construction companies to know that one company uses the perc

25、entage-of-completion method in recognizing gross profit, while the other company uses the completed contract method.Question 3-13 A subsequent event is an event that occurs after the date of the financial statements but prior to the date on which the statements are actually issued. It may help to cl

26、arify a previously existing situation or it may represent a new event not directly affecting financial position at the end of the reporting period.Question 3-14The discussion provides managements views on significant events, trends and uncertainties pertaining to the companys (a) operations, (b) liq

27、uidity, and (c) capital resources. Certainly the Management Discussion and Analysis section may be slanted to managements biased perspective and therefore can lack objectivity. However, management can offer an informed insight that might not be available elsewhere, so if the reader maintains awarene

28、ss of the informations source, it can offer a unique view of the situation. The McGraw-Hill Companies, Inc., 2009Solutions Manual, Vol.1, Chapter 33-5Answers to Questions (continued)Question 3-15Depending on the circumstances, the auditor will issue a (an):1. Unqualified opinion The auditors are sat

29、isfied that the financial statements “present fairly” the financial position, results of operations, and cash flows and are “prepared in accordance with generally accepted accounting principles.” 2. Qualified opinion This contains an exception to the standard unqualified opinion, but not of sufficie

30、nt seriousness to invalidate the financial statements as a whole. Examples of exceptions are (a) unconformity with generally accepted accounting principles, (b) inadequate disclosures, and (c) a limitation or restriction of the scope of the examination. 3. Adverse opinion This is necessary when the

31、exceptions (a) and (b) above are so serious that a qualified opinion is not justified. Adverse opinions are rare because auditors usually are able to persuade management to rectify problems to avoid this undesirable report.4. Disclaimer An auditor will disclaim an opinion if item (c) above applies a

32、nd therefore insufficient information has been gathered to express an opinion.Question 3-16A proxy statement must be sent each year to all shareholders. It usually is in the same mailing with the annual report. The statement invites shareholders to the shareholders meeting to elect board members and

33、 to vote on issues before the shareholders. It also permits shareholders to vote using an enclosed proxy card. The proxy statement also provides for more disclosures on compensation to directors and executives, and in particular, stock options granted to executives. Question 3-17 Working capital is

34、the difference between current assets and current liabilities. The current ratio is computed by dividing current assets by current liabilities. The acid-test ratio (or quick ratio) is computed by dividing quick assets (cash and cash equivalents, marketable securities, and accounts receivable) by cur

35、rent liabilities.Question 3-18 Debt to equity ratio= Total liabilities Shareholders equity Times interest earned ratio = Net income + interest + taxes Interest The McGraw-Hill Companies, Inc., 20093-6Intermediate Accounting, 5/eAnswers to Questions (concluded)Question 3-19An operating segment is a c

36、omponent of an enterprise:1. That engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same enterprise).2. Whose operating results are regularly reviewed by the enterprises chief opera

37、ting decision-maker to make decisions about resources to be allocated to the segment, and to assess its performance.3. For which discrete financial information is available.Question 3-20For areas determined to be reportable operating segments, the following disclosures are required:1. General inform

38、ation about the operating segment,2. Information about reported segment profit or loss, including certain revenues and expenses included in reported segment profit or loss, segments assets, and the basis of measurement.3. Reconciliations of the totals of segment revenues, reported profit or loss, as

39、sets, and other significant items to corresponding enterprise amounts.4. Interim period information.Brief Exercise 3-1(a)Current(b)Current(c)Noncurrent(d)Current(e)Noncurrent(f)NoncurrentBrief Exercise 3-2Current Assets:$16,000 + 11,000 + 25,000 = $52,000Current liabilities:$14,000 + 9,000 + 1,000 =

40、 $24,000BRIEF EXERCISES The McGraw-Hill Companies, Inc., 2009Solutions Manual, Vol.1, Chapter 33-7Brief Exercise 3-3Assets:$ 52,000 current assets 80,000 equipment$132,000 total assetsminusLiabilities$ 24,000 current liabilities30,000 notes payable54,000 total liabilitiesequalsShareholders equity$78

41、,000(50,000) common stock$28,000 retained earnings The McGraw-Hill Companies, Inc., 20093-8Intermediate Accounting, 5/eBrief Exercise 3-4$28,000 is the amount needed to cause total assets to equal total liabilities and shareholders equity. This is calculated in BE 3-3.K and J Nursery, Inc.Balance Sh

42、eetAt December 31, 2009AssetsCurrent assets:Cash .$ 16,000Accounts receivable .11,000Inventories . 25,000Total current assets .52,000Property, plant, and equipment:Equipment .$140,000Less: Accumulated depreciation . (60,000)Net property, plant, and equipment . 80,000Total assets .$132,000Liabilities

43、 and Shareholders EquityCurrent liabilities:Accounts payable .$ 14,000Wages payable .9,000Interest payable . 1,000Total current liabilities . 24,000Long-term liabilities:Note payable . 30,000Shareholders equity:Common stock .$50,000Retained earnings* . 28,000Total shareholders equity . 78,000Total l

44、iabilities and shareholders equity $132,000 The McGraw-Hill Companies, Inc., 2009Solutions Manual, Vol.1, Chapter 33-9Brief Exercise 3-5Brief Exercise 3-61.The $30,000 should be classified as a noncurrent asset, under the investments classification.Culver City Lighting, Inc.Balance SheetAt December

45、31, 2009AssetsCurrent assets:Cash .$ 55,000Accounts receivable .39,000Inventories . 45,000Prepaid insurance . 15,000Total current assets .154,000Property, plant, and equipment:Equipment .$100,000Less: Accumulated depreciation . (34,000)Net property, plant, and equipment . 66,000Intangibles:Patent .

46、40,000Total assets .$260,000Liabilities and Shareholders EquityCurrent liabilities:Accounts payable .$ 12,000Interest payable. 2,000Current maturities of long-term debt . 10,000Total current liabilities . 24,000Long-term liabilities:Note payable . 90,000Shareholders equity:Common stock .$70,000Retai

47、ned earnings . 76,000Total shareholders equity . 146,000Total liabilities and shareholders equity $260,000 The McGraw-Hill Companies, Inc., 20093-10Intermediate Accounting, 5/e2.$10,000, next years installment, should be classified as a current liability, current maturities of long-term debt. The re

48、maining $90,000 is included in long-term liabilities.3.Two-thirds of the unearned revenue, $40,000, should be classified as a current liability, the remaining $20,000 as a long-term liability.Brief Exercise 3-7Current assets cash and cash equivalents accounts receivable = Inventories $235,000 40,000

49、 120,000 = $75,000Total assets current assets = property, plant, and equipment $400,000 235,000 = $165,000 Total assets accounts payable note payable common stock = retained earnings $400,000 32,000 50,000 100,000 = $218,000 Brief Exercise 3-8(1)A(2)B(3)B(4)A(5)B(6)A The McGraw-Hill Companies, Inc.,

50、 2009Solutions Manual, Vol.1, Chapter 33-11Brief Exercise 3-9(a) Current assets current liabilities($55,000 + 39,000 + 45,000 + 15,000) ($12,000 + 2,000 + 10,000) $154,000 $24,000 = 6.42(b)(Cash + short-term investments + accounts receivable) current liabilities ($55,000 + 0 + 39,000) $24,000 = 3.92

51、(c) Total liabilities shareholders equity$24,000 current liabilities + 90,000 long-term liabilities = $114,000$70,000 common stock + 76,000 retained earnings = $146,000$114,000 $146,000 = .78Brief Exercise 3-10Paying accounts payable reduces both current assets and current liabilities. If the ratio

52、before the payment were above 1.0, the transaction would cause the ratio to increase. However, if the ratio before the transaction were less than 1.0, the ratio would decrease.Brief Exercise 3-11Acid-test ratio = (cash + short-term investments + A/R) current liabilities1.5 = ($20,000 + 0 + 40,000) c

53、urrent liabilities1.5 x current liabilities = $60,000current liabilities = $60,000 1.5current liabilities = $40,000Current ratio = current assets current liabilities2.0 = current assets $40,000current assets = $40,000 x 2.0current assets = $80,000 $80,000 20,000(cash) 40,000(A/R) = $20,000 inventori

54、es The McGraw-Hill Companies, Inc., 20093-12Intermediate Accounting, 5/eExercise 3-11. Total current assetsCurrent liabilities = $44,000 + 15,000 + 1,000 (accrued interest)= $60,000Since the current ratio is 1.5:1, current assets = 1.5 x $60,000 = $90,0002. Short-term investments$90,000 - 5,000 - 20

55、,000 - 60,000 = $5,0003. Retained earningsCurrent assets + Noncurrent assets = Current liabilities + Long-term liabilities + Paid-in capital + Retained earnings (RE)$90,000 + 120,000 = $60,000 + 30,000 (Note payable) + 100,000 + RERE = $20,000Exercise 3-21. c Equipment10. a Inventories2. f Accounts

56、payable11. d Patent3. -a Allowance for uncollectible accounts 12. c Land, in use 4. b _Land, held for investment13. f Accrued liabilities5. g _Note payable, due in 5 years14. a Prepaid rent6. f Unearned rent revenue15. h Common stock7. f Note payable, due in 6 months16. c Building, in use8. i Income

57、 less dividends, accumulated17. a Cash9. b Investment in XYZ Corp., long-term18. f Taxes payableEXERCISES The McGraw-Hill Companies, Inc., 2009Solutions Manual, Vol.1, Chapter 33-13Exercise 3-31. f Accrued interest payable10. a Supplies2. d Franchise11. c Machinery3. -c Accumulated depreciation12. c

58、 Land, in use4. e Prepaid insurance, for 201113. f Unearned revenue5. g Bonds payable, due in 10 years14. d Copyrights6. f Current maturities of long-term debt15. h Preferred stock7. f Note payable, due in 3 months16. b Land, held for speculation8. b Long-term receivables17. a Cash equivalents9. b B

59、ond sinking fund, will be used to18. f Wages payableretire bonds in 10 years The McGraw-Hill Companies, Inc., 20093-14Intermediate Accounting, 5/eExercise 3-4JACKSON CORPORATIONBalance SheetAt December 31, 2009AssetsCurrent assets:Cash .$ 40,000Marketable securities .10,000Accounts receivable .34,00

60、0Inventories .75,000Prepaid rent . 16,000Total current assets .175,000Property, plant, and equipment:Machinery .$145,000Less: Accumulated depreciation . (11,000)Net property, plant, and equipment . 134,000Intangibles:Patent . 83,000Total assets .$392,000Liabilities and Shareholders EquityCurrent lia