Area II: Balance Sheet Accounts

Apex Corp. owns a manufacturing facility with the following data at year-end:<br/>- Net carrying amount (book value): $2,400,000<br/>- Undiscounted future cash flows expected from use and disposal: $2,100,000<br/>- Fair value of the asset: $1,800,000<br/>- Costs to sell: $50,000<br/><br/>What amount of impairment loss, if any, should Apex Corp. recognize under ASC 360?

Fenwick Co. uses FIFO inventory costing and reports the following data for three inventory items at year-end:<br/><br/>Item Alpha: Cost $3,000, NRV $2,500, Replacement Cost $2,200<br/>Item Beta: Cost $4,000, NRV $3,200, Replacement Cost $3,800<br/>Item Gamma: Cost $2,500, NRV $2,500, Replacement Cost $2,100<br/><br/>Under ASC 330 (lower of cost and net realizable value), what is the total inventory value Fenwick Co. should report on the balance sheet?

Titan Corp. has the following account balances before year-end adjustments:<br/>- Accounts Receivable: $450,000<br/>- Allowance for Credit Losses: $15,000 (credit balance)<br/>- Credit sales for the year: $2,800,000<br/><br/>Based on an aging analysis, Titan estimates that $35,000 of accounts receivable will be uncollectible. What adjusting entry should Titan record for credit losses?

On January 1, Year 1, Cascade Corp. issued $1,000,000 of 8% bonds at 95, with interest payable semiannually on June 30 and December 31. The bonds mature in 5 years. Cascade uses the effective interest method.<br/><br/>What is the carrying amount of the bonds on December 31, Year 1?

Sterling Corp. owns a 30% interest in Alliance Co. and accounts for this investment using the equity method. During Year 1:<br/>- Alliance reported net income of $200,000<br/>- Alliance declared and paid dividends of $80,000<br/>- Sterling's original investment cost was $500,000<br/><br/>What is the carrying amount of Sterling's investment in Alliance at the end of Year 1?

Coastal Corp. has the following data for its inventory at year-end:<br/><br/>Product A: 100 units, Cost $50/unit, NRV $45/unit<br/>Product B: 200 units, Cost $30/unit, NRV $35/unit<br/>Product C: 150 units, Cost $20/unit, NRV $18/unit<br/><br/>Using the lower of cost or net realizable value approach, what is the total inventory value?

Sunrise Corp. has 200,000 shares of $10 par common stock outstanding. The company declares a 10% stock dividend when the market price is $25 per share. <br/><br/>What journal entry should Sunrise record for the stock dividend?

Atlantic Corp. has a defined benefit pension plan. At the beginning of Year 1:<br/>- Projected benefit obligation (PBO): $2,000,000<br/>- Plan assets (fair value): $1,800,000<br/>- Service cost for Year 1: $150,000<br/>- Interest cost for Year 1: $120,000<br/>- Actual return on plan assets: $90,000<br/>- Employer contributions: $200,000<br/><br/>What is Atlantic's pension expense for Year 1?

Glacier Corp. purchased a trademark for $480,000 on January 1, Year 1. The trademark has a legal life of 10 years and an estimated useful life of 8 years. On January 1, Year 4, Glacier determines that the trademark's total useful life should be 6 years instead of 8 years.<br/><br/>What amortization expense should Glacier record for the trademark in Year 4?

Beacon Corp. has available-for-sale debt securities with the following data at year-end:<br/>- Amortized cost: $450,000<br/>- Fair value: $420,000<br/>- Previous cumulative unrealized loss in OCI: $15,000<br/><br/>What journal entry should Beacon record at year-end?

Mountain Corp. has the following information for its defined benefit pension plan at December 31, Year 1:<br/>- Fair value of plan assets: $1,500,000<br/>- Projected benefit obligation: $1,800,000<br/>- Unrecognized prior service cost: $120,000<br/>- Unrecognized net loss: $80,000<br/><br/>What amount should Mountain report as the funded status on its balance sheet?

Oakwood Corp. factored $500,000 of accounts receivable to Finance Co. under the following terms:<br/>- Finance Co. advances 85% of receivables factored<br/>- Finance Co. charges a 3% factoring fee<br/>- Finance Co. charges 12% annual interest on advances<br/>- The arrangement is without recourse<br/>- Average collection period is 45 days<br/><br/>What is the total cost of factoring that Oakwood should recognize?

Sunset Corp. has the following information regarding its inventory:<br/>- Beginning inventory (FIFO): $180,000<br/>- Purchases during the year: $850,000<br/>- Ending inventory (FIFO): $220,000<br/>- Sales: $1,400,000<br/><br/>If Sunset had used LIFO instead of FIFO, ending inventory would have been $195,000. What would cost of goods sold have been under LIFO?

Pacific Corp. has a debt covenant that requires maintaining a debt-to-equity ratio of no more than 2.0:1. At year-end, Pacific has:<br/>- Total debt: $1,800,000<br/>- Total stockholders' equity: $950,000<br/><br/>Is Pacific in compliance with its debt covenant?

Horizon Corp. issued convertible bonds with a face value of $1,000,000. The bonds were issued at par and are convertible into 40,000 shares of common stock. At the time of issuance, similar bonds without the conversion feature would have yielded 8%, while the convertible bonds yield 6%.<br/><br/>Under ASC 470-20, how should Horizon account for the issuance of these convertible bonds?

Crystal Corp. has trading securities with the following information at year-end:<br/>- Security A: Cost $80,000, Fair value $75,000<br/>- Security B: Cost $60,000, Fair value $68,000<br/>- Security C: Cost $40,000, Fair value $45,000<br/><br/>What is the net impact on Crystal's net income from these trading securities?

Emerald Corp. purchased equipment for $240,000 on January 1, Year 1. The equipment has a 5-year useful life with no salvage value. On January 1, Year 3, Emerald sells the equipment for $130,000.<br/><br/>What gain or loss should Emerald recognize on the sale?

Silverstone Corp. has a machine with the following information at year-end:<br/>- Original cost: $500,000<br/>- Accumulated depreciation: $300,000<br/>- Estimated undiscounted future cash flows: $180,000<br/>- Fair value: $160,000<br/>- Costs to sell: $10,000<br/><br/>Under ASC 360, what amount should Silverstone report for this machine on its balance sheet?

Cascade Corp. has the following information for its cash and cash equivalents:<br/>- Cash in checking account: $125,000<br/>- Cash in savings account: $75,000<br/>- 3-month certificate of deposit: $50,000<br/>- 6-month certificate of deposit: $100,000<br/>- Money market fund (can be withdrawn anytime): $30,000<br/>- Petty cash: $2,000<br/><br/>What amount should Cascade report as cash and cash equivalents?

Pinnacle Corp. has the following information for its defined benefit pension plan:<br/>- Service cost: $180,000<br/>- Interest cost: $150,000<br/>- Expected return on plan assets: $120,000<br/>- Amortization of prior service cost: $25,000<br/>- Amortization of net loss: $15,000<br/>- Employer contributions: $200,000<br/>- Benefits paid to retirees: $100,000<br/><br/>What is Pinnacle's net pension cost for the year?

Riverside Corp. has the following inventory information using the FIFO method:<br/>- Beginning inventory: 1,000 units at $15 each<br/>- Purchase 1: 2,000 units at $16 each<br/>- Purchase 2: 1,500 units at $18 each<br/>- Purchase 3: 500 units at $20 each<br/>- Units sold: 3,200 units<br/><br/>What is the cost of goods sold under FIFO?

Thunder Corp. has the following information for its bank reconciliation at month-end:<br/>- Balance per bank statement: $45,200<br/>- Outstanding checks: $8,300<br/>- Deposits in transit: $3,700<br/>- Bank service charges: $150<br/>- NSF check from customer: $1,200<br/>- Interest earned on account: $75<br/><br/>What is the correct cash balance that should appear on Thunder's balance sheet?

Sunset Corp. purchased a patent for $360,000 on January 1, Year 1. The patent has a legal life of 20 years and an estimated useful life of 12 years. On January 1, Year 4, Sunset sells the patent for $285,000.<br/><br/>What gain or loss should Sunset recognize on the sale of the patent?

Valley Corp. has a defined benefit pension plan with the following changes during the year:<br/>- Projected benefit obligation, beginning: $2,200,000<br/>- Service cost: $180,000<br/>- Interest cost: $132,000<br/>- Benefits paid: $95,000<br/>- Actuarial loss: $45,000<br/><br/>What is the projected benefit obligation at year-end?

In preparing its bank reconciliation for the month of April, Zelma Corp. has the following information:<br/>- Balance per bank statement, 4/30: $30,000<br/>- NSF check returned by bank: $500<br/>- Deposits in transit, 4/30: $2,000<br/>- Outstanding checks, 4/30: $4,000<br/>- Bank service charges: $50<br/><br/>What should be the adjusted cash balance per books at April 30?

At year-end, Credo Corp. has a balance in Accounts Receivable of $500,000. The Allowance for Credit Losses has a debit balance of $2,000 before adjustment. An aging analysis estimates that $25,000 of receivables are uncollectible. What is the Credit Loss Expense (Bad Debt Expense) for the year?

On July 1, Year 1, Spear Co. sold $100,000 of accounts receivable to a factor with recourse. The factor assessed a 5% finance charge and retained 3% of the receivables to cover sales returns. Spear estimates the recourse liability (fair value of recourse obligation) at $2,000. The transaction meets the criteria for a sale. What amount of loss should Spear recognize on the sale?

A company uses the LIFO inventory method. At year-end, the following data is available for Item X:<br/>- Cost: $50<br/>- Replacement Cost: $45<br/>- Selling Price: $60<br/>- Disposal Costs: $5<br/>- Normal Profit Margin: $15<br/><br/>What is the carrying amount of Item X at year-end?

During a period of rising prices, which inventory method will result in the highest Net Income and the highest Inventory balance?

Bolt Corp. exchanges a delivery truck for a new machine. The exchange has commercial substance.<br/>- Truck Cost: $50,000<br/>- Accumulated Depreciation: $30,000<br/>- Fair Value of Truck: $25,000<br/>- Cash Paid by Bolt: $10,000<br/><br/>What is the initial recorded cost of the new machine?

A company is testing a long-lived asset for impairment. <br/>- Carrying Amount: $500,000<br/>- Undiscounted Future Cash Flows: $480,000<br/>- Fair Value: $450,000<br/><br/>What amount of impairment loss should be recognized?

On January 1, Year 1, Investor Co. purchased 30% of Investee Inc. for $600,000, giving it significant influence. <br/>For Year 1, Investee reported Net Income of $100,000 and paid dividends of $20,000. <br/>At year-end, the fair value of the investment was $650,000. <br/>What is the carrying amount of the investment on Investor's balance sheet at December 31, Year 1?

Blue Corp. holds equity securities with a cost of $10,000 and a fair value of $12,000 at the end of Year 1. In Year 2, the fair value drops to $9,000. Blue does not have significant influence. What is the impact on Net Income in Year 2?

Tech Co. incurred the following costs during the year related to developing a new software product for sale:<br/>- Coding costs before technological feasibility: $50,000<br/>- Coding costs after technological feasibility: $30,000<br/>- Testing costs after technological feasibility: $20,000<br/>- Packaging design costs: $10,000<br/><br/>What amount should be capitalized as software inventory/assets?

On January 1, Year 1, Oil Co. installed a platform. It is legally required to dismantle the platform at the end of its 10-year life. <br/>- Estimated dismantling cost: $100,000<br/>- Present value of dismantling cost at 10%: $38,550<br/><br/>What amount of accretion expense should be reported for Year 1?

A company pays its employees every two weeks. The current pay period ends on Friday, January 3, Year 2. Employees worked 8 days in Year 1 and 2 days in Year 2 for this period. Total payroll for the period is $50,000. What adjusting entry should be made on December 31, Year 1?

On January 1, Year 1, Bond Co. issued 5-year bonds with a face value of $100,000 and a stated rate of 8% payable annually. The bonds were issued to yield 10%. The present value of the bonds is $92,418. <br/>What is the carrying amount of the bonds at December 31, Year 1 (after the first interest payment)?

A company modifies the terms of its debt. The modification is treated as a 'troubled debt restructuring' involving only a modification of terms (no asset transfer). The total future cash payments (undiscounted) under the new terms are LESS than the carrying amount of the debt. <br/>How should the debtor account for this?

On January 1, Year 1, a company had 10,000 shares of $10 par common stock outstanding (originally issued at $15). On March 1, it reacquired 1,000 shares at $20 per share. The company uses the Cost Method for treasury stock. On July 1, it reissued 500 of these shares at $25 per share. <br/>What is the credit to Additional Paid-in Capital (APIC) - Treasury Stock on July 1?

A company declared a property dividend. The property had a carrying amount of $40,000 and a fair value of $55,000 on the declaration date. What is the effect on Retained Earnings and Net Income?

Zeta Corp.'s book balance for cash at October 31 is $25,000. The following data is available for the bank reconciliation:<br/>- Outstanding checks: $4,000<br/>- Deposits in transit: $3,000<br/>- Bank service charges recorded by bank but not company: $100<br/>- NSF check returned by bank, not recorded by company: $500<br/>- Check for $200 paid to vendor recorded by company as $2,000 error.<br/><br/>What is the adjusted cash balance to be reported on the balance sheet?

At year-end, a company has a balance in Accounts Receivable of $500,000. The Allowance for Credit Losses has a debit balance of $2,000 before adjustment. An aging analysis estimates expected credit losses to be $25,000. What is the Credit Loss Expense for the year?

A company uses the FIFO inventory method. At year-end, Product A has a cost of $50, a selling price of $60, costs to sell of $5, and a replacement cost of $48. What is the per-unit carrying amount of Product A in the balance sheet?

During an audit, it was discovered that ending inventory was overstated by $30,000 in Year 1. What is the effect of this error on Year 1 Cost of Goods Sold (COGS) and Year 1 Net Income?

A company purchased a machine for $100,000. They paid $2,000 for shipping, $3,000 for installation, $1,000 for insurance while in transit, and $500 for training employees to use the machine. What is the capitalized cost of the machine?

A company tests a long-lived asset for impairment. <br/>Carrying Amount: $500,000<br/>Undiscounted Future Cash Flows: $480,000<br/>Fair Value: $450,000<br/>Costs to Sell: $20,000<br/><br/>What is the impairment loss to be recognized?

On June 30, Year 1, a company decides to sell a building and classifies it as Held for Sale. <br/>Carrying Value: $800,000<br/>Fair Value: $750,000<br/>Costs to Sell: $30,000<br/><br/>What is the carrying amount of the building on the December 31, Year 1 balance sheet, assuming it is still unsold and fair value hasn't changed?

Investor Co. owns 30% of Investee Co. and has significant influence. <br/>Jan 1 Investment Balance: $200,000<br/>Investee Net Income: $100,000<br/>Investee Dividends Paid: $40,000<br/><br/>What is the December 31 Investment Balance?

Which of the following debt investments would be classified as 'Held-to-Maturity'?

On January 1, Year 1, a company purchased a patent for $100,000. The patent has a legal life of 20 years but the company estimates it will provide economic benefits for only 10 years. What is the amortization expense for Year 1?

A company is developing software for internal use. <br/>- Preliminary project stage costs: $50,000<br/>- Application development stage costs (coding/testing): $200,000<br/>- Training costs: $30,000<br/>- Post-implementation maintenance: $20,000<br/><br/>What amount should be capitalized?

A company pays a bonus to its CEO equal to 5% of income after deducting the bonus and taxes. Income before bonus and taxes is $500,000. The tax rate is 30%. What is the amount of the bonus?

A company constructs a nuclear plant. It is legally required to dismantle it after 20 years. <br/>Estimated remediation cost in 20 years: $10,000,000.<br/>Present value of that cost at construction date: $2,000,000.<br/><br/>What is the journal entry to record the Asset Retirement Obligation (ARO) at the start?

On Jan 1, Year 1, a company issued $1,000,000 of 5% bonds at a price to yield 6%. The bonds were issued at $957,000. Interest is paid annually on Dec 31. What is the carrying value of the bonds at Dec 31, Year 1?

A debtor modifies the terms of its debt. The carrying amount of the debt is $100,000. The total future cash flows (undiscounted) under the new terms are $90,000. How should the debtor account for this modification?

A company uses the Cost Method for treasury stock. <br/>- Original Issue: 10,000 shares at $10 par for $15.<br/>- Repurchase: 1,000 shares at $20.<br/>- Reissue: 500 shares at $25.<br/><br/>What is the journal entry for the reissuance?

A company declares a 10% stock dividend when the market price is $50 and par value is $10. There are 100,000 shares outstanding. What is the effect on Retained Earnings?

A company has a $100,000 bond payable outstanding with unamortized premium of $5,000. It retires the bond by paying $102,000. What is the gain or loss on extinguishment?

On December 31, Year 1, Gem Co. holds the following:<br/>- Checking account balance: $50,000<br/>- Treasury bill (purchased Dec 1, Year 1, maturing Feb 28, Year 2): $20,000<br/>- Treasury bond (purchased Mar 1, Year 1, maturing Feb 28, Year 2): $30,000<br/>- Restricted cash (for bond sinking fund, non-current): $10,000<br/><br/>What amount should be reported as Cash and Cash Equivalents on the Balance Sheet?

At year-end, a company has a bank balance of $25,000. The following information is available:<br/>- Deposits in transit: $2,000<br/>- Outstanding checks: $4,500<br/>- Bank service charge not recorded: $100<br/>- NSF check from customer returned by bank: $400<br/><br/>What is the correct adjusted cash balance?

Blue Corp. factors $100,000 of accounts receivable with recourse. The factor charges a 5% fee and retains 3% of the receivable. The fair value of the recourse obligation is estimated at $2,000. The transfer qualifies as a sale.<br/><br/>What is the net cash received and the loss on sale reported by Blue Corp.?

On January 1, Year 1, Retailer Co. adopted the Dollar-Value LIFO method. The inventory on that date was $200,000 (Base Year Cost). <br/><br/>At December 31, Year 1, the inventory at current year cost was $231,000. The price index for Year 1 is 1.05.<br/><br/>What is the Dollar-Value LIFO inventory balance at December 31, Year 1?

Construction Co. is building a warehouse for its own use. <br/>- Expenditures: Jan 1: $200,000; July 1: $400,000; Nov 1: $300,000.<br/>- Specific construction debt: $300,000 at 10%.<br/>- General debt: $1,000,000 at 5%.<br/><br/>What is the amount of interest to be capitalized for the year ended December 31?

Company A exchanges a delivery truck for a piece of land owned by Company B. The exchange lacks commercial substance. <br/><br/>Company A Truck:<br/>- Book Value: $20,000 (Cost $50k, Acc Dep $30k)<br/>- Fair Value: $25,000<br/><br/>Company A pays $2,000 cash to Company B to equalize the deal.<br/><br/>What is Company A's recorded cost of the land?

Investor Co. owns 30% of Investee Inc. and applies the equity method. In Year 1, Investee reported Net Income of $100,000 and paid dividends of $20,000. <br/><br/>The excess of purchase price over book value was attributed to a patent with a 10-year life. The amortization of this excess is $5,000 per year.<br/><br/>What amount should Investor Co. report as 'Equity in Earnings of Investee' for Year 1?

TechDev Inc. incurred the following costs during the year related to developing a new software product for sale:<br/>- Completion of detailed program design: $50,000<br/>- Coding and testing (before technological feasibility): $80,000<br/>- Coding and testing (after technological feasibility): $60,000<br/>- Production of product masters: $20,000<br/>- Duplication of software and manuals for sale: $15,000<br/><br/>What amount should be capitalized as software inventory?

On January 1, Year 1, Mine Co. purchased a mineral mine for $2,000,000 with an estimated 500,000 tons of ore. Mine Co. is legally required to restore the land at the end of the mine's life. The fair value of this Asset Retirement Obligation (ARO) is estimated at $100,000. <br/><br/>In Year 1, Mine Co. extracted 50,000 tons. <br/><br/>What is the depletion expense for Year 1?

A company issues 10,000 shares of $10 par value common stock and 5,000 shares of $50 par value preferred stock for a lump sum of $450,000. <br/><br/>The common stock has a market value of $20/share. The preferred stock has a market value of $60/share. <br/><br/>What amount should be credited to Additional Paid-In Capital (APIC) - Common Stock?

On January 1, Year 1, Bond Co. issued 1,000 bonds with a face value of $1,000 each at 98. The bonds pay 5% interest annually. Bond issuance costs were $10,000. <br/><br/>What is the initial carrying amount of the bond liability?

A company declares a 15% stock dividend when the market price is $30 and par value is $10. There are 10,000 shares outstanding. <br/><br/>What is the debit to Retained Earnings?

A company purchases a trademark for $50,000. It expects to renew the trademark indefinitely for a nominal fee. How should this asset be amortized?

Which of the following costs should be expensed as incurred?

A company issues a bond convertible into common stock. Under US GAAP, how are the proceeds allocated at issuance?