P12-1

 

 
 

Fuzzy Monkey
  Technologies, Inc., purchased as a long-term investment $80 million of 8%
  bonds, dated January 1, on January 1, 2011. Management has the positive
  intent and ability to hold the bonds until maturity. For bonds of similar
  risk and maturity the market yield was 10%. The price paid for the bonds was
  $66 million. Interest is received semiannually on June 30 and December 31.
  Due to changing market conditions, the fair value of the bonds at December
  31, 2011, was $70 million.

 

 

 

 

 

Required:

 

 

 

1.Prepare
  the journal entry to record Fuzzy Monkey’s investment on January 1, 2011.

 

 

 

2.Prepare
  the journal entry by Fuzzy Monkey to record interest on June 30, 2011 (at the
  effective rate).

 

 

 

3.Prepare
  the journal entries by Fuzzy Monkey to record interest on December 31, 2011
  (at the effective rate).

 

 

 

4. At what
  amount will Fuzzy Monkey report its investment in the December 31, 2011,
  balance sheet? Why?

 

 

 

5. How would
  Fuzzy Monkey’s 2011 statement of cash flows be affected by this investment?

 

 

 

P12–7 -Amalgamated General Corporation
  - Securities held-to- maturity, securitiesavailable for sale, and trading
  securities (also see included excel file) ACC306 Intermediate Accounting - AU
 

 

 

 

Amalgamated
  General Corporation is a consulting firm that also offers financial services
  through its credit division. From time to time the company buys and sells
  securities intending to earn profits on short-term differences in price. The
  following selected transactions relate to Amalgamated’s investment activities
  during the last quarter of 2011 and the first month of 2012. The only
  securities held by Amalgamated at October 1 were $30 million of 10% bonds of
  Kansas Abstractors, Inc., purchased on May 1 at face value. The company’s
  fiscal year ends on December 31.

 

 

 

Required:

 

Prepare the
  appropriate journal entry for each transaction or event.

 

 

 

P12–10 -Runyan Bakery - Fair value
  option; equity method investments ACC306 Intermediate Accounting - AU

 

 

 

On January
  4, 2011, Runyan Bakery paid $324 million for 10 million shares of Lavery
  Labeling Company common stock. The investment represents a 30% interest in
  the net assets of Lavery and gave Runyan the ability to exercise significant
  influence over Lavery’s operations. Runyan chose the fair value option to
  account for this investment. Runyan received dividends of $2.00 per share on
  December 15, 2011, and Lavery reported net income of $160 million for the
  year ended December 31, 2011. The market value of Lavery’s common stock at
  December 31, 2011, was $31 per share. On the purchase date, the book value of
  Lavery’s net assets was $800 million and:

 

 

 

Required:

 

1. Prepare
  all appropriate journal entries related to the investment during 2011,
  assuming Runyan accounts for this investment under the fair value option and
  accounts for the Lavery investment in a manner similar to what they would use
  for trading securities.

 

2. Prepare
  the journal entries required by Runyan, assuming that the 10 million shares
  represents a 10% interest in the net assets of Lavery rather than a 30% interest.

 

 

 

P 12–14 Classifying investments ACC306
  Intermediate Accounting - AU

 

 

 

E13–21 - Disclosures of liabilities ● LO1 through LO6

 

Required:

 

Indicate (by letter) the way each of the items listed below
  should be reported in a

 

balance sheet at December 31, 2011.

 

 

 

 

 

E 13–22 - Woodmier Lawn Products - Warranty
  expense;change in estimate ACC306 Intermediate Accounting - AU

 

 

 

 

 

Woodmier Lawn Products introduced a new line of
  commercial sprinklers in 2010 that carry a one-year warranty against
  manufacturer’s defects. Because this was the first product for which the
  company offered a warranty, trade publications were consulted to determine
  the experience of others in the industry. Based on that experience, warranty
  costs were expected to approximate 2% of sales. Sales of the sprinklers in
  2010 were $2.5 million. Accordingly, the following entries relating to the
  contingency for warranty costs were recorded during the first year of selling
  the product:

 

 

 

Required:

 

 

 

1. Assuming sales of the sprinklers in 2011
  were $3.6 million and warranty expenditures in 2011 totaled $88,000, prepare
  any journal entries related to the warranty.

 

 

 

2. Assuming sales of the sprinklers were
  discontinued after 2010, prepare any journal entry(s) in 2011 related to the
  warranty.

 

 

 

 

 

P 13–6 -Eastern Manufacturing -
  Various contingencies ACC306 Intermediate Accounting - AU

 

 

 

Eastern
  Manufacturing is involved with several situations that possibly involve
  contingencies. Each is described below. Eastern’s fiscal year ends December 31,
  and the 2011 financial statements are issued on March 15, 2012.

 

 

 

Required:

 

1. Determine
  the appropriate means of reporting each situation. Explain your reasoning.

 

2. Prepare
  anynecessary journal entries and disclosure notes.

 

 

Week Two

Required
Readings