Chapter 13: Question 7BE (page 692)
BE13-7 (L01) Kasten Inc. provides paid vacations to its employees. At December 31, 2017, 30 employees have each earned 2 weeks of vacation time. The employees’ average salary is $500 per week. Prepare Kasten’s December 31, 2017, adjusting entry.
The amount of vacation expenses is $30,000.
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If the bonds in Question 8 are classified as available-for-sale, and they have a fair value at December 31, 2017, of $3,604,000, prepare the journal entry (if any) at December 31, 2017, to record this transaction.
(Gain on Sale of Investments and Comprehensive Income) On January 1, 2017, Acker Inc. had the followingbalance sheet.
The accumulated other comprehensive income related to unrealized holding gains on available-for-sale debt securities. The fairvalue of Acker Inc.’s available-for-sale debt securities at December 31, 2017, was \(190,000; its cost was \)140,000. No securities
were purchased during the year. Acker Inc.’s income statement for 2017 was as follows. (Ignore income taxes.)
ACKER INC.
BALANCE SHEET
AS OF JANUARY 1, 2017
Assets Equity
Cash \( 50,000 Common stock \)260,000
Debt investments (available-for-sale) 240,000 Accumulated other comprehensive income 30,000
Total \(290,000 Total \)290,000
ACKER INC.
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2017
Dividend revenue \( 5,000
Gain on sale of investments 30,000
Net income \)35,000
Instructions
(Assume all transactions during the year were for cash.)
(a) Prepare the journal entry to record the sale of the available-for-sale debt securities in 2017.
(b) Prepare the journal entry to record the Unrealized Holding Gain or Loss for 2017.
(c) Prepare a statement of comprehensive income for 2017.
(d) Prepare a balance sheet as of December 31, 2017.
Under what conditions is an employer required to accrue a lability for sick pay? Under what conditions is an employer permitted but not required to accrue a liability for sick pay?
Ramirez Company has a held-for-collection investment in the 6%, 20-year bonds of Soto Company. The investment was originally purchased for \(1,200,000 in 2016. Early in 2017, Ramirez recorded an impairment of \)300,000 on the Soto investment, due to Soto’s financial distress. In 2018, Soto returned to profitability and the Soto investment was no longer impaired. What entry does Ramirez make in 2018 under (a) GAAP and (b) IFRS?
(Fair Value Measurement Issues) Assume the same information as in E17-19 for Lilly Company. In addition,
assume that the investment in the Woods Inc. stock was sold during 2018 for \(195,000. On December 31, 2018, the following
information relates to its two remaining investments of common stock.
Cost Fair Value
(at purchase date) (at December 31)
Investment in Arroyo Company stock \)100,000 \(140,000
Investment in Lee Corporation stock 250,000 310,000
Total \)350,000 \(450,000
Net income before any security gains and losses for 2018 was \)905,000.
Instructions
(a) Compute the amount of net income or net loss that Lilly should report for 2018, taking into consideration Lilly’s securitytransactions for 2018.
(b) Prepare the journal entry to record unrealized gain or loss related to the investment in Arroyo Company stock atDecember 31, 2018.
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