Financial Accounting, 8th Edition
Financial Accounting, 8th Edition
8th Edition
ISBN: 9780078025556
Author: Robert Libby, Patricia Libby, Daniel Short
Publisher: McGraw-Hill Education
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Chapter 3, Problem 6E

Determining Financial Statement Effects of Various Transactions

Wolverine World Wide, Inc., manufactures military, work, sport, and casual footwear and leather accessories under a variety of brand names, such as Hush Puppies, Wolverine, Merrell, Stride Rite, and Bates, to a global market. The following transactions occurred during a recent year. Dollars are in thousands.

  1. a. Issued common stock to investors for $14,083 cash (example).
  2. b. Purchased $878,418 of additional inventory on account.
  3. c. Borrowed $11,000.
  4. d. Sold $1,409,068 of products to customers on account; cost of the products sold was $852,316.
  5. e. Paid cash dividends of $22,737.
  6. f. Purchased for cash $19,397 in additional property, plant, and equipment.
  7. g. Incurred $386,540 in selling expenses, paying three-fourths in cash and owing the rest on account.
  8. h. Earned $370 interest on investments, receiving 90 percent in cash.
  9. i. Incurred $1,395 in interest expense to be paid at the beginning of next year.

Required:

For each of the transactions, complete the tabulation, indicating the effect (+ for increase and − for decrease) of each transaction. (Remember that A = L + SE; R − E = NI: and NI affects SE through Retained Earnings.) Write NE if there is no effect. The first transaction is provided as an example.

BALANCE SHEET INCOME STATEMENT
Transaction Assets Liabilities Stockholders’ Equity Revenues Expenses Net Income
(a) (example) +14,083 NE +14,083 NE NE NE
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On May 31, 2026, Oriole Company paid $3,290,000 to acquire all of the common stock of Pharoah Corporation, which became a division of Oriole. Pharoah reported the following balance sheet at the time of the acquisition: Current assets $846,000 Current liabilities $564,000 Noncurrent assets 2,538,000 Long-term liabilities 470,000 Stockholder's equity 2,350,000 Total assets $3,384,000 Total liabilities and stockholder's equity $3,384,000 It was determined at the date of the purchase that the fair value of the identifiable net assets of Pharoah was $2,914,000. At December 31, 2026, Pharoah reports the following balance sheet information: Current assets $752,000 Noncurrent assets (including goodwill recognized in purchase) 2,256,000 Current liabilities (658,000) Long-term liabilities (470,000) Net assets $1,880,000 It is determined that the fair value of the Pharoah division is $2,068,000.
The following transactions involving intangible assets of Oriole Corporation occurred on or near December 31, 2025. 1.) Oriole paid Grand Company $520,000 for the exclusive right to market a particular product, using the Grand name and logo in promotional material. The franchise runs for as long as Oriole is in business. 2.) Oriole spent $654,000 developing a new manufacturing process. It has applied for a patent, and it believes that its application will be successful.  3.) In January 2026, Oriole's application for a patent (#2 above) was granted. Legal and registration costs incurred were $247,800. The patent runs for 20 years. The manufacturing process will be useful to Oriole for 10 years. 4.) Oriole incurred $168,000 in successfully defending one of its patents in an infringement suit. The patent expires during December 2029. 5.) Oriole incurred $446,400 in an unsuccessful patent defense. As a result of the adverse verdict, the patent, with a remaining unamortized cost of…

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Financial Accounting, 8th Edition

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