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					Errata for
                          Intermediate Accounting, 3rd edition

Chapter 1: The Environment of Accounting

Assignment 1-6 WEB Solution

1.   Debt/equity ratio decreases                       Income and equity increase
     Times-interest-earned ratio increases             Income increases*

2.   Debt/equity ratio increases                       Income and equity decrease
     Times-interest-earned ratio decreases             Income decreases*

3.   Debt/equity ratio decreases marginally            Lower discount amortization, lower debt
                                                         compared to effective interest method
     Times-interest-earned ratio increases             Income increases, interest expense

4.   Debt/equity ratio increases                       Debt increases
     Times-interest-earned ratio decreases**

5.   Debt/equity ratio increases                       Income and equity decline; warranty
                                                         liability increases
     Times-interest-earned ratio decreases             Income decreases*

6.   Debt/equity ratio decreases                       Income and equity increases
     Times-interest-earned ratio increases             Income increases*

 * Income effect is in the first or early years; later the difference would reverse and the effect
would be the opposite.
** Dividends on shares are reclassified from the retained earnings statement to the income
statement as “interest,” decreasing earnings and increasing “interest.”

Chapter 3: The Income Statement and the Retained Earnings Statement

Text errata

A3-2, A3-12 and A3-24
These Assignment should have an open-book icon beside it (i.e., solutions for these
problems are available in the Study Guide and Online Learning Centre).

A3-16: (page 125)
Income Statement – 20X4
Income before extraordinary items           $180,000       (not $120,000)

Statement of Retained Earnings – 20X4
Beginning balance, previously reported      $255,000       (not $225,000)

Chapter 4: The Balance Sheet and Disclosure Notes

Page 183

Additional information (no accounting errors are involved):
a.     Cost and market value fo the short-term marketable securities is $42,000
                                                            (not $44,000)

Page 184

"Authorized shares" in line 5 should be 200,000, not 100,000.

Chapter 5: The Cash Flow Statement

Page 228
Phillies Corporation Cash Flow Statement

Final column, 4th number down:              $289,000       (not $290,000)

Page 251: Buffalo Incorporated Income Statement

Loss on writedown of selling expenses       $40,000        (not marketable securities)

Chapter 7: Current Monetary Balances

Page 370: under Loans as Current Liabilities, point #2 (shaded box)

Long term liabilities:
       Bonds payable (500,000 less current portion: $100,000)     $400,000

Chapter 6: Revenue and Expense Recognition

A6-10 (page 324)

1. Prepare journal entries for the transactions listed above assuming that the
critical event is:

A6-22: (page 328)

Years in this problem should read 20X2                        (not 20X0)

Chapter 8: Inventories and Cost of Sales

Page 449, A 8-12

Total           500            $15,360 (for 2,500 units)      (not 2,100 units)

Chapter 9: Capital Assets, Goodwill, and Deferred Charges

Review Problem – Solution (page 504, 505)

Data from #3:

Equipment ($120,000 - $30,000)                                (not $162,000)

Chapter 10: Amortization and Impairment

Review Problem – Solution correction:

Book value of equipment at 31 December 20X5:

         Cost                                                           $34,000
         Accumulated depreciation, 31 December 20X5:
             ($34,000 – $4,000) ÷ 5 × 2.5 years                          15,000
         Net book value                                                 $19,000

         The asset is impaired because the undiscounted future cash flow of $10,000 is less
than the $19,000 book value. Since depreciation is not intended to mirror the decline in
fair value of a capital asset, the fact that the fair value is less than book value is not, in
itself, significant. The key aspect of impairment is that the estimated future net cash flows
generated by the asset are less than its book value, indicating that the unamortized cost
cannot be recovered either through operations.
         Since the remaining cost cannot be recovered through operations, the asset must
be written down to its fair value of $7,000. This is a loss of $12,000.

A10-37 (page 605)
Fourth bullet should read:
    In early January 20X3, as Hellinger’s 20X2 financial statements were being
       prepared, the broker informed the Board that the market had improved
       significantly; the broker now expected to be able to get about $15 million.
                                                            (not 20X2)

Fifth bullet should read:
     The plane was sold on 17 March 20X3…                 (not 20X5)

Chapter 11: Investments in Debt and Equity Securities

A11-28: (page 671)

a. Date should read 1 June 20X6                            (not 20X7)
e. Date should read 1 November 20X6                        (not 20X7)

       Instructor: Also see new Solution for this in Solutions Manual errata document, in
       Instructor’s side of Online Learning Centre, or download new Chapter 11
       Solution Manual (up to date)