International Reporting Case
Sepracor, Inc., a U.S. drug company, reported the following information. The company prepares its financial statements in accordance with U.S. GAAP.
2007 (,000)
Current Liabilities $ 554,114
Convertible Subordinated Debt 648,020
Total Liabilities 1,228,313
Stockholders’ Equity 176,413
Net Income 58,333
Analysts attempting to compare Sepracor to international drug companies may face a challenge due to differences in accounting for convertible debt under iGAAP. Under IAS 32, Financial Instruments, convertible bonds, at issuance, must be classified separately into their debt and equity components based on estimated fair value.
INSTRUCTIONS:
(a) Compute the following rations for Sepracor, Inc. (assume that year-end balances approximate annual averages.)
(1) Return on assets.
(2) Return on stockholders’ equity
(3) Debt to asset ratio
(b) Briefly discuss the operating performance and financial position of Sepracor. Industry averages for these ratios in 2007were: ROA 3.5%; return on equity 16%; and debt to assets 75%. Based on this analysis would you make an investment in the company's 5% convertible bonds? Explain.
(c) Assume you want to compare Sepracor to an international company, like Bayer (which prepares its financial statements in accordance with iGAAP). Assuming that the fair value of the equity components of Sepracor's convertible bonds is $150,000, how would you adjust the analysis above to make valid comparisons between Sepracor and Bayer
Click here for the solution: International Reporting Case: Sepracor, Inc., a U.S. drug company, reported the following information
Showing posts with label Reporting. Show all posts
Showing posts with label Reporting. Show all posts
Tuesday, April 12, 2016
Wednesday, October 14, 2015
(Bad-Debt Reporting) Presented below are a series of unrelated situations
P7-2 (Bad-Debt Reporting) Presented below are a series of unrelated situations.
1. Halen Company’s unadjusted trial balance at December 31, 2010, included the following accounts.
Debit Credit
Allowance for doubtful accounts $4,000
Net Sales $1,200,000
Halen Company estimates its bad debt expense to be 1 and 1/2% of net sales. Determine its bad debt expense for 2010.
2. An analysis and aging of Stuart Corp. accounts receivable at December 31, 2010, disclosed the following.
Amounts estimated to be uncollectible $ 180,000
Accounts receivable 1,750,000
Allowance for doubtful accounts (per books) 125,000
What is the net realizable value of Stuart’s receivables at December 31, 2010?
3. Shore Co. provides for doubtful accounts based on 3% of credit sales. The following data are available for 2010.
Credit sales during 2010 $2,400,000
Allowance for doubtful accounts 1/1/10 17,000
Collection of accounts written off in prior years (customer credit was reestablished) 8,000
Customer accounts written off as uncollectible during 2010 30,000
What is the balance in the Allowance for Doubtful Accounts at December 31, 2010?
4. At the end of its first year of operations, December 31, 2010, Darden Inc. reported the following information.
Accounts receivable, net of allowance for doubtful accounts $950,000
Customer accounts written off as uncollectible during 2010 24,000
Bad debt expense for 2010 84,000
What should be the balance in accounts receivable at December 31, 2010, before subtracting the allowance for doubtful accounts?
5. The following accounts were taken from Bullock Inc.’s trial balance at December 31, 2010.
Debit Credit
Net credit sales $750,000
Allowance for doubtful accounts $14,000
Accounts receivable 310,000
If doubtful accounts are 3% of accounts receivable, determine the bad debt expense to be reported for 2010.
Instructions
Answer the questions relating to each of the five independent situations are requested.
Click here for the solution: (Bad-Debt Reporting) Presented below are a series of unrelated situations
1. Halen Company’s unadjusted trial balance at December 31, 2010, included the following accounts.
Debit Credit
Allowance for doubtful accounts $4,000
Net Sales $1,200,000
Halen Company estimates its bad debt expense to be 1 and 1/2% of net sales. Determine its bad debt expense for 2010.
2. An analysis and aging of Stuart Corp. accounts receivable at December 31, 2010, disclosed the following.
Amounts estimated to be uncollectible $ 180,000
Accounts receivable 1,750,000
Allowance for doubtful accounts (per books) 125,000
What is the net realizable value of Stuart’s receivables at December 31, 2010?
3. Shore Co. provides for doubtful accounts based on 3% of credit sales. The following data are available for 2010.
Credit sales during 2010 $2,400,000
Allowance for doubtful accounts 1/1/10 17,000
Collection of accounts written off in prior years (customer credit was reestablished) 8,000
Customer accounts written off as uncollectible during 2010 30,000
What is the balance in the Allowance for Doubtful Accounts at December 31, 2010?
4. At the end of its first year of operations, December 31, 2010, Darden Inc. reported the following information.
Accounts receivable, net of allowance for doubtful accounts $950,000
Customer accounts written off as uncollectible during 2010 24,000
Bad debt expense for 2010 84,000
What should be the balance in accounts receivable at December 31, 2010, before subtracting the allowance for doubtful accounts?
5. The following accounts were taken from Bullock Inc.’s trial balance at December 31, 2010.
Debit Credit
Net credit sales $750,000
Allowance for doubtful accounts $14,000
Accounts receivable 310,000
If doubtful accounts are 3% of accounts receivable, determine the bad debt expense to be reported for 2010.
Instructions
Answer the questions relating to each of the five independent situations are requested.
Click here for the solution: (Bad-Debt Reporting) Presented below are a series of unrelated situations
Sunday, September 27, 2015
Research 15-2 FASB codification; locate and extract relevant information and authoritative support for a financial reporting issue;
Research 15-2 FASB codification; locate and extract relevant information and authoritative support for a financial reporting issue; capital lease; sublease of a leased asset
“I don't see that in my intermediate accounting text I saved from college,” you explain to another member of the accounting division of Dowell Chemical Corporation. “This will take some research.” Your comments pertain to the appropriate accounting treatment of a proposed sublease of warehouses Dowell has used for product storage.
Required:
1. After the first full year under the warehouse lease, what is the balance in Dowell's lease liability? An amortization schedule will be helpful in determining this amount.
2. After the first full year under the warehouse lease, what is the carrying amount (after accumulated depreciation) of Dowell's leased warehouses?
3. Obtain the relevant authoritative literature on accounting for derecognition of capital leases by lessees using the FASB's Codification Research System. You might gain access from the FASB website (www.fasb.org), from your school library, or some other source. Determine the appropriate accounting treatment for the proposed sublease. What is the specific Codification citation that Dowell would rely on to determine:
a. if the proposal to sublease will qualify as a termination of a capital lease, and
b. the appropriate accounting treatment for the sublease?
4. What, if any, journal entry would Dowell record in connection with the sublease?
Click here for the solution: Research 15-2 FASB codification; locate and extract relevant information and authoritative support for a financial reporting issue;
“I don't see that in my intermediate accounting text I saved from college,” you explain to another member of the accounting division of Dowell Chemical Corporation. “This will take some research.” Your comments pertain to the appropriate accounting treatment of a proposed sublease of warehouses Dowell has used for product storage.
Required:
1. After the first full year under the warehouse lease, what is the balance in Dowell's lease liability? An amortization schedule will be helpful in determining this amount.
2. After the first full year under the warehouse lease, what is the carrying amount (after accumulated depreciation) of Dowell's leased warehouses?
3. Obtain the relevant authoritative literature on accounting for derecognition of capital leases by lessees using the FASB's Codification Research System. You might gain access from the FASB website (www.fasb.org), from your school library, or some other source. Determine the appropriate accounting treatment for the proposed sublease. What is the specific Codification citation that Dowell would rely on to determine:
a. if the proposal to sublease will qualify as a termination of a capital lease, and
b. the appropriate accounting treatment for the sublease?
4. What, if any, journal entry would Dowell record in connection with the sublease?
Click here for the solution: Research 15-2 FASB codification; locate and extract relevant information and authoritative support for a financial reporting issue;
Wednesday, September 23, 2015
The cash flow statement categorizes like transactions for optimal reporting
E14-13 Classifying items on the indirect statement of cash flows
The cash flow statement categorizes like transactions for optimal reporting.
Requirement:
1. Identify each of the following transactions as one of the following:
• Operating activity (0)
• Investing activity (I)
• Financing activity (F)
• Noncash investing and financing activity (NIF)
• Transaction that is not reported on the statement of cash flows (N)
For each cash flow, indicate whether the item increases (+) or decreases (-) cash. The indirect method is used to report cash flows from operating activities.
___ a. Loss on sale of land.
___ b. Acquisition of equipment by issuance of note payable.
___ c. Payment of long-term debt.
___ d. Acquisition of building by issuance of common stock. J
___ e. Increase in salary payable.
___ f. Decrease in inventory.
___ g. Increase in prepaid expenses.
___ h. Decrease in accrued liabilities.
___ i. Cash sale of land.
___ j. Issuance of long-term note payable to borrow cash.
___ k. Depreciation
___ 1. Purchase of treasury stock.
___ m. Issuance of common stock.
___ n. Increase in accounts payable.
___ o. Net income.
___ p. Payment of cash dividend.
Click here for the solution: The cash flow statement categorizes like transactions for optimal reporting
The cash flow statement categorizes like transactions for optimal reporting.
Requirement:
1. Identify each of the following transactions as one of the following:
• Operating activity (0)
• Investing activity (I)
• Financing activity (F)
• Noncash investing and financing activity (NIF)
• Transaction that is not reported on the statement of cash flows (N)
For each cash flow, indicate whether the item increases (+) or decreases (-) cash. The indirect method is used to report cash flows from operating activities.
___ a. Loss on sale of land.
___ b. Acquisition of equipment by issuance of note payable.
___ c. Payment of long-term debt.
___ d. Acquisition of building by issuance of common stock. J
___ e. Increase in salary payable.
___ f. Decrease in inventory.
___ g. Increase in prepaid expenses.
___ h. Decrease in accrued liabilities.
___ i. Cash sale of land.
___ j. Issuance of long-term note payable to borrow cash.
___ k. Depreciation
___ 1. Purchase of treasury stock.
___ m. Issuance of common stock.
___ n. Increase in accounts payable.
___ o. Net income.
___ p. Payment of cash dividend.
Click here for the solution: The cash flow statement categorizes like transactions for optimal reporting
Sunday, September 13, 2015
Various types of "accounting changes" can affect the second reporting standard of the generally accepted auditing standards
Auditing P 3-31
Various types of "accounting changes" can affect the second reporting standard of the generally accepted auditing standards. This standard reads, "The auditor must identify in the auditor's report those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period." Assume that the following list describes changes that have a material effect on a client's financial statement for the current year:
1. Correction of a mathematical error in inventory pricing made in a prior period.
2. A change from prime costing to full absorption costing for inventory valuation.
3. A change from presentation of statements of individual companies to presentation of consolidated statements.
4. A change from deferring and amortizing preproduction costs to recording such costs as an expense when incurred because future benefits of the costs have become doubtful. The new accounting method was adopted in recognition of the change in estimated future benefits.
5. A change from the completed-contract method to the percentage-of completion method of accounting for long-term construction contracts.
6. A change in the estimated useful life of previously recorded fixed assets based on newly acquired information.
7. A change to including the employer share of Social Security (FICA) taxes as "retirement benefits" on the income statement from including it with "other taxes."
8. A change from FIFO method of inventory pricing to the LIFO method of inventory pricing.
Identify the type of change described in each item above, and state whether any modification is required in the auditor's report as it relates to the second standard of reporting. Organized your answer sheet as shown. For example, a change from the LIFO method of inventory pricing to the FIFO method in inventory pricing would appear as shown.
Assume that each item is material.
Item No. Type of Change Should Auditors report be modified?
Example An accounting change from one GAAP "Yes" to another GAAP
Click here for the solution: Various types of "accounting changes" can affect the second reporting standard of the generally accepted auditing standards
Various types of "accounting changes" can affect the second reporting standard of the generally accepted auditing standards. This standard reads, "The auditor must identify in the auditor's report those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period." Assume that the following list describes changes that have a material effect on a client's financial statement for the current year:
1. Correction of a mathematical error in inventory pricing made in a prior period.
2. A change from prime costing to full absorption costing for inventory valuation.
3. A change from presentation of statements of individual companies to presentation of consolidated statements.
4. A change from deferring and amortizing preproduction costs to recording such costs as an expense when incurred because future benefits of the costs have become doubtful. The new accounting method was adopted in recognition of the change in estimated future benefits.
5. A change from the completed-contract method to the percentage-of completion method of accounting for long-term construction contracts.
6. A change in the estimated useful life of previously recorded fixed assets based on newly acquired information.
7. A change to including the employer share of Social Security (FICA) taxes as "retirement benefits" on the income statement from including it with "other taxes."
8. A change from FIFO method of inventory pricing to the LIFO method of inventory pricing.
Identify the type of change described in each item above, and state whether any modification is required in the auditor's report as it relates to the second standard of reporting. Organized your answer sheet as shown. For example, a change from the LIFO method of inventory pricing to the FIFO method in inventory pricing would appear as shown.
Assume that each item is material.
Item No. Type of Change Should Auditors report be modified?
Example An accounting change from one GAAP "Yes" to another GAAP
Click here for the solution: Various types of "accounting changes" can affect the second reporting standard of the generally accepted auditing standards
Friday, September 11, 2015
Which of the following would never require reporting deferred tax assets or deferred tax liabilities?
MULTIPLE CHOICE
1. Which of the following would never require reporting deferred tax assets or deferred tax liabilities? (Points : 1)
2. Which of the following statements typifies defined contribution plans? (Points : 1)
3. Which of the following causes a temporary difference between taxable and pretax accounting income? (Points : 1)
4. Consider the following:
A. I present value of vested benefits at present pay levels
B. II present value of nonvested benefits at present pay levels
C. III present value of additional benefits related to projected pay increases
Which of the above constitutes the accumulated benefit obligation? (Points : 1)
5. Of the following temporary differences, which one ordinarily creates a deferred tax asset? (Points : 1)
6. The annual pension expense for what type of pension plan(s) is recorded by a journal entry that includes a debit to pension expense and a credit to the pension asset or pension liability? (Points : 1)
7. The postretirement benefit obligation is the: (Points : 1)
8. When the service method is used for amortizing prior service costs, the amount recognized each year is (Points : 1)
9. The result of interperiod tax allocation is that: (Points : 1)
10. Which of the following statements is true regarding SFAS 109 and its use of the asset and liability approach? (Points : 1)
Click here for the solution: Which of the following would never require reporting deferred tax assets or deferred tax liabilities?
1. Which of the following would never require reporting deferred tax assets or deferred tax liabilities? (Points : 1)
2. Which of the following statements typifies defined contribution plans? (Points : 1)
3. Which of the following causes a temporary difference between taxable and pretax accounting income? (Points : 1)
4. Consider the following:
A. I present value of vested benefits at present pay levels
B. II present value of nonvested benefits at present pay levels
C. III present value of additional benefits related to projected pay increases
Which of the above constitutes the accumulated benefit obligation? (Points : 1)
5. Of the following temporary differences, which one ordinarily creates a deferred tax asset? (Points : 1)
6. The annual pension expense for what type of pension plan(s) is recorded by a journal entry that includes a debit to pension expense and a credit to the pension asset or pension liability? (Points : 1)
7. The postretirement benefit obligation is the: (Points : 1)
8. When the service method is used for amortizing prior service costs, the amount recognized each year is (Points : 1)
9. The result of interperiod tax allocation is that: (Points : 1)
10. Which of the following statements is true regarding SFAS 109 and its use of the asset and liability approach? (Points : 1)
Click here for the solution: Which of the following would never require reporting deferred tax assets or deferred tax liabilities?
Wednesday, September 2, 2015
Your professor has asked you to complete a research paper concerning the link between the auditing profession and financial reporting standard setters and regulators
Problem 1-34 Your professor has asked you to complete a research paper concerning the link between the auditing profession and financial reporting standard setters and regulators.
Required:
For each independent situation, determine which regulating or standard-setting body you should research:
(a) The entity that sets accounting standards for the government sector.
(b) The entity that decides what is required to become a licensed CPA and conduct work as a CPA.
(c) The entity that sets standards for audits of publicly traded companies.
(d) The entity that sets financial reporting standards in the U.S.
(e) The entity that prepares and administers the Uniform CPA Exam.
(f) The entity that has ultimate authority over public company reports as well as accounting and reporting standards.
Click here for the solution: Your professor has asked you to complete a research paper concerning the link between the auditing profession and financial reporting standard setters and regulators
Required:
For each independent situation, determine which regulating or standard-setting body you should research:
(a) The entity that sets accounting standards for the government sector.
(b) The entity that decides what is required to become a licensed CPA and conduct work as a CPA.
(c) The entity that sets standards for audits of publicly traded companies.
(d) The entity that sets financial reporting standards in the U.S.
(e) The entity that prepares and administers the Uniform CPA Exam.
(f) The entity that has ultimate authority over public company reports as well as accounting and reporting standards.
Click here for the solution: Your professor has asked you to complete a research paper concerning the link between the auditing profession and financial reporting standard setters and regulators
The fourth standard of reporting states: "The auditor must either express an opinion regarding the financial statements
16-38 (Types of Engagements and Reports) The fourth standard of reporting states: "The auditor must either express an opinion regarding the financial statements, taken as a whole, or state that an opinion cannot be expressed in the auditor's report. When the auditor cannot express an overall opinion, the auditor should state the reasons therefore in the auditor’s report. In all cases where an auditor's name is associated with financial statements, the auditor should clearly indicate the character of the auditor’s work, if any, and degree of responsibility the auditor is taking in the auditor’s report."
Required:
In each of the following independent situations, indicate how the CPA responds to this standard.
(a) The CPA is engaged to prepare the financial statements for a non-public entity without performing an audit or review.
(b) The CPA is engaged to compile and review the financial statements of a nonpublic company.
(c) The CPA is engaged to prepare the federal and state income tax returns. No other services are provided.
(d) The CPA is engaged to audit the annual financial statements of a public company.
(e) The CPA's name is contained in the client's registration statement that includes audited financial statements for the year ended December 31, 2010, and unaudited financial statements for the three months ended March 31, 2011. The SEC requires the CPA to include in the registration statement consent to the use of the public accounting firm's name in the statement.
Click here for the solution: The fourth standard of reporting states: "The auditor must either express an opinion regarding the financial statements
Required:
In each of the following independent situations, indicate how the CPA responds to this standard.
(a) The CPA is engaged to prepare the financial statements for a non-public entity without performing an audit or review.
(b) The CPA is engaged to compile and review the financial statements of a nonpublic company.
(c) The CPA is engaged to prepare the federal and state income tax returns. No other services are provided.
(d) The CPA is engaged to audit the annual financial statements of a public company.
(e) The CPA's name is contained in the client's registration statement that includes audited financial statements for the year ended December 31, 2010, and unaudited financial statements for the three months ended March 31, 2011. The SEC requires the CPA to include in the registration statement consent to the use of the public accounting firm's name in the statement.
Click here for the solution: The fourth standard of reporting states: "The auditor must either express an opinion regarding the financial statements
Interim financial reporting has become an important topic in accounting
Interim financial reporting has become an important topic in accounting. There has been considerable discussion as to the proper method of reflecting results of operations at interim dates. Accordingly, the Accounting Principles Board issued an opinion clarifying some aspects of interim financial reporting.
Instructions
(a) Discuss generally how revenue should be recognized at interim dates and specifically how revenue should be recognized for industries subject to large seasonal fluctuations in revenue and for long-term contracts using the percentage-of-completion method at annual reporting dates.
(b) Discuss generally how product and period costs should be recognized at interim dates. Also discuss how inventory and cost of goods sold may be afforded special accounting treatment at interim dates.
(c) Discuss how the provision for income taxes is computed and reflected in interim financial statements.
Click here for the solution: Interim financial reporting has become an important topic in accounting
Instructions
(a) Discuss generally how revenue should be recognized at interim dates and specifically how revenue should be recognized for industries subject to large seasonal fluctuations in revenue and for long-term contracts using the percentage-of-completion method at annual reporting dates.
(b) Discuss generally how product and period costs should be recognized at interim dates. Also discuss how inventory and cost of goods sold may be afforded special accounting treatment at interim dates.
(c) Discuss how the provision for income taxes is computed and reflected in interim financial statements.
Click here for the solution: Interim financial reporting has become an important topic in accounting
Sunday, August 23, 2015
GASB Statement 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, does not apply to which of the following investment types
MULTIPLE CHOICE
1. GASB Statement 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, does not apply to which of the following investment types?
2. In the Statement of Net Assets for proprietary funds, GASB requires a classified format where current assets, noncurrent assets, current liabilities and noncurrent liabilities are presented:
3. Funds that are used to account for activities similar to those often engaged in by profit-seeking businesses are:
4. The operations of agency funds will be included in which of the following statements?
Click here for the solution: GASB Statement 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, does not apply to which of the following investment types
1. GASB Statement 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, does not apply to which of the following investment types?
2. In the Statement of Net Assets for proprietary funds, GASB requires a classified format where current assets, noncurrent assets, current liabilities and noncurrent liabilities are presented:
3. Funds that are used to account for activities similar to those often engaged in by profit-seeking businesses are:
4. The operations of agency funds will be included in which of the following statements?
Click here for the solution: GASB Statement 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, does not apply to which of the following investment types
Monday, August 17, 2015
HolmesWatson (HW) is considering what the effect would be of reporting its liabilities under IFRS rather than U.S. GAAP
P 13-7 Various liabilities
HolmesWatson (HW) is considering what the effect would be of reporting its liabilities under IFRS rather than U.S. GAAP. The following facts apply:
a. HW is defending against a lawsuit and believes it is virtually certain to lose in court. If it loses the lawsuit, management estimates it will need to pay a range of damages that falls between $5,000,000 and $10,000,000, with each amount in that range equally likely.
b. HW is defending against another lawsuit that is identical to item (a), but the relevant losses will only occur far into the future. The present values of the endpoints of the range are $3,000,000 and $8,000,000, with the timing of cash flow somewhat uncertain. HW considers these effects of the time value of money to be material.
c. HW is defending against another lawsuit for which management believes HW has a slightly worse than 50/50 chance of losing in court. If it loses the lawsuit, management estimates HW will need to pay a range of damages that falls between $3,000,000 and $9,000,000, with each amount in that range equally likely.
d. HW has $10,000,000 of short-term debt that it intends to refinance on a long-term basis. Soon after the balance sheet date, but before issuance of the financial statements, HW obtained the financing necessary to refinance the debt.
Required:
1. For each item, indicate how treatment of the amount would differ between U.S. GAAP and IFRS.
2. Consider the total effect of items a–d. If HW’s goal is to show the lowest total liabilities, which set of standards, U.S. GAAP or IFRS, best helps it meet that goal?
Click here for the solution: HolmesWatson (HW) is considering what the effect would be of reporting its liabilities under IFRS rather than U.S. GAAP
HolmesWatson (HW) is considering what the effect would be of reporting its liabilities under IFRS rather than U.S. GAAP. The following facts apply:
a. HW is defending against a lawsuit and believes it is virtually certain to lose in court. If it loses the lawsuit, management estimates it will need to pay a range of damages that falls between $5,000,000 and $10,000,000, with each amount in that range equally likely.
b. HW is defending against another lawsuit that is identical to item (a), but the relevant losses will only occur far into the future. The present values of the endpoints of the range are $3,000,000 and $8,000,000, with the timing of cash flow somewhat uncertain. HW considers these effects of the time value of money to be material.
c. HW is defending against another lawsuit for which management believes HW has a slightly worse than 50/50 chance of losing in court. If it loses the lawsuit, management estimates HW will need to pay a range of damages that falls between $3,000,000 and $9,000,000, with each amount in that range equally likely.
d. HW has $10,000,000 of short-term debt that it intends to refinance on a long-term basis. Soon after the balance sheet date, but before issuance of the financial statements, HW obtained the financing necessary to refinance the debt.
Required:
1. For each item, indicate how treatment of the amount would differ between U.S. GAAP and IFRS.
2. Consider the total effect of items a–d. If HW’s goal is to show the lowest total liabilities, which set of standards, U.S. GAAP or IFRS, best helps it meet that goal?
Click here for the solution: HolmesWatson (HW) is considering what the effect would be of reporting its liabilities under IFRS rather than U.S. GAAP
Saturday, August 15, 2015
Astaire Company uses the gross profit method to estimate inventory for monthly reporting purposes
E9-12 (Gross Profit Method) Astaire Company uses the gross profit method to estimate inventory for monthly reporting purposes. Presented below is information for the month of May.
Inventory, May 1 $ 160,000
Purchases (gross) 640,000
Freight-in 30,000
Sales 1,000,000
Sales returns 70,000
Purchase discounts 12,000
Instructions
(a) Compute the estimated inventory at May 31, assuming that the gross profit is 25% of sales.
(b) Compute the estimated inventory at May 31, assuming that the gross profit is 25% of cost.
Click here for the solution: Astaire Company uses the gross profit method to estimate inventory for monthly reporting purposes
Inventory, May 1 $ 160,000
Purchases (gross) 640,000
Freight-in 30,000
Sales 1,000,000
Sales returns 70,000
Purchase discounts 12,000
Instructions
(a) Compute the estimated inventory at May 31, assuming that the gross profit is 25% of sales.
(b) Compute the estimated inventory at May 31, assuming that the gross profit is 25% of cost.
Click here for the solution: Astaire Company uses the gross profit method to estimate inventory for monthly reporting purposes
Thursday, August 13, 2015
Wynn Sheet Metal reported an operating loss of $160,000 for financial reporting and tax purposes in 2011
E 16-22 Operating loss carryback and carryforward
(This exercise is based on the situation described in the previous exercise, modified to include a carryforward in addition to a carryback.)
Wynn Sheet Metal reported an operating loss of $160,000 for financial reporting and tax purposes in 2011. The enacted tax rate is 40%. Taxable income, tax rates, and income taxes paid in Wynn's first four years of operation were as follows:
Taxable income Tax rates Income taxes paid
2007 60,000 30% 18,000
2008 70,000 30% 21,000
2009 80,000 40% 32,000
2010 60,000 45% 27,000
Required:
1. Prepare the journal entry to recognize the income tax benefit of the operating loss. Wynn elects the carryback option.
2. Show the lower portion of the 2011 income statement that reports the income tax benefit of the operating loss.
Click here for the solution: Wynn Sheet Metal reported an operating loss of $160,000 for financial reporting and tax purposes in 2011
(This exercise is based on the situation described in the previous exercise, modified to include a carryforward in addition to a carryback.)
Wynn Sheet Metal reported an operating loss of $160,000 for financial reporting and tax purposes in 2011. The enacted tax rate is 40%. Taxable income, tax rates, and income taxes paid in Wynn's first four years of operation were as follows:
Taxable income Tax rates Income taxes paid
2007 60,000 30% 18,000
2008 70,000 30% 21,000
2009 80,000 40% 32,000
2010 60,000 45% 27,000
Required:
1. Prepare the journal entry to recognize the income tax benefit of the operating loss. Wynn elects the carryback option.
2. Show the lower portion of the 2011 income statement that reports the income tax benefit of the operating loss.
Click here for the solution: Wynn Sheet Metal reported an operating loss of $160,000 for financial reporting and tax purposes in 2011
Saturday, August 1, 2015
The fourth standard of reporting states: “The auditor must either express an opinion regarding the financial statements
16-38: The fourth standard of reporting states: “The auditor must either express an opinion regarding the financial statements, taken as a whole, or state that an opinion cannot be expressed in the auditor’s report. When the auditor cannot express an overall opinion, the auditor should state the reasons therefore in the auditor’s report. In all cases in which an auditor’s name is associated with financial statements, the auditor should clearly indicate the character of the auditor’s work, if any, and the degree of responsibility the auditor is taking in the auditor’s report.”
Required
In each of the following independent situations, indicate how the CPA responds to this standard.
a. The CPA is engaged to prepare the financial statements for a nonpublic entity without performing an audit or review.
b. The CPA is engaged to compile and review the financial statements of a nonpublic company.
c. The CPA is engaged to prepare the federal and state income tax returns. No other services are provided.
d. The CPA is engaged to audit the annual financial statements of a public company.
e. The CPA’s name is contained in the client’s registration statement that includes audited financial statements for the year ended December 31, 2010, and unaudited financial statements for the three months ended March 31, 2011. The SEC requires the CPA to include in the registration statement consent to the use of the public accounting firm’s name in that statement.
Click here for the solution: The fourth standard of reporting states: “The auditor must either express an opinion regarding the financial statements
Required
In each of the following independent situations, indicate how the CPA responds to this standard.
a. The CPA is engaged to prepare the financial statements for a nonpublic entity without performing an audit or review.
b. The CPA is engaged to compile and review the financial statements of a nonpublic company.
c. The CPA is engaged to prepare the federal and state income tax returns. No other services are provided.
d. The CPA is engaged to audit the annual financial statements of a public company.
e. The CPA’s name is contained in the client’s registration statement that includes audited financial statements for the year ended December 31, 2010, and unaudited financial statements for the three months ended March 31, 2011. The SEC requires the CPA to include in the registration statement consent to the use of the public accounting firm’s name in that statement.
Click here for the solution: The fourth standard of reporting states: “The auditor must either express an opinion regarding the financial statements
Thursday, July 2, 2015
You have just started work for Warren Co. as part of the controller’s group involved in current financial reporting problems
(Issues Raised about Investment Securities) You have just started work
for Warren Co. as part of the controller’s group involved in current
financial reporting problems. Jane Henshaw, controller for Warren, is
interested in your accounting background because the company has
experienced a series of financial reporting surprises over the last few
years. Recently, the controller has learned from the company’s auditors
that there is authoritative literature that may apply to its investment
in securities. She assumes that you are familiar with this pronouncement
and asks how the following situations should be reported in the
financial statements
Situation 1
Trading securities in the current assets section have a fair value that is $4,200 lower than cost.
Situation 2
A trading security whose fair value is currently less than cost is transferred to the available-for-sale category.
Situation 3
An available-for-sale security whose fair value is currently less than cost is classified as noncurrent but is to be reclassified as current.
Situation 4
A company’s portfolio of available-for-sale securities consists of the common stock of one company. At the end of the prior year, the fair value of the security was 50% of original cost, and this reduction in fair value was reported as an other than temporary impairment. However, at the end of the current year the fair value of the security had appreciated to twice the original cost.
Situation 5
The company has purchased some convertible debentures that it plans to hold for less than a year. The fair value of the convertible debentures is $7,700 below its cost.
Instructions
What is the effect upon carrying value and earnings for each of the situations above? Assume that these situations are unrelated.
Click here for the solution: You have just started work for Warren Co. as part of the controller’s group involved in current financial reporting problems
Tuesday, June 23, 2015
(Various Reporting Formats) The following information was taken from the records of Roland Carlson Inc. for the year 2007
Exercise 4-16 (E4-16) (Various Reporting Formats) The following
information was taken from the records of Roland Carlson Inc. for the
year 2007. Income tax applicable to income from continuing operations
$187,000; income tax applicable to loss on discontinued operations
$25,500; income tax applicable to extraordinary gain $32,300; income tax
applicable to extraordinary loss $20,400; and unrealized holding gain
on available-for-sale securities 15,000.
Extraordinary gain $ 95,000 Cash dividends declared $ 150,000
Loss on discontinued operations 75,000 Retained earnings January 1, 2007 600,000
Administrative expenses 240,000 Cost of goods sold 850,000
Rent revenue 40,000 Selling expenses 300,000
Extraordinary loss 60,000 Sales 1,900,000
Shares outstanding during 2007 were 100,000.
Instructions
(a) Prepare a single-step income statement for 2007.
(b) Prepare a retained earnings statement for 2007.
(c) Show how comprehensive income is reported using the second income statement format.
Click here for the solution: (Various Reporting Formats) The following information was taken from the records of Roland Carlson Inc. for the year 2007
Extraordinary gain $ 95,000 Cash dividends declared $ 150,000
Loss on discontinued operations 75,000 Retained earnings January 1, 2007 600,000
Administrative expenses 240,000 Cost of goods sold 850,000
Rent revenue 40,000 Selling expenses 300,000
Extraordinary loss 60,000 Sales 1,900,000
Shares outstanding during 2007 were 100,000.
Instructions
(a) Prepare a single-step income statement for 2007.
(b) Prepare a retained earnings statement for 2007.
(c) Show how comprehensive income is reported using the second income statement format.
Click here for the solution: (Various Reporting Formats) The following information was taken from the records of Roland Carlson Inc. for the year 2007
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