CA24-4 (Post-Balance Sheet Events) At December 31, 2007, Angie Brandt Corp. has assets of $10,000,000, liabilities of $6,000,000, common stock of $2,000,000 (representing 2,000,000 shares of $1 par common stock), and retained earnings of $2,000,000. Net sales for the year 2007 were $18,000,000, and net income was $800,000. As auditors of this company, you are making a review of subsequent events on February 13, 2008, and you find the following.
1. On February 3, 2008, one of Brandt’s customers declared bankruptcy. At December 31, 2007, this company owed Brandt $300,000, of which $40,000 was paid in January, 2008.
2. On January 18, 2008, one of the three major plants of the client burned.
3. On January 23, 2008, a strike was called at one of Brandt’s largest plants, which halted 30% of its production. As of today (February 13) the strike has not been settled.
4. A major electronics enterprise has introduced a line of products that would compete directly with Brandt’s primary line, now being produced in a specially designed new plant. Because of manufacturing innovations, the competitor has been able to achieve quality similar to that of Brandt’s products, but at a price 50% lower. Brandt officials say they will meet the lower prices, which are high enough to cover variable manufacturing and selling costs but which permit recovery of only a portion of fixed costs.
5. Merchandise traded in the open market is recorded in the company’s records at $1.40 per unit on December 31, 2007. This price had prevailed for 2 weeks, after release of an official market report that predicted vastly enlarged supplies; however, no purchases were made at $1.40. The price throughout the preceding year had been about $2, which was the level experienced over several years. On January 18, 2008, the price returned to $2, after public disclosure of an error in the official calculations of the prior December, correction of which destroyed the expectations of excessive supplies. Inventory at December 31, 2007, was on a lower of cost or market basis.
6. On February 1, 2008, the board of directors adopted a resolution accepting the offer of an investment banker to guarantee the marketing of $1,200,000 of preferred stock.
Instructions
State in each case how the 2007 financial statements would be affected, if at all.
Click here for the solution: At December 31, 2007, Angie Brandt Corp. has assets of $10,000,000, liabilities of $6,000,000, common stock of $2,000,000
Showing posts with label liabilities. Show all posts
Showing posts with label liabilities. Show all posts
Monday, March 21, 2016
Sunday, September 27, 2015
The current conceptual distinction between liabilities and equity defines liabilities independently of assets and equity
Communication Case 18-10 Should the present two-category distinction between liabilities and equity be retained? Group interaction.
The current conceptual distinction between liabilities and equity defines liabilities independently of assets and equity, with equity defined as a residual amount. The present proliferation of financial instruments that combine features of both debt and equity and the difficulty of drawing a distinction have led many to conclude that the present two-category distinction between liabilities and equity should be eliminated. Two opposing viewpoints are:
View 1: The distinction should be maintained.
View 2: The distinction should be eliminated and financial instruments should instead be reported in accordance with the priority of their claims to enterprise assets.
One type of security that often is mentioned in the debate is convertible bonds. Although stock in many ways, such a security also obligates the issuer to transfer assets at a specified price and redemption date. Thus it also has features of debt. In considering this question, focus on conceptual issues regarding the practicable and theoretically appropriate treatment, unconstrained by GAAP.
Required:
1. Which view do you favor? Develop a list of arguments in support of your view prior to the class session for which the case is assigned.
2. In class, your instructor will pair you (and everyone else) with a classmate (who also has independently developed an argument).
a. You will be given three minutes to argue your view to your partner. Your partner likewise will be given three minutes to argue his or her view to you. During these three-minute presentations, the listening partner is not permitted to speak.
b. Then after each person has had a turn attempting to convince his or her partner, the two partners will have a three-minute discussion in which they will decide which view is more convincing and arguments will be merged into a single view for each pair.
3. After the allotted time, a spokesperson for each of the two views will be selected by the instructor. Each spokesperson will field arguments from the class in support of that view's position and list the arguments on the board. The class then will discuss the merits of the two lists of arguments and attempt to reach a consensus view, though a consensus is not necessary.
Click here for the solution: The current conceptual distinction between liabilities and equity defines liabilities independently of assets and equity
The current conceptual distinction between liabilities and equity defines liabilities independently of assets and equity, with equity defined as a residual amount. The present proliferation of financial instruments that combine features of both debt and equity and the difficulty of drawing a distinction have led many to conclude that the present two-category distinction between liabilities and equity should be eliminated. Two opposing viewpoints are:
View 1: The distinction should be maintained.
View 2: The distinction should be eliminated and financial instruments should instead be reported in accordance with the priority of their claims to enterprise assets.
One type of security that often is mentioned in the debate is convertible bonds. Although stock in many ways, such a security also obligates the issuer to transfer assets at a specified price and redemption date. Thus it also has features of debt. In considering this question, focus on conceptual issues regarding the practicable and theoretically appropriate treatment, unconstrained by GAAP.
Required:
1. Which view do you favor? Develop a list of arguments in support of your view prior to the class session for which the case is assigned.
2. In class, your instructor will pair you (and everyone else) with a classmate (who also has independently developed an argument).
a. You will be given three minutes to argue your view to your partner. Your partner likewise will be given three minutes to argue his or her view to you. During these three-minute presentations, the listening partner is not permitted to speak.
b. Then after each person has had a turn attempting to convince his or her partner, the two partners will have a three-minute discussion in which they will decide which view is more convincing and arguments will be merged into a single view for each pair.
3. After the allotted time, a spokesperson for each of the two views will be selected by the instructor. Each spokesperson will field arguments from the class in support of that view's position and list the arguments on the board. The class then will discuss the merits of the two lists of arguments and attempt to reach a consensus view, though a consensus is not necessary.
Click here for the solution: The current conceptual distinction between liabilities and equity defines liabilities independently of assets and equity
Sunday, September 20, 2015
(a) What are long-term liabilities? Give two examples. (b) What is a bond?
(a) What are long-term liabilities? Give two examples.
(b) What is a bond?
Click here for the solution: (a) What are long-term liabilities? Give two examples. (b) What is a bond?
(b) What is a bond?
Click here for the solution: (a) What are long-term liabilities? Give two examples. (b) What is a bond?
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?
Thursday, September 10, 2015
The amounts of the assets and liabilities of Padre Travel Service as of June 30, 2010, the end of the current year
The amounts of the assets and liabilities of Padre Travel Service as of June 30, 2010, the end of the current year, and its revenue and expenses for the year are listed below. The retained earnings were $210,000, and the capital stock was $90,000 as of July 1, 2009, the beginning of the current year. Dividends of $180,000 were paid during the current year.
Accounts payable $71,500
Accounts receivable 188,100
Cash 318,300
Fees earned 1,579,200
Miscellaneous expense 16,000
Rent expense 226,800
Supplies 20,100
Supplies expense 42,600
Taxes expense 33,600
Utilities expense 135,000
Wages expense 790,200
Instructions
1. Prepare an income statement for the current year ended June 30, 2010.
2. Prepare a retained earnings statement for the current year ended June 30, 2010.
3. Prepare a balance sheet as of June 30, 2010.
Click here for the solution: The amounts of the assets and liabilities of Padre Travel Service as of June 30, 2010, the end of the current year
Accounts payable $71,500
Accounts receivable 188,100
Cash 318,300
Fees earned 1,579,200
Miscellaneous expense 16,000
Rent expense 226,800
Supplies 20,100
Supplies expense 42,600
Taxes expense 33,600
Utilities expense 135,000
Wages expense 790,200
Instructions
1. Prepare an income statement for the current year ended June 30, 2010.
2. Prepare a retained earnings statement for the current year ended June 30, 2010.
3. Prepare a balance sheet as of June 30, 2010.
Click here for the solution: The amounts of the assets and liabilities of Padre Travel Service as of June 30, 2010, the end of the current year
Monday, August 31, 2015
Listed below are several misstatements of inventory, accounts payable, and accrued liabilities accounts
Problem 9-30 Listed below are several misstatements of inventory, accounts payable, and accrued liabilities accounts. Design a substantive audit procedure that provides reasonable assurance of detecting each misstatement.
1. A bonus earned by the president of the company has not been recorded.
2. Several accounts payable to vendors that the company has never purchased from before are omitted from the accounts payable listing.
3. When client employees counted the physical inventory, they included a number of items that were consigned to, but do not belong to, the company.
4. There is no disclosure in the financial statements that a large accounts payable is due to a related party.
5. Accrued payroll is understated.
6. One-third of the inventory of diamond jewelry is actually cubic zircona or white sapphires.
7. The client paid the same vendor invoice twice, although it is still shown as an account payable.
8. Client personnel informed the auditors that underground petroleum tanks contained an inventory of high-octane gasoline when they actually contained water.
9. The client failed to record warranty expenses incurred after year-end applicable to sales made before year-end.
10. Inventory in one corner of the warehouse is overlooked and not counted during the client’s physical inventory count.
Click here for the solution: Listed below are several misstatements of inventory, accounts payable, and accrued liabilities accounts
1. A bonus earned by the president of the company has not been recorded.
2. Several accounts payable to vendors that the company has never purchased from before are omitted from the accounts payable listing.
3. When client employees counted the physical inventory, they included a number of items that were consigned to, but do not belong to, the company.
4. There is no disclosure in the financial statements that a large accounts payable is due to a related party.
5. Accrued payroll is understated.
6. One-third of the inventory of diamond jewelry is actually cubic zircona or white sapphires.
7. The client paid the same vendor invoice twice, although it is still shown as an account payable.
8. Client personnel informed the auditors that underground petroleum tanks contained an inventory of high-octane gasoline when they actually contained water.
9. The client failed to record warranty expenses incurred after year-end applicable to sales made before year-end.
10. Inventory in one corner of the warehouse is overlooked and not counted during the client’s physical inventory count.
Click here for the solution: Listed below are several misstatements of inventory, accounts payable, and accrued liabilities accounts
Large Land Photo Shop has asked you to determine whether the company's ability to pay current liabilities and total liabilities improved or deteriorated during 2012
E15-18 Large Land Photo Shop has asked you to determine whether the company's ability to pay current liabilities and total liabilities improved or deteriorated during 2012. To answer this question, you gather the following data:
2012 2011
Cash $ 58,000 $ 57,000
Short-term investments 31,000 —
Net receivables 110,000 132,000
Inventory 247,000 297,000
Total assets 585,000 535,000
Total current liabilities 255,000 222,000
Long-term note payable 46,000 48,000
Income from operations 180,000 153,000
Interest expense 52,000 39,000
Requirement
• 1.Compute the following ratios for 2012 and 2011:
o a.Current ratio
o b.Acid-test ratio
o c.Debt ratio
o d.Debt to equity ratio
Click here for the solution: Large Land Photo Shop has asked you to determine whether the company's ability to pay current liabilities and total liabilities improved or deteriorated during 2012
2012 2011
Cash $ 58,000 $ 57,000
Short-term investments 31,000 —
Net receivables 110,000 132,000
Inventory 247,000 297,000
Total assets 585,000 535,000
Total current liabilities 255,000 222,000
Long-term note payable 46,000 48,000
Income from operations 180,000 153,000
Interest expense 52,000 39,000
Requirement
• 1.Compute the following ratios for 2012 and 2011:
o a.Current ratio
o b.Acid-test ratio
o c.Debt ratio
o d.Debt to equity ratio
Click here for the solution: Large Land Photo Shop has asked you to determine whether the company's ability to pay current liabilities and total liabilities improved or deteriorated during 2012
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 1, 2015
What is the difference in the treatment of liabilities between a ‘‘Type A’’ and a ‘‘Type C’’ reorganization?
What is the difference in the treatment of liabilities between a ‘‘Type A’’ and a ‘‘Type C’’ reorganization?
Click here for the solution: What is the difference in the treatment of liabilities between a ‘‘Type A’’ and a ‘‘Type C’’ reorganization?
Click here for the solution: What is the difference in the treatment of liabilities between a ‘‘Type A’’ and a ‘‘Type C’’ reorganization?
Saturday, July 11, 2015
Through a "Type A" reorganization, VizslaCo acquires 100% of Puli Corporation by exchanging 30% of its stock for all of Puli's assets and liabilities
Through a "Type A" reorganization, VizslaCo acquires 100% of Puli Corporation by exchanging 30% of its stock for all of Puli's assets and liabilities. The VizslaCo. stock was exchanged for all of the Puli shareholders. Then Puli liquidated. The net value of Puli's assets at the time of the restructuring was $500,000, and the Federal long-term tax-exempt rate was 5%. Puli held business tax credit carryovers of $61,250. If VizslaCo is always in the 35% tax bracket, what is the value of these credits to VizslaCo., assuming that it uses a discount rate of 8%?
Click here for the solution: Through a "Type A" reorganization, VizslaCo acquires 100% of Puli Corporation by exchanging 30% of its stock for all of Puli's assets and liabilities
Click here for the solution: Through a "Type A" reorganization, VizslaCo acquires 100% of Puli Corporation by exchanging 30% of its stock for all of Puli's assets and liabilities
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