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AnnZ [28]
3 years ago
10

Each of the following situations occurred during 2011 for one of your audit clients:1. The write-off of inventory due to obsoles

cence.2. Discovery that depreciation expenses were omitted by accident from 2010's income statement.3. The useful lives of all machinery were changed from eight to five years.4. The depreciation method used for all equipment was changed from the declining-balance to the straight-line method.5. Ten million dollars face value of bonds payable were repurchased (paid off) prior to maturity resulting in a material loss of $500,000. The company considers the event unusual and infrequent.6. Restructuring costs were incurred.7. The Stridewell Company, a manufacturer of shoes, sold all of its retail outlets. It will continue to manufacture and sell its shoes to other retailers. A loss was incurred in the disposition of the retail stores. The retail stores are considered components of the entity.8. The inventory costing method was changed from FIFO to average cost.Required:1. For each situation, identify the appropriate reporting treatment from the list below (consider each event to be material):a. As an extraordinary item.b. As an unusual or infrequent gain or loss.c. As a prior period adjustment.d. As a change in accounting principle.e. As a discontinued operation.f. As a change in accounting estimate.g. As a change in accounting estimate achieved by a change in accounting principle.2. Indicate whether each situation would be included in the income statement in continuing operations (CO) or below continuing operations (BC), or if it would appear as an adjustment to retained earnings (RE). Use the format shown below to answer requirements 1 and 2
Business
1 answer:
In-s [12.5K]3 years ago
6 0

Answer:

Situations during 2011 at an Audit Client

A. Appropriate Reporting Treatments:

1. Write-off of inventory due to obsolescence.

a. As an extraordinary item.

2. Discovery that depreciation expenses were omitted by accident from 2010's income statement.

c. As a prior period adjustment.

3. The useful lives of all machinery were changed from eight to five years.

f. As a change in accounting estimate.

4. The depreciation method used for all equipment was changed from the declining-balance to the straight-line method.

g. As a change in accounting estimate achieved by a change in accounting principle.

5. Ten million dollars face value of bonds payable were repurchased (paid off) prior to maturity resulting in a material loss of $500,000. The company considers the event unusual and infrequent.

b. As an unusual or infrequent gain or loss.

6. Restructuring costs were incurred.

b. As an unusual or infrequent gain or loss.

7. The Stridewell Company, a manufacturer of shoes, sold all of its retail outlets. It will continue to manufacture and sell its shoes to other retailers. A loss was incurred in the disposition of the retail stores. The retail stores are considered components of the entity.

e. As a discontinued operation.

8. The inventory costing method was changed from FIFO to average cost.

d. As a change in accounting principle.

B. Inclusion in the Income Statement:

1. CO

2. RE

3. CO

4. RE

5. BC

6. BC

7. BC

8. CO

Explanation:

1. Investopedia.com defined "Unusual or infrequent items" as "gains or losses from a lawsuit; losses or slowdown of operations due to natural disasters; restructuring costs; gains or losses from the sale of assets; costs associated with acquiring another business; losses from the early retirement of debt; and plant shutdown costs."

2. Extraordinary gains or losses are economic events which originate from continuing infrequent and unusual operations.  These gains and losses stem from the normal business activities of the company, but, they do not happen regularly, and are abnormal in nature.

3. A prior period adjustment is the correction of a past accounting error that occurred in the past financial statements.

4. According to investopedia.com, "A change in accounting principle is a change in how financial information is calculated, while a change in accounting estimate is a change in the actual financial information.  Changes in accounting principles are done retroactively, where financial statements have to be re-stated.  But, changes in estimates are not applied retroactively.

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Pierce Company incurred $150,000 of research and development costs in its laboratory to develop a new product. It spent $20,000
mr Goodwill [35]

Answer:

A. $35,000

Explanation:

The first $150,000 were invested in research and development of the product itself, not the patent. Thus, this amount should be debited to research and development expenses.

The only expenses directly related to the patent itself are the $20,000 spent on legal fees on January 2, 2017, and the $15,000 for legal fees in a successful defense of the patent on July 31, 2017.

Therefore, the total amount that should be debited to Patents (P) is:

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3 years ago
Mustang Corporation had 100,000 shares of $2 par value common stock outstanding. On December 31, 2015, the company's board of di
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Answer:

<u>The journal entry will be as follow:</u>

Dec 31th

Retained Earnings            200,000 debit

Stock Dividends Payable      200,000 credit

to record declared stock dividends

Jan 20th

Stock Dividends payable    200,000 debit

         Common Stock                                    40,000 credit

         Additional paid-in                               160,000 credit

Explanation:

The company will issue 20% stock

100,000 shares x 20% = 20,000 shares

The company cost for this 20,000 will be the market value

20,000 shares x $10 = 200,000

This will be compare with the face value of the shares to calculate the adidtional paid-in:

20,000 sahres x $2 face value = 40,000 common stock

200,000 market value - 40,000 face value = 160,000 additional paid-in

<u>The journal entry will be as follow:</u>

Dec 31th

We declare the dividends against retained earnings, from there we will take the funds to pay the dividends

Jan 20th

The dividends will be paid with common stock so we write-off the dividdends payable again the issued stock and their aditioanl paid-in.

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In the given case, Jon has a feeling that his job makes him to perform new task everyday, that's why, he never gets board with his job.

Hence from the above we can conclude that the correct option is D.

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<h3>What are forward and futures contracts?</h3>

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A forward contract is a personal arrangement traded over the counter whereas, a futures contract is a standardized contract made through an established exchange.

Thus, in forward and futures contracts, the risk of non-fulfillment of contract terms is most likely borne by <u>both parties</u><u> to the contract</u>.

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