Problem 1. Company A manufactures and sells small paper goods. They sell to major retailers such as Costco, Sam's Club and Wal-Mart. These large retailers demand that should goods be unsold at any time in the future, they may return the goods, without limitation, to the Company A and charge back transportation and a repack charge.
When should Company A record the sale? At the date of original shipment to the retailers; at the date the retailers actually sell the goods; when the retailers return merchandise and any unreturned goods can be determined to be sold? Are these goods "consigned goods"?
Problem 2. You are the CFO (Chief Financial Officer) of a Utility Company which owns several nuclear power plants. One of your plants has had many severe operational problems and state regulators are refusing to grant permission to restart the plant. In fact you will never get permission to restart this particular plant. The book value of this plant is 3.5 billion dollars.
Management has an offer to sell the plant to Canada. This is the only offer they have. Canada will disassemble the entire plant and ship it to Canada at their expense. They want to generate electricity to light up "We Love America" billboards all across the country without using oil. J They are offering 250 million dollars for the plant. Assuming management can get state department approval for the sale, they are still unsure as to whether to sell or not. Canada wants the plant shipped within 6 months and is pushing for a contract signing date.
What accounting issues (and accounting issues only) are present in this situation? Assuming the transaction takes place, what gain or loss would be recorded by your company?
Problem 3. What is the theoretical justification for capitalizing interest during the construction period of a new asset? What is the significance of obtaining a certificate of occupancy in relation to interest capitalization?
Problem 4. What are the general rules for how gains or losses on retirement of plant assets should be reported in income? Is an involuntary conversion considered a retirement?
Problem 5. Explain how gains or losses on impaired assets should be reported in income. Is an asset impairment considered an asset retirement?
Problem 6. Define and discuss Contingent gains and Contingent losses and why do we record one and not the other? What principle is involved?