Question 1:
On July 1, 2013, Dynamic Corporation purchased for cash 40% of the outstanding capital stock of Cart Company. Dynamic has a fiscal year end of October 31st and Cart has a fiscal year end of March 31st. On October 31st, it has not yet been determined by Dynamic conclusively whether it has the ability to significantly influence Cart's business operation. Cart Company's stock is actively traded on the NASDAQ exchange reported its net income for the period ended October 31st to Dynamic. Cart also paid cash dividends on September 15th and December 15th to Dynamic and its other stockholders. How should Dynamic report the above facts in its October 31, 2013 financial statements. Discuss the rationale for your answer.
Question 2:
You are the independent accountant assigned to the audit of Sara Company. The company's accountant, a fellow graduate of the accounting program you attended has prepared financial statements, which contained the following items:
a) The balance sheet reports land at $100,000. Included in this amount is a piece of property purchased for a future warehouse site at a cost of $30,000 and a speculative land investment at a cost of $50,000.
b) Current liabilities include $50,000 for long term debt that comes due in three months. The company has received a suitable firm commitment to refinance the debt for five years and intends to do so.
c) Investments in marketable securities include $20,000 in short-term high-grade commercial paper which the company states is cash.
Discuss the appropriate classification of the above items and how they should be disclosed in a financial statement.