Accounting Research Assignment
If you are taking this class as ACT 332, choose two of the cases on the attached sheet. You will need to go to the accounting standards codification (ASC) database to research the answers to the issues raised in the cases. (Review pages 14-16 in the text if you are unfamiliar with the ASC.) The ASC is found in the FASS website. The username is AAA51165, and the password is Z3SX7bc. If you are taking this class as ACT 532, you must research four of the cases.
The key to using the ASC is to develop a good search topic for the issue involved in the case. The search topic should be narrow enough to avoid multiple retrieves, but broad enough to get the information you need. Once you develop your search and review the documents retrieved, you will need to write a short memo (2-3 pages, double spaced) for each case. The memo should follow this outline:
1. Briefly restate the facts of the case.
2. Identify the issue. State the issue in the form of a research question.
3. Give a short answer to the issue.
4. Cite the ASC authority for your answer. The authority should be cited "ASC..."
5. Explain the authority and apply it to the facts to discuss your reasoning to arrive at the answer.
INTERMEDIATE ACCOUNTING - Cases
Case 1: Mead Motors purchases an automobile for its new car inventory from Generous Motors, which fba'ances this transaction through its financial subsidiary, Generous Motors Credit Company (GMCC). Mead pays no funds to Generous Motors or GMCC until it sells the automobile. Mead must then repay the balanee of the loan plus interest to GMCC. How should Mead report the acquisition and repayment transactions in its Statement of Cash Flows?
Case 2: Narda Corporation agreed to sell all of its capital stock to Effie Corporation for three monthly payments of $200,000. After Effie made the first required payment, it ceased Making other payments. The stock subscription agreement states that Effie, thus, forfeits its payments and is entitled to no other futtire consideration. How Should Narda record the $209,000 forfeited payment?
Case 3: Lowland Appliance Stores offers customers purchasing its appliances separately priced (extended) warranties. Lowland services these extended warranties. Its customers cadre,4e. iye no refunds for not using these warranties, and, of course, Lowland must honor these contracts-regardless of any future costs in doing so. It also "tracks" the profits and losses these types of warranties generate by appliance category-in order to help Maintain a competitive price and costing structures. How should Lowland recognize the revenues and expenses of such extended warranties?
Case 4: As of January 1, the Lohse Company owes the First Arbor Bank $350,000 which is due on Decenaber 31. Since Lohse seems unable to repay the note, the bank agreed that Lohse can "settle" this balance by agreeing to make four, annual installments on each of the next four years, provided that it adds a "due on demand" claim to the note. Specifically, the lender Will "do its best" not to call the note "provided that no adverse significant shift in operations occurs." However, First Arbor Bank has the sole discretion to ascertain if these adverse conditions arose, and then to call the note due immediately. How should Lohse account for this above situation?
Case 5: 0n January 1, the Chin Company agreed to purchase all of Jack Jacksbn's interestin the company for $30 per share. Jack, who owns 15%-and a controlling interest of Chin-previously threatened to engage in a hostile takeover attempt of Chin. For the last two years, Chin's stock traded from about $12-23-reaching $23 on December 31 of list year. How should Chin record this transaction?
Case 6: James Olds buys a four-year, $1,000,000 certificate of deposit from the Second National Bank. James will receive 5% interest in year 1; 5.5% in year 2; 6% in year three; and 6.5% interest in year 4. If James "redeems" this certificate before the maturity date, he would receive a emulative 4.5% annual rate of interest of 4.5%. The Bank has ascertained that less than one percent, of its depositors redeem their certificates before the maturity date, The bank asks its accountant how to accrue and measure such interest payment obligations.
Case 7: On January 1, year 1, Melvin Corporation promises to "unconditionally" transfer a building that cost $100,000 (appraised recently at $300,000) to the Vivian Company on January 1, year 2 for aboat she bought for $250,000. As of December 31, year 2, Melvin still has not transferred title to the building, although it received title to the boat. How should Vivian and Melvin record these transactions?
Case 8: Herb Construction Company is building a hotel for speculative purposes. That is, the Company has not yet found a buyer for the hotel, but expects to do so within a few months. Herb, who expects to spend about another two years to complete construction of the hotel, asks his accountant if interest and property taxes associated with this construction site should be capitalized or expensed. At what rate of interest should Herb use, if any, to capitalize any interest costs?
Case 9: In order to help induce Jill Gregory to remain as president of the Reed Company, in 2000 it promises to pay her (or her estate) $200,000 per year for the next 15 years- even if she leaves the company or dies. Reed wants to properly. record this transaction as deferred compensation, but is unsure of how many years it should use to amortize this cost. Moreover; Reed also purchased a 'whole life life insurance policy for Jill, naming the company as the sole beneficiary. Reed wants to ascertain .if it can offset the cash surrender value of the-policy against theabove deferred compensation liability.
Case 10: The Bootsie Holding Company has sales exceeding $10 billion and each of its three, wholly-owned subsidiaries has sales exceeding $2 billion. Three years ago, the subSidiaries had "complex" capital structures-until Bootsie acquired them. Bootsie's annual report shows its consolidated income and individual income statement accounts of each subsidiary Company. Should BoOtsie also report separate earnings-per-share balances for the three subsidiary companies?
Case 11: Leila Company began an operating lease arrangement with Debco Industries, which was slated to begin on January 1, at monthly lease payments of S10,000. However, Debco's negligence prevented Leila from moving in on time-since it failed to clean up the place adequately enough to earn a Certificate of Occupancy from the township. Thus, on January 1, Leila spent $5,000 for leasehold improvements, which enabled her to obtain the needed Certificate of Occupancy on April I. In any event, Leila paid Debco all the required $30,000 lease payments and has decided not to pursue legal action for the "un-ready" building. However, can Leila defer the $30,000 January-March lease payments over the remaining 33 months of the lease contract?