Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 12, Problem 8C
To determine
Discuss the issues that are raised by the given situation, from the perspective of financial and ethical reporting.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
You are auditing the financial records of a company, and you are aware that it has grown quickly in the last few years by acquiring other companies. You look up the disclosure in last year’s annual report which states, “The company amortizes its intangibles over periods ranging from 3 to 15 years.” As you review the company’s records, you find that the company made an acquisition of a “high-tech” company 3 years ago and has not recognized any impairment on the related goodwill. In the last 6 years, the company has made five other acquisitions and has not recognized any impairment related to them. Included in the acquisitions are several patents that are amortized over 9 years and some intangibles with indefinite lives.
Required:
From financial reporting and ethical perspectives, discuss the issues raised by this situation.
PROBLEM 4:
You are the senior auditor in charge for the annual audit of Samal Corp. for the year ended December
31, 2020. You checked mostly the information in the financial records for this small/medium entity and
was highly satisfied.
You noticed however, that the property account consisted of land which was acquired on January 1,
2018 together with eight identical buildings equally built on it. The initial purchase price was
P48,000,000, thirty percent of which is attributable to the land. The eight buildings were estimated to
have a 50 years as economic lives of which two of them were used for general and administrative
offices while the rest were leased out to independent parties under operating lease arrangements.
The following costs were also incurred during acquisition:
Non-refundable transfer taxes paid to government
3,000,000
Title insurance and legal fees attributable to the acquisition
1,000,000
Actual borrowing costs
220,000
Marketing and advertisements
100,000
Office…
Use the following information for the next six questions.
You are auditing the financial statements of DISUKO Corporation and obtained the
following information.
DISUKO acquired an investment for P1,000,000. Transaction costs amount to P10,000.
At year-end, the investment has a fair value of P900,000.
1. If the investment is classified as financial asset at fair value through
profit or loss, how much would it be recorded upon acquisition?
2. If the investment is classified as financial asset at fair value through
profit or loss, what is the amount of unrealized gain or loss to be reported
in the statement of comprehensive income?
3. If the investment is classified as financial asset at fair value through
other comprehensive income, how much would it be recorded upon acquisition?
4. If the investment is classified as as financial asset at fair value through
other comprehensive income, what is the amount of unrealized gain or loss.
to be reported in the income statement?
5. If the…
Chapter 12 Solutions
Intermediate Accounting: Reporting And Analysis
Ch. 12 - Prob. 1GICh. 12 - Prob. 2GICh. 12 - Prob. 3GICh. 12 - Prob. 4GICh. 12 - Prob. 5GICh. 12 - Prob. 6GICh. 12 - Prob. 7GICh. 12 - What activities are included in RD? Which are...Ch. 12 - What elements of RD activities does a company...Ch. 12 - How does a company record a patent worth 100,000...
Ch. 12 - Prob. 11GICh. 12 - Prob. 12GICh. 12 - Over how many years are patents amortized?...Ch. 12 - Prob. 14GICh. 12 - Prob. 15GICh. 12 - Prob. 16GICh. 12 - Prob. 17GICh. 12 - Prob. 18GICh. 12 - Prob. 19GICh. 12 - Prob. 20GICh. 12 - What is the proper time or time period over which...Ch. 12 - Prob. 2MCCh. 12 - Prob. 3MCCh. 12 - Which of the following assets typically are...Ch. 12 - Prob. 5MCCh. 12 - Prob. 6MCCh. 12 - Prob. 7MCCh. 12 - Prob. 8MCCh. 12 - Prob. 9MCCh. 12 - Prob. 10MCCh. 12 - Steel Magnolia Incorporated purchased a trademark...Ch. 12 - Match the following items with correct accounting...Ch. 12 - Notting Hill Company incurred the following costs...Ch. 12 - Hook Corp. incurred the following start-up costs,...Ch. 12 - Mystic Pizza Company purchased a patent from Prime...Ch. 12 - Mystic Pizza Company purchases a franchise from NY...Ch. 12 - Prob. 7RECh. 12 - Prob. 8RECh. 12 - Prob. 9RECh. 12 - Prob. 10RECh. 12 - Prob. 1ECh. 12 - On January 4, 2019, Franc Company purchased for...Ch. 12 - On January 11, 2019, Hughes Company applied for a...Ch. 12 - Gansac Publishing Company signed a contract with...Ch. 12 - Prob. 5ECh. 12 - Prob. 6ECh. 12 - KLK Clothing Company manufactures professional...Ch. 12 - Cressman Company incurred RD costs for various...Ch. 12 - In 2019, Lalli Corporation incurred RD costs as...Ch. 12 - Kling Company was organized in late 2019 and began...Ch. 12 - Prob. 11ECh. 12 - Prob. 12ECh. 12 - Prob. 13ECh. 12 - Prob. 14ECh. 12 - Prob. 15ECh. 12 - Prob. 16ECh. 12 - Company is considering purchasing EKC Company....Ch. 12 - Prob. 18ECh. 12 - Prob. 19ECh. 12 - Prob. 20ECh. 12 - Prob. 1PCh. 12 - Prob. 2PCh. 12 - Prob. 3PCh. 12 - Halpern Companys controller prepared the following...Ch. 12 - Prob. 5PCh. 12 - Prob. 6PCh. 12 - Hamilton Companys balance sheet on January 1,...Ch. 12 - Prob. 8PCh. 12 - Lee Manufacturing Corporation was incorporated on...Ch. 12 - Information concerning Tully Corporations...Ch. 12 - Prob. 11PCh. 12 - In examining Samson Manufacturing Companys books,...Ch. 12 - Prob. 2CCh. 12 - Prob. 3CCh. 12 - Prob. 4CCh. 12 - On June 30, 2019, your client, Sprauge...Ch. 12 - Prob. 6CCh. 12 - NBC paid 401 million for the rights to televise...Ch. 12 - Prob. 8C
Knowledge Booster
Similar questions
- You are auditing Army Corporation's financial statements for the period ended December 31, 2021. Army Corporation is engaged in several lines of businesses: developing property for sale; holding real estate property for rental purposes and holding real estate properties for capital appreciation purposes. Four properties are currently classified as investment property. Your audit investigations revealed the following regarding the said properties: Real Property A was acquired in January of 2020 at P100M. The building's sewerage system was not operating and Army Corporation decided to incur expenditure amounting to P5M to make the sewerage system operational. It also decided to undertake major maintenance on the system at the end of 5 years. The company used the fair market model for this asset and has capitalized the asset at P115M (being the cost of P100M, expenditure of P5M and the present value of the planned expenditure at the end of five years at P10M). Fair value of the property…arrow_forwardDuring the year-end audit of Cressman Corporation's financial statements for 2016, you discover the following items: 1. Cressman capitalized $57,000 to the Patent account at the beginning of 2015 for the cost of a patent. This amount included $50,000 of R&D costs. The patent was amortized over a 20-year life in 2015 and 2016. 2. At the beginning of 2015, Cressman paid its lawyers $8,000 to successfully defend a patent infringement suit regarding the patent in Item 1. Cressman debited this cost to Legal Fees Expense. 3. At the beginning of 2016, Cressman purchased a patent for $30,000 from Baylor Company to prevent potential competition. It recorded the cost in the Patent account and amortized this cost over the remaining legal life of the patent obtained in Item 1 (19 years). However, Cressman agreed to a suggestion by the auditors that the life of the original patent obtained in Item 1 was protected for only 7 more years as of the beginning of 2016. Required: Prepare adjusting and…arrow_forwardAT & T company was depreciating its antennas over 20 years. The total cost of the antennas accounted for 20 million dollars. It was recently discovered that the antennas useful life is only seven years due to new technological development. With reference to the above scenario answer the following questions. What is the accounting implication in this situation and why? What promulgated Accounting Standards should be followed? Provide your rationale. How and why should this discovery be recorded in the financial statements of the company? Explain your response. If the company issues quarterly financial statements and the discovery is made in the third quarter, should this impact be shown prospectively or retroactively and in what specific time period? Explain your response. As the accountant, what could you recommend to management and why?arrow_forward
- You are the auditor of Virgin Blue Limited, a diversified business entity. The reporting period of Virgin Blue Limited ended on 30 June 2020. You signed the auditor’s report on 25 August 2020 and the financial statements were issued on 5 September 2020. The following material events occurred or were discovered after 30 June 2020. (A) Virgin Blue Limited Research Division department developed a new type of photocopy paper, and the directors believed that it would increase their sales volume significantly. As a result, they capitalised the development costs relating to the new photocopy paper. However, on 9 July 2020, the granting of the application for a patent for the photocopy paper was rejected because a competitor had registered a similar patent in June. (B) Virgin Blue Limited has been involved in a legal dispute with a competitor for several years. The dispute relates to alleged breaches of copyright by Virgin Blue Limited. On 9 August, you discovered that Virgin Blue Limited had…arrow_forwardAT & T company was depreciating its antennas over 20 years. The total cost of the antennas accounted for 20 million dollars. It was recently discovered that the antennas useful life is only seven years due to new technological development. With reference to the above scenario answer the following questions. What is the accounting implication in this situation and why? What promulgated Accounting Standards should be followed? Provide rationale. How and why should this discovery be recorded in the financial statements of the company? If the company issues quarterly financial statements and the discovery is made in the third quarter, should this impact be shown prospectively or retroactively and in what specific time period? As the accountant, what could you recommend to management and why?arrow_forwardYou are an auditor of the company ABC. During the audit of the accounting statements it is found that ABC has recognized in its assets the following elements: algoods which are immovable for a perlod of 3 years and which are valued at their acquisition price b) goods owned by XIZ that it has to sell on its behalf with a commission of 10%; and ) the remuneration of the lawyer who represented the company in a legal dispute. Based on the conceptual framework of accounting, comment on the above.arrow_forward
- You are engaged to examine the financial statements of Spillane Company for the year ended December 31. Assume that on November 1, Spillane borrowed $500,000 from Second National Bank to finance plant expansion.The long-term note agreement provided for the annual payment of principal and interest over five years. The existing plant was pledged as security for the loan. Due to the unexpected difficulties in acquiring the building site, the plant expansion did not begin on time. To use the borrowed funds, management decided to invest in stocks and bonds and on November 16, invested the $500,000 in publicly traded securities. Required:Develop specific assertions (audit objectives) related to securities (assets) based on management’s five (PCAOB) general assertions.arrow_forwardABC Co. is contemplating on acquiring XYZ Inc. The following information was gathered through a diligence audit: The actual earnings of XYZ, Inc. for the past 5 years are shown below: Year Earnings 2015 2,400,000 2016 2,600,000 2017 2,700,000 2018 2,500,000 2019 3,600,000 Total 13,800,000 Earnings in 2019 included an expropriation gain of ₱800,000. The fair value of XYZ net assets as of the end of 2019 is ₱20,000,000. The industry average rate of return is 12%. Probable duration of “excess earnings” is 5 years. How much is the estimated goodwill under the capitalization of average earnings method? Use a capitalization rate of 12.5%. How much is the estimated goodwill under the present value of average excess earnings method? Use a discount rate of 10%.arrow_forwardABC Co. is contemplating on acquiring XYZ Inc. The following information was gathered through a diligence audit: The actual earnings of SXYZ, Inc. for the past 5 years are shown below: Year Earnings 2015 2,400,000 2016 2,600,000 2017 2,700,000 2018 2,500,000 2019 3,600,000 Total 13,800,000 Earnings in 2019 included an expropriation gain of ₱800,000. The fair value of XYZ net assets as of the end of 2019 is ₱20,000,000. The industry average rate of return is 12%. Probable duration of “excess earnings” is 5 years. How much is the estimated goodwill under the multiples of average excess earnings method? How much is the estimated goodwill under the capitalization of average excess earnings method? Use a capitalization rate of 25%.arrow_forward
- Sweets Inc. made several capital purchases during the last month of the year. As part of the purchases the company sold some existing fixed assets. Yesterday, as you were walking to the company cafeteria, you saw the President of Sweets Inc. While walking with the President you mentioned that recent capital purchases would significantly impact the financial statements. Today, the President called you directly and asked you to write a memorandum explaining the impact of the capital purchases (and related sale of some existing fixed assets) on each of the following financial statements; Income Statement Balance Sheet Statement of Cash Flows Summary of December Capital Transactions On Dec. 1, 2021 Sweets Inc. purchased a new delivery truck for $ 100,000 The following additional information was provided: The truck was paid for with cash. The truck is expected to have a service life of No salvage value is expected after the service life. The company uses straight-line depreciation for their…arrow_forwardWilliams-Santana Incorporated is a manufacturer of high-tech industrial parts that was started in 2012 by two talented engineers with little business training. In 2024, the company was acquired by one of its major customers. As part of an internal audit, the following facts were discovered. The audit occurred during 2024 before any adjusting entries or closing entries were prepared. a. A five-year casualty insurance policy was purchased at the beginning of 2022 for $35,000. The full amount was debited to insurance expense at the time. b. Effective January 1, 2024, the company changed the salvage value used in calculating depreciation for its office building. The building cost $600,000 on December 29, 2013, and has been depreciated on a straight-line basis assuming a useful life of 40 years and a salvage value of $100,000. Declining real estate values in the area indicate that the salvage value will be no more than $25,000. c. On December 31, 2023, merchandise inventory was overstated…arrow_forwardWilliams-Santana, Inc., is a manufacturer of high-tech industrial parts that was started in 2006 by two talented engineers with little business training. In 2018, the company was acquired by one of its major customers. As part of an internal audit, the following facts were discovered. The audit occurred during 2018 before any adjusting entries or closing entries were prepared. The income tax rate is 40% for all years. a. A five-year casualty insurance policy was purchased at the beginning of 2016 for $36,500. The full amount was debited to insurance expense at the time. b. Effective January 1, 2018, the company changed the salvage values used in calculating depreciation for its office building. The building cost $612,000 on December 29, 2007, and has been depreciated on a straight-line basis assuming a useful life of 40 years and a salvage value of $100,000. Declining real estate values in the area indicate that the salvage value will be no more than $25,000 c. On December 31, 2017,…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning
Principles of Accounting Volume 1
Accounting
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax College
Survey of Accounting (Accounting I)
Accounting
ISBN:9781305961883
Author:Carl Warren
Publisher:Cengage Learning