Intermediate Accounting: Reporting and Analysis
2nd Edition
ISBN: 9781285453828
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
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Chapter 5, Problem 5P
Financial Statement Violations of U.S. GAAP The following are the financial statements issued by Allen Corporation for its fiscal year ended October 31, 2016:
Notes to Financial Statements:
- 1. Long-Term Lease. Under the terms of a 5-year, noncancelable lease for a building, Allen is obligated to make annual rental payments of $40,000 in each of the next 4 fiscal years.
- 2. Pension Plan. Substantially all employees are covered by Allen’s defined benefit pension plan. Pension expense is equal to the total of pension benefits accrued and paid to retired employees during the year. Because it is a defined benefit plan that is paid every year, no pension liability exists.
- 3. Patent. The patent had an estimated remaining life of 10 years at the time of purchase. Allen’s patent was purchased from Apex Corporation on January 1, 2016, for $250,000.
- 4.
Deferred Income Tax Payable. The entire balance in the Deferred Income Tax Payable account arose from tax-exempt municipal bonds that were held during the previous fiscal year, giving rise to a difference between taxable income and reported net earnings for the fiscal year ended October 31, 2016. The deferred liability amount was calculated on the basis of past tax rates. - 5. Warrants. On January 1, 2015, one common stock warrant was issued to shareholders of record for each common share owned. An additional share of common stock is to be issued upon exercise of 10 stock warrants and receipt of an amount equal to par value. For the 6 months ended October 31, 2016, the average market value for Allen’s common stock was $5 per share and no warrants had yet been exercised.
- 6.
Contingent Liability . On October 31, 2016, Allen was contingently liable for product warranties in an amount estimated to aggregate $75,000.
Required:
Next Level Review the preceding financial statements and related notes. Identify any inclusions or exclusions from them that would be in violation of GAAP, and indicate corrective action to be taken. Do not comment as to format or style. Respond in the following order:
- 1.
Balance sheet - 2. Notes
- 3. Income statement
- 4. Statement of
retained earnings - 5. General
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The Lessor Company leases equipment to the
Lessee Company on January 1, 2020. The lease
is appropriately recorded as a purchase for
accounting purposes for Lessee and as a sale for
accounting purposes for Lessor. The lease is for
a ten-year period. Equal annual payments under
the lease are $30,000 and are due on January 1
of each year. The first payment is made on
January 1, 2022. The cost of the equipment on
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equipment has an estimated useful life of ten
years with no residual value expected. The of
interest contemplated by Lessor and Lessee is 9
percent. Assume that the present value of the
lease payments equals the market value of the
equipment (selling price). Assume this is a sales-
type lease.
A.Prepare the entry or entries required for Lessor
on January 1, 2022.
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on December 31, 2022.
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Chapter 5 Solutions
Intermediate Accounting: Reporting and Analysis
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Ch. 5 - Define expenses. What do expenses measure?Ch. 5 - Prob. 12GICh. 5 - Define gains and losses. Give examples of three...Ch. 5 - Prob. 14GICh. 5 - What items are included in a companys income from...Ch. 5 - How are unusual or infrequent gains or losses...Ch. 5 - What is interperiod tax allocation?Ch. 5 - Prob. 18GICh. 5 - Prob. 19GICh. 5 - Prob. 20GICh. 5 - Prob. 21GICh. 5 - Prob. 22GICh. 5 - Prob. 23GICh. 5 - Prob. 24GICh. 5 - Prob. 25GICh. 5 - Prob. 26GICh. 5 - Prob. 27GICh. 5 - Prob. 28GICh. 5 - Prob. 29GICh. 5 - Prob. 30GICh. 5 - Prob. 31GICh. 5 - Prob. 32GICh. 5 - What is the rate of return on common equity? What...Ch. 5 - Prob. 34GICh. 5 - Prob. 35GICh. 5 - Which of the following is expensed under the...Ch. 5 - The following information is available for Cooke...Ch. 5 - The following information is available for Wagner...Ch. 5 - Prob. 4MCCh. 5 - A loss from the sale of a component of a business...Ch. 5 - In a statement of cash flows, receipts from sales...Ch. 5 - Brandt Corporation had sales revenue of 500,000...Ch. 5 - Refer to RE5-1. Prepare a single-step income...Ch. 5 - Shaquille Corporation began the current year with...Ch. 5 - Dorno Corporation incurred expenses during the...Ch. 5 - Niler Corporation reported the following after-tax...Ch. 5 - Jordan Corporation reported retained earnings of...Ch. 5 - Prob. 7RECh. 5 - Prob. 8RECh. 5 - Amelias Bookstore reported net income of 62,000...Ch. 5 - Prob. 10RECh. 5 - Prob. 1ECh. 5 - Prob. 2ECh. 5 - Prob. 3ECh. 5 - Cost of Goods Sold and Income Statement Schuch...Ch. 5 - Prob. 5ECh. 5 - Prob. 6ECh. 5 - Prob. 7ECh. 5 - Prob. 8ECh. 5 - Prob. 9ECh. 5 - Prob. 10ECh. 5 - Prob. 11ECh. 5 - Prob. 12ECh. 5 - Prob. 13ECh. 5 - Prob. 14ECh. 5 - Prob. 15ECh. 5 - Prob. 16ECh. 5 - Prob. 17ECh. 5 - Classifications Where would each of the following...Ch. 5 - Prob. 19ECh. 5 - Common-Size Analyses Meagley Company presents the...Ch. 5 - Prob. 21ECh. 5 - Prob. 22ECh. 5 - Prob. 23ECh. 5 - Prob. 24ECh. 5 - Prob. 25ECh. 5 - Prob. 26ECh. 5 - Prob. 1PCh. 5 - Prob. 2PCh. 5 - Prob. 3PCh. 5 - Prob. 4PCh. 5 - Financial Statement Violations of U.S. GAAP The...Ch. 5 - Rox Corporations multiple-step income statement...Ch. 5 - Prob. 7PCh. 5 - Prob. 8PCh. 5 - Prob. 9PCh. 5 - The following is an alphabetical list of accounts...Ch. 5 - Financial Statement Deficiencies The following is...Ch. 5 - Prob. 12PCh. 5 - Prob. 13PCh. 5 - Prob. 14PCh. 5 - Prob. 15PCh. 5 - Prob. 16PCh. 5 - Prob. 17PCh. 5 - Prob. 18PCh. 5 - Prob. 19PCh. 5 - Prob. 20PCh. 5 - Prob. 21PCh. 5 - Prob. 22PCh. 5 - Prob. 23PCh. 5 - Prob. 1CCh. 5 - Prob. 2CCh. 5 - Prob. 3CCh. 5 - Prob. 4CCh. 5 - Nonrecurring Items Lynn Company sells a component...Ch. 5 - Prob. 6CCh. 5 - Accrual Accounting GAAP requires the use of...Ch. 5 - Prob. 8CCh. 5 - Prob. 9CCh. 5 - Prob. 10CCh. 5 - Prob. 12C
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