The FASB Accounting Standards Codification

Group members:

1) Asset Classification Your manager, Jane Murphy, is reviewing the preliminary balance sheet you compiled for your company. She asks, "We prepaid six months of next year's rent. Why is prepaid rent classified as a current asset? We're not converting rent payments into cash. Shouldn't it be concurrent?" Research the appropriate accounting standards and explain why prepaid expenses are current assets even though no cash will be received. Cite your references.

2) Inventory Valuation
AgroCo operates several farms that produce a variety of agricultural products, including corn. At any given time, AgroCo has a significant amount of corn in its warehouses ready for sale to third party food product manufacturers. AgroCo currently values its agricultural inventory using an average cost system. The president of AgroCo asks, “Since the price of corn has risen recently, is it possible for us to reflect our corn stocks at market prices, rather than at historical costs?”
Research the relevant GAAP and prepare a memo advising the president of his options.

3) Maintenance Costs.
Fargo Co. has recently acquired a new stamping machine for use in its manufacturing facility. Certain components of this machine are prone to wear and must be replaced, on average, once every three years at a cost of $120,000. The CFO of the company has elected to accrue that maintenance activity in advance, debiting Maintenance Expense at a rate of $40,000 per year. Indicate whether this treatment is appropriate, citing the accounting standards. If not appropriate, discuss what you believe would be the correct