...statements. Answer: The transaction should be recognized based on the following points: i. ii. Conservatism concept stated that expenses should be recognized as soon as they are reasonably possible to occur. According to loss contingency, a liability is recognized when information available indicates that it is probable for a liability to occur and when the amount of loss can be reasonably estimated. Therefore, Norman should provide a provision for loss and recorded the transaction as a liability and an expense. The journal entries would be as follow: Dr. Cr. Lawsuit Loss Lawsuit Liability $250,000 $250,000 Lawsuit Loss will be recorded in Income Statement under Non-operating Expenses while Lawsuit Liability will be recorded in Balance Sheet under Current Liabilities (as the trial will be held on 2011). 2. Second lawsuit: Customer was injured by one of the company’s products. Customer asked for $500,000 damage. After discussion with customer’s attorney, Norman’s attorney believed that the suit could be settled for $50,000 (no guarantee). If the suit went to trial, Norman might win it Norman reported $50,000 as a Reserve for Contingencies which is a debit to Retained Earnings. Answer: In this case, there is a provision for lawsuit loss of $50,000. However, the provision should be recognized as an expense instead of directly debit to Retained Earnings. Thus, instead of recording the provision as Reserve for Contingencies, it should be recorded as...
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...WHAT IS GOODWILL? The main method used by businesses to classify assets is to split them into tangible assets, which have a separate existence from the business (examples of which would include buildings, land and machinery), and intangibles which do not. Some clear examples of intangibles include goodwill, patents, research and development expenditure and trademarks. Intangible assets are usually created within the organisation over a period of time, by the company itself, rather than acquired from an external source and are rarely sold off individually they can normally only be sold in conjunction with associated tangible assets. Robins, in his essay "FRS 10: Goodwill and Intangible Assets" identifies three sources of goodwill within a business. He states these as: 1. Expertise of the workforce: Current accounting practices do not allow for the inclusion of knowledge or business acumen to be included within the balance sheet. In this way there is no allowance for the expertise of the workforce or the value of human resources to be recorded as an asset on the balance sheet. 2. The reputation of the product(s) of the business: Often, if the product has a household name attached, which generate positive connotations then sales and profits will be "boosted" on the basis of that reputation. 3. The general economic environment: Current levels of interest and exchange rates as well as levels of investor confidence generally will have a major influence on the value...
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...The Balance Sheet And Financial Disclosures Acct 301-B04 Spring 2014 Felicia Olagbemi This paper will discuss the balance sheet, its components and the purpose of financial disclosures. The balance sheet and financial disclosures are both included in the annual report. The balance sheet is also known as the statement of financial position. Financial disclosures and the balance sheet are closely related. Common financial disclosures are allowance for uncollectable accounts, information about common stock, summary of significant accounting policies, descriptions of subsequent events and related third-party transactions. The balance sheet includes the entity’s assets, liabilities and shareholders’ equity. The balance sheet has many components and is used to help portray the company’s financial position. ”Of all the financial statements issued by companies, the balance sheet is one of the most effective tools in evaluating financial health at a specific point in time.” (Schmidt, 2013) The balance sheet is also called the statement of financial position. It includes the assets, liabilities and shareholders’ equity for the entity. “A company’s balance sheet provides a snapshot of the assets it owns, liabilities it is responsible for, and whatever might be left over when subtracting assets from liabilities that represents owners' capital or shareholders’ equity.” (Fuhrmann, 2013) It is useful in providing information to assess the entity’s financial future. Though it is...
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...of Preparation of Balance Sheet A balance sheet allows you to see at a glance what your company’s assets and liabilities are. The balance sheet is basically a summary of what you own and what you owe. Assets, liabilities and owner’s capital are listed as of a certain date, usually at the end of a month, quarter or fiscal year. Your balance sheet gives you a way to determine the value of your business at any particular time. 1. * Preparation of balance sheet of company is very necessary, because Indian Company law 1956 gives strict instruction about the format of balance sheet of a company. A company can make balance sheet according to the form given in Part I of schedule VI of company law 1956. A company can also make balance sheet summary form, but it has to attach its schedule in which explanation of different components are given. We are explaining different components of balance sheet of company which will be helpful for students to prepare balance sheet of company. [* Remember the form of balance sheet under Section 211] You should remember balance sheet and its all components thoroughly. It can be made either horizontal or vertical form. But total of assets should be equal to total of liabilities. Here, I am explaining these components. Assets Side of Balance Sheet 1. * Assets are written in right side of company’s balance sheet. In these assets, we include. 1. 1. * 1. Fixed Assets We will show all fixed assets which are purchased...
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...Chapter 3 The Balance Sheet and Financial Disclosures Questions for Review of Key Topics Question 3-1 The purpose of the balance sheet, also known as the statement of financial position, is to present the financial position of the company on a particular date. Unlike the income statement, which is a change statement that reports events occurring during a period of time, the balance sheet is a statement that presents an organized array of assets, liabilities, and shareholders’ equity at a point in time. It is a freeze frame or snapshot picture of financial position at the end of a particular day marking the end of an accounting period. Question 3-2 The balance sheet does not portray the market value of the entity (number of common stock shares outstanding multiplied by price per share) for a number of reasons. Most assets are not reported at fair value, but instead are measured according to historical cost. Also, there are certain resources, such as trained employees, an experienced management team, and a good reputation, that are not recorded as assets at all. Therefore, the assets of a company minus its liabilities, as shown in the balance sheet, will not be representative of the company’s market value. Question 3-3 Current assets include cash and other assets that are reasonably expected to be converted to cash or consumed during one year, or within the normal operating cycle of the business if the operating cycle is longer than...
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...will benefit from studying non-GAAP reporting requirements. The case starts with the economic and business reasons behind joint ventures. Our teaching philosophy is that accounting does not happen in a vacuum – it is the language of business. We take every opportunity to have students consider the economics of the transaction first and then apply accounting rules. This is good practice for students who will have to make increasingly many judgments with the coming of principles-based accounting. Students have little trouble determining how Abbott Laboratories accounts for its 20-50% owned subsidiaries. They find it much more challenging to trace the effects thereof through the financial statements. Our use of two Taccounts – one for Abbott’s asset account and one for the Joint Venture’s equity account – visually demonstrates the obvious and not-so-obvious relationships in detail. The analysis section of the case has students create pro forma numbers that reflect the proportionate consolidation method. The differences are not particularly significant but the exercise...
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... paid – the Debtor of £60 – is included in the Balance Sheet. (Transaction 4) Less Cost of Goods Sold (175) This is the cost to you of the 350 bottles that you have sold during Monday. You bought them for £0.50 each. This is not the cost of all of the 500 bottles that you bought. The remaining 150 bottles that remain unsold at the end of Monday are included in the Balance Sheet as Inventory (£75) as you expect to sell them on Tuesday. Note that you still have to pay for 100 bottles and this Creditor of £50 is also included in the Balance Sheet. (Transactions 4 and 2) Gross Profit 245 The Gross Profit equals Sales minus Cost of Goods Sold Less Operating Expenses Ice (15) The cost incurred during the day (and paid in cash) (Transaction 5) Food (10) The cost incurred during the day (and paid in cash) (Transaction 5) Wages (75) The cost incurred during the day (and paid in cash) (Transaction 6) Depreciation (20) The depreciation charge represents Monday’s share of the wearing out of the Fixed Asset (cool cabinet) that you have purchased. The expected total loss of value in the Fixed Asset is £150 - £50 = £100. We assume an equal ...
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...Tinsel's recorded assets and liabilities were as follows: 1. Based on the preceding information, the differential reflected in a consolidation worksheet to prepare a consolidated balance sheet immediately after the business combination is: A. $0. B. $25,000. C. $70,000. D. $45,000. Based on the preceding information, what amount should be allocated to goodwill in the consolidated balance sheet, prepared after this business combination? A. $0 B. $25,000 C. $70,000 D. $45,000 2. On December 31, 20X9, Add-On Company acquired 100 percent of Venus Corporation's common stock for $300,000. Balance sheet information Venus just prior to the acquisition is given here: At the date of the business combination, Venus's net assets and liabilities approximated fair value except for inventory, which had a fair value of $60,000, land which had a fair value of $125,000, and buildings and equipment (net), which had a fair value of $250,000. 3. Based on the information provided, what amount of inventory will be included in the consolidated balance sheet immediately following the acquisition? A. $60,000 B. $75,000 C. $15,000 D. $45,000 4. Based on the information provided, what amount of goodwill will be included in the consolidated balance sheet immediately following the acquisition? A. $30,000 B. $15,000 C. $85,000 D. $45,000 Based on the information provided, what amount will be included as investment in Venus Corporation in the consolidated balance sheet immediately following...
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...Chapter 3 The Balance Sheet and Financial Disclosures AACSB assurance of learning standards in accounting and business education require documentation of outcomes assessment. Although schools, departments, and faculty may approach assessment and its documentation differently, one approach is to provide specific questions on exams that become the basis for assessment. To aid faculty in this endeavor, we have labeled each question, exercise, and problem in Intermediate Accounting, 7e with the following AACSB learning skills: |Questions |AACSB Tags |Exercises (cont.) |AACSB Tags | |3–1 |Reflective thinking |3–3 |Reflective thinking | |3–2 |Reflective thinking |3–4 |Analytic | |3–3 |Reflective thinking |3–5 |Analytic | |3–4 |Reflective thinking |3–6 |Analytic | |3–5 |Reflective thinking |3–7 |Analytic | |3–6 |Reflective thinking ...
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...Module 9 Intercorporate Entities DISCUSSION QUESTIONS Q9-1. (a) Trading securities are reported at their fair value in the balance sheet. (b) Available-for-sale securities are reported at their fair value in the balance sheet. (c) Held-to-maturity securities are reported at their amortized cost in the balance sheet. For marketable securities, fair value and market value are usually synonymous. Thus, trading and available-for-sale securities are recorded on the balance sheet at market value. Q9-2. An unrealized holding gain (loss) is an increase (decrease) in the fair value of an investment security that is still owned. Q9-3. Unrealized holding gains and losses related to trading securities are reported in the current-year income statement (which flows to retained earnings). Unrealized holding gains and losses related to available-for-sale securities are reported as part of a separate component of stockholders' equity called Accumulated Other Comprehensive Income (AOCI). Q9-4. Significant influence gives the owner of the stock the ability to significantly influence the operating and financing activities of the company whose stock is owned. Normally, a 20% through 50% ownership of the company's voting stock provides evidence of significant influence. The equity method is used to account for investments with significant influence. Such an investment is initially recorded at cost; the investment is increased by the proportionate share of the...
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...Types of Assets Used by Companies Garzoria, Raul Principles of Accounting 2311 Ruby Campuzano, M.S. Abstract Assets are resources owned by a company as the result of transactions and are recognized by being an economic resource to a business that adds value. Assets should hold future economic value for the owner or business. Types of Assets Used by Companies An item owned by individuals or corporation that holds some type of economic value that in turn can be converted into cash, is an asset. Assets equal the sum of total resources for that particular business as opposed to liabilities. A few examples are office equipment, vehicles, cash, real estate, and other property owned by the business. In a business accounting point of view, there are different types of assets used, such as current, long-term, intangibles, property, plant, and equipment. This list is basically items that hold cash value, which bring in income to the business. Current assets are important to most companies as a source of funds for day-to-day operations. This asset considered as work in process or cash that’s always flowing in and out of the business. A balance sheet item which equals the sum of cash and cash, accounts receivable, inventory, marketable, prepaid expenses, and other assets that could be converted to cash in less than one year. Creditors of a company, will often be interested in how much that company has in current assets, so that if the company goes bankrupt; the creditors...
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...Case 12-02 To Recognize or Not to Recognize, That Is the Question Shakespeare Inc. (“Shakespeare” or the “Company”) is a privately held book printing and publishing company with a December 31 year-end. The summary balance sheet as of December 31, 2010, included: Current assets Noncurrent assets Total assets Current liabilities Noncurrent liabilities Total liabilities Total shareholder equity $ 6,500,000 28,250,000 $34,750,000 $ 4,500,000 13,750,000 $18,250,000 $16,500,000 The summary results of operations for the year ended December 31, 2010, included revenue of $10.7 million and net income of $1.2 million. Shakespeare is planning to issue its financial statements on March 20, 2011. On March 18, 2011, Shakespeare’s management will evaluate new information about one of its accruals and two subsequent events to determine if this information or events represent items that should be recognized or disclosed in the December 31, 2010, financial statements. Medical Benefits Payable For the past several years, Shakespeare has self-insured medical benefits (health and dental) for its employees. The Company records the costs of medical care in the period in which covered events occur and includes its best estimate of the costs that have been incurred but not yet reported (IBNR) in its estimate of the medical benefits payable. Shakespeare looks to the FASB Accounting Standards Codification, which defines IBNR as “losses incurred by the insured entity that have not yet been reported to...
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...| | BE 1-5 In alphabetical order below are balance sheet items for Wyoming Company at December 31, 2012. Accounts payable | | $80,600 | Accounts receivable | | 88,040 | Cash | | 27,280 | Common stock | | 34,720 | Prepare a balance sheet. WYOMING COMPANY Balance Sheet December 31, 2012 | Assets | Cash | | | | | $ 27,280 | | Accounts Receivable | | | | | 88,040 | | Total Assets | | | | | $ 115,320 | | Liabilities and Stockholders' Equity | Liabilities | | | | | | | | | | | | $ 80,600 | | Stockholders' Equity | | | | | | | | | | | | 34,720 | | Total Liabilities and Stockholders' Equity | | | | | $ 115,320 | | | | | | E 1-5 a. Gabelli Corporation was formed on January 1, 2012. At December 31, 2012, John Paulus, the president and sole stockholder, decided to prepare a balance sheet, which appeared as follows. GABELLI CORPORATION Balance Sheet December 31, 2012 | Assets | | Liabilities and Stockholders’ Equity | Cash | | $28,954 | | Accounts payable | | $43,431 | Accounts receivable | | 72,385 | | Notes payable | | 21,716 | Inventory | | 52,117 | | Boat loan | | 31,849 | Boat | | 34,745 | | Stockholders’ equity | | 92,653 | John willingly admits that he is not an accountant by training. He is concerned that his balance sheet might not be correct. He has provided you with the following additional information....
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...Case 12-02 To Recognize or Not to Recognize, That Is the Question Shakespeare Inc. (“Shakespeare” or the “Company”) is a privately held book printing and publishing company with a December 31 year-end. The summary balance sheet as of December 31, 2010, included: Current assets Noncurrent assets Total assets Current liabilities Noncurrent liabilities Total liabilities Total shareholder equity $ 6,500,000 28,250,000 $34,750,000 $ 4,500,000 13,750,000 $18,250,000 $16,500,000 The summary results of operations for the year ended December 31, 2010, included revenue of $10.7 million and net income of $1.2 million. Shakespeare is planning to issue its financial statements on March 20, 2011. On March 18, 2011, Shakespeare’s management will evaluate new information about one of its accruals and two subsequent events to determine if this information or events represent items that should be recognized or disclosed in the December 31, 2010, financial statements. Medical Benefits Payable For the past several years, Shakespeare has self-insured medical benefits (health and dental) for its employees. The Company records the costs of medical care in the period in which covered events occur and includes its best estimate of the costs that have been incurred but not yet reported (IBNR) in its estimate of the medical benefits payable. Shakespeare looks to the FASB Accounting Standards Codification, which defines IBNR as “losses incurred by the insured entity that have not yet been reported to...
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...Case 12-02 To Recognize or Not to Recognize, That Is the Question Shakespeare Inc. (“Shakespeare” or the “Company”) is a privately held book printing and publishing company with a December 31 year-end. The summary balance sheet as of December 31, 2010, included: Current assets Noncurrent assets Total assets Current liabilities Noncurrent liabilities Total liabilities Total shareholder equity $ 6,500,000 28,250,000 $34,750,000 $ 4,500,000 13,750,000 $18,250,000 $16,500,000 The summary results of operations for the year ended December 31, 2010, included revenue of $10.7 million and net income of $1.2 million. Shakespeare is planning to issue its financial statements on March 20, 2011. On March 18, 2011, Shakespeare’s management will evaluate new information about one of its accruals and two subsequent events to determine if this information or events represent items that should be recognized or disclosed in the December 31, 2010, financial statements. Medical Benefits Payable For the past several years, Shakespeare has self-insured medical benefits (health and dental) for its employees. The Company records the costs of medical care in the period in which covered events occur and includes its best estimate of the costs that have been incurred but not yet reported (IBNR) in its estimate of the medical benefits payable. Shakespeare looks to the FASB Accounting Standards Codification, which defines IBNR as “losses incurred by the insured entity that have not yet been reported to...
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