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Analysis Case 20–10 - DRS Corporation - Various changes ● LO1 through LO4
DRS Corporation changed the way it depreciates its computers from the sum-of-the-year’s-digits method to the straight-line method beginning January 1, 2011. DRS also changed its estimated residual value used in computing depreciation for its office building. At the end of 2011, DRS changed the specific subsidiaries constituting the group of companies for which its consolidated financial statements are prepared.
Required:
1. For each accounting change DRS undertook, indicate the type of change and how DRS should report the change. Be specific.
2. Why should companies disclose changes in accounting principles? get this course: http://entirecourse.com/course/ACC-306-Intermediate-Accounting-II/ACC-306-Wk-5-Analysis-Case-20-10
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Analysis Case 20–10 - DRS Corporation - Various changes ● LO1 through LO4
DRS Corporation changed the way it depreciates its computers from the sum-of-the-year’s-digits method to the straight-line method beginning January 1, 2011. DRS also changed its estimated residual value used in computing depreciation for its office building. At the end of 2011, DRS changed the specific subsidiaries constituting the group of companies for which its consolidated financial statements are prepared.
Required:
1. For each accounting change DRS undertook, indicate the type of change and how DRS should report the change. Be specific.
2. Why should companies disclose changes in accounting principles? get this course: http://entirecourse.com/course/ACC-306-Intermediate-Accounting-II/ACC-306-Wk-5-Analysis-Case-20-10
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Ethics Case 20–5 Softening the blow ● LO1 LO2 LO3
Late one Thursday afternoon, Joy Martin, a veteran audit manager with a regional CPA firm, was reviewing documents for a long-time client of the firm, AMT Transport. The year-end audit was scheduled to begin Monday.
For three months, the economy had been in a down cycle and the transportation industry was particularly hard hit. As a result, Joy expected AMT’s financial results would not be pleasant news to shareholders. However, what Joy saw in the preliminary statements made her sigh aloud. Results were much worse than she feared.
“Larry (the company president) already is in the doghouse with shareholders,” Joy thought to herself. “When they see these numbers, they’ll hang him out to dry.”
“I wonder if he’s considered some strategic accounting changes,” she thought, after reflecting on the situation. “The bad news could be softened quite a bit by changing inventory methods from LIFO to FIFO or reconsidering some of the estimates used in other areas.”
Required:
1. How would the actions contemplated contribute toward “softening” the bad news?
2. Do you perceive an ethical dilemma? What would be the likely impact of following up on Joy’s thoughts? Who would benefit? Who would be injured? get this course: http://entirecourse.com/course/ACC-306-Intermediate-Accounting-II/ACC-306-Wk-5-Ethics-Case-20-5
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Ethics Case 20–5 Softening the blow ● LO1 LO2 LO3
Late one Thursday afternoon, Joy Martin, a veteran audit manager with a regional CPA firm, was reviewing documents for a long-time client of the firm, AMT Transport. The year-end audit was scheduled to begin Monday.
For three months, the economy had been in a down cycle and the transportation industry was particularly hard hit. As a result, Joy expected AMT’s financial results would not be pleasant news to shareholders. However, what Joy saw in the preliminary statements made her sigh aloud. Results were much worse than she feared.
“Larry (the company president) already is in the doghouse with shareholders,” Joy thought to herself. “When they see these numbers, they’ll hang him out to dry.”
“I wonder if he’s considered some strategic accounting changes,” she thought, after reflecting on the situation. “The bad news could be softened quite a bit by changing inventory methods from LIFO to FIFO or reconsidering some of the estimates used in other areas.”
Required:
1. How would the actions contemplated contribute toward “softening” the bad news?
2. Do you perceive an ethical dilemma? What would be the likely impact of following up on Joy’s thoughts? Who would benefit? Who would be injured? get this course: http://entirecourse.com/course/ACC-306-Intermediate-Accounting-II/ACC-306-Wk-5-Ethics-Case-20-5
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Ethics Case 21–7 - Ben Naegle - Where’s the cash? ● LO1 LO3
After graduating near the top of his class, Ben Naegle was hired by the local office of a Big 4 CPA firm in his hometown. Two years later, impressed with his technical skills and experience, Park Electronics, a large regional consumer electronics chain, hired Ben as assistant controller. This was last week. Now Ben’s initial excitement has turned to distress.
The cause of Ben’s distress is the set of financial statements he’s stared at for the last four hours. For some time prior to his recruitment, he had been aware of the long trend of moderate profitability of his new employer. The reports on his desk confirm the slight, but steady, improvements in net income in recent years. The trend he was just now becoming aware of, though, was the decline in cash flows from operations.
Ben had sketched out the following comparison ($ in millions):
Profits? Yes. Increasing profits? Yes. The cause of his distress? The ominous trend in cash flow which is con sistently lower than net income.
Upon closer review, Ben noticed three events in the last two years that, unfortunately, seemed related:
a. Park’s credit policy had been loosened; credit terms were relaxed and payment periods were lengthened.
b. Accounts receivable balances had increased dramatically.
c. Several of the company’s compensation arrangements, including that of the controller and the company president, were based on reported net income.
Required:
1. What is so ominous about the combination of events Ben sees?
2. What course of action, if any, should Ben take?
get this course: http://entirecourse.com/course/ACC-306-Intermediate-Accounting-II/ACC-306-Wk-5-Ethics-Case-21-7
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Ethics Case 21–7 - Ben Naegle - Where’s the cash? ● LO1 LO3
After graduating near the top of his class, Ben Naegle was hired by the local office of a Big 4 CPA firm in his hometown. Two years later, impressed with his technical skills and experience, Park Electronics, a large regional consumer electronics chain, hired Ben as assistant controller. This was last week. Now Ben’s initial excitement has turned to distress.
The cause of Ben’s distress is the set of financial statements he’s stared at for the last four hours. For some time prior to his recruitment, he had been aware of the long trend of moderate profitability of his new employer. The reports on his desk confirm the slight, but steady, improvements in net income in recent years. The trend he was just now becoming aware of, though, was the decline in cash flows from operations.
Ben had sketched out the following comparison ($ in millions):
Profits? Yes. Increasing profits? Yes. The cause of his distress? The ominous trend in cash flow which is con sistently lower than net income.
Upon closer review, Ben noticed three events in the last two years that, unfortunately, seemed related:
a. Park’s credit policy had been loosened; credit terms were relaxed and payment periods were lengthened.
b. Accounts receivable balances had increased dramatically.
c. Several of the company’s compensation arrangements, including that of the controller and the company president, were based on reported net income.
Required:
1. What is so ominous about the combination of events Ben sees?
2. What course of action, if any, should Ben take?
get this course: http://entirecourse.com/course/ACC-306-Intermediate-Accounting-II/ACC-306-Wk-5-Ethics-Case-21-7
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E 20–18 Classifying accounting changes ● LO1 through LO5
Indicate with the appropriate letter the nature of each situation described below:
PR Change in principle reported retrospectively
PP Change in principle reported prospectively
E Change in estimate
EP Change in estimate resulting from a change in principle
R Change in reporting entity
N Not an accounting change get this course: http://entirecourse.com/course/ACC-306-Intermediate-Accounting-II/ACC-306-Wk-5-Exercise-20-18
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E 20–18 Classifying accounting changes ● LO1 through LO5
Indicate with the appropriate letter the nature of each situation described below:
PR Change in principle reported retrospectively
PP Change in principle reported prospectively
E Change in estimate
EP Change in estimate resulting from a change in principle
R Change in reporting entity
N Not an accounting change get this course: http://entirecourse.com/course/ACC-306-Intermediate-Accounting-II/ACC-306-Wk-5-Exercise-20-18
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Leases
ACC306 - Intermediate Accounting II
Name
Professor
Date get this course: http://entirecourse.com/course/ACC-306-Intermediate-Accounting-II/ACC-306-Wk-5-Final-Paper
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Leases
ACC306 - Intermediate Accounting II
Name
Professor
Date get this course: http://entirecourse.com/course/ACC-306-Intermediate-Accounting-II/ACC-306-Wk-5-Final-Paper
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P 21–11 - Arduous Company - Prepare a statement of cash flows; direct method ● LO3 LO8
The comparative balance sheets for 2011 and 2010 and the income statement for 2011 are given below for Arduous Company. Additional information from Arduous’s accounting records is provided also.
a. During 2011, $6 million of customer accounts were written off as uncollectible.
b. Investment revenue includes Arduous Company’s $6 million share of the net income of Demur Company, an equity method investee.
c. Treasury bills were sold during 2011 at a gain of $2 million. Arduous Company classifies its investments in Treasury bills as cash equivalents.
d. A machine originally costing $70 million that was one-half depreciated was rendered unusable by a rare flood. Most major components of the machine were unharmed and were sold for $17 million.
e. Temporary differences between pretax accounting income and taxable income caused the deferred income tax liability to increase by $3 million.
f. The preferred stock of Tory Corporation was purchased for $25 million as a long-term investment.
g. Land costing $46 million was acquired by issuing $23 million cash and a 15%, four-year, $23 million note payable to the seller.
h. A building was acquired by a 15-year capital lease; present value of lease payments, $82 million.
i. $60 million of bonds were retired at maturity.
j. In February, Arduous issued a 4% stock dividend (4 million shares). The market price of the $5 par value common stock was $7.50 per share at that time.
k. In April, 1 million shares of common stock were repurchased as treasury stock at a cost of $9 million.
Required:
Prepare the statement of cash flows of Arduous Company for the year ended December 31, 2011. Present cash flows from operating activities by the direct method. (A reconciliation schedule is not required.) get this course: http://entirecourse.com/course/ACC-306-Intermediate-Accounting-II/ACC-306-Wk-5-Problem-21-11
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P 21–11 - Arduous Company - Prepare a statement of cash flows; direct method ● LO3 LO8
The comparative balance sheets for 2011 and 2010 and the income statement for 2011 are given below for Arduous Company. Additional information from Arduous’s accounting records is provided also.
a. During 2011, $6 million of customer accounts were written off as uncollectible.
b. Investment revenue includes Arduous Company’s $6 million share of the net income of Demur Company, an equity method investee.
c. Treasury bills were sold during 2011 at a gain of $2 million. Arduous Company classifies its investments in Treasury bills as cash equivalents.
d. A machine originally costing $70 million that was one-half depreciated was rendered unusable by a rare flood. Most major components of the machine were unharmed and were sold for $17 million.
e. Temporary differences between pretax accounting income and taxable income caused the deferred income tax liability to increase by $3 million.
f. The preferred stock of Tory Corporation was purchased for $25 million as a long-term investment.
g. Land costing $46 million was acquired by issuing $23 million cash and a 15%, four-year, $23 million note payable to the seller.
h. A building was acquired by a 15-year capital lease; present value of lease payments, $82 million.
i. $60 million of bonds were retired at maturity.
j. In February, Arduous issued a 4% stock dividend (4 million shares). The market price of the $5 par value common stock was $7.50 per share at that time.
k. In April, 1 million shares of common stock were repurchased as treasury stock at a cost of $9 million.
Required:
Prepare the statement of cash flows of Arduous Company for the year ended December 31, 2011. Present cash flows from operating activities by the direct method. (A reconciliation schedule is not required.) get this course: http://entirecourse.com/course/ACC-306-Intermediate-Accounting-II/ACC-306-Wk-5-Problem-21-11
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P 21–14 - Surmise Company - Statement of cash flows; indirect method; limited information ● LO4 LO8
The comparative balance sheets for 2011 and 2010 are given below for Surmise Company. Net income for 2011 was $50 million.
Required:
Prepare the statement of cash flows of Surmise Company for the year ended December 31, 2011. Use the indirect method to present cash flows from operating activities because you do not have sufficient information to use the direct method. You will need to make reasonable assumptions concerning the reasons for changes in some account balances. A spreadsheet or T-account analysis will be helpful. get this course: http://entirecourse.com/course/ACC-306-Intermediate-Accounting-II/ACC-306-Wk-5-Problem-21-14
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P 21–14 - Surmise Company - Statement of cash flows; indirect method; limited information ● LO4 LO8
The comparative balance sheets for 2011 and 2010 are given below for Surmise Company. Net income for 2011 was $50 million.
Required:
Prepare the statement of cash flows of Surmise Company for the year ended December 31, 2011. Use the indirect method to present cash flows from operating activities because you do not have sufficient information to use the direct method. You will need to make reasonable assumptions concerning the reasons for changes in some account balances. A spreadsheet or T-account analysis will be helpful. get this course: http://entirecourse.com/course/ACC-306-Intermediate-Accounting-II/ACC-306-Wk-5-Problem-21-14
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