18. On June 1, Year 1, Charley Horse Company entered into a contract with Good Feed Company to purchase 1,000 bales oforganic hay on January 30, Year 2, at a price of $30 per bale. The hay will be grown especially for Charley Horse and is neededto feed the company's herd of bison. On December 1, Year 1, Charley Horse sells its herd of bison. As a result, the company nolonger has a need for the organic hay that will be delivered on January 30, Year 2, and the company does not believe it will beable to sell the hay to a third party. Charley Horse is able to cancel the contract with Good Feed for a cancellation fee of$20,000.Required:Determine what accounting entries, if any, Charley Horse Company should make on December 31, Year 1, related tothe contract to purchase 1,000 bales of hay on January 30, Year 2.

The given question relates to IAS 37 for recognizing provision for cancellation of contract. As per…

Answered: On June 1, Year 1, Charley Horse…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter17: Advanced Issues In Revenue Recognition

Section: Chapter Questions

Problem 6MC

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Plaintiff, a seller of milk, had for ten years bid on contracts to supply milk to defendant school district and had supplied milk to other school districts in the area. On June 15, plaintiff contracted to supply defendant’s requirements of milk for the next school year at a price of $0.0759 per half pint. The price of raw milk delivered from the farm had been for years controlled by the U.S. Department of Agriculture. On June 15, the department’s administrator for the New York-New Jersey area had mandated a price for raw milk of $8.03 per hundredweight. By December, the mandated price had been raised to $9.31 per hundredweight, an increase of nearly 20 percent. If required to complete deliveries at the contract price, plaintiff would lose $7,350.55 on its contract with defendant and would face similar losses on contracts with two other school districts. Is the plaintiff correct in its assertion (a) that its performance had become impracticable through unforeseen events and (b) that it…
Prophet Company signed a long-term purchase contract to buy timber from the U.S. Forest Service at $300 per thousand board feet. Under these terms, Prophet must cut and pay $6,000,000 for this timber during the next year. Currently, the market value is $250 per thousand board feet. At this rate, the market price is $5,000,000. Jerry Herman, the controller, wants to recognize the loss in value on the year-end financial statements, but the financial vice president, Billie Hands, argues that the loss is temporary and should be ignored. Herman notes that market value has remained near $250 for many months, and he sees no sign of significant change. Instructions (a) What are the ethical issues, if any? (b) Is any particular stakeholder harmed by the financial vice president's decision? (c) What should the controller do?
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38.A group of thirty 2-year old cattle was held at January 1, 2021. On this same date, additional five 2-year old cows were purchased at P12,500 each and five healthy calves were born. No cows or calves were sold during the year. Per unit fair values less costs to sell were as follows:January 1, 2021: 2-year old cattle-12,500 Newborn cattle-4,000December 31, 2021: 3-year old cattle-15,000 2-year old cattle-13,000 1-year old cattle-7,000 Newborn cattle-4,500The company records separately the increase in fair value less cost to sell due to physical change and due to price change.How much is reported as change in fair value less cost to sell due to physical change? a. 82,500 b. 90,000 c. 102,500
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