Survey Of Accounting
5th Edition
ISBN: 9781259631122
Author: Edmonds, Thomas P.
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Question
Chapter 10, Problem 18E
a.
To determine
Indicate whether the amount has been understated or overstated for each element.
b.
To determine
Identify the actions that should be taken by employee.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Accounting treatment for contingencies
Analyze the following independent situations.
Weaver, Inc. is being sued by a former employee. Weaver believes that there is a remote chance that the employee will win. The employee is suing Weaver or damages of $40,000.
Gulf Oil Refinery had a gas explosion on one of its oil rigs. Gulf believes it is likely that it will have to pay environmental Clean-up Costs and damages in the future due to the gas explosion. Gulf cannot estimate the amount of the damages.
Lawson Enterprises estimates that it will have to pay $75,000 in-warranty repairs next year.
Determine how each contingency should be treated
Accounting treatment for contingencies
Analyze the following independent situations.
a. Weaver, Inc. is being sued by a former employee. Weaver believes that there is a remote chance that the employee will win. The employee is suing Weaver or damages of $40,000.
b. Gulf Oil Refinery had a gas explosion on one of its oil rigs. Gulf believes it is likely that it will have to pay environmental Clean-up Costs and damages in the future due to the gas explosion. Gulf cannot estimate the amount of the damages.
c. Lawson Enterprises estimates that it will have to pay $75,000 in warranty repairs next year.
Determine how each contingency should be treated
Independence and Securities Exchange Act of 1934. Anderson, Olds, and Watershed(AOW) have been the independent auditors for Accord Corporation since 1990. Accord is apublic entity obligated to file periodic reports under the Securities Exchange Act of 1934.Beginning in January 2017, the AOW litigation support consulting division performed aspecial engagement for Accord. The work involved a lawsuit that Accord had filed againstCivic Company for patent infringement on microchip manufacturing processes. AOWpersonnel compiled production statistics—costs and lost profits—under various volumeassumptions and then testified in court about the losses to Accord that had resulted fromCivic’s improper use of patented processes. The amounts at issue were very large, withclaims of $50 million for lost profits and a plea for $150 million punitive damages. Accordwon a court judgment for a total of $120 million, and Civic has appealed the damage award.The case remained pending throughout 2017 and into…
Chapter 10 Solutions
Survey Of Accounting
Ch. 10 - 1. What are some differences between financial and...Ch. 10 - 2. What does the value-added principle mean as it...Ch. 10 - 4. How does product costing used in financial...Ch. 10 - 5. What does the statement costs can be assets or...Ch. 10 - 6. Why are the salaries of production workers...Ch. 10 - 7. How do product costs affect the financial...Ch. 10 - 8. What is an indirect cost? Provide examples of...Ch. 10 - 9. How does a product cost differ from a selling,...Ch. 10 - 10. Why is cost classification important to...Ch. 10 - 11. What is cost allocation? Give an example of a...
Ch. 10 - 13. What are some of the common ethical conflicts...Ch. 10 - 14. What costs should be considered in determining...Ch. 10 - 15. What is a just-in-time (JIT) inventory system?...Ch. 10 - Prob. 14QCh. 10 - Prob. 15QCh. 10 - Prob. 16QCh. 10 - Prob. 17QCh. 10 - Prob. 18QCh. 10 - Prob. 19QCh. 10 - Prob. 1ECh. 10 - Exercise 1-2A Identifying product versus selling,...Ch. 10 - Prob. 3ECh. 10 - Prob. 4ECh. 10 - Prob. 5ECh. 10 - Exercise 1-6A Identifying product versus SGA costs...Ch. 10 - LO 1-3 Exercise 1-7A Recording product versus SGA...Ch. 10 - Prob. 8ECh. 10 - LO 1-4 Exercise 1-9A Upstream, midstream, and...Ch. 10 - Prob. 10ECh. 10 - Prob. 11ECh. 10 - Prob. 12ECh. 10 - Prob. 13ECh. 10 - Cost of goods manufactured and sold The following...Ch. 10 - Prob. 15ECh. 10 - Exercise 1-14A Using JIT to minimize waste and...Ch. 10 - Prob. 17ECh. 10 - Prob. 18ECh. 10 - Prob. 19ECh. 10 - Prob. 20ECh. 10 - Problem 1-19A Characteristics of financial versus...Ch. 10 - Prob. 22PCh. 10 - Problem 1-21A Effect of product versus period...Ch. 10 - Problem 1-22A Product versus SGA costs The...Ch. 10 - Prob. 25PCh. 10 - Prob. 26PCh. 10 - Prob. 27PCh. 10 - Prob. 28PCh. 10 - Prob. 29PCh. 10 - Prob. 30PCh. 10 - Prob. 31PCh. 10 - Prob. 32PCh. 10 - Prob. 1ATCCh. 10 - Prob. 2ATCCh. 10 - Prob. 3ATCCh. 10 - Prob. 4ATCCh. 10 - Ethical Dilemma Product cost versus selling and...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Diamond Foods, Inc. (LO 8, 9) In February 2012, the Wall Street Journal reported that Diamond Foods, Inc. fired its CEO and CFO, and would restate financial results for two years. The restatement was required after the company found that it had wrongly accounted for crop payments to walnut growers. The investigation focused primarily on whether payments to growers in September 2011 of approximately $60 million and payments to growers in August 2010 of approximately $20 million were accounted for in the correct periods. Shareholders suing the company allege the payments may have been used to shift costs from a prior fiscal year into a subsequent fiscal year. In a February 2012 filing with the SEC, the audit committee stated that Diamond had one or more material weak nesses in its internal control over financial reporting. In January 2014, the SEC charged Diamond Foods and two former executives for their roles in the accounting scheme to falsify walnut costs in order to boost earnings and meet estimates by stock analysts. Diamond Foods agreed to pay $5 million to settle the SEC’S charges. a. Does the restatement suggest that the company’s internal controls contained a material weakness? Explain your rationale. b. In September 2011, the company filed its annual report with the SEC for its fiscal year ended July 31, 2011. As part of that filing, the company maintained that it had effective internal controls over financial reporting as of its year-end date. Do you believe that management’s report on internal control over financial reporting was accurate? c. In February 2012, the audit committee indicated that the company had ineffective internal controls. What types of material weaknesses do you think might exist at Diamond?arrow_forwardEthics in Action Margie Johnson is a staff accountant at ToolEx Company, a manufacturer of tools and equipment. The company is under pressure from investors to increase earnings, and the president of the company expects the accounting department to “make this happen.” Margie's boss, who has been a mentor to her, is concerned that if earnings do not increase, he will be terminated. Shortly after the end of the fiscal year, the company performs a physical count of the inventory. When Margie compares the physical count to the balance in the inventory account, she finds a significant amount of inventory shrinkage. The amount is so large that it will result in a significant drop in earnings this period. Margie's boss asks her not to make the adjusting entry for shrinkage this period. He assures her that they will get “caught up” on shrinkage in the next period, after the pressure is off to reach this period's earnings goal. Margie's boss asks her to do this as a personal favor to him.…arrow_forward. Discuss the appropriate treatment in the financial statements of each of the following. a. Gain on sale of investment securities. b. A profit-sharing bonus to employees computed as a percentage of net income. c. Additional depreciation on factory machinery because of an error in computing depreciation for the previous year. d. Rent received from subletting a portion of the office space. e. A patent infringement suit, brought 2 years ago against the company by another company, was settled this year by a cash payment of $725,000. f. A reduction in the Allowance for Doubtful Accounts balance because the account appears to be considerably in excess of the probable loss from uncollectible receivables.arrow_forward
- Due to rapid employee turnover in the accounting department, the following transactions involving intangible assets were improperly recorded by Monty Corporation. 1. Monty developed a new manufacturing process, incurring research and development costs of $188,000. The company also purchased a patent for $43,000. In early January, Monty capitalized $231,000 as the cost of the patents. Patent amortization expense of $11,550 was recorded based on a 20-year useful life. 2. On July 1, 2022, Monty purchased a small company and as a result, recorded goodwill of $80,000. Monty recorded a half-year’s amortization in 2022, based on a 20-year life ($2,000 amortization). The goodwill has an indefinite life. Prepare all journal entries necessary to correct any errors made during 2022. Assume the books have not yet been closed for 2022.arrow_forwardToshIba, EY (LO 1, 2, 3) In 2015, the business press reported that Japan’s Toshiba Corp. over stated its operating profit by 151.8 billion yen ($1.22 billion) over several years through accounting irregularities involving top management. This overstatement represents approximately one-third of Toshiba’s pre-tax profits during the misstatement period. Toshiba had a corporate culture in which one could not go against the wishes of superiors. An investigation report noted that when top management presented ‘challenges’, division presidents, line managers and employees below them continually carried our inappropriate accounting practices to meet targets in line with the wishes of their superiors. Improper accounting included overstatements and booking profits early or pushing back the recording of losses or charges, and such steps often led to even higher targets being set for divisions in the following period. The report said much of the improper accounting, stretching back to fiscal year 2008, was intentional and would have been difficult for auditors to detect. The audit firm during this misstatement period was EY (Ernst & Young ShinNihon) who incurred significant reputational damage after they were accused of failing to detect the misstatement and fined $17.4 million by Japanese regulators. The investigation into Toshiba’s accounting practices was initially limited to its home country. However, in 2016 the U.S. Justice Department and the Securities and Exchange Commission began looking into the case since part of the alleged fraud involved a Toshiba unit based in the US (Westinghouse Electric Company). a. Based on this limited information, does this case represent a business failure, an audit failure, or both? b. Should auditors be held liable if their client’s business fails or if the financial statements contain a fraud that the auditors did not detect? c. Under what law would the SEC be likely to pursue this case?arrow_forwardExhibit 4 – Notes from discussion with Group audit committee and finance director. Recent publicity During the year, the Group attracted negative publicity when an investigation by a well-known journalist alleged that child labour was being used by several suppliers of raw materials to Lynott Co. The Group refuted the allegations, claiming that the suppliers in question had no contract to supply Lynott Co, and that the Group always uses raw materials from ethically responsible suppliers. The media coverage of the issue has now ended. The Group finance director is confident that the negative publicity has not affected sales of the Group’s products, saying that in fact sales are buoyant, as indicated by the increase in Group revenue in the year. Systems and accounting policies The Group has a policy of non-amortisation of the Browns brand name. The brand name was acquired many years ago and is recognised at its original cost. The previous audit firm accepted the policy due to the…arrow_forward
- A plant asset with a cost of $360,000 and accumulated depreciation of $342,000 is sold for $42,000. What is the amount of the gain or loss on disposal of the plant asset? $42,000 loss. $24,000 loss. $24,000 gain. $42,000 gain. Question 2.2. A system of internal control is infallible. can be rendered ineffective by employee collusion. invariably will have costs exceeding benefits. is premised on the concept of absolute assurance. Question 3.3. From an internal control standpoint, the asset most susceptible to improper diversion and use is prepaid insurance. cash. buildings. land. Question 4.4. Land improvements should be depreciated over the useful life of the land. buildings on the land. land or land improvements, whichever is longer. land improvements. Question 5.5. Givens Retail purchased land for a new parking lot for $50,000. The paving cost $70,000 and the lights to illuminate the new parking area cost $24,000. Which of the following statements is true with respect to these…arrow_forwardConsider the following situations and determine (1) which type of liability should be recognized (specific account), and (2) how much should be recognized in the current period (year). A business depreciates a building with a book value of $12,000, using straight-line depreciation, no salvage value, and a remaining useful life of six years. An organization has a line of credit with a supplier. The company purchases $35,500 worth of inventory on credit. Terms of purchase are 3/20, n/60. An employee earns $1,000 in pay and the employer withholds $46 for federal income tax. A customer pays $4,000 in advance for legal services. The lawyer has previously recognized 30% of the services as revenue. The remainder is outstanding.arrow_forwardQuestion 1.1 A plant asset with a cost of $360,000 and accumulated depreciation of $342,000 is sold for $42,000. What is the amount of the gain or loss on disposal of the plant asset? $42,000 loss. $24,000 loss. $24,000 gain. $42,000 gain. Question 2.2. A system of internal control is infallible. can be rendered ineffective by employee collusion. invariably will have costs exceeding benefits. is premised on the concept of absolute assurance. Question 3.3. From an internal control standpoint, the asset most susceptible to improper diversion and use is prepaid insurance. cash. buildings. land. Question 4.4. Land improvements should be depreciated over the useful life of the land. buildings on the land. land or land improvements, whichever is longer. land improvements. Question 5.5. Givens Retail purchased land for a new parking lot for $50,000. The paving cost $70,000 and the lights to illuminate the new parking area cost $24,000. Which of the following statements is true with respect…arrow_forward
- Write the audit approach section like the cases in the chapter.Hide the Loss under the GoodwillGulwest Industries, a public company, decided to discontinue its unprofitable line of business of manufacturing sporting ammunition. Gulwest had capitalized the startup cost of the business, and with its discontinuance, the $7 million deferred cost should have been written off. Instead, Gulwest formed a new corporation, Amron, and transferred the sporting ammunition assets (including the $7 million deferred cost) to it in exchange for all Amron stock. In the Gulwest accounts, the Amron investment was carried at $12.4 million, which was the book value of the assets transferred (including the $7 million deferred cost). Gulwest and a different public company (Big Industrial) created another company (BigShot Ammunition). Gulwest transferred all Amron assets to BigShot in exchange for (1) common and preferred stock of Big Industrial valued at $2 million and (2) a note from BigShot in the amount of…arrow_forward2. Consider yourself the financial controller of Alpha. The managing director, who is not an accountant, has recently attended a seminar and has raised the following questions for you concerning issues discussed at the seminar: The notes to the financial statements say that plant and equipment is held under the ‘cost model’. However, property which is owner occupied is revalued annually to fair value. Changes in fair value are sometimes reported in profit or loss but usually in ‘other comprehensive income’. Please explain how all these treatments comply with relevant reporting standards. The manager director also added “I wonder how the revaluation model can affect the information relevancy and reliability”. “When I looked at the note detailing the intangible assets we include in our consolidated statement of financial position, I noticed that several brand names associated with subsidiaries we acquired recently were included in this figure. Therefore, I also expected to see a…arrow_forward(Change in Estimate) Mike Crane is an audit senior of a large public accounting firm who has just been assigned to the Frost Corporation’s annual audit engagement. Frost has been a client of Crane’s firm for many years. Frost is a fastgrowing business in the commercial construction industry. In reviewing the fixed asset ledger, Crane discovered a series of unusual accounting changes, in which the useful lives of assets, depreciated using the straight-line method, were substantially lowered near the midpoint of the original estimate. For example, the useful life of one dump truck was changed from 10 to 6 years during its fifth year of service. Upon further investigation, Mike was told by Kevin James, Frost’s accounting manager, “I don’t really see your problem. After all, it’s perfectly legal to change an accounting estimate. Besides, our CEO likes to see big earnings!”InstructionsAnswer the following questions.(a) What are the ethical issues concerning Frost’s practice of changing the…arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
- Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage LearningSurvey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Auditing: A Risk Based-Approach (MindTap Course L...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Cengage Learning
Survey of Accounting (Accounting I)
Accounting
ISBN:9781305961883
Author:Carl Warren
Publisher:Cengage Learning
Depreciation -MACRS; Author: Ronald Moy, Ph.D., CFA, CFP;https://www.youtube.com/watch?v=jsf7NCnkAmk;License: Standard Youtube License