Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
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Chapter 4, Problem 1C
To determine
Draft a memo that explains the reason for which the company is required to state the fair value of an asset, define the meaning of fair value and explain the manner in which it is measured.
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Which of the following statements is false?
A
For tax purposes, companies can use the MACRS depreciation method.
B
When you change a depreciation estimate, such as salvage value, you need to make an adjustment to retained earnings.
C
If the expected future cash flow is less than the carrying amount, the asset is considered impaired.
D
If an impairment loss is recorded, depreciation must be recalculated since the book value changed.
The answer A is wrong
Situations
Principle or Assumption Bullock Company owns buildings that are worth much more than they originally cost. In an effort to provide more relevant information, Bullock reports the buildings at fair value in its accounting reports. Incorrect
Accounting Method No image
Question 1: What Would Your Accountant Say?
The president of your company just had the market value of the corporate headquarters appraised at $10M; however, the value of the property in the firm’s financial statements is $5M, consisting of the historical cost at the time of purchase of $7M, less accumulated depreciation on the building of $2M. She wants to know why accounting principles do not allow the headquarters to be presented at market value in the financial statements. What would your accountant say?
Question 2: What Would Your Finance Manager Say?
Several executives of your firm have gathered to discuss whether to invest in a new production facility. There are several alternatives from which to choose, including constructing a new plant or purchasing an existing building. Since none of the executives present at the meeting have a background in finance, they ask you to describe the pros and cons of a few capital budgeting methods used to evaluate investment decisions. What…
Chapter 4 Solutions
Intermediate Accounting: Reporting And Analysis
Ch. 4 - What is the accounting equation? The balance sheet...Ch. 4 - Prob. 2GICh. 4 - How does the balance sheet at the end of an...Ch. 4 - What does recognition mean in accounting?Ch. 4 - Prob. 5GICh. 4 - Prob. 6GICh. 4 - What is equity? How is equity determined?Ch. 4 - What is a mixed attribute measurement model? Why...Ch. 4 - Identify at least five alternatives for measuring...Ch. 4 - Identify at least three alternatives for measuring...
Ch. 4 - Prob. 11GICh. 4 - Prob. 12GICh. 4 - Prob. 13GICh. 4 - Prob. 14GICh. 4 - Prob. 15GICh. 4 - Prob. 16GICh. 4 - Define (a) common stock, (b) additional paid-in...Ch. 4 - Prob. 18GICh. 4 - Prob. 19GICh. 4 - What are investments by owners? Distributions to...Ch. 4 - What accounting policies are disclosed in the...Ch. 4 - Give several examples of financial instruments and...Ch. 4 - Prob. 23GICh. 4 - Prob. 24GICh. 4 - Prob. 25GICh. 4 - Prob. 26GICh. 4 - Prob. 27GICh. 4 - Prob. 28GICh. 4 - Prob. 29GICh. 4 - Prob. 30GICh. 4 - Prob. 31GICh. 4 - Prob. 32GICh. 4 - Prob. 33GICh. 4 - Prob. 34GICh. 4 - A donated fixed asset (from a governmental unit)...Ch. 4 - Prob. 2MCCh. 4 - Prob. 3MCCh. 4 - On October 2, 2020, a company borrowed cash and...Ch. 4 - Prob. 5MCCh. 4 - Rent revenue collected 1 month in advance should...Ch. 4 - Prob. 7MCCh. 4 - Prob. 8MCCh. 4 - Which of the following should be disclosed in the...Ch. 4 - Prob. 10MCCh. 4 - Prob. 1RECh. 4 - Dorothy Corporation had the following accounts in...Ch. 4 - Dorothy Corporation had the following accounts in...Ch. 4 - Based on the information in RE4-2 and RE4-3,...Ch. 4 - Prob. 5RECh. 4 - Oz Corporation has the following assets at...Ch. 4 - Prob. 7RECh. 4 - Prob. 8RECh. 4 - Scarecrow Inc. issues 50,000 shares of 2 par value...Ch. 4 - Tinman Corporation reports the following balances...Ch. 4 - Prob. 1ECh. 4 - Plant and Equipment Your analysis of Moen...Ch. 4 - GRAF CORPORATION Shareholders Equity Section of...Ch. 4 - Prob. 4ECh. 4 - Classifications on Balance Sheet The balance sheet...Ch. 4 - Balance Sheet Baggett Companys balance sheet...Ch. 4 - Prob. 7ECh. 4 - Balance Sheet Calculations Dawson Companys balance...Ch. 4 - Prob. 9ECh. 4 - Correction of Balance Sheet On December 31, 2019,...Ch. 4 - Prob. 11ECh. 4 - Prob. 12ECh. 4 - Classifications on Balance Sheet The current...Ch. 4 - Balance Sheet without Amounts The following is an...Ch. 4 - Prob. 3PCh. 4 - Prob. 4PCh. 4 - Balance Sheet Calculations Cornerstone Development...Ch. 4 - Prob. 6PCh. 4 - Complex Balance Sheet Presented below is the...Ch. 4 - Analyzing Starbuckss Balance Sheet Disclosures...Ch. 4 - Prob. 9PCh. 4 - Balance Sheet The following is a list (in random...Ch. 4 - Balance Sheet The following is an alphabetical...Ch. 4 - Balance Sheet from Adjusted Trial Balance The...Ch. 4 - Balance Sheet and Notes Listed here in random...Ch. 4 - Comprehensive: Balance Sheet, Schedules, and Notes...Ch. 4 - Use following formation for P4-15 and P4-16:...Ch. 4 - Ratios Analyses: McCormick Refer to the...Ch. 4 - Prob. 17PCh. 4 - Use the following information for P417 and P418:...Ch. 4 - Prob. 1CCh. 4 - It is the end of 2019 and you are an accountant...Ch. 4 - Prob. 3CCh. 4 - Valuation of Assets and Stock A friend has come to...Ch. 4 - It is February 16, 2020, and you are auditing...Ch. 4 - You are the accountant for Speedy Company and are...Ch. 4 - Prob. 7CCh. 4 - Prob. 8CCh. 4 - Situation You are the assistant accountant for...
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Similar questions
- Financial accounting rules require firms to assess whether they will recover carrying amounts of long-lived assets and, if not, to write down the assets to their fair value and recognize an impairment loss in income from continuing operations. Impairment charges often appear as a separate line item on the income statement of companies that experience reductions in the future benefits originally anticipated from the long-lived assets. Conduct a search to identify a firm (other than those given in this chapter) that has recently reported an impairment charge. Discuss how the firm (a) reported the charge on the income statement, (b) determined the amount of the charge, and (c) used cash related to the charge.arrow_forwardMatch the correct term with its definition. A. cost principle i. if uncertainty in a potential financial estimate, a company should err on the side of caution and report the most conservative amount B. full disclosure principle ii. also known as the historical cost principle, states that everything the company owns or controls (assets) must be recorded at their value at the date of acquisition C. separate iii. (also referred to as the matching principle) matches expenses with associated revenues in the period in which the revenues were generated. D. monetary iv. business must report any business activities that could affect what is reported on the financial statements E. conservatism v. system of using a monetary unit by which to value the transaction, such as the US dollar. F. revenue vi. period of time in which you performed the service or gave the customer the product is the period in which revenue is recognized. G. expense vii. business may only report activities on financial statements that are specifically related to company operations, not those activities that affect the owner personally.arrow_forwardWhich of the following statements is false? A For tax purposes, companies can use the MACRS depreciation method. B When you change a depreciation estimate, such as salvage value, you need to make an adjustment to retained earnings. C If the expected future cash flow is less than the carrying amount, the asset is considered impaired. D If an impairment loss is recorded, depreciation must be recalculated since the book value changed.arrow_forward
- In Able Company’s efforts to estimate a value for Baker Company's goodwill, Able is estimating Baker Company's expected future earnings. Able is using Baker's past earnings to project the future earnings. Which of the following items should be eliminated from Baker's past earnings in order to project future earnings? Extraordinary items Amortization expense for identifiable intangibles a. Yes Nob. Yes Yesc. No Yesd. No Noarrow_forwardQuestion. Depreciation is the reduction in the usable value of fixed assets due to normal wear and tear of time. Depreciation is an indirect non – cash expenditure which is provided on SLM or WDV basis. Rahul is new junior accountant with Hardwork Mills Private Limited he wants to understand normal depreciation differs from additional depreciation. As a tax adviser, guide him on the two concepts and discus the cases where additional depreciation is not allowed.arrow_forwardHistorical cost is based on actual, not merely possible, transactions. It is the acquisition price of the assets. The managers only have to record all the assets and liabilities at their acquisition price. This results in; a. Less manipulations in financial statements b. surviving test of time c. making relevant economic decisions d. Nonearrow_forward
- KA. -Assume an investment classified as available for sale. Your value of market is less than its amortized cost. Which of the following assertions is correct? a. If management intends to sell the investment, it will recognize all of the impairment loss in the Statement of Income and Expenses. b. If management does not intend to sell the investment and the loss is for credit (credit los), will be recognized in the Statement of Income and Expenses. c. If management does not intend to sell the investment and the loss is not per credit (credit los), it will be recognized in Other comprehensive income . d. All of the above are correct. - Assume an investment in common stock accounted for using the heritage method. The investment will be impaired if: a. Its market value is less than its amortized cost and the loss of value it is not temporary (other than temporary) b. Its market value is less than its book value and the loss of value it is not temporary (other than temporary) c. Its market…arrow_forward1.) If a newly acquired asset is ‘held for sale’, the asset or disposal group will be measured at: A. Cost B. The lower of “Cost” and “Fair value, less costs to sell’ C. The higher of “Cost” and “Fair value, less costs to sell’ D. Fair value, less costs to sell 2.) An adjustment, to the carrying amount of a non-current asset that ceases to be classified as ‘held for sale’, is recorded in: A. Income from continuing operations B. Equity C. Income from discontinued operations D. Secretarrow_forwardFair Value Accounting and Valuation in 3 Steps: Asset or Liability Identification: The first step involves identifying the specific assets or liabilities that will be measured at fair value. This could include financial instruments, tangible assets, intangible assets, or other items on the balance sheet. Market-Based Valuation Techniques: Fair value is determined using market-based valuation techniques. This may involve assessing current market prices, recent transactions, or employing valuation models such as discounted cash flows, comparable sales, or option pricing models. Consistent Application and Disclosure: Fair value accounting requires consistent application of valuation methods across reporting periods. Additionally, transparency and disclosure are crucial, with companies providing detailed information about the inputs, assumptions, and methods used in fair value measurements. Objective Type Question: In fair value accounting, what is the primary purpose of…arrow_forward
- Answer the following questions in depth .... Why do accountants have to classify items as capital or revenue expenditures? Why do you treat exchanges of similar and dissimilar assets differently? Aren't they all exchanges? Is it true that the higher the depreciation, the lower the net income? If that is the case, why would we not want the lowest depreciation method so we can show the highest net income? Why do we have various methods of depreciation? Isn't that encouraging misleading results?arrow_forwardThe Cost Principle, is an important measurement principle which is used in accounting. Describe the cost principle and discuss what happens if an asset like land has an increase in the fair value. How would the company report the land? Describe the fair value principle and for what types of assets is the fair value principle used. Which measurement principle (cost or fair value) do companies use to record most assets? Example question: Eve Myles Travel Agency purchased land for $90,000 cash on December 1, 2012. On December 31, 2012, the land's value had increased to $95,000. What amount should be reported for land on Eve's balance sheet on December 31, 2012?arrow_forwardVarious Contingency Issues Skinner Company has the following contingencies: 1. Potential costs due to the discovery of a possible defect related to one of its products. These costs are probable and can be reasonably estimated. 2. A potential claim for damages to be received from a lawsuit filed this year against another company. It is probable that proceeds from the claim will be received by Skinner next year. 3. Potential costs due to a promotional campaign in which a cash refund is sent to customers when coupons are redeemed. Skinner estimated, based on past experience, that 70% of the coupons would be redeemed. Forty percent of the coupons were actually redeemed and the cash refunds sent this year. The remaining 30% of the coupons are expected to be redeemed next year. Required: 1. How should Skinner report the potential costs due to the discovery of a possible product defect? Explain why. 2. How should Skinner report this year the potential claim for damages that may be received next year? Explain why. 3. This year, how should Skinner account for the potential costs and obligations due to the promotional campaign?arrow_forward
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