It is the end of 2019 and you are an accountant for Stone Company. During 2019, sales of the company’s products slumped and the company’s earnings are expected to be much less than those of 2018. The president comes to you with an idea. He says, “Our company’s property, plant, and equipment cost $300,000, and that is the amount we usually report on our balance sheet. However, I just had these assets appraised by an independent appraiser, and she says they are worth $400,000. I think that the company should report the property, plant, and equipment at this amount on its December 31, 2019, balance sheet and should report the $100,000 increase in value as a gain on the 2019 income statement. If we use this approach, it will show how much our company is really worth and increase our earnings. This will make our shareholders happy. What do you think?”
Required:
Prepare a written response to the president.
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Intermediate Accounting: Reporting And Analysis
- It is February 16, 2020, and you are auditing Davenport Corporation's financial statements for 2019 (which will be issued in March 2020). You read in the newspaper that Travis Corporation, a major customer of Davenport, is in financial difficulty. Included in Davenports accounts receivable is 50,000 (a material amount) owed to it by Travis. You approach Jim Davenport, president, with this information and suggest that a reduction of accounts receivable and recognition of a loss for 2019 might be appropriate. Jim replies, Why should we make an adjustment? Ted Travis, the president of Travis Corporation, is a friend of mine; he will find a way to pay us, one way or another. Furthermore, this occurred in 2020, so lets wait and see what happens; we can always make an adjustment later this year. Our 2019 income and year-end working capital are not that high; our creditors and shareholders wouldnt stand for lower amounts than they already are. Required: From financial reporting and ethical perspectives, prepare a response to Jim Davenport regarding this issue.arrow_forwardTony Ling was reviewing his business activities at the end of the year (February 28, 2019) and decided to prepare a statement of Owner's Equity. At the beginning of the year his assets were. $600,000 and his liabilities were 165,000. At the end of the year the assets had grown to $1075,000 but liabilities had also increased to 310,000. The profit for the year was 440,000 Tony had withdrawn 110,000 during the year for his personal use. Prepare a Statement of owner's Equityarrow_forwardOn November 5, 2020, a Dunn Company truck was in an accident with an auto driven by Bell. The entity received notice on January 12, 2021 of a lawsuit for P700,000 damages for personal injuries suffered by Bell. The entity's counsel believed it is probable that Bell will be awarded an estimated amount in the range between P200,000 and P500,000. The possible outcomes are equally likely. The accounting year ends on December 31 and the 2020 financial statements were issued on March 31, 2021. What amount of provision should be accrued on December 31, 2020?arrow_forward
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- Crunch Craft, a catering company, provides catering services to its customers. Customers normally pay for catering services after the service has been provided. In January 2022, Crunch Craft provided catering services worth $30,000 which it will receive in cash in February 2022. A senior accountant at Crunch Craft wants to record the $30,000 as an asset in the company’s Balance Sheet at the end of January 2022. Should the $30,000 be recorded as an asset in the company’s Balance Sheet at the end of January 2022? Explain, using the definition and recognition criteria of an asset in your explanation.arrow_forward1. On December 31, 2018, the company posted an eding capital of 30 million. the following yer, the copany realized a net income after tax of 70 milion, but the owner withdrew 20 million frm the capital for persnal investments. by the end of 2019, how much is the ending capital of the company? 2. The following information can be found in Sanduc Merchandising Corporation's financial statement in 2019: cost of sales of 2,450,000; accumulated depreciation of 75,000; operating expenses of 1,050,000; corporate income tax of 32% sales of 4,800,000; 3-year bank loan of 1,000,000 that pays an interest rate of 8.5 per year. determine the net profit before tax of Sanducoarrow_forwardAn inexperienced accounting intern at Krazy Karim prepared the following income statement for the fiscal period 2020. Krazy Karim Income Statement As of December 31, 2020 Revenues: Unearned Revenue 50,000 Services provided to customers 73,000 Accounts Receivable 3,500 Common Stock 21,000 Loan from Bank 17,500 Total Revenues 165,000 Expenses Payments to Principal Portion of Long-term Debt 40,000 Operating Expenses 26,000 Dividends 5,000 Equipment…arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningIndividual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENT