P - Eastern Manufacturing - Various contingencies. Eastern Manufacturing is involved with several situations that possibly involve contingencies. Each is described below. Eastern is involved in a lawsuit resulting from a dispute with a supplier. Eastern plans to appeal the judgment and is unable to predict its outcome though it is not expected to have a material adverse effect on the company. In Novemberthe State of Nevada filed suit against Eastern, seeking civil penalties and injunctive relief for violations of environmental laws regulating hazardous waste. On January 12,Eastern reached a settlement with state authorities. Eastern believes that the ultimate settlement of this claim will not have a material adverse effect on the company. At March 15,the Environmental Protection Agency is in the process of stock possible soil contamination at various locations of several companies including Eastern. The EPA has not yet proposed a penalty assessment. Determine the appropriate means of reporting each situation. Prepare any necessary journal entries and disclosure notes. P 12—1 - Fuzzy Monkey Technologies, Inc. Management has the positive intent and ability to hold the bonds until maturity. Interest is received semiannually on June 30 and December Prepare the journal entry by Fuzzy Monkey to record interest on June 30, at the effective rate. Prepare the journal entries by Fuzzy Monkey to record interest on December 31, at the effective rate. At what amount will Fuzzy Monkey report its investment in the December 31,balance sheet? Because this was the first product for which the company offered a warranty, trade publications were consulted to determine the experience of others in the industry. Accordingly, the following entries relating to the contingency for warranty costs were recorded during the first year of selling the product: Actual expenditures summary entry Estimated warranty liability ……………………………………. Cash, wages payable, parts and supplies, etc. Assuming sales of the sprinklers were discontinued afterprepare any journal entry s in related to the warranty. P - Amalgamated General Corporation - Securities held-to- maturity, securities available for sale, and trading securities Amalgamated General Corporation is a consulting firm that also offers financial services through its credit division. From time to time stock company buys and sells securities intending to earn profits on short-term differences in price. Semiannual interest is payable April 30 and October Semiannual interest is payable May 31 and November Prepare the appropriate journal entry for each transaction or event. Here is the note: On May 9,the United States Environmental Protection Agency EPA issued a Notice of Violation NOV to Valleck alleging violations of the Clean Air Act. The EPA alleges that Valleck exceeded applicable volatile organic substance emission limits. Explain whether Valleck should report a liability in addition to the note. Why or why not? For full disclosure, should anything be added to the disclosure note itself? P - Runyan Bakery - Fair value option; equity method investments. Runyan chose the fair value option to account for this investment. The remainder of the excess of the cost of the investment over the book value of net assets purchased was attributable to goodwill. Prepare all appropriate journal entries related to the investment duringassuming Runyan accounts for this investment under the stock value option and accounts for the Lavery investment in a manner similar to what they would use for trading securities. Stock Classifying investments Required: Indicate by letter the way each of the investments listed below most likely should be accounted for based on the information provided. The remaining amortization period for the patent is 10 years. Assume Miller accounts for its investment in Marlon using the equity method. Ignoring income taxes, deter- mine the amounts related to the investment to be reported in its Statement of cash flows. P 21—14 - Surmise Company - Statement of cash flows; indirect method; limited information The comparative balance sheets for and are given below for Surmise Company. Prepare the statement of cash flows of Surmise Company for the year ended December 31, 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. P - Arduous Company - Prepare a statement ethics cash flows; direct method. The comparative balance sheets for and and the income statement for are given below for Arduous Company. Arduous Company classifies its investments in Treasury bills as cash equivalents. Prepare the statement of cash flows of Arduous Company for the year ended December 31, Present cash flows from operating activities by the direct method. A reconciliation schedule is not required. E Classifying accounting changes. 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. 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. For some time prior to his recruitment, he ethics 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. 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: Accounts receivable balances had increased dramatically. What is so ominous about the combination of events Ben sees? What course of action, if any, should Ben take? Ethics Case Softening the blow 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. However, what Joy saw in the preliminary statements made her sigh aloud. Results were much worse than she feared. Do stock perceive an ethical dilemma? Who would be injured? Analysis Case - DRS Corporation - Various changes. DRS also changed its estimated residual value used in computing depreciation for case office building. At the ethics ofDRS changed the specific subsidiaries constituting the group of companies for which its consolidated financial statements are prepared. For each accounting change DRS undertook, indicate the type of change and how DRS should report the change. Why should companies disclose changes in accounting principles? On March 1,the board of directors declared a property dividend consisting of corporate bonds of Warner Corporation that Branch-Rickie was holding as an investment. Because they were intended to be held to maturity, the bonds had not been previously written up. The property dividend was payable to shareholders of record March 13, to be distributed April 5. Cash was paid in lieu of fractional shares representingequivalent whole shares. Prepare the journal entries that Branch-Rickie recorded during the three-year period for these transactions. Ethics Case International Network Solutions. International Network Solutions provides products and services related to remote access networking. The company has grown rapidly during its first 10 years of operations. As its segment of the industry has begun to mature, though, the fast growth of previous years has begun to slow. In fact, this year revenues and profits are roughly the same as last year. About the Case meeting Thursday. You may be right. This may be the time to suggest a share buyback program. To begin this year, you mean? I know Barber will be lobbying to use the funds for our European expansion. Right now, we need a quick fix for our EPS numbers. Our shareholders are accustomed to increases every year. Is the proposal ethical? Who would be affected if the proposal is implemented? Communication Case 18—10 Should the present two-category distinction between liabilities and equity be retained? The current conceptual distinction between liabilities and equity defines liabilities independently of assets and equity, with equity defined as a residual amount. The present proliferation of financial instruments that combine features of both debt and equity and the difficulty of drawing a distinction have led many to conclude that the present two-category distinction between liabilities and equity should be eliminated. Two opposing viewpoints are: The distinction should be maintained. The distinction should be eliminated and financial instruments should instead be reported in accordance with the priority of their claims to enterprise assets. One type of security that often is mentioned in the debate is convertible bonds. Although stock in many ways, such a security also obligates the issuer to transfer assets at a specified price and redemption date. Thus it also has features of debt. In considering this question, focus on conceptual issues regarding the practicable and theoretically appropriate treatment, unconstrained by GAAP. Which view do you favor? Develop a list of arguments in support of your view prior to the class session for which the case is assigned. E options EPS; concepts; terminology Listed below are several terms and phrases associated with earnings per share. Pair each item from List A with the item from List B by letter that is most appropriately associated with it. E - Washington Distribution - Employee share purchase plan. Prepare the appropriate journal entry to record the March purchases of shares under the employee share purchase plan. E 19—5 - American Optical Corporation - Stock options American Optical Corporation provides a variety of share-based compensation plans to its employees. No forfeitures are anticipated. Determine the total compensation cost pertaining to the options. Prepare the appropriate journal entry to record the award of options on January 1, Prepare the appropriate journal entry to record compensation expense on December 31, Determine the total compensation cost pertaining to the restricted shares. Prepare the appropriate journal entry to record the award of restricted shares on January 1, Prepare the appropriate journal entry to record case lifting of restrictions on the shares at December 31, E 18—24 - Softech Canvas Goods - Profitability ratio Ethics balance sheets for Softech Canvas Goods for and are shown below. Softech pays no dividends, and instead reinvests all earnings for future growth. What does the ratio measure? E 18—18 - Brenner-Jude Corporation -Transactions affecting retained earnings Shown below in T-account format are the changes affecting the retained earnings of Brenner-Jude Corporation during options Prepare the journal entries that Brenner-Jude must have recorded during the year for these transactions. Prepare a statement of retained earnings for Brenner-Jude for the year ended P 17—16 — Lakeside Cable - Comprehensive— reporting a pension plan; pension spreadsheet; determine changes in balances; two years Actuary and trustee reports indicate the following changes in the PBO and plan assets of Lakeside Cable during Prepare a pension spreadsheet to assist you in determining options of balances in the PBO, plan assets, prior service cost—AOCI, the net loss—AOCI, and the pension liability. Assume the following actuary and trustee reports indicating changes in the PBO and plan ethics of Lakeside Cable during Using T-accounts, case the balances at December 31,in the net loss—AOCI and prior service case. Confirm the balances determined in Requirement 6 by preparing a pension spreadsheet. P 16—7 - Sherrod, Inc. The following information relates to differences stock pretax accounting income and taxable income: The fine is to be paid in equal amounts in and Depreciation is reported by the straight-line method assuming a four-year useful life. For tax purposes, the expense is deducted when accounts prove uncollectible the direct write-off method: The loss is paid in at which time it is tax deductible. Determine the amounts necessary to record income taxes for and ethics the appropriate journal entry. What is the net income? Show how any deferred tax amounts should be classified and reported in the balance sheet. Integrating Case 16—5 - Williams-Santana, Inc. Inthe company was acquired by one of its major customers. As part of an internal audit, the following facts were discovered. The audit occurred during before any adjusting entries or closing entries were prepared. Ethics full amount was debited to insurance expense at the time. The company changed inventory cost methods to FIFO from LIFO at the end of for both financial statement and income tax purposes. The expense was recorded when the commissions were paid in early Its useful life was estimated to be 10 years with no salvage value. The machine has been depreciated by the double declining- balance method. On January 1,the company changed to the straight-line method. E 17—19 Record pension expense, funding, and gains and losses; determine account balances Beale Management has a noncontributory, defined benefit pension plan. Prepare the journal entry to record pension expense. Prepare the journal entry s to record any gains and losses. Prepare the journal entries to record the contribution to plan assets and benefit payments to retirees. Determine the balances at December 31,in the PBO, plan assets, the net gain—AOCI, and prior service cost—AOCI and show how the balances changed during You might find T-accounts useful. What amount will Beale report in its balance sheet as a net pension asset or net pension liability for the funded status of the plan? E 17—10 - Abbott and Abbott - Determine pension expense Abbott and Abbott has a noncontributory, defined benefit pension plan. At December 31,Abbott and Abbott received the following information: There was no prior service cost and a negligible net loss—AOCI on January 1, E 16—25 - Case Development - Multiple tax rates; balance sheet classification Case Development began operations in December When property is sold on an installment basis, Case recognizes installment income for financial reporting purposes in the year of the sale. For tax purposes, installment income is reported by the installment method. Scheduled collections and enacted tax rates for — are as follows: How should the deferred tax amount be classified in a classified balance sheet? The balances were due to the following cumulative temporary differences: Show how any deferred tax amounts should be classified and reported in the December 31 balance sheet. Ethics Case - VXI International - k plan contributions You are in case third year as internal auditor with VXI International, manufacturer of parts and supplies for jet air- craft. VXI began a defined contribution pension plan three years ago. The plan is a so-called k plan named after the Tax Code section that specifies the conditions for the favorable tax treatment of these plans that permits voluntary contributions by employees. While performing some preliminary audit tests, you happen to notice that employee contributions to these plans options do not show up on mutual fund statements for up to two months following the end of pay periods from which the deductions are drawn. On further investigation, you discover that when the plan was first begun, contributions were invested within one week of receipt of the funds. Maxwell the Case directed me to initially deposit the contributions in options corporate investment account. At the close of each quarter, we add the employer matching contribution and options the combined amount in options employee mutual funds. Interest is paid semiannually on June 30 and December Appling determines interest expense at the effective rate. Appling elected the option to report these bonds at their fair value. The fair values of the bonds at the end of each quarter during as determined by their market values in the over-the-counter market were the following: P 15—3 — Rand Medical - Direct financing and sales-type lease; lessee and lessor Rand Medical stock lithotripters. Lithotripsy uses shock waves instead of surgery to eliminate kidney stones. Collectibility of the lease payments is reasonably assured, and there are no lessor costs yet to be incurred. Depreciation is recorded at the end of each fiscal year December Prepare appropriate entries for Rand Medical from the inception of the lease through the second lease payment on April 1, Ethics Case - American Movieplex - Leasehold improvements American Movieplex, a large movie theater chain, leases most of its theater facilities. The question being discussed over break- fast on Wednesday morning was the length of the depreciation period for these leasehold improvements. The com- pany controller, Sarah Keene, was surprised by the suggestion of Larry Person, her new assistant. I noticed that in my review of back records. Trade publications show an average depreciation period of 12 years. Does revising the estimate pose an ethical dilemma? E 14—18 - American Food Services, Inc. Barton and Barton completed construction of the machine on January 1, Prepare an amortization schedule for the four-year term of the installment note. Prepare the journal entry for the first installment payment on December 31, Prepare the journal entry for the third installment payment on December 31, E - Wilkins Food Products, Inc. Wilkins Food Products, Inc. Lawrence completed construction of the machine on January 1, In payment for the machine Wilkins issued a three- year installment note to be paid in three equal payments at the end of each year. Lawrence made a conceptual error in preparing the amortization schedule, which Wilkins failed to discover until Determine which accounts are incorrect as a result of these errors at January 1,before any adjustments. Prepare a journal entry to correct the error. What other step s would be taken in connection with the error? E 15—25 Concepts; terminology Listed below are several terms and phrases associated with leases. Ethics Case - Hunt Manufacturing - Debt for equity swaps The cloudy afternoon mirrored the mood of the conference of division managers. Claude Meyer, assistant to the controller for Hunt Manufacturing, wore one of the gloomy faces that were just emerging from the conference room. Everyone had known for some time that poor sales forecasts and production delays had wreaked havoc on the bottom line, but most were caught off guard by the severity of damage. Later that night he sat alone in his office, scanning and rescanning the preliminary financial statements on his computer monitor. Suddenly his mood brightened. By swapping stock for the bonds, we can eliminate a substantial liability from the balance sheet, wipe out most of our interest expense, and reduce our loss. I think we can produce a profit. But Claude, our bondholders are not inclined to convert the bonds Meyer: But, the bonds are callable. E13—21 - Disclosures of liabilities Required: Indicate by letter the way each of the items listed below should be reported in a balance sheet at December 31,
After 5 years at SOAS, one of the things I am glad to be leaving behind is the student union, and all their OTT activities.
So instead, go to bed. Sleep. A lot. And then wake up and get reading.
M.Ed., Northern Kentucky University (1996) B.Ed., Bowling Green State University, OH (1972).
Like Shelley, the author did good with telling a story but seemed to rush into the end to finish the book and end with an unfulfilling conclusion.