Instructions: This assignment must be submitted in the Submission folder named Research Assignment I (under Submissions in D2L).No late submissions will be accepted/graded.
Only Word documents will be accepted (no Mac/Apple, pdf or google docs). You may type your answers directly after each question.
Research the FASB codification on the issues listed below. To access the codification, use the login information below for FASB Academic Accounting access.
Your source for all answers will be the Codification.
- Go to “General Principles”. Go To: 105-10-10-1. Answer the following in your own words:
- What is the Codification?
The Codification is the current single source of US authoritative principles and standards.
- Which entities are required to follow the guidance in the Codification?
- Go to the Master Glossary: What is the definition of Inventory? (you may cut and paste from the Codification)
The aggregate of those items of tangible personal property that have any of the following characteristics:
- Held for sale in the ordinary course of business
- In process of production for such sale
- To be currently consumed in the production of goods or services to be available for sale.
The term inventory embraces goods awaiting sale (the merchandise of a trading concern and the finished goods of a manufacturer), goods in the course of production (work in process), and goods to be consumed directly or indirectly in production (raw materials and supplies). This definition of inventories excludes long-term assets subject to depreciation accounting, or goods which, when put into use, will be so classified. The fact that a depreciable asset is retired from regular use and held for sale does not indicate that the item should be classified as part of the inventory. Raw materials and supplies purchased for production may be used or consumed for the construction of long-term assets or other purposes not related to production, but the fact that inventory items representing a small portion of the total may not be absorbed ultimately in the production process does not require separate classification. By trade practice, operating materials and supplies of certain types of entities such as oil producers are usually treated as inventory.
- You have just joined the Chicago office of the Blue Demon CPA firm. We are glad to have you on our accounting team. We are an accounting firm that works with clients to solve their accounting issues. Our client, Buchanan, Inc. is a company which sells industrial equipment. Buchanan, Inc. is a privately held company that has been in business for 5 years.
Buchanan, Inc. wants to better understand some of the requirements for correctly implementing U.S. GAAP. Your role is to provide the answers to their questions.
- Buchanan, Inc. is unsure which financial statements the company should prepare for annual reporting. Go to 205-10-45.
|Question:||Paragraph where guidance is located||Answer: (in your own words)|
|Which financial statement(s) is the company required to prepare for annual reporting?||2||Statement of financial position (balance sheet)Income StatementStatement of changes|
- Buchanan is unsure of how to determine the amount to record for inventory. In order to give them the correct accounting advice you are going to look in the codification. Go to ASC 330-10- 30 -1. Based upon the guidance in this paragraph what will you tell the client about the correct amount to record for inventory. Answer this question in your own words.
The inventory at any given date is the price paid to acquire an asset.
- Buchanan is unsure of what inventory methods are acceptable for calculating ending inventory and cost of goods sold. Go to ASC 330-10-30-9 to provide the guidance for this question. Answer this question in your own words.
FIFO, average, and LIFO
- The market price of the inventory that Buchanan acquired last month has increased. Due to this price increase Buchanan would like to increase the amount recorded for this inventory on the balance sheet and has asked if this is permissible. Go to ASC 330-10-35-15 to determine the guidance for this issue. What advice will you give Buchanan?
- As of August 31, 2022 Buchanan has $750,000 in Accounts Receivable from credit customers. In addition, the CEO for Buchanan received a $100,000 loan from the company which is scheduled to be repaid in 2 months. The company would like to present the following in the August 31, 2022 balance sheet.
Is this the correct presentation for the receivables in the company balance sheet. Go to ASC 310-10-45 to find the guidance.
|Question:||Paragraph where guidance is located||Answer: (in your own words)|
|Is Buchanan permitted combine the Accounts Receivable and CEO loan as one line item in the balance sheet?|
- California University has a fiscal year ending June 30th. California University (CU) has a policy in which all tenured professors who have worked for CU for a minimum of 5 years may take a one semester sabbatical every 5 years in order to focus exclusively on research. During the sabbatical the professor will still be compensated by CU. As of June 30, 2022 CU estimates that the annual payroll cost for faculty taking sabbaticals in the upcoming fiscal year to be $2,000,000. Is CU required to accrue the cost of the faculty sabbaticals as of June 30, 2022?
a. What is the accounting issue?
- Which of the following section(s) would most likely contain the directly on point guidance for this accounting issue?
- Initial Measurement
- Subsequent Measurement
- Other Presentation Matters
- Shamrock Corporation has a December 31st year end and is publicly traded. Shamrock Corporation announced in September 2022 a 10% stock dividend for all common shareholders. Shamrock’s CFO is unsure if the stock dividend should be measured at the par value of the stock or at the fair value. Assume that the total value of the stock dividend measured at par value is $500,000 and the value measured at fair value is $1,200,000.
The following guidance is available from the codification. Which of these references is the directly on point guidance? (Hint: determine the issue and then determine which option below addresses the issue)
- Many recipients of stock dividends look upon them as distributions of corporate earnings, and usually in an amount equivalent to the fair value of the additional shares received. If the issuances of stock dividends are so small in comparison with the shares previously outstanding, such issuances generally do not have any apparent effect on the share market price and, consequently, the fair value of the shares previously held remains substantially unchanged.
- In accounting for a stock dividend, the corporation shall transfer from retained earnings to the category of capital stock and additional paid-in capital an amount equal to the fair value of the additional shares issued. Unless this is done, the amount of earnings that the shareholder may believe to have been distributed to him or her will be left, except to the extent otherwise dictated by legal requirements, in retained earnings subject to possible further similar stock issuances or cash distributions
- The number of additional shares issued as a stock dividend may be so great that it has, or may reasonably be expected to have, the effect of materially reducing the share market value. In such a situation, because the implications and possible shareholder belief are not likely to exist, the substance of the transaction is clearly that of a stock split.
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