Question: In September 2015, the FASB proposed changing

> Qtip Corp. owns stock in Maxey Corp. The investment represents a 10 percent interest, and Qtip is unable to exercise significant influence over Maxey. The Maxey stock was purchased by Qtip on January 1, 2016, for $23,000. The stock consistently pays an a

> Kallus Corp. is an industry leader in the manufacture of toys. Each year, its design staff comes up with new ideas that are a great success. As a result, Kallus’s sales and profits consistently exceed those of other toy manufacturers. Over the past 10 ye

> Watson Company has several investments in the securities of other companies. The following information regarding these investments is available at December 31, 2016. 1. Watson holds bonds issued by Fowler Corp. The bonds have an amortized cost of $600,00

> Presented following are four unrelated situations involving equity securities that have readily determinable fair values. Situation 1 A noncurrent portfolio with an aggregate market value in excess of cost includes one particular security whose market va

> The FASB issued SFAS No. 115 to describe the accounting treatment that should be afforded to equity securities that have readily determinable market values that are not accounted for under the equity method or consolidation. An important part of the stat

> The entity theory of equity implies that there should be no need for financial statements to distinguish between debt and equity. Alternatively, proprietary theory implies that such a distinction is necessary and yields information vital to owners and po

> Newsom Corporation is preparing the interim financial data which it will issue to its stockholders and the Securities and Exchange Commission (SEC) in its 10-Q quarterly report at the end of the first quarter of the 2014 fiscal year. Newsom’s accounting

> The Thomas Company is in the process of developing a revolutionary new product. A new division of the company was formed to develop, manufacture, and market this product. As of year‐end (December 31, 2017), the product has not been manufactured for resal

> On July 1, 2017, Dynamic Company purchased for cash 40 percent of the outstanding capital stock of Cart Company. Both Dynamic and Cart have a December 31 year‐end. Cart, whose common stock is actively traded in the over‐the‐counter market, reported its t

> Victoria Company has both current and noncurrent equity securities portfolios. All of the equity securities have readily determinable fair values. Equity securities in the current portfolio are considered trading securities. At the beginning of the year,

> Explain the effect that changes in income tax rates have on income tax expense for companies that have deferred income tax assets and for companies that have deferred income tax liabilities.

> The amount of income taxes due to the government for a period of time is frequently different that the amount reported on the income statement for that period as income tax expense. Required: a. What are the objectives of accounting for income taxes

> The APB requires comprehensive interperiod income tax allocation under the deferred method. The FASB requires comprehensive interperiod income tax allocation under the asset–liability approach. For the following debate, you may take into consideration th

> The FASB requires comprehensive interperiod income tax allocation using the asset–liability approach. Some feel that there should be only partial interperiod income tax allocation. Others feel that there should be no interperiod income tax allocation. Te

> The FASB requires that deferred tax assets and liabilities not be discounted. Team Debate: Team 1: Present arguments in favor of discounting deferred tax liabilities. Team 2: Present arguments against discounting deferred tax liabilities.

> The Whitley Corporation’s year‐end is December 31. It is now October 1, 2017. The Whitley management team is taking a look at the prior nine months and attempting to make some short‐term strategy decisions. Whitley has experienced steady growth over the

> Mark or Make is a bourbon distillery. Sales have been steady for the past three years, and operating costs have remained unchanged. On January 1, 2017, Mark or Make took advantage of a special deal to prepay its rent for three years at a substantial savi

> Growth Corporation offered the following stock option plan to its employees: Each employee will receive 1,000 options to purchase shares of stock at an option price equal to the market price of the company’s common shares on the grant date, January 1, 20

> There are three general views regarding interperiod income tax allocation: no allocation, partial allocation, and comprehensive allocation. Required: a. Defend the position of no allocation of income taxes. b. Defend the position of partial allocation of

> SFAS No. 109, “Accounting for Income Taxes” (FASB ASC 740), requires companies to use the asset–liability method of interperiod income tax allocation. Required: a. Discuss the criteria for recognizing deferred tax assets and deferred tax liabilities unde

> SFAS No. 109, “Accounting for Income Taxes,” requires interperiod income tax allocation for temporary differences. Required: a. Define the term temporary difference. b. List the examples of temporary differences contained in SFAS No. 109. c. Defend inter

> Income tax allocation is an integral part of U.S. GAAP. The applications of intraperiod income tax allocation (within a period) and interperiod tax allocation (among periods) are both required. Required: a. Explain the need for intraperiod income tax all

> The FASB has carefully avoided the issue of discounting deferred taxes. SFAS No.109, “Accounting for Income Taxes,” stated, a deferred tax liability or asset should be recognized for the deferred tax consequences of temporary differences and operating lo

> In the discussion memorandum “Distinguishing between Liability and Equity Instruments and Accounting for Instruments with Characteristics of Both,” the FASB addressed the issue of whether redeemable preferred stock is debt or equity. SFAS No. 150 (see FA

> Should we separate the debt and equity features of convertible debt? Team Debate: Team 1: Pro separation: Present arguments in favor of separating the debt and equity features of convertible debt. Team 2: Against separation: Present arguments against the

> SFAS No. 159 (see FASB 825) allows companies to value financial liabilities at fair value. If not elected, financial liabilities will continue to be accounted for under the historical cost model. Team Debate: Team 1: Present arguments in favor of measuri

> On January 1, 2016, Plywood Homes, Inc., issued 20‐year, 4 percent bonds having a face value of $1 million. The interest on the bonds is payable semiannually on June 30 and December 31. The proceeds to the company were $975,000 (i.e., on the day they wer

> The following three independent sets of facts relate to (1) the possible accrual or (2) the possible disclosure by other means of a loss contingency. Situation 1 A company offers a one‐way warranty for the product that it manufactures. A history of warra

> A corporation may use stock splits and stock dividends to change the number of shares of its stock outstanding. Required: a. What is meant by a stock split effected in the form of a dividend? b. From an accounting viewpoint, explain how the stock split e

> The two basic requirements for the accrual of a loss contingency are supported by several basic concepts of accounting. Four of these concepts are periodicity (time periods), measurement, objectivity, and relevance. Required: Discuss how the two basic re

> On April 1, 2017, Janine Corporation sold some of its five‐year, $1,000 face value, 12 percent term bonds dated March 1, 2017, at an effective annual interest rate (yield) of 10 percent. Interest is payable semiannually, and the first interest payment da

> Business transactions often involve the exchange of property, goods, or services for notes on similar instruments that may stipulate no interest rate or an interest rate that varies from prevailing rates. Required: a. When a note is exchanged for propert

> Angela Company is a manufacturer of toys. During the year, the following situations arose: 1. A safety hazard related to one of its toy products was discovered. It is considered probable that liabilities have been incurred. Based on past experience, a re

> Gains or losses from the early extinguishment of debt that is refunded can theoretically be accounted for in three ways: 1. Amortized over the life of old debt 2. Amortized over the life of the new debt issue 3. Recognized in the period of extinguishment

> The appropriate method of amortizing a premium or discount on issuance of bonds is the effective interest method. Required: a. What is the effective interest method of amortization, and how is it different from or similar to the straight‐line method of a

> Baker Company needs $1 million to expand its existing plant. Baker management is considering the following two alternative forms of financing: 1. At the beginning of 2017, issue $1 million of convertible, 10‐year, 10 percent bonds. Each $1,000 bond can b

> Whiley Company issued a $100,000, five‐year, 10 percent note to Security Company on January 2, 2016. Interest was to be paid annually each December 31. The stated rate of interest reflected the market rate of interest on similar notes. Whiley made the fi

> The following Statement of Cash Flows was prepared for the Baines Corporation. Baines Corporation Statement of Sources and Uses of Cash Year Ended December 31, 2017 Sources of cash Net income $111,000 Depreciation and depletion 70,000

> A company is required to report a liability in its balance sheet when it expects to lose a law suit and the amount of the expected loss can be reasonably estimated.  Conversely, a company is prohibited from reporting a receivable in its balance sheet whe

> The directors of Lenox Corporation are considering issuing a stock dividend. Required: a. What is a stock dividend? How is a stock dividend distinguished from a stock split from a legal standpoint? From an accounting standpoint? b. For what reasons does

> In Phase B of the joint FASB-IASB financial statement presentation project, the Boards are planning to release a plan to recast financial statements into a new format. The proposed new format of the statement of financial position would no longer divide

> IAS No. 8 states that when a Standard or an Interpretation specifically applies to a transaction, other event or condition, the accounting policy or policies applied to that item must be determined by applying the Standard or Interpretation and consideri

> In Phase B of the joint FASB-IASB financial statement presentation project, the Boards are planning to release a plan to recast financial statements into a new format. One possible result is the elimination of the current definition of net income. In its

> You are in charge of reviewing the classification of unusual items that have occurred during for your CPA firm during the current year. The following material items have come to your attention: 1. A department store incorrectly overstated its ending inve

> Discuss how a company’s primary financial statements are useful to potential investors who are trying to decide whether to buy stock in the company. Support your discussion by citing objectives outlined in the Conceptual Framework.

> The IASB outlined its requirements for the presentation of the income statement in IAS No. 1, “Framework for the Preparation and Presentation of Financial Statements” Required: a. What is the objective of IAS No. 1? b. What income information does IAS

> In 2007, the SEC modified its position on the Form 20-F requirement when it issued; “Acceptance from Foreign Private Issuers of Financial Statements Prepared in Accordance with International Financial Reporting Standards without Reconciliation to GAAP.”

> Discuss the similarities and differences between the FASB and IASB conceptual frameworks with respect to the definitions of the elements of financial statements.

> The IASB framework for preparing and presenting financial statements defines assets as resources controlled by an enterprise as a result of past events from which future economic benefits are expected to flow to the enterprise. This definition is similar

> The total owners’ equity is usually under a number of sub captions on the corporation’s balance sheet. Required: a. List the major subdivisions of the stockholders’ equity section of a corporate balance sheet, and describe briefly the nature of the amoun

> The International Accounting Standards Committee (IASC) was formed in 1973. In 2001 the IASC was replaced by the International Accounting Standards Board (IASB). Required: a. What was the purpose of the IASB? b. How does the IASC attempt to achieve these

> Chapter 3 of SFAC No. 8 identifies the qualitative characteristics of accounting information that distinguish better (more useful) information from inferior (less useful) information for decision-making purposes. Required: List and briefly describe these

> Five approaches to transnational financial reporting were identified in the chapter. Required: a. List some of the advantages and disadvantages of each approach.

> Discuss the structure of the FASB’s conceptual framework for financial accounting and reporting

> The advantages and disadvantages of harmonizing accounting standards were summarized in this chapter. Required: Expand on these advantages and disadvantages. [Hint: You might wish to consult John N. Turner, “International Harmonization: A Professional Go

> Team Debate: Team 1: Argue that a universally accepted theory of accounting is needed. Team 2: Argue that a universally accepted theory of accounting is not needed.

> Roper Corporation purchased 100 storage boxes for the office. The boxes cost $15 each and should last at least ten years. Each team’s arguments should be grounded on the Conceptual Framework, emphasizing the Objectives of Financial Reporting and the qual

> The authority to issue accounting pronouncements has evolved overtime. Required: a. Discuss the rule making bodies involved in issuing accounting pronouncements since the 1930s. b. SEC Accounting Series Release (ASR No. 4) allowed accounting principles

> The FASB has been working on a conceptual framework for financial accounting and reporting and has issued eight Statements of Financial Accounting Concepts. These SFACs are intended to set forth objectives and fundamentals that will be the basis for deve

> The FASB is the official body charged with issuing accounting standards. Required: a. Discuss the structure of the FASB. b. How are the Financial Accounting Foundation members nominated?

> The proprietary theory, the entity theory, and the funds theory are three approaches to accounting for equities. Required: a. Describe briefly each of these theories. b. State your reasons for emphasizing the application of one of these theories to each

> Company A and Company B each have a $10,000 bond outstanding. Required: a. If both companies’ bonds are due in ten years, what factor(s) might make the bond market value the Company A bond at an amount greater than the Company B bond? If so, would Compan

> Gabel Company spent money to train its employees so that they can be productive workers. Such expenditures are often referred to as investments in human capital. Required: a. Do you think that Gabel Company’s trained employees meet the definition of an a

> Your company owns a building that is fully paid for. Explain how the building meets the definition of an asset under each of the following scenarios. Required: a. Your company is using the building as a plant that is producing automobiles. b. Your compan

> Continuity is often cited as a basic accounting postulate that affects how a company presents information in published financial statements. Required: a. How did Sprouse and Moonitz describe continuity? b. Given the presumption of continuity, if you are

> Sprouse and Moonitz proposed that quantification is an element of the economic environment that is relevant for accounting. Required: a. Explain why Sprouse and Moonitz say that quantification is relevant. b. Discuss how the Sprouse and Moonitz discussio

> During the past several years, the FASB has attempted to strengthen the theoretical foundation for the development of accounting principles. Two of the most important results of this attempt are the Conceptual Framework Project and the Emerging Issues Ta

> Which Body Should Set Accounting Standards in the United States? Team Debate: Team 1: Argue that the SEC should set accounting standards in the United States. Team 2: Argue that the FASB should set accounting standards in the United States

> Should the Scope of Accounting Standards Be Narrowed Further? Team Debate: Team 1: Assume you are management. Argue against the narrowing of accounting choices. Team 2: Assume you are a prospective investor. Argue for the narrowing of accounting choices.

> The FASB ASC is now the sole authoritative source for all U.S. GAAP. Required: a. What are the major goals of the FASB ASC? b. How is the FASB ASC expected to improve the practice of accounting? c. What literature is now contained in the FASB ASC? d. Wh

> The FASB is the official body charged with issuing accounting standards. Required: a. Discuss the structure of the FASB. b. How are the Financial Accounting Foundation members nominated?

> On January 1, 2016, as an incentive to improved performance of duties, Recycling Corporation adopted a qualified stock option plan to grant corporate executives nontransferable stock options to 500,000 shares of its unissued $1 par value common stock. Th

> During the early 2000s, the role of accounting and the auditing profession changed, and several accounting scandals were uncovered. Required: a. What conditions caused accounting and the auditing profession role to change during this time? b. What major

> The nineteenth century witnessed the evolution of joint ventures into business corporations. Required: Discuss how the emergence and growth of the corporate form of business affected perceptions regarding the role of the accounting profession in financia

> At the completion of the Darby Department Store audit, the president asks about the meaning of the phrase “in conformity with generally accepted accounting principles,” which appears in your audit report on the management’s financial statements. He obser

> Some accountants have said that politicalization in the development and acceptance of generally accepted accounting principles (i.e., standard setting) is taking place. Some use the term politicalization in a narrow sense to mean the influence by govern

> The Financial Accounting Standards Board (FASB) has developed a conceptual framework for financial accounting and reporting. The FASB has issued eight Statements of Financial Accounting Concepts. These statements are intended to set forth the objective a

> On October 2004, the FASB and IASB decided to add to their agendas a joint project to develop an improved and common conceptual framework that is based on and builds on their existing frameworks. Required: a. What is the goal of this project? b. List and

> General Motors and Ford use the last‐in, first‐out (LIFO) method to value their inventories. Honda (of Japan) and Daimler‐Benz (manufacturer of Mercedes‐Benz of Germany) use the first‐in, first‐out (FIFO) method. Under LIFO, recent costs are expensed as

> Under U.S. GAAP, property, plant, and equipment are reported at historical cost net of accumulated depreciation. These assets are written down to fair value when it is determined that they have been impaired. A number of other countries, including Austra

> The International Accounting Standards Committee’s Framework for the Preparation of Financial Statements identifies four primary qualitative characteristics. Required: a. Discuss the four qualitative characteristics identified by the IASB. b. Contrast an

> The capital asset pricing model illustrates how risk is incorporated into user decision models. Required: Discuss the capital asset pricing model, including systematic and unsystematic risk, β, the relationship between risk and return, how to avoid risk,

> Stock options are widely used as a form of compensation for corporate executives. Required: a. Identify five methods that had been proposed for determining the value of executive stock options before the release of SFAS No. 123R. b. Discuss the conceptua

> Current accounting for leases requires that certain leases be capitalized. For capital leases, an asset and the associated liability are recorded. Whether or not the lease is capitalized, the cash flows are the same. The rental payments are set by contra

> The FASB has issued SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other than Pensions” (see FASB ASC 715), and SFAS No. 112, “Employers’ Accounting for Postemployment Benefits” (see FASB ASC 712). These pronouncements required companie

> Critical perspective research views accounting in a manner somewhat different from traditional accounting research. Required: a. What is critical perspective research? b. How does it differ from traditional accounting research? c. What are the three assu

> The study of the ability of individuals to interpret information is classified as human information processing research. Required: Discuss human information processing research. What is the general finding of this research? What are the consequences of t

> Agency theory provides an explanation for the development of accounting theory. Required: Discuss agency theory, including its basic assumptions, agency relationships, why the political process affects agency relationships, and why it does or does not ex

> Various research methodologies are available with which to study the development of accounting theory. Required: Discuss the deductive, inductive, and pragmatic research methods. Include in your discussion examples of accounting research that used each m

> Criticisms of the EMH and the rational market theory were arising as far back as the early 1970s. These critics were noting events that could not be explained by the EMH. These unexplainable results were termed anomalies. Four basic types of anomalies ha

> The efficient market hypothesis is an extension of the supply and demand model. Required: a. Discuss the assumptions of the supply and demand model inherent in the EMH. b. Why is the securities market viewed as a good example of the supply and demand mod

> According to agency theory, the existence of debt imposes agency costs. Required: a. What are agency costs? b. Explain why an increase in debt would increase agency costs and what the resulting effect would be for debt holders. c. What strategy might deb

> What is fundamental analysis and what is its goal?

> Carrol, Inc., accomplished a quasi‐reorganization effective December 31, 2017. Immediately before the quasi‐reorganization, the stockholders’ equity was as follows: Common Stock, Par Value ………………………. $10 per Share Authorized issued and outstanding …………

> A Repo 105 is an accounting technique which is used by companies to improve the appearance of their financial statements. Required: Discuss Repo105 accounting

> Global Warming Company operates several plants at which limestone is processed into quicklime and hydrated lime. The Smokey Haze plant, where most of the equipment was installed many years ago, continually deposits a dusty white substance over the surrou

> An accountant must be familiar with the concepts involved in determining earnings of a business entity. The amount of earnings reported for a business entity is dependent on the proper recognition, in general, of revenue and expense for a given time peri

> Putnam, a construction company, enters into a contract to construct a commercial building for a customer on land owned by the customer for $1 million the contract also stipulated a bonus of $200,000 if the building is completed within 24 months. Putnam a

> Mosaic, a fixed-line communications company, enters into a contract with a customer to provide voice and data services for 24 months at a fixed charge of $100 per month. After six months, the customer decides to add TV services for an incremental fee of

> Woodlawn Hospital participates in the Medicare program and has agreed to accept Medicare’s rates as payment in full for services rendered to Medicare beneficiaries. It usually takes three years from the year that services were rendered for Medicare to va