SMC Company purchases a building for $100,000. Included in this cost are $12,000 for electrical systems and $15,000 for the roof. The building is expected to have a 40-year useful life, but the electrical system will last for 20 years and the roof will last 15 years. Required: A. Assuming that straight-line depreciation is used, compute depreciation expense assuming that U.S. GAAP is used. B. Assuming that straight-line depreciation is used, compute depreciation expense for year one assuming IFRS is used (assume component depreciation).
> How does the presentation of personal balance sheets differ from balance sheets for entities (in general terms)? Where is this located in the Codification?
> If a company does not present a separate fourth-quarter interim report for its income statement, but presents only the annual income statement at that time, are there any additional disclosure requirements? If so, what are they?
> Are interim periods considered stand-alone financial statements or are they considered an integral part of the annual financial statements under current GAAP? Do you concur with this position? Why or why not?
> Red Hat, Inc. reported comprehensive income from 2008 to 2010 as follows ($ thousands): Required: A. Assuming that Red Hat has not purchased or sold any available-for-sale securities, what has happened to the value of the available-for-sale investments
> If a non-SEC reporting company decided to issue monthly interim financial statements, would the GAAP Codification apply?
> Air France—KLM Group reports the following balance sheet for the year ended December 31, 2013. Required: A. In what order are assets listed on the balance sheet? B. Comment on other differences (IFRS relative to U.S. GAAP) that you mig
> A company incurred an extraordinary loss in the second quarter and has prorated this loss over the three remaining quarters in the current fiscal year. Is this appropriate? Why or why not?
> Is a firm required to report a Statement of Comprehensive Income on an interim basis?
> Practices vary in determining costs of inventory. For example, cost of goods produced may be determined based on standard or actual cost, while cost of inventory may be determined on an average, first-in, first-out (FIFO), or last-in, first-out (LIFO) co
> Can a gain or loss from a translation of foreign currencies due to a major devaluation in currency be treated as an extraordinary item?
> The rules providing guidance on foreign currency translation can be found in FASB Statement No. 52. Where is this information located in the Codification? List all the topics and subtopics in the codification (i.e., ASC XXX–XX). (Hint: There are three ma
> For purposes of topic 830, what is a highly inflationary economy and how is a highly inflationary economy determined?
> One of the items reported as part of comprehensive income relates to foreign currency translation gains or losses. Describe the circumstances under which such gains/losses appear only in comprehensive income and not in net income. List examples of other
> The Statement of Comprehensive Income was required by FASB in SFAS Statement No. 130; describe the formats that are acceptable to display the information in the statement.
> A company estimates an allowance for inventory obsolescence. However, this estimate is sensitive to changes in the short term. What are the disclosures required by current GAAP?
> Ivanhoe Energy, a Canadian company, incurs net foreign exchange adjustments in 2010. The U.S. dollar is the functional currency. In 2010, the Canadian dollar continued to strengthen relative to the U.S. dollar. Ivanhoe Energy raised $150 million in Canad
> The International Federation of Accountants’ web address is www.ifac.org. On this page is a section labeled “media center.” Next, choose “articles.” Choose one of the items on this page and write a brief description.
> The rules providing guidance on using the current rate in foreign currency translation can be found in FASB Statement No. 52, paragraph 12. Where is this information located in the Codification? List the paragraph number (i.e., ASC XXX-XX-XX-X).
> Is a company that prepares financial statements in U.S. dollars required to disclose supplementary information on the effects of changing prices?
> Is a firm required to reconcile net income and net cash flows from operating activities if the direct format is used to present the statement of cash flows?
> How does the Codification define a highly inflationary country?
> A resident of a continuing-care retirement community pays an advance fee in return for future services and the use of facilities. Such services include continuing- care retirement community housing-related services (for example, meals, laundry, housekeep
> How should a transaction gain or loss be reported that is related to an unsettled receivable recorded when the firm’s inventory was exported?
> Explain why a firm is exposed to an added risk when it enters into a transaction that is to be settled in a foreign currency.
> The donated services of volunteer workers on fund-raising campaigns are usually not given accounting recognition. Why?
> What is the relationship (if any) between board designated funds and nonmandatory transfers?
> NNOs distinguish between restricted and unrestricted funds. Why is this distinction important?
> Part A: The following departments of activities are recorded in the City of Atlanta’s Comprehensive Annual Financial Report in the appendix to this chapter. Indicate the type of fund that most likely would be used for each department by
> Why do most NNOs use fund accounting?
> Distinguish an annuity fund from a life income fund.
> How is a not-for-profit entity defined in the Codification?
> In which fund of a hospital are medical equipment and related long-term obligations recorded? Would your answer be the same for a voluntary health and welfare organization? Explain.
> What fund is used to account for the library books owned by a university? How should depreciation of the library books be reflected in the financial statements of the university?
> Universities and hospitals often reduce their standard service charge to students or patients. How are these reductions reflected in the statements of revenue and expenses of these organizations? Explain.
> What authoritative body(s) is (are) responsible for establishing financial accounting standards for NNOs?
> In what funds might property and other nonfinancial resources be recorded?
> In what funds would you expect bonds payable to be included?
> Expenditures may be classified by function, activity, object, or organizational unit. Give an example of each classification for a municipality. Which classification is the most appropriate for external financial reporting?
> The International Accounting Standards Board (IASB) web address is www.iasb.org. On this web page, there is a section labeled “news.” List some of the recent issues concerning the IASB.
> What are the major classifications of increases and decreases in expendable fund resources?
> What is the significance of the “unassigned fund balance” of an expendable fund entity?
> What columns would you suggest for a subsidiary ledger account in order that it might be a subsidiary not only to the “appropriations” control account but also the “encumbrances” and the “expenditures” control accounts?
> Distinguish between premium revenue and patient service revenue generated by a health care entity
> In an installment liquidation, why should the partners view each cash distribution as if it were the final distribution?
> To what extent can personal creditors seek recovery from partnership assets?
> What is “marshaling of assets”?
> During a liquidation, at which point may cash be distributed to any of the partners?
> Is it important to maintain separate accounts for a partner’s outstanding loan and capital accounts? Explain why or why not.
> In what manner should the final cash distribution be made in partnership liquidation?
> What is the “loss absorption potential”?
> What is the objective of the procedures used for the preparation of an advance cash distribution plan?
> How are unexpected costs such as liquidation expenses, disposal costs, or unrecorded liabilities covered in the safe distribution schedule?
> Differentiate between the admission of a new partner through assignment of an interest and through investment in the partnership.
> Define charity care. Does it qualify for revenue recognition?
> Explain the distinction between the terms “withdrawals” and “salaries.”
> What are some of the methods commonly used in allocating income and losses to the partners?
> Describe the circumstances where neither the goodwill nor the bonus method should be used to record the admission of a new partner.
> What is the general rule regarding the treatment of costs and expenses associated directly with revenues for interim reporting purposes?
> Describe the tax treatment of partnership income.
> The town of Aberdeen authorized a fire station to be built at an estimated cost of $150,000. On January 1, 2015, 6% bonds with a par value of $150,000 were authorized and issued. Any difference between the par value of the bonds and the proceeds from the
> What type of disclosure is required of a firm when the major portion of its operations takes place within a single reportable segment?
> If the operations of a firm in some foreign countries are grouped into geographic areas, what factors should be considered in forming the groups?
> Some accountants hold the view that each interim period should stand alone as a basic accounting period, whereas others view each interim period as essentially an integral part of the annual period. Distinguish between these views.
> What is the purpose of interim financial reporting?
> What is the objective of the temporal method of translation?
> What is a diagnosis-related group? What is capitation?
> A translation adjustment results from the process of translating financial statements of a foreign subsidiary from its functional currency into dollars. Where is the translation adjustment reported in the financial statements if the current rate method i
> How are foreign currency exchange gains and losses from hedging a forecasted transaction handled?
> Assuming that the temporal method is used, how are revenue and expense items in foreign currency financial statements converted?
> What criteria must be satisfied for a foreign currency transaction to be considered a hedge of an identifiable foreign currency commitment?
> On June 1, 2015, the City of Cape May authorized the construction of a police station at an expected cost of $250,000. Financing will be provided through transfers from a Special Revenue Fund. The following transactions occurred during the fiscal year be
> The __________ is the functional currency of a foreign subsidiary that is a direct and integral component or extension of a U.S. parent company. In such cases, the __________ method of translation is used to translate (remeasure) the accounts into dollar
> Under the current rate method, how are assets and liabilities that are stated in a foreign currency translated?
> Define remeasurement.
> Which method of translation is used to convert the financial statements when a foreign subsidiary operates in a highly inflationary economy?
> Where in the Codification is the guidance for foreign currency transactions located? List the topic number (i.e., ASC XXX).
> The __________ is the functional currency of a foreign subsidiary with operations that are relatively self-contained and integrated within the country in which it is located. In such cases, the __________ method of translation would be used to translate
> Provide examples of non-recognized subsequent events.
> Currency exchange rate fluctuations may impact Mattel’s results of operations and cash flows. Mattel’s currency transaction exposures include gains and losses realized on unhedged inventory purchases and unhedged receivables and payables balances that ar
> List the relevant paragraph in the Codification that describes the minimum disclosure requirements for personal financial statements.
> What requirements must be satisfied if a foreign subsidiary is to be consolidated?
> Write the name of the fund(s) in which each of the following transactions or events would be recorded. 1. Bonds, the proceeds of which were to be used for the construction of a new City Hall, were issued. 2. A sum of money was appropriated, to be advance
> The CPA Partnership operated by Cook, Parks, and Argo is being liquidated. A balance sheet prepared at this stage in their liquidation process is presented below. The partners share profits and losses 30% (Cook), 50% (Parks), and 20% (Argo). The partne
> Why is the SEC, once so reluctant to accept IAS, now very willing to allow firms using IFRS to issue securities in the U.S. stock market without reconciling to U.S. GAAP?
> What is the rationale for the harmonization of international accounting standards?
> In recent months, virtually every topic that has come to the attention of the standard-setters has been undertaken as a joint effort of the FASB and the IASB rather than as an individual effort by one of the two boards. List and discuss some of the joint
> As mentioned in Chapter 1, the project on business combinations was the first of several joint projects undertaken with the FASB and the IASB in their move to converge standards globally. Nonetheless, complete convergence has not yet occurred, and there
> When should an NNO record donated services in its accounting records?
> May board designated funds ever be accounted for in the unrestricted current fund? Explain.
> What is the major difference in accounting between conditional and unconditional pledges? Give an example of each.
> What is the major difference in accounting for the general fund of a hospital and the unrestricted fund of other NNOs?
> Define subsequent events. When should an entity recognize subsequent events in the financial statements?
> Identify three different types of endowment funds and explain how they differ.
> The following events relate typical activities in a municipality that affect the General Fund. 1. The Meadville City Council passed an ordinance approving a general operating budget of $580,000 for fiscal year 2015. The city’s only source of revenue is f
> What capital assets (if any) of ONNOs need not be depreciated?
> Are all major capital facilities acquisitions accounted for in a capital projects fund? Explain.
> Why are budgeted revenues and expenditures formally recorded in the records of the general fund but not in the records of a capital projects fund?
> A disbursement by the general fund to another fund may be recorded as a receivable, an expenditure, or a fund transfer. Explain the circumstances that would result in each of these different treatments.
> Are fiduciary funds governmental funds or proprietary funds? Explain.
> What is the difference between a governmental fund and a proprietary fund?
