Three individuals are considering forming a partnership to operate a metal fabricating shop. It is anticipated that significant contributions of capital will be necessary during the first 18 months of operation and that operating losses will likely be incurred during the first 12 months of operation. The three individuals have asked you to respond to each of the following questions they have regarding a partnership agreement: 1. It is anticipated that one of the partners will not be active in the day-to-day conduct of the business but will be a major contributor of capital. Assuming that interest on invested capital will be one of the profit allocation provisions, what would be the best way to measure the capital upon which interest will be calculated? 2. What are some of the factors that should be considered in setting the interest rate to be used when interest on invested capital is involved? 3. The individuals are considering addressing the buyout of an existing partner by merely stating that the withdrawing partner would receive a payment from the partnership equal to 120% of their capital balance measured as of the end of the month preceding their withdrawal. What are some concerns with this proposal? 4. If salaries are used as a component of a profit- or loss-sharing agreement, when are the salaries paid? Monthly, weekly, or on what basis? 5. If a bonus is used as a component of a profit- or loss-sharing agreement, why is it recommended that a bonus be based on income after the bonus? 6. The individuals understand that operating losses can be allocated either by (a) satisfying each provision to whatever extent possible or by (b) satisfying all provisions and then using the profit and loss ratios to absorb any deficiency. Which approach would you consider to be more equitable? Respond to each of the above questions, keeping in mind that the individuals want to emphasize fairness over ease of application.
> Select the best answer for each of the following multiple-choice items dealing with not-for-profit organizations: 1. Which of the following criteria would suggest that a not-for-profit capitalize its works of art, historical treasures, or similar assets?
> Distinguish between accounting and financial reporting for state and local governments and VHWOs for the following issues: 1. Measurement focus and basis of accounting 2. Revenue recognition 3. Depreciation expense 4. Capital assets
> Early in 2018, a not-for profit organization received a $4,000,000 gift from a wealthy benefactor. This benefactor specified that the gift be invested in perpetuity with income restricted to provide speaker fees for a lecture series named for the benefac
> What are the rules for recording infrastructure under the new GASB reporting model? When are these rules effective? What conditions must exist in order to use one method versus another? What are the advantages and disadvantages of each approach?
> Millikin Corporation decided to hedge two transactions. The first transaction is a forecasted transaction to buy 500 tons of inventory in 60 days. The company was concerned that selling prices might increase, and it acquired a 60-day option to buy invent
> Select the best answer to the following multiple-choice questions: 1. Which of the following statements is correct concerning a governmental entity’s combined statement of cash flows? a. Cash flows from capital financing activities are
> List some of the major adjustments required when converting from fund financial statements to government wide statements. Why are these adjustments necessary?
> Select the best answer to the following multiple-choice questions: 1. Which of the following adjustments would likely be made when moving from governmental funds financial statements to government-wide financial statements? a. Record an additional expens
> Assume Boulder City has the following fund structure: General fund Special revenue fund (3) Capital projects fund (2) Debt service fund (4) Expendable trust funds (3) Internal service funds (3) Enterprise funds (6) General fixed assets account group Gene
> Based on the information presented in the 2013 city of Milwaukee, Wisconsin, financial statements, list the major funds disclosed by the city. How were these funds determined? Likewise, what minimum amounts of which statement items were used to determine
> On January 1, 2018, Jack Bauer donated $200,000 to the city of Alexander to be set aside as a trust fund for water quality improvements made by the city. The funds were fully invested in bonds purchased at a premium with a face value of $194,000. During
> Prepare journal entries to record the following events in the city of Rosewood’s Water Commission enterprise fund: a. From its general fund revenues, the city transferred $300,000, which is restricted for the drilling of additional wells. b. Billings for
> Prepare journal entries required by a debt service fund to record the following transactions: a. On January 2, a $5,000,000, 6%, 10-year general obligation serial bond issue is sold at 99. Interest is payable annually on December 31, along with one-tenth
> This exercise is based on the facts of Exercise 5 for the town of Bayview’s special assessment project. Assume special assessment property owners make the required payments to the debt service fund, and the debt service fund, in turn, makes the payments
> In 2018, the town of Bayview authorized the construction of two concrete roadways. The public works department estimates the project cost at $400,000, $20,000 of which is transferred from the general fund to the capital projects fund. The balance will be
> At the beginning of the current year, Skeeba Manufacturing borrowed $10 million to be repaid over the next five calendar quarters with quarterly payments of $2,090,893.23 based on a fixed annual interest rate of 6.0%. Concerned that variable interest rat
> Prepare journal entries to record the following events. Identify every fund(s) or group of accounts in which an entry is made. a. The city authorized the construction of a city hall to be financed by a $6,000,000 contribution of the general fund and the
> Select the best response for each of the following multiple-choice questions that refer to the transactions of Beloit City. (No. 4 is AICPA adapted.) On March 2, 2018, Beloit City issued 10-year general obligation bonds at face amount, with interest paya
> Select the best answer for each of the following multiple-choice items. (Nos. 4, 7, and 10 are AICPA adapted.) 1. In which of the following fund types of a city government are revenues and expenditures recognized on the same basis of accounting as the ge
> Select the best answer for each of the following multiple-choice items. (Nos. 1, 2, 4, 6, 9, and 10 are AICPA adapted.) 1. Which of the following statements is incorrect concerning a governmental entity’s statement of cash flows? a. Ca
> Prepare the entries to record the following general fund transactions for the village of Del Valley for the year ended September 30, 2018: a. Revenues are estimated at $520,000; expenditures are estimated at $515,000. b. A tax levy is set at $378,788, of
> You are maintaining a subsidiary ledger account for Firefighter-Training Expenditures for 2018. The following columns are used: Inventory purchases are initially recorded as expenditures (purchases method). Record the following 2018 transactions in the
> Blushing City had the following balance sheet accounts and amounts as of January 1, 2018: Inventory of supplies........................................... $ 25,000 Fund balance, non-spendable.............................. (25,000) Fund balance, assigned
> Prepare entries in the general fund for the following transactions that represent outflows of financial resources to the city of Cedar Creek in 2018: 1. Vouchers are prepared for the following items and amounts: Salaries ................................
> The following information concerns tax revenues for the city of Fairfield. The balances concerning property taxes on January 1, 2018, were as follows: Delinquent property taxes receivable ................................ $105,000 Allowance for uncollect
> A Midwest food processor forecasts purchasing 300,000 pounds of soybean oil in May. On February 20, the company acquires an option to buy 300,000 pounds of soybean oil in May at a strike price of $1.60 per pound. Information regarding spot prices and opt
> Given the following information, you have been asked to record the budget for the general fund of the city of Jackson. 1. Inflows for 2018 are expected to total $402,000 and include property tax revenue of $205,000, fines of $7,000, state grants of $90,0
> Indicate the part [(a) through (e)] of the general fund statement of revenues, expenditures, and changes in fund balance affected by transactions (1) through (7). a. Revenues b. Expenditures c. Other financing sources and uses d. Residual equity transfer
> Prepare the entries that would be made in the general long-term debt account group for the following events: a. To finance the construction of an art center, $13,000,000 of general obligation term bonds were sold for $12,500,000. b. The general fund allo
> The following transactions directly affected Rose City’s general fund and other governmental funds. Prepare journal entries to reflect their impact upon the general long-term debt account group. 1. Rose City employees earned $8.8 million in vacation pay
> For the following transactions, prepare the entries that would be recorded in the general fixed assets account group for the city of Evert. a. The city purchased property costing $1,300,000, with three-fourths of the cost allocated to a building. b. A ma
> The pre closing trial balance of the general fund of Shorewood Village for fiscal year ended June 30, 2019, is as follows: 1. Prepare closing entries. 2. Prepare a budget to actual comparison schedule. (Assume there are no differences between the origi
> Select the best answer for each of the following multiple-choice questions. (Nos. 4–10 are AICPA adapted.) 1. In a governmental fund, which one of the following constitutes revenue? a. Cash received from another fund of the same unit b. Bond proceeds c.
> The following two independent cases deal with a partnership and/or partners that are insolvent. Assuming that the partners share profits and losses equally, prepare a response to each of the following independent questions: 1. Given Case A, if all of t
> Arnold (A), Bower (B), and Chambers (C) are partners in a small manufacturing firm whose net assets are as follows: The partnership agreement calls for the allocation of profits and losses as follows: a. Salaries to A, B, and C of $30,000, $30,000, a
> Twelve years ago, Adams, Boyd, and Chambers formed a partnership manufacturing small circuit boards. Unfortunately, foreign competition, a softening economy, and management errors have led the partners to realize that the company’s busi
> Casper Enterprises is forecasting two significant transactions and is concerned that adverse price movements could negatively impact these transactions. In order to hedge against adverse movements, Casper has acquired two options as described below. The
> A condensed balance sheet for a partnership to be liquidated is as follows: The profit and loss percentages for Partners A, B, and C are 50%, 30%, and 20%, respectively. For each of the following independent scenarios, determine how much of the availab
> Meyers is considering investing in one of several existing partnerships and is attempting to consider the price to be paid for a partnership interest. In addition to investing cash, Meyers would be contributing a piece of land that has a fair market valu
> Petersen, one of your clients, has indicated that Jacobsen is interested in buying Petersen’s interest in the partnership. Relevant information: Petersen has asked you a number of questions regarding selling his interest in the partne
> Freeman has been a partner in a commercial construction company for over 25 years and has finally decided to dispose of their interest in the partnership. Of the other two partners, Thierfelder and Pape, only Pape has expressed an interest in acquiring F
> Your client has been asked to invest in a partnership which will develop a piece of real estate for commercial use. It is estimated that the development will occur over three years after which time the partnership will be liquidated. After reviewing sele
> Pearson and Murphy have partner capital balances, at book value, of $45,000 and $65,000 as of December 31. Pearson is allocated 60% of profits or losses, and Murphy is allocated the balance. The partners believe that tangible net assets have a market val
> Patton is considering joining Microtech Enterprises as a partner. The company provides data imaging for a variety of end users. Patton will have to contribute $100,000 of capital upon admission as a partner and will need to decide on a profit-sharing arr
> A client of yours is seeking your help in understanding a number of issues involving various aspects of a partnership. The business under consideration is a manufacturer of custom fabricated steel building components such as fire escapes, stairways and l
> Moore, Probst, and Tanski formed a partnership whose profit and loss agreement contained provisions summarized as follows: If the weighted-average capital is negative, interest at 10% will be charged against the partner’s profit alloc
> Banyan and Schultz operate a residential construction firm as a partnership and are considering admitting Witkowski as a partner. Witkowski has recently attended a seminar on the formation and management of partnerships and is proposing that the profit-s
> Several organizations are actively involved in international standard setting. 1. Discuss the relationship between the IASB and the International Accounting Standards Committee Foundation. 2. Discuss the position of the SEC with respect to convergence to
> Walker, Hayes, and Leaky began a small manufacturing company organized as a partnership. The partnership has operated for the past two years with reported annual net income averaging $220,000 and an allocation of such income as follows: 1. Salaries to Wa
> Johnson, Larson, and Kragen own an advertising agency that they operate as a partnership. The partnership agreement includes the following: a. Johnson receives a salary of $50,000. b. Larson receives a salary of $60,000. c. Kragen receives no salary but
> A client of yours is forming a partnership and has asked you to review a draft of the partnership agreement. In particular, the client is interested in your thoughts regarding the section dealing with the withdrawal of a partner. Your client also anticip
> A client of yours is considering investing in a partnership and has been analyzing the financial statements of the partnership. Their analysis has resulted in the following observations that that they are hoping you could address: 1. The balance sheet do
> Murphy Oils, Inc., began as a distributor of oils and lubricants to auto and truck repair centers. Since that time, the company has expanded to include jet engine repairs, the wholesale distribution of specialized tools for the automotive repair industry
> Baxter Corporation anticipated pretax values for the current year as follows: Continuing operations. . . . . . . . . . . . . . . . . . . . . . . . $ 60,000 Non ordinary items: Item A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
> Baxter Holdings reported pretax income from continuing operations of $800,000 in the first quarter of the current year. At that point, projected pretax income for the rest of the year was $1,000,000. At the end of that quarter, the company estimated an e
> The current-year 2015 statutory tax rate is 30%. For each of the following cases, determine the 2015 year-to-date (YTD) tax benefit traceable to the YTD operating loss. Case A Case B Case C Case D Current-Year 2015 YTD operating income (loss) ...
> Richardson Company reported pretax income from continuing operations in the first six months of the current year in the amount of $100,000. Projected pretax operating income for the balance of the year is $110,000. Estimates of annual income include inco
> Harmonization of accounting standards through a private standard-setting process will have both advantages and disadvantages to American investors and businesses. 1. Discuss the advantages of harmonization to American investors. 2. Discuss why difference
> The city of Lydell expended federal awards from the following programs during 2019. Program....................................................... Amount Expended 1. Lydell Community Block Grant. . . . . . . . . . . . . $ 800,000 2. Hazardous Waste
> Indicate into which fund a city would record each of the following transactions. (You need not make any entries.) a. Fixed assets are purchased with general fund cash. b. Long-term serial bonds are issued to finance the construction of a new art museum.
> Match the appropriate letter indicating the recording of the following transactions: 1. General obligation bonds were issued at par. 2. Approved purchase orders were issued for supplies. The purchases method for supplies is followed. 3. The above-mention
> Identify the letter that best describes the accounting and reporting by the following funds and account groups: 1. Enterprise fund fixed assets. 2. Capital projects fund. 3. General fixed assets. 4. Infrastructure fixed assets. 5. Enterprise fund cash. 6
> Which fund or account group should be used to record the following? 1. A primary government’s general fund equity interest in a joint venture. 2. Fixed assets of a governmental unit, other than those accounted for in a proprietary fund. 3. A governmental
> Mack County has acquired equipment through a non cancelable lease-purchase agreement dated December 31, 2017. This agreement requires no down payment and the following minimum lease payments: Required 1. What account should be debited for $120,000 in t
> During 2019, Kansas City issued bonds for financing the construction of a civic center and bonds for financing improvements in the environmental controls for its water and sewer enterprise. The latter bonds require a sinking fund for their retirement. It
> Rose City formally integrates budgetary accounts into its general fund. During the year ended December 31, 2019, Rose received a state grant to buy a bus and an additional grant for bus operation in 2019. In 2019, only 90% of the capital grant was used f
> Granger Supply, Inc., has two main areas of inventory, industrial supplies and industrial cleaning equipment. The FIFO inventory method is used for industrial supplies, and the LIFO method is used for the cleaning equipment. Prior to considering special
> Explain what purpose the statement of realization and liquidation serves.
> Explain how the claims of fully secured and partially secured creditors affect the dividend that may be received by unsecured creditors.
> Distinguish between a corporate reorganization and a liquidation as provided for under bankruptcy law.
> If a debt is restructured through a modification of terms, explain how the gain on restructuring is determined when the restructuring is not under bankruptcy law versus one that is.
> Explain why it is important to separately account for the principal and income of an estate and what happens if such assets are not adequate to satisfy demonstrative or general legacies.
> Explain the concepts of the marital deduction and the portability of the unified credit as it relates to estate taxes applicable to a married couple.
> Estate planning is becoming more important to many individuals. Identify several goals of estate planning.
> What is the special concern over accounting for medical malpractice claims? How does accounting for such claims compare to accounting for contingencies in a for profit business environment?
> Explain a hospital’s rigid adherence to gross revenue determination.
> Explain how restricted gifts and grants are accounted for by public colleges and universities. Compare this with the accounting for restricted gifts and grants by private colleges and universities.
> Waypine Enterprises reported a pretax operating loss of $84,000 in 2014, its first year of operations, and recognized a tax benefit of $6,000, based on the assumption that $40,000 of the loss could be offset against future pretax income. Management antic
> Explain the accounting for contributions (of cash, pledges, or investments that may be converted into cash) for a private university. How does this accounting for contributions differ from that of a public university?
> What measurement focuses (identifying which resources are being measured) and bases of accounting (identifying when the effects of transactions or events should be recognized) are used by public and not-for-profit colleges and universities? How might the
> (Appendix) Why would a VHWO wish to present its financial information on a fund basis rather than simply on an organization-wide basis? What benefits are there in fund-basis reporting?
> A voluntary health and welfare organization is required to present an additional financial statement that is not required of other private not-for-profit entities. Why is this an important statement?
> Explain the accounting for funds received by an organization acting as an agent, a trustee, or an intermediary, rather than as a donor or done. What might be the reasoning for the differences?
> Differentiate between public support and revenues as sources of assets for private not-for-profit organizations. What benefit is there in accounting for these differently?
> The FASB requires for-profit entities to classify their investments as trading, available-for-sale, or held-to-maturity. However, it does not require not-for-profit entities to do the same. What might be the reasoning for this difference in requirements?
> How is it helpful for a private not-for-profit organization to account for current funds as restricted or unrestricted?
> How are inter fund transactions reported?
> What benefits are derived from including the management’s discussion and analysis in state and local governmental financial reports? What information is required to be included in the MD&A?
> The chief operating decision maker of a publicly traded company has defined segments around four product/service groups. Various revenues, profits or losses, and assets associated with the segments are as follows: Determine which segments are conside
> What are major funds? Describe major fund reporting.
> Describe the purpose of each of the financial statements required under GASB Statement No. 34.
> Compare the basis of accounting that is used to report governmental activities versus business-type activities.
> Describe two major types of inter fund transfers. Under what circumstances is each used?
> When a debt service fund receives resources, it might credit Revenues or Other Financing Sources. Under what circumstances would each of these credits be used?
> If a capital projects fund has authority to continue operations over several fiscal periods, why is it desirable to close its records at the end of each period?
> Describe the difference between accounting for governmental funds and proprietary funds.
> Why are fixed assets, acquired with proceeds from general obligation bond issues, not permanently accounted for in a capital projects fund?
> (Appendix) What is the source of the 13 basic governmental accounting principles, and what benefit is there to studying these principles?
> Why do some transactions require an entry in a fund and another in an account group? What impact would there be if a journal entry were made only in the fund or only in the account group?
> A colleague of yours has been reviewing the second-quarter income statements for a number of companies and is questioning a number of the expense items included in the statements. For each of the following independent questions, provide a written respons
