FAR #12
Edge Co., a toy manufacturer, is in the process of preparing its financial statements for the year ended December 31, Year 8. Edge expects to issue its Year 8 financial statements on March 1, Year 9. For each item, two responses are required. Select from the option lists provided the appropriate adjustment amount, if any, and whether additional disclosure is required, either on the face of or in the notes for each financial statement below. Each choice may be used once, more than once, or not at all. If no adjustment is necessary, select "No entry required" in the Adjusted amount column and continue to the Additional disclosure required column. InformationAdjusted amountAdditional disclosure required1. On December 15, Year 8, Edge guaranteed a bank loan of $100,000 for its president's personal use. The probability is remote that a loss will be incurred, and the fair value of the guarantee is $5,000.2. On December 31, Year 8, Edge's board of directors voted to discontinue the operations of its computer games division and sell all of the division's assets. The division was sold on February 15, Year 9. On December 31, Year 8, Edge estimated that losses from operations, net of tax, for the period January 1, Year 9, through February 15, Year 9, would be $400,000 and that the gain from the sale of the division's assets, net of tax, would be $250,000. These estimates were materially correct.3. On January 5, Year 9, a warehouse containing a substantial portion of Edge's inventory was destroyed by fire. Edge expects to recover the entire loss, except for a $250,000 deductible, from insurance.4. On January 24, Year 9, inventory purchased FOB shipping point from a foreign country was detained at that country's border because of political unrest. The shipment is valued at $150,000. Edge's attorneys have stated that it is probable that Edge will be able to obtain the shipment.5. On January 30, Year 9, Edge issued $10 million bonds at a premium of $500,000.6. On February 4, Year 8, the IRS assessed Edge an additional $400,000 for the Year 4 tax year. Edge's tax attorneys and tax accountants have stated that it is likely that the IRS will agree to a $100,000 settlement.
1. 5000, yes 2. no entry required, no 3. no entry required, yes 4. No entry required no 5. No entry required yes 6. 100000, yes
Opcap, Inc., a publicly traded company, recently entered in to a lease agreement on January 1, Year 1, for property to be used to operate a regional hamburger vending business. The lease was properly classified by the lessor and the lessee as an operating lease. Opcap is under contract to pay annual rental fees of $120,000 on each December 31 for 5 years. Select from the option list provided the journal entries, if any, for each event below. Each choice may be used once, more than once, or not at all. If no entry is necessary, select "No entry required" in the Entry column. EventEntry1. Lessee's entry to record the lease at inception.2. Lessor's entry to record the lease at inception.3. Lessee's entry to record on December 31, Year 1.4. Lessor's entry to record the initial payment on December 31, Year 1.5. Lessee's entry to record depreciation of the leased property.
1. Debit right of use asset, credit lease liability 2. no entry reuqired 3. debit lease liability, debit lease expense, credit cash, credit right of use asset' 4. debit cash, credit lease income 5. no entry required
For each of the following independent situations, select from the option list provided the appropriate effect, if any, on Company A's December 31, Year 3, financial statements. Each choice may be used once, more than once, or not at all. SituationEffect1. On December 31, Year 3, Company A incurred a probable loss that can be reasonably estimated between $50,000 and $300,000. No amount within the range appears to be a better estimate than any other.2. The occurrence of a gain contingency is probable and its amount can be reasonably estimated as $300,000.3. On December 1, Year 3, one of Company A's customers filed a lawsuit against the company. Company A's management concludes that $300,000 is the reliable estimate of the costs that would result from the unfavorable ruling against the company. The company's management and legal counsel agree that the likelihood of an unfavorable ruling is remote.4. On December 1, Year 3, one of Company A's employees sued the company for damages caused by unsafe working conditions. At the end of Year 3, management concludes that it is probable Company A will be held liable for damages, and that $300,000 would be a reasonable estimate of the amount to be paid to the employee to settle the lawsuit. Company A's $1 million comprehensive liability insurance policy has a $50,000 deductible clause.5. On December 31, Year 3, Company A's management and legal counsel agree that it is probable that the company will have to pay $300,000 to settle a lawsuit against the company.6. On December 31, Year 3, Company A's management and legal counsel conclude that it is reasonably possible that Company A will be held liable in a lawsuit that was brought by the local government for environmental damages, and that the reasonable estimate of the amount the company will need to pay to settle the suit is between $50,000 and $300,000.
1. accrual of a liability of 50000 2. disclosure in the notes but not an accrual 3. Neither an accrual nor a disclosure 4. accrual of a liability of 50000 5. accrual of a libaility of 300000 6. disclosure in the notes but not an accrual
Which section of the Accounting Standards Codification best defines the range of likelihood of a loss contingency? Enter your response in the answer fields below. Guidance on correctly structuring your response appears above and below the answer fields. Unless specifically requested, your response should not cite implementation guidance. Type the topic here.Correctly formatted FASB ASC topics are 3 digits.
FASB ASC 450-20-25-1
Company A is a car manufacturer. On January 1, Year 1, Company A leased a car to Company B for an 8-year period. The lease is appropriately accounted for as a sales-type lease by Company A. The useful life of the car is 10 years, and its carrying amount in Company A's financial statements was $100,000. The eight annual equal lease payments of $19,870 are payable at the end of each year, starting December 31, Year 1. The interest rate implicit in the lease is 10%. The fair value of the car at the inception of the lease equals the lease receivable. At the end of the lease term, Company B guarantees a residual value of $30,000. Information on present value factors is as follows: Present value of $1 at 10% for 8 periods0.4665Present value of an ordinary annuity of $1 at 10% for 8 periods5.33493 Complete Company A's sales-type lease sheet using the information above. Enter the appropriate amounts in the designated cells below. Enter all amounts as positive values. Round all amounts to the nearest dollar. If no entry is necessary, enter a zero (0). ItemAmount1. The net investment in the lease account recognized by Company A on January 1, Year 12. The amount of gross profit on the sale recognized by Company A in Year 13. Total amount of interest income that Company A will earn over the lease period4. The amount of interest income on the lease recognized by Company A in Year 15. The amount of net investment in the lease account reported in Company A's 12/31/Year 1 balance sheet6. The amount of interest income on the lease recognized by Company A in Year 2
1. 120000 2. 20000 3. 68960 4. 12000 5. 112130 6. 11213
On January 1, Year 1, Company A (the lessee) entered into an 8-year lease agreement with Company B (the lessor) for industrial equipment. Annual lease payments of $14,378 are payable at the end of each year. Company A's incremental borrowing rate is 7%, and the implicit rate in the lease is 5%, which is known to Company A. On January 1, Year 1, the fair value of the equipment is $125,000 and its estimated useful life is 15 years. Company A depreciates its long-lived assets in accordance with the straight-line depreciation method. At lease commencement date, Company B estimates that the total residual value of the equipment at the end of the lease term will be $47,388. Company A guarantees $40,000 of the residual value of the equipment. However, due to expected high usage of the equipment, Company A estimates that the value of the equipment at the end of the lease term will be only $30,000. Information on present value factors is as follows: Present value of $1 at 5% for 8 periods0.6768Present value of $1 at 7% for 8 periods0.5820Present value of an annuity of $1 at 5% for 8 periods6.4632Present value of an annuity of $1 at 7% for 8 periods5.9713 Enter the appropriate amounts in the designated cells. Enter all amounts as positive values. Round all amounts to the nearest whole number. If the amount is zero, enter a zero (0). Enter all percentages as a percentage, not a decimal. For item 2, select the appropriate lease classification option by Company A from the option list provided. ItemAmount1. The discount rate for the lease used by Company A2. Classification of the lease by Company A3. The amount at which the lease liability was recognized in Company A's financial statements at the lease commencement date4. The amount of interest expense recognized by Company A in Year 15. The carrying amount of the right-of-use asset in Company A's December 31, Year 1, financial statements6. The amount of Company A's lease liability on December 31, Year 1, after the first required payment was made7. The amount of the current portion of the lease liability as it is presented in Company A's December 31, Year 1, financial statements
1. 5% 2. finance lease 3. 99696 4. 4985 5. 87234 6. 90303 7. 9863
On January 1, Year 6, Magnus Co. leased a machine to Fisher Co. The machine was acquired by Magnus on January 1, Year 1, for $200,000. The useful life of the machine was 20 years with no salvage value, and it was depreciated by Magnus using the straight-line method. The lease term is 10 years, and the present value of the lease payments to be made over the lease term was $90,000. Annual equal lease payments of $14,647 are payable at the end of each year starting December 31, Year 6. The discount rate for the lease is 10%. Fisher depreciates all of its assets using the straight-line method. Assume that both the remaining economic life of the machine and the salvage value did not change as a result of the lease. For each of the following independent situations, enter in the designated cells below the appropriate amounts for the carrying amount of the right-of-use asset that should be reported in Fisher's December 31, Year 6, balance sheet. Enter all amounts as positive values. Round all amounts to the nearest whole number. If no entry is necessary, enter a zero (0) or leave the cell blank. SituationCarrying amount1. The ownership of the machine will transfer to Fisher at the end of the lease term.2. The lease was classified as an operating lease.3. At the inception of the lease, the present value of the minimum lease payments was 95% of the fair value of the machine.4. The lease contained a purchase option at the end of the lease term that Fisher is reasonably certain to exercise. The present value of the lease payments includes the exercise price of the option, and the discount rate of the lease is 12%.
1. 84000 2. 84353 3. 81000 4. 84000
Edge Co., a toy manufacturer, is in the process of preparing its financial statements for the year ended December 31, Year 8. Edge expects to issue its Year 8 financial statements on March 1, Year 9. Items 1 through 6 represent potential contingencies that have not been reflected in the financial statements. For each item, the following two responses are required. Select the appropriate adjustment amount, if any. Indicate whether additional disclosure is required, either on the face of the financial statements or in the notes to the financial statements. Select from the option lists provided the appropriate answer for each statement below. Each choice may be used once, more than once, or not at all. 1. Edge owns a small warehouse located on the banks of a river in which it stores inventory worth approximately $500,000. Edge is not insured against flood losses. The river last overflowed its banks 20 years ago.2. In May of Year 8, an explosion occurred at Edge's toy plant, causing damage to area properties. By the end of the year, no claims had been asserted against Edge. However, Edge believes it is probable that a lawsuit will be filed next year regarding its responsibility for the damage. Edge's legal counsel concluded that if the lawsuit is filed next year, $100,000 to $500,000 will be a reasonable estimate of the range of damages, and $150,000 is a better estimate than any other amount in this range.3. Edge offers an unconditional warranty against manufacturing defects on its toys. Based on past experience, Edge estimates it warranty expense to be 1% of sales. Sales during Year 8 were $10 million.4. On October 30, Year 8, a safety hazard related to one of Edge's toy products was discovered. It is probable that Edge will be liable for an amount in the range of $100,000 to $500,000.5. On November 22, Year 8, Edge initiated a lawsuit seeking $250,000 in damages from patent infringement.6. On December 17, Year 8, a former employee filed a lawsuit seeking $100,000 for unlawful dismissal. Edge's attorneys believe the suit is without merit. No court date has been set.
1. No adjustment is required, no 2. 150000, yes 3. 100000, no 4. 100000, yes 5. no adjustment is required, no 6. no adjustment is required, no
Chester Company has the following contingencies: A threat of expropriation exists for one of its manufacturing plants located in a foreign country. Expropriation is deemed to be reasonably possible. Any compensation from the foreign government would be less than the carrying amount of the plant. Potential costs exist due to the discovery of a safety hazard related to one of its products. These costs are probable and can be reasonably estimated. One of its warehouses located at the base of a mountain could no longer be insured against rock-slide losses. No rock-slide losses have occurred. Select from the option list provided the correct answer for each question below. Each choice may be used once, more than once, or not at all. QuestionAnswer1. How should Chester report the threat of expropriation of assets?2. How should Chester report the potential costs due to the safety hazard?3. How should Chester report the noninsurable rock-slide risk?4. One of Chester's largest business units deals exclusively in commodity metals, such as copper and gold. Recent global economic conditions have resulted in high volatility in both the price and supply of these metals.5. During routine internal control testing, Chester's internal audit function discovered that an executive assistant has been taking the loose change in petty cash.
1. disclosure in the notes 2. accrual of loss and payable 3. no accrual or disclosure required 4. disclosure in the notes 5. no accrual or disclosrue requried
The following items represent various material contingencies of Luge Co. at December 31, Year 5, and events subsequent to December 31, Year 5, but prior to the issuance of the Year 5 financial statements. For each item, select from the option list provided the correct reporting requirement. Each choice may be used once, more than once, or not at all. ContingencyReporting requirement1. On December 1, Year 5, Luge was awarded damages of $75,000 in a patent infringement suit it brought against a competitor. The defendant appealed the verdict. It is probable that the appeal will fail.2. Luge has been sued by a former employee for wrongful dismissal. Although the trial was incomplete at the balance sheet date, Luge's attorney believes that the result would be unfavorable. Subsequent to that date but before the statements are available to be issued, an unfavorable verdict was issued. However, no damages have been determined. The probable loss is between $400,000 and $600,000, but no amount within this range is more likely than any other.3. On December 31, Year 5, Luge entered into an operating lease with the lessor. Luge guaranteed the residual value of the leased asset. The probability is remote that a payment will be made under the guarantee.4. A government contract completed during Year 5 is subject to renegotiation. Luge estimates a slight chance that a refund of approximately $50,000 may be required by the government.5. Luge believes it is probable that a lawsuit will be filed next year regarding its responsibility for the cleanup of toxic materials at a site it owns where a prior owner conducted operations. Luge reliably estimates that its probable share of remedial action will cost $600,000 to $900,000 (each point in this continuous range is as likely as any other).6. On December 30, Year 5, Luge acquired and insured a fleet of vehicles to be used in its business. Luge reasonably estimates that $200,000 in losses will be incurred in Year 6 for future damage to the property of others as a result of the use of these vehicles.
1. disclosure only 2. accrual of the minimum amount f the range and disclosure 3. Accrual and disclosure 4. Neither accrual nor disclosure 5. Accrual of the minimum amount of the range and disclosure 6. Neither accrual nor disclosrue
Each item below describes an amount(s) not reflected in the financial statements of Drake Company. Select from the option list provided the amount, if any, required to be recognized in Drake's financial statements based on a calendar year for Year 4. Each choice may be used once, more than once, or not at all. DescriptionAmount1. Drake owns a small warehouse located on the banks of a river in which it stores inventory worth approximately $500,000. Drake is not insured against flood losses. The river last overflowed its banks 20 years ago.2. During Year 4, Drake began offering certain healthcare benefits to its eligible retired employees. Drake's net periodic postretirement benefit cost (NPPBC) is $150,000.3. Drake offers an unconditional warranty against manufacturing defects on its toys. Based on past experience, Drake estimates its warranty expenses to be 1% of sales. Sales during Year 4 were $10 million.4. On October 20, Year 4, a safety hazard related to one of Drake's toy products was discovered. It is probable that Drake will be liable for an amount in the range of $100,000 to $500,000. No amount in the range is a better estimate than any other.5. On November 22, Year 4, Drake initiated a lawsuit seeking $250,000 in damages from patent infringement.6. On December 17, Year 4, a former employee filed a lawsuit seeking $100,000 for unlawful dismissal. Drake's attorneys believe the suit is without merit. No court date has been set.
1. no adjustment is reuqried 2. 150000 3. 100000 4. 100000 5. no adjustment is requried 6. no adjustmnet is required
On January 1, Year 1, Drake Co. leased equipment from Brewer, Inc. Lease payments are $100,000, payable annually every December 31 for 20 years. Title to the equipment passes to Drake at the end of the lease term. The lease is noncancelable. Additional Facts: The equipment has a $750,000 carrying amount on Brewer's books. Its estimated economic life was 25 years on January 1, Year 1. The rate implicit in the lease, which is known to Drake, is 10%. Drake's incremental borrowing rate is 12%. Drake normally uses the straight-line method of depreciation for equipment. The economic life of the equipment did not change as a result of the lease. The rounded present value factors of an ordinary annuity for 20 years are as follows: 12% 7.510% 8.5 To prepare each required journal entry: Enter the corresponding debit or credit amount in the associated column. Round all amounts to the nearest whole number. Not all rows in the table might be needed to complete each journal entry. If no journal entry is needed, check the "No entry required" box at the top of the table as your response. 1. Record the journal entries for the following accounts for Drake on January 1, Year 1, if any. No Entry Required Account NameDebitCredit Right-of-use asset Lease liability 2. Record the journal entries for the following accounts for Drake on December 31, Year 1, if any. No Entry Required Account NameDebitCredit Lease liability Interest expense Cash 3. Record the journal entries for the following accounts for Drake on December 31, Year 1, if any. No Entry Required Account NameDebitCredit Amortization expense Right-of-use asset 4. Record the amounts for the following accounts in Drake's December 31, Year 2, balance sheet.
1. right of use asset 850000 lease liability 850000 2. lease liability 15000 interest exp 85000 cash 100000 3. amor exp 34000 right of use asset 34000 4. right of use asset 782000 current liabilities 18150 noncurretnt 800350
For each of REV's guarantees, commitments, and contingencies, including litigation, in the table below: In the "Requirement of financial statement note disclosure in Year 3" column, select from the option list provided whether disclosure is required by clicking in the designated cell and selecting "Yes" or "No" as appropriate. In the "Asset (liability) balance as of December 31, Year 3," column, enter the asset or liability balance, if any, that should be recognized as of December 31, Year 3. Enter asset balances as positive whole dollars and liability balances as negative whole dollars. If no amount is required, enter a zero (0). Requirement of financial statement note disclosure in Year 3Asset (liability) balance as of December 31, Year 31. Copyright infringement2. Loan guarantee3. Property insurance claim4. Penalty from State Health and Safety Agency5. Product liability lawsuit6. Letter of credit
1. yes, -2000000 2. yes -500000 3. yes, 0 4. yes, -150000 5. no, 0 6. yes, 0
A recently issued demographic report indicates that there is a reasonable probability that Lambert's business may be adversely impacted in the future. The company's controller wants to begin accruing a general contingency reserve now for unspecified business contingencies, such as the potential decline in business that may occur in the future. Which section of the Accounting Standards Codification best describes whether or not such an accrual is allowed under GAAP ? Enter your response in the answer fields below. Guidance on correctly structuring your response appears above and below the answer fields. Unless specifically requested, your response should not cite implementation guidance.
FASB ASC 450-20-25-8
On January 1, Year 1, Greg Co. leased an office building to Abby Co. The lease was properly classified by the two companies as an operating lease. The lease term is for 20 years and the estimated remaining useful life of the office building is 50 years. The controller of Greg Co. is not sure whether Greg Co. should test the office building for impairment while it is leased to Abby Co. Which section of the Accounting Standards Codification best helps the controller of Greg Co. determine whether the office building is tested for impairment while it is leased to Abby Co.? Enter your response in the answer fields below. Guidance on correctly structuring your response appears above and below the answer fields. Unless specifically requested, your response should not cite implementation guidance.
FASB ASC 842-30-35-6
On January 1, Year 1, Michael sold a property with a remaining useful life of 20 years to Wei Co. for $800,000. On the same date, Michael leased back the property from Wei for 18 years. The lease was properly classified by Michael as a finance lease. Michael is not sure how to recognize the $800,000 received from Wei Co. on January 1, Year 1. Which section of the Accounting Standards Codification best helps Michael determine how the initial proceeds of $800,000 received from Wei Co. (buyer-lessor) are recognized? Enter your response in the answer fields below. Guidance on correctly structuring your response appears above and below the answer fields. Unless specifically requested, your response should not cite implementation guidance. Type the topic here.Correctly formatted FASB ASC topics are 3 digits.
FASB ASC 842-40-25-5
Dumat, Inc., is preparing its Year 1 financial statements. Margaret Akin, a staff accountant, has prepared the following notes to the financial statements. Angela Rogan, the CFO, has asked you to review the notes and correct any errors. The information covered in the attached exhibits is material to the financial statements. Failure to provide proper disclosure will impact the decision making of financial statement users. To revise the document, click on each segment of underlined text below and select the needed correction, if any, from the list provided. If the underlined text is already correct in the context of the document, select [Original Text] from the list. If removal of the underlined text is the best revision to the document, select [Delete Text] from the list if available.
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