Intermediate ACCTG307 Discussion Case 2

Intermediate ACCTG307 Discussion Case 2 in $12 onlyIntermediate ACCTG307 Discussion Case 2

DISCUSSION CASE #2

INTERMEDIATE ACCTG307

You recently joined the internal auditing department of Marcus Clothing Corporation. As one of your first assignments, you are examining a balance sheet prepared by a staff accountant.

Analyze the balance sheet for Judgement Case 3-5 located on pages 161–162 of your textbook.

In the course of your examination you uncover the following information pertaining to the balance sheet.

  1. The company rents its facilities. The land that appears in the statement is being held for future sale.
  2. The note receivable is due in 2015. The balance of $53,000 includes $3,000 of accrued interest. The next interest payment is due in July 2014.
  3. The note payable is due in installments of $20,000 per year. Interest on both the notes and bonds is payable annually.
  4. The company’s investments consist of marketable equity securities of other corporations. Management does not intend to liquidate any investments in the coming year.

Identify and explain the deficiencies in the statement prepared by the company’s accountant. Include in your answer items that require additional disclosure, either on the face of the statement or in a note.

Page 161

Communication Case 3–1

Current versus noncurrent classification

LO3–2

Current versus noncurrent classification

LO3–2

A first-year accounting student is confused by a statement made in a recent class. Her instructor stated that the assets listed in the balance sheet of the IBM Corporation include computers that are classified as current assets as well as computers that are classified as noncurrent assets. In addition, the instructor stated that investments in marketable securities of other corporations could be classified in the balance sheet as either current or noncurrent assets.

Required:

Explain to the student the distinction between current and noncurrent assets pertaining to the IBM computers and the investments in marketable securities.

Analysis Case 3–2

Current versus noncurrent classification

LO3–2, LO3–3

Current versus noncurrent classification

LO3–2, LO3–3

The usefulness of the balance sheet is enhanced when assets and liabilities are grouped according to common characteristics. The broad distinction made in the balance sheet is the current versus noncurrent classification of both assets and liabilities.

Required:

  1. Discuss the factors that determine whether an asset or liability should be classified as current or noncurrent in a balance sheet.
  2. Identify six items that under different circumstances could be classified as either current or noncurrent. Indicate the factors that would determine the correct classification.
Communication Case 3–3

FASB codification research; inventory or property, plant, and equipment

LO3–2

FASB codification research; inventory or property, plant, and equipment

LO3–2

The Red Hen Company produces, processes, and sells fresh eggs. The company is in the process of preparing financial statements at the end of its first year of operations and has asked for your help in determining the appropriate treatment of the cost of its egg-laying flock. The estimated life of a laying hen is approximately two years, after which they are sold to soup companies.

The controller considers the company’s operating cycle to be two years and wants to present the cost of the egg-producing flock as inventory in the current asset section of the balance sheet. He feels that the hens are “goods awaiting sale.” The chief financial officer does not agree with this treatment. He thinks that the cost of the flock should be classified as property, plant, and equipment because the hens are used in the production of product—the eggs.

The focus of this case is the balance sheet presentation of the cost of the egg-producing flock. Your instructor will divide the class into two to six groups depending on the size of the class. The mission of your group is to reach consensus on the appropriate presentation.

Required:

  1. Each group member should deliberate the situation independently and draft a tentative argument prior to the class session for which the case is assigned.
  2. In class, each group will meet for 10 to 15 minutes in different areas of the classroom. During that meeting, group members will take turns sharing their suggestions for the purpose of arriving at a single group treatment.
  3. After the allotted time, a spokesperson for each group (selected during the group meetings) will share the group’s solution with the class. The goal of the class is to incorporate the views of each group into a consensus approach to the situation.
IFRS Case 3–4

Balance sheet presentation; Vodafone Group, Plc.

LO3–2, LO3–3,LO3–9

Real World Financials

Balance sheet presentation; Vodafone Group, Plc.

LO3–2, LO3–3, LO3–9

Description: http://textflow.mheducation.com/figures/0077446461/ifrs_icon2.jpg

Real World Financials

Description: http://textflow.mheducation.com/figures/0077446461/istock_000007395743small.jpgIFRS

Vodafone Group, Plc., a U.K. company, is the largest mobile telecommunications network company in the world. The company prepares its financial statements in accordance with International Financial Reporting Standards. Below are partial company balance sheets (statements of financial position) included in a recent annual report:

Description: http://textflow.mheducation.com/figures/0077446461/table_202.jpg

Vodafone Group, Plc.
Consolidated Statements of Financial Position At March 31
2011 2010
£m £m
Noncurrent assets
Goodwill 45,236 51,838
Other intangible assets 23,322 22,420
Property, plant, and equipment 20,181 20,642
Investments in associates 38,105 36,377
Other investments 1,381 7,591
Deferred tax assets 2,018 1,033
Post employment benefits 97 34
Trade and other receivables ?3,877 ?2,831
134,217 142,766
Current assets
Inventory 537 433
Taxation recoverable 281 191
Trade and other receivables 9,259 8,784
Other investments 674 388
Cash and cash equivalents ?6,252 ?4,423
?17,003 ?14,219
Total assets 151,220 156,985
Equity (details provided in complete statement) 87,561 90,810
Noncurrent liabilities
Long-term borrowings 28,375 28,632
Taxation liabilities 350
Deferred tax liabilities 6,486 7,377
Postemployment benefits 87 237
Provisions 482 497
Trade and other payables ??804 ??816
?36,584 ?37,559
Current liabilities
Short-term borrowings 9,906 11,163
Taxation liabilities 1,912 2,874
Provisions 559 497
Trade and other payables ?14,698 ?14,082
?27,075 ?28,616
Total equity and liabilities 151,220 156,985

Page 162

Required:

  1. Describe the differences between Vodafone’s balance sheets and a typical U.S. company balance sheet.
  2. What type of liabilities do you think are included in the provisions category in Vodafone’s balance sheets?
Judgment Case 3–5

Balance sheet; errors

LO3–2through LO3–4

Balance sheet; errors

LO3–2 through LO3–4

You recently joined the internal auditing department of Marcus Clothing Corporation. As one of your first assignments, you are examining a balance sheet prepared by a staff accountant.

MARCUS CLOTHING CORPORATION
Balance Sheet At December 31, 2013
Assets
Current assets:
?Cash $?137,000
?Accounts receivable, net 80,000
?Note receivable 53,000
?Inventories 240,000
?Investments ??66,000
?Total current assets ?576,000
Other assets:
?Land $200,000
?Equipment, net 320,000
?Prepaid expenses 27,000
?Patent ?22,000
?Total other assets ??569,000
??Total assets $1,145,000
Liabilities and Shareholders’ Equity
Current liabilities:
?Accounts payable $?125,000
?Salaries payable ??32,000
??Total current liabilities 157,000
Long-term liabilities:
?Note payable $100,000
?Bonds payable 300,000
?Interest payable ?20,000
?Total long-term liabilities 420,000
Shareholders’ equity:
?Common stock 500,000
?Retained earnings ?68,000
??Total shareholders’ equity ??568,000
???Total liabilities and shareholders’ equity $1,145,000

Page 163

In the course of your examination you uncover the following information pertaining to the balance sheet:

  1. The company rents its facilities. The land that appears in the statement is being held for future sale.
  2. The note receivable is due in 2015. The balance of $53,000 includes $3,000 of accrued interest. The next interest payment is due in July 2014.
  3. The note payable is due in installments of $20,000 per year. Interest on both the notes and bonds is payable annually.
  4. The company’s investments consist of marketable equity securities of other corporations. Management does not intend to liquidate any investments in the coming year.

Required:

Identify and explain the deficiencies in the statement prepared by the company’s accountant. Include in your answer items that require additional disclosure, either on the face of the statement or in a note.

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