Accounting Standards Codification
Use the codification to answer the following and make sure you give proper ASC citation for every answer. I have 2 You Tube videos in the week 3 assignment folder and the link and password information to the codification is in the Web Links area. You can access the financial accounting codification by going to: http://aaahq.org/ascLogin.cfm This login information is also posted in Web links in our course and is case sensitive. Please see the information about citing ASC at the end of this document. Please make sure you are answering the questions in your own words and not just copying and pasting the codification.
Required: Below are 5 short cases worth 4 pts. each, a total of 20 pts. You need to make a definitive recommendation in each of your case responses and include at least one ASC (Accounting Standards Codification) citation in your response that is currently applicable. Your response should be in your own words and be at least a full paragraph recommendation, which does not include copying and pasting the ASC into your response. I am grading your case response based on you responding in your own words a clearly stated recommendation with applicable ASC citation to support your recommendation. I will count off for grammar and spelling errors, so please make sure you proofread your response. If you have questions, please do not hesitate to ask. Just below I have a practice case that is completed with the format I would like you to use.
Practice Case Example
After the Julie Company issued its previous years’ financial statements, it noticed that it incorrectly calculated depreciation expense and, thus, disclosed this fact as a prior period adjustment in its current years’ financial statements. (This difference also did not affect any cash balances, since Julie maintained an operating loss for both periods.) However, Julie did not issue comparative financial statements in the current year. Julie now wonders how to disclose this prior period adjustment in its current year’s Balance Sheet and Statement of Cash Flows.
Practice Case Solution:
Recommendation: Per ASC 250-10-50-9, Julie Company should disclose the effect of a prior period adjustment (for a single period’s financial statement) as an adjustment in the opening balance in retained earnings—plus make adequate footnote disclosures of the reasons for and effect of the adjustment. Also, per ASC 230-10-50-3, Julie Company should also disclose information about investing and financing activities that did not result in cash receipts for the current period. Thus, Julie should also disclose the differences in the account balances of the two consecutive balance sheets both in the statement of cash flows and in an appropriate footnote.
Case 1: Lowland Appliance Stores offers customers purchasing its appliances separately priced (extended) warranties. Lowland services these extended warranties. Its customers can receive no refunds for not using these warranties, and, of course, Lowland must honor these contracts—regardless of any future costs in doing so. It also “tracks” the profits and losses these types of warranties generate by appliance category—in order to help maintain a competitive price and costing structures. How should Lowland recognize the revenues and expenses of such extended warranties?
Case 2: As of January 1, the Lohse Company owes the First Arbor Bank $350,000 which is due on 2 December 31. Since Lohse seems unable to repay the note, the bank agreed that Lohse can “settle” this
balance by agreeing to make four, annual installments on each of the next four years, provided that it
adds a “due on demand” clause to the note. Specifically, the lender will “do its best” not to call the note
“provided that no adverse significant shift in operations occurs.” However, First Arbor Bank has the sole
discretion to ascertain if these adverse conditions arose, and then to call the note due immediately. How
should Lohse account for this above situation?
Case 3: On January 1, the Chin Company agreed to purchase all of Jack Jackson’s interest in the Chin
company for $30 per share. Jack, who owns 15% and previously threatened to engage in a hostile
takeover attempt of Chin. For the last two years, Chin’s stock traded from about $12-23—reaching $23
on December 31 of last year. How should Chin record this transaction?
Case 4: Alex Corporation is planning this year to present comparative income statements but only the
current year’s balance sheet. James Johnston, president of Alex Corporation requests your advice as to
whether comparative cash flow statements for both the current and prior periods are necessary
considering only the current year’s balance sheet is presented. Are there any authoritative
pronouncements that address this issue that you could present to Mr. Johnston?
Case 5: A new client for your firm is Sam Jones who is preparing personal financial statements for a
bank loan. Mr. Jones is attempting to list his social security benefits to be received based on his future
life expectancy as an asset on his financial statements. Mr. Jones states that such benefits meet the
definition of an asset. Would you agree to allow the social security benefits to be listed as an asset?
Codification content:
1. FASB ASC {Codification reference}, for example:
a. Topics—FASB ASC Topic 310 [, Receivables]
b. Subtopics—FASB ASC Subtopic 310-10 [, Receivables – Overall]
c. Sections—FASB ASC Section 310-10-15 [, Receivables – Overall – Scope]
d. Paragraph—FASB ASC paragraph 310-10-15-2
e. Subparagraph—FASB ASC subparagraph 310-10-15-2(a).
You can use the following example for referencing the codification in your writing: ASC XXX-YY-ZZ-PP
3
XXX = Topic
YY = Subtopic
ZZ = Section
PP = Paragraph
Please note how to report in-text citation in comparison to the needed for a complete citation on your
reference page in your research page. You can use the specific references in your paper and then on
your research page use the generic reference to the FASB codification. Please see below the reference
you should include at the end of your term paper on the reference page using APA style. Remember to
use a hanging indent to meet APA style.
FASB (Financial Accounting Standards Board). (n.d.). Accounting Standards Codification (ASC).
Retrieved September 12, 2019, from FASB Accounting Standards Codification database.
Please review this link for the example of how to reference on the reference page per APA style:
http://libguides.bentley.edu/citingsources-apa
Quick guide developed by PWC http://www.pwc.com/us/en/cfodirect/assets/pdf/accountingguides/
pwc_codification_quick_reference_guide.pdf
