intermediate accounting A Review of the Accounting Cycle

Chapter 13 Current Liabilities and ContingenciesQUESTIONS FOR REVIEW OF KEY TOPICSQuestion 13-1A liability entails the present, the future, and the past. It is a present responsibility, to sacrifice assets in the future, caused by a transaction or other event that already has happened. Specifically, ―Elements of Financial Statements,‖ Statement of Financial Accounting Concepts No. 6, par. 36, describes three essential characteristics: Liabilities–1. are probable, future sacrifices of economic benefits2. that arise from present obligations (to transfer goods or provide services) to other entities3. that result from past transactions or events.Question 13-2Liabilities traditionally are classified as either current liabilities or long-term liabilities in a classified balance sheet. Current liabilities are those expected to be satisfied with current assets or by the creation of other current liabilities. Usually, but with exceptions, current liabilities are obligations payable within one year or within the firm's operating cycle, whichever is longer.Question 13-3In concept, liabilities should be reported at their present values; that is, the valuation amount is the present value of all future cash payments resulting from the debt, usually principal and/or interest payments.In this case, the amount would be determined as the present value of $100,000, discounted for three months at an appropriate rate of interest for a debt of this type. This is proper because of the time value of money.In practice, liabilities ordinarily are reported at their maturity amounts if payable within one year because the relatively short time period makes the interest or time value component immaterial. [FASB ASC 835-30-15-3: Interest – Imputation of Interest – Scope and Scope Exceptions (previously ―Interest on Receivables and Payables,‖ Accounting Principles Board Opinion No 21, (New York, AICPA, August 1971, Par. 3))] specifically exempts from present value valuation all liabilities arising in connection with suppliers in the normal course of business and due within a year.Answers to Questions (continued)Question 13-4Lines of credit permit a company to borrow cash from a bank up to a prearranged limit at a predetermined, usually floating, rate of interest. The interest rate often is based on current rates of the prime London interbank borrowing, certificates of deposit, bankers’ acceptance, or other standard rates. Lines of credit usually must be available to support the issuance of commercial paper.Lines of credit can be noncommitted or committed. A noncommitted line of credit allows the company to borrow without having to follow formal loan procedures and paperwork at the time of the loan and is less formal, usually without a commitment fee. Sometimes a compensating balance is required to be on deposit with the bank as compensation for the service. A committed line of credit is more formal. It usually requires a commitment fee in the neighborhood of 1/4 of one percent of the unused balance during the availability period. Sometimes compensating balances also are required. Question 13-5When interest is ―discounted‖ from the face amount of a note at the time it is written, it usually is referred to as a ―noninterest-bearing‖ note. They do, of course entail interest, but the interest is deducted (or discounted) from the face amount to determine the cash proceeds made available to the borrower at the outset and included in the amount paid at maturity. In fact, the effective interest rate is higher than the stated discount rate because the discount rate is applied to the face value, but the cash borrowed is less than the face value.Question 13-6Commercial paper represents loans from other corporations. It refers to unsecured notes sold in minimum denominations of $25,000 with maturities ranging from 30 to 270 days. The firm would be required to file a registration statement with the SEC if the maturity is beyond 270 days. The name ―commercial paper‖ implies that a paper certificate is issued to th e lender to represent the obligation. But, increasingly, no paper is created because the entire transaction is computerized. Recording the issuance and payment of commercial paper is the same as for notes payable.The interest rate usually is lower than in a bank loan because commercial paper (a) typically is issued by large, sound companies (b) directly to the lender, and (c) normally is backed by a line of credit with a bank.Question 13-7This is an example of an accrued expense– an expense incurred during the current period, but not yet paid. The expense and related liability should be recorded as follows:Salaries expense 5,000Salaries payable 5,000This achieves a proper matching of this expense with the revenues it helps generate, and recognizes that a liability has been created by the employee earning wages for which she has not yet been paid.Question 13-8An employer should accrue an expense and the related liability for employees' compensation for future absences, like vacation pay, if the obligation meets each of four conditions:(1) the obligation is attributable to employees' services already performed, (2) the paid absence can be taken in a later year –the benefit vests (will be compensated even if employment is terminated) or the benefit can be accumulated over time, (3) the payment is probable, and (4) the amount can be reasonably estimated.Customary practice should be considered when deciding whether an obligation exists. For instance, whether the rights to paid absences have been earned by services already rendered sometimes depends on customary policy for the absence in question. An example is whether compensation for upcoming sabbatical leave should be accrued. Is it granted only to perform research beneficial to the employer? Or, is it customary that sabbatical leave is intended to provide unrestrained compensation for past service?Similar concerns also influence whether unused rights to the paid absences can be carried forward or expire. Although holiday time, military leave, maternity leave, and jury time typically do not accumulate if unused, if it is customary practice that one can be carried forward, a liability is accrued if it’s probable employees will be compensated in a future year. Similarly, sick pay is specifically excluded from mandatory accrual, according to GAAP regarding compensated absences, because future absence depends on future illness, which usually is not a certainty. But, if company policy or custom is that em ployees are paid ―sick pay‖ even when their absence is not due to illness, a liability for unused sick pay should be recorded.Question 13-9When a company collects cash from a customer as a refundable deposit or as an advance payment for products or services, a liability is created obligating the firm to return the deposit or to supply the products or services. When the amount is to be returned to the customer in cash, it is a refundable deposit. When the amount will be applied to the purchase price when goods are delivered or services provided (gift certificates, magazine subscriptions, layaway deposits, special order deposits, and airline tickets), it is a customer advance.Question 13-10Gift cards are a particular form of advance collection of revenues. When the payment is received, the seller debits cash and credits an unearned revenue liability. Later, unearned revenue is reduced and revenue recognized either when the customer redeems the gift card or when the probability of redemption is viewed as remote, based on an expiration date or the company’s experience. Question 13-11Examples of amounts collected for third parties that represent liabilities until remitted are sales taxes, and payroll-related deductions such as federal and state income taxes, social security taxes, employee insurance, employee contributions to retirement plans, and union dues.Question 13-121. Current liability— The requirement to classify currently maturing debt as a current liabilityincludes debt that is callable, or due on demand, by the creditor in the upcoming year even if the debt is not expected to be called.2 Long-term liability— The current liability classification includes (a) situations in which thecreditor has the right to demand payment because an existing violation of a provision of the debt agreement makes it callable and (b) situations in which debt is not yet callable, but will be callable within the year if an existing violation is not corrected within a specified grace period – unless it's probable the violation will be corrected within the grace period. In this case, the existing violation is expected to be corrected within 6 months.Question 13-13Short-term obligations can be reported as noncurrent liabilities if the company (a) intends to refinance on a long-term basis and (b) demonstrates the ability to do so by a refinancing agreement or by actual financing.Question 13-14Under U.S. GAAP, ability to finance must be demonstrated by securing financing prior to the date the balance sheet is issued; under IFRS, ability to finance must be demonstrated by securing financing prior to the balance sheet date (which typically is a couple of months earlier than the date of issuance).Question 13-15A loss contingency is an existing situation, or set of circumstances involving potential loss that will be resolved when some future event occurs or doesn’t occur. Examples: (1) a possible repair to a product under warranty, (2) a possible uncollectible receivable, (3) being the defendant in a lawsuit. Question 13-16The likelihood that the future event(s) will confirm the incurrence of the liability must be categorized as:P ROBABLE– the confirming event is likely to occur.R EASONABLY P OSSIBLE– the chance the confirming event will occur is more than remote but less than likely.R EMOTE– the chance the confirming event will occur is slight.Question 13-17A liability should be accrued if it is both probable that the confirming event will occur and the amount can be at least reasonably estimated.Question 13-18Under U.S. GAAP, the term ―contingent liability‖ is used to refer generally to contingent losses, regardless of probability. Under IFRS, a contingent liability refers only to those contingencies that are not recognized in the financial statements; the term ―provision‖ is used to refer to those that are accrued as liabilities because they are probable and reasonably estimable.Question 13-19If one or both of the accrual criteria is not met, but there is at least a reasonable possibility that an obligation exists (the loss will occur), a disclosure note should describe the contingency. The note also should provide an estimate of the possible loss or range of loss, if possible. If an estimate cannot be made, a statement to that effect should be included.Question 13-201. Manufacturers’ product warranties —these inevitably involve expenditures, and reasonablyaccurate estimates of the total liability for a period usually are possible, based on prior experience.2. Cash rebates and other premium offers — these inevitably involve expenditures, and reasonablyaccurate estimates of the total liability for a period usually are possible, based on prior experience. Question 13-21The contingent liability for warranties and guarantees usually is accrued. The estimated warranty (guarantee) liability is credited and warranty (guarantee) expense is debited in the reporting period in which the product under warranty is sold. An extended warranty provides warranty protection beyond the manufacturer’s original warranty. A manufacturer’s warranty is offered as an integral part of the product package. By contrast, an extended warranty is priced and sold separately from the warranted product. It essentially constitutes a separate sales transaction and is recorded as such.Question 13-22Several weeks usually pass between the end of a company’s fiscal year and the date the financial statements for that year actually are issued. Any enlightening events occurring during this period should be used to assess the nature of a loss contingency existing at the report date. Since a liability should be accrued if it is both probable that the confirming event will occur and the amount can be at least reasonably estimated, the contingency should be accrued.Question 13-23When a contingency comes into existence only after the year-end, a liability cannot be accrued because none existed at the end of the year. Yet, if the loss is probable and can be reasonably estimated, the contingency should be described in a disclosure note. The note should include the effect of the loss on key accounting numbers affected. Furthermore, even events other than contingencies that occur after the year-end but before the financial statements are issued must be disclosed in a ―subsequent events‖ disclosure note if they have a material effect on the company’s financial position. (i.e., an issuance of debt or equity securities, a business combination, or discontinued operations). Question 13-24In U.S. GAAP, the low end of the range is accrued as a liability, and the rest of the range is disclosed. In IFRS, the mid-point of the range is accrued.Question 13-25When an assessment is probable, reporting the possible obligation would be warranted if an unfavorable settlement is at least reasonably possible. This means an estimated loss and contingent liability would be accrued if (a) an unfavorable outcome is probable and (b) the amount can be reasonably estimated. Otherwise footnote disclosure would be appropriate. So, when the assessment is unasserted as yet, a two-step process is involved in deciding how it should be reported:1. Is the assessment probable? If it is not, no disclosure is warranted.2. If the assessment is probable, evaluate (a) the likelihood of an unfavorable outcome and (b)whether the dollar amount can be estimated to determine whether it should be accrued, disclosed only, or neither.Question 13-26You should not accrue your gain. A gain contingency should not be accrued. This conservative treatment is consistent with the general inclination of accounting practice to anticipate losses, but to recognize gains only at their realization. Though gain contingencies are not recorded in the accounts, they should be disclosed in notes to the financial statements. Attention should be paid that the disclosure note not give "misleading implications as to the likelihood of realization."BRIEF EXERCISESBrief Exercise 13-1Cash ............................................................... 60,000,000Notes payable .............................................. 60,000,000Interest expense ($60,000,000 x 12% x 3/12) ...... 1,800,000Interest payable .......................................... 1,800,000Brief Exercise 13-2Cash (difference) .......................................................... 54,600,000Discount on notes payable ($60,000,000 x 12% x 9/12) . 5,400,000Notes payable (face amount) .................................... 60,000,000 Interest expense ($60,000,000 x 12% x 3/12) ................. 1,800,000Discount on notes payable ................................... 1,800,000Brief Exercise 13-3a.December 31$100,000 x 12% x 6/12 = $6,000b.September 30$100,000 x 12% x 3/12 = $3,000Brief Exercise 13-4Cash (difference) .......................................................... 11,190,000Discount on notes payable ($12,000,000 x 9% x 9/12) ... 810,000Notes payable (face amount) .................................... 12,000,000 Interest expense ........................................................ 810,000Discount on notes payable........................................... 810,000 Notes payable (face amount) ........................................ 12,000,000Cash ....................................................................... 12,000,000Brief Exercise 13-5Cash (difference) .......................................................... 9,550,000Discount on notes payable ($10,000,000 x 6% x 9/12) ... 450,000Notes payable (face amount) .................................... 10,000,000Effective interest rate:Discount ($10,000,000 x 6% x 9/12)$ 450,000Cash proceeds ÷ $9,550,000Interest rate for 9 months 4.712%x 12/9___________Annual effective rate 6.3%Brief Exercise 13-6December 12Cash ....................................................................... 24,000Liability – customer advance ........................... 24,000 January 16Cash ....................................................................... 216,000Liability – customer advance ............................... 24,000Sales revenue ..................................................... 240,000Brief Exercise 13-7In 2011 Lizzie would recognize $11,500 of revenue ($4,000 + $3,000 + $2,500 + $2,000). In 2012 Lizzie would recognize the remainder of $6,500 ($18,000 -$11,500), either because gift cards were redeemed (the $1,000 in January and the $500 in February) or because they are viewed as expired.Brief Exercise 13-8Accounts receivable .............................................. 645,000Sales revenue.................................................... 600,000Sales taxes payable ([6% + 1.5%] x $600,000) ...... 45,000Brief Exercise 13-9Under U.S. GAAP, the debt would be classified as long-term for both completion dates, as what is key is that the refinancing be completed before the financialstatements are issued.Brief Exercise 13-10Under IFRS, the debt would be classified as long-term if the refinancing wascompleted by December 15, 2011, but not if completed by January 15, 2012,because for IFRS what is key is that the refinancing be completed by the balance sheet date.Brief Exercise 13-11This is a loss contingency and the estimated warranty liability is credited and warranty expense is debited in the period in which the products under warranty are sold. Right will report a liability of $130,000:Warranty Liability_________________________________________150,000Warranty expense (1% x $15,000,000) Actual expenditures20,000130,000 BalanceBrief Exercise 13-12This is a loss contingency and should be accrued because it is both probable that the confirming event will occur and the amount can be at least reasonablyestimated. Goo Goo should report a $5.5 million loss in its income statement anda $5.5 million liability in its balance sheetLoss – product recall ....................................................... 5,500,000Liability – product recall .......................................... 5,500,000A disclosure note also is appropriate.Brief Exercise 13-13This is a gain contingency. Gain contingencies are not accrued even if the gain is probable and reasonably estimable. The gain should be recognized only when realized. A carefully worded disclosure note is appropriate.Brief Exercise 13-14This is a loss contingency. A liability should be accrued if it is both probable that the confirming event will occur and the amount can be at least reasonably estimated. If one or both of these criteria is not met (as in this case), but there is at least a reasonable possibility that the loss will occur, a disclosure note should describe the contingency. That’s what Bell should do here.Brief Exercise 13-15Only the third situation’s costs should be accrued. A liability should be accrued fora loss contingency if it is both probable that the confirming event will occur andthe amount can be at least reasonably estimated. If one or both of these criteria is not met, but there is at least a reasonable possibility that the loss will occur, a disclosure note should describe the contingency. Both criteria are met only for the warranty costs.Brief Exercise 13-16Under U.S. GAAP, no liability would be recognized, because a 51% chance is less than the level of probability typically associated with ―probable‖ in the U.S. A liability would be acc rued under IFRS, as 51% is clearly ―more likely than not.‖ Ifa liability were accrued under U.S. GAAP, it would be for $10 million, the low endof the range, but under IFRS it would be for $15 million, the midpoint of the range. Brief Exercise 13-17No disclosure is required because an EPA claim is not yet asserted, and an assessment is not probable. Even if an unfavorable outcome is thought to be probable in the event of an assessment and the amount is estimable, disclosure is not required unless an unasserted claim is probable.EXERCISESExercise 13-1Requirement 1Cash ............................................................... 16,000,000Notes payable .............................................. 16,000,000 Requirement 2Interest expense ($16,000,000 x 12% x 2/12) ...... 320,000Interest payable ........................................... 320,000 Requirement 3Interest expense ($16,000,000 x 12% x 7/12) ...... 1,120,000Interest payable (from adjusting entry) ............... 320,000Notes payable (face amount) ............................. 16,000,000Cash (total) ................................................... 17,440,000 Exercise 13-21. Interest rate Fiscal year-end12% December 31$400 million x 12% x 6/12 = $24 million2. Interest rate Fiscal year-end10% September 30$400 million x 10% x 3/12 = $10 million3. Interest rate Fiscal year-end9% October 31$400 million x 9% x 4/12 = $12 million4. Interest rate Fiscal year-end6% January 31$400 million x 6% x 7/12 = $14 millionExercise 13-32011Jan. 13No entry is made for a line of credit until a loan actually is made. It would be described in a disclosure note.Feb. 1Cash .......................................................................... 5,000,000Notes payable ........................................................ 5,000,000 May 1Interest expense ($5,000,000 x 10% x 3/12)................... 125,000Notes payable (face amount) ........................................ 5,000,000Cash ($5,000,000 + 125,000)...................................... 5,125,000 Dec. 1Cash (difference) .......................................................... 9,325,000Discount on notes payable ($10,000,000 x 9% x 9/12) ... 675,000Notes payable (face amount) .................................... 10,000,000 Dec. 31The effective interest rate is 9.6515% ($675,000 ÷ $9,325,000) x 12/9. So, properly, interest should be recorded at that rate times the outstanding balance timesone-twelfth of a year:Interest expense ($9,325,000 x 9.6515% x 1/12)............. 75,000Discount on notes payable ................................... 75,000 However the same results are achieved if interest is recorded at the discountrate times the maturity amount times one-twelfth of a year:Interest expense ($10,000,000 x 9% x 1/12)................... 75,000Discount on notes payable ................................... 75,000Exercise 13-3 (concluded)2012Sept. 1Interest expense ($10,000,000 x 9% x 8/12)* ................. 600,000Discount on notes payable ................................... 600,000 Notes payable (balance)............................................... 10,000,000Cash (maturity amount) ............................................. 10,000,000 * or, ($9,325,000 x 9.6515% x 8/12) = $600,000Exercise 13-4Wages expense (increases wages expense to $410,000) ........... 6,000Liability – compensated future absences.................... 6,000** ($404,000 - 4,000] = $400,000 non-vacation wagesx 1/40 = $10,000 vacation pay earned(4,000) vacation pay taken= $ 6,000 vacation pay carried overExercise 13-5Requirement 1Wages expense (700 x $900) .............................................. 630,000Liability – compensated future absences............ 630,000 Requirement 2Liability – compensated future absences................. 630,000Wages expense ($31 million + [5% x $630,000]) .............. 31,031,500Cash (or wages payable) (total) ............................ 31,661,500Exercise 13-6Requirement 1Cash ............................................................................. 5,200Liability – gift certificates...................................... 5,200Cash ($2,100 + 84 - 1,300) (884)Liability – gift certificates ......................................... 1,300Sales revenue ........................................................... 2,100Sales taxes payable (4% x $2,100) (84)Requirement 2Gift certificates sold$5,200Gift certificates redeemed(1,300)Liability to be reported at December 31 $3,900 Requirement 3The sales tax liability is a current liability because it is payable in January.The liability for gift certificates is part current and part noncurrent:Gift certificates sold$5,200x 80% Estimated current liability$4,160Gift certificates redeemed (1,300)Current liability at December 31 $2,860Noncurrent liability at December 31 ($5,200 x 20%) 1,040Total $3,900Exercise 13-7Requirement 1Deposits CollectedCash .................................................................. 850,000Liability – refundable deposits ................... 850,000Containers ReturnedLiability – refundable deposits ....................... 790,000Cash .............................................................. 790,000Deposits ForfeitedLiability – refundable deposits ....................... 35,000Revenue – sale of containers ....................... 35,000Cost of goods sold ........................................... 35,000Inventory of containers ............................... 35,000 Requirement 2Balance on January 1$530,000Deposits received850,000Deposits returned (790,000)Deposits forfeited (35,000)Balance on December 31 $555,000Exercise 13-8Requirement 1Cash ....................................................................... 7,500Liability – customer advance ........................... 7,500 Requirement 2Cash ....................................................................... 25,500Liability – refundable deposits......................... 25,500 Requirement 3Accounts receivable .............................................. 856,000Sales revenue.................................................... 800,000Sales taxes payable ([5% + 2%] x $800,000)......... 56,000Exercise 13-9Requirement 1The entire $10,000 sold in January will be recognized as revenue during2011. $6,000 because of gift card redemption; $4,000 because of gift cardbreakage.Requirement 2January Gift Card SalesCash .................................................................. 10,000Liability – unearned gift card revenue ......... 10,000 Redemption of January Gift CardsLiability – unearned gift card revenue............ 6,000Revenue – gift cards ..................................... 6,000 Expiration of January Gift CardsLiability – unearned gift card revenue............ 4,000Revenue – gift cards ..................................... 4,000 Requirement 3Of the $16,000 sold in March, $10,000 will be recognized as revenue:$4,000 because of gift card redemption; $6,000 of the remaining $12,000because of gift card expiration. To calculate the amount of gift cardbreakage, consider that, if March sales all occurred on the first day of themonth, all would have been outstanding for 10 months during 2011 andtherefore all $12,000 of non-redeemed gift cards would be viewed asexpired. On the other hand, if March sales all occurred on the last day ofthe month, none would have been outstanding for 10 months during 2011and therefore none of the $12,000 of non-redeemed gift cards would beviewed as expired. Assuming that sales of gift cards occur on average onMarch 15 gets us to the average of ($12,000 + $0) / 2 = $6,000 from giftcard expiration.Requirement 4The only liability at 12/31/2011 would be the $6,000 of unexpired March giftcards (see answer to requirement 3).。

IntermediateAccounting教科书上习题答案（byJDavidSpiceland）Chapter 7 Cash and ReceivablesQUESTIONS FOR REVIEW OF KEY TOPICSAACSB assurance of learning standards in accounting and business education require documentation of outcomes assessment. Although schools, departments, and faculty may approach assessment and its documentation differently, one approach is to provide specific questions on exams that become the basis for assessment. To aid faculty in this endeavor, we have labeled each question, exercise and problem in Intermediate Accounting, 6e with the following AACSB learning skills:Questions AACSB Tags Exercises (cont.)AACSB Tags 7-1Reflective thinking 7-11Analytic7-2 Reflective thinking 7-12Analytic7-3Reflective thinking 7-13Analytic7-4Reflective thinking, Communications 7-14Analytic7-5Diversity, Reflective thinking 7-15Analytic7-6Reflective thinking 7-16Analytic7-7Reflective thinking 7-17Analytic7-8Reflective thinking 7-18Diversity, Analytic7-9Reflective thinking, Communications 7-19Analytic7-10Reflective thinking 7-20 Reflective thinking7-11Diversity, Reflective thinking 7-21Analytic7-12Reflective thinking 7-22Analytic7-13Reflective thinking 7-23Analytic7-14Diversity, Reflective thinking 7-24 Analytic7-15Reflective thinking, Communications 7-25Analytic7-16 Reflective thinking7-26Analytic7-17 Reflective thinking7-27 Analytic7-18 Reflective thinking7-28 Analytic7-19 Reflective thinking, Communications7-29 Analytic7-20 Diversity, Reflective thinking7-30 Reflective thinking,CommunicationsBrief Exercises 7-31 Reflective thinking,Communications 7-1Reflective thinking CPA/CMA7-2Diversity, Reflective thinking 7-1Analytic7-3Reflective thinking 7-2Analytic7-4 Analytic 7-3Reflective thinking7-5Analytic 7-4 Analytic7-6Analytic 7-5Analytic7-7Diversity, Reflective thinking 7-6Analytic7-8Analytic 7-7Analytic7-9Analytic 7-1Reflective thinking7-10Analytic 7-2Analytic7-11Analytic 7-3Analytic7-12Analytic Problems7-13 Analytic 7-1Analytic7-14Reflective thinking 7-2Analytic7-15 Diversity, Reflective thinking 7-3Analytic7-16 Analytic 7-4 Analytic7-17 Analytic 7-5 AnalyticExercises7-6 Analytic 7-1Analytic7-7Analytic 7-2Analytic 7-8Analytic 7-3 Diversity, Analytic 7-9 Diversity, Analytic 7-4Analytic 7-10Analytic 7-5Analytic 7-11Analytic 7-6 Analytic 7-12Analytic 7-7 Analytic 7-13Analytic 7-8Analytic 7-14Analytic 7-9Analytic 7-15 Analytic 7-10AnalyticQUESTIONS FOR REVIEW OF KEY TOPICSQuestion 7-1Cash equivalents usually include negotiable instruments as well as highly liquid investments that have a maturity date no longer than three months from date of purchase.Question 7-2Internal control procedures involving accounting functions are intended to improve the accuracy and reliability of accounting information and to safeguard the company’s assets. The separation of duties means that employees involved in recordkeeping should not also have physical responsibility for assets.Question 7-3Management must document the company’s internal controls and assess their adequacy. The auditors must provide an opinion on management’s assessment. The Public Company Accounting Oversight Board’s Auditing Standard No. 5, which supersedes Auditing Standard No. 2, further requires the auditor to express its own opinion on whether the company has maintained effective internal control over financial reporting.Question 7-4A compensating balance is an amount of cash a depositor (debtor) must leave on deposit in an account at a bank (creditor) as security for a loan or a commitment to lend. The classification and disclosure of a compensating balance depends on the nature of the restriction and the classification of the related debt. If the restriction is legally binding, then the cash will be classified as either current or noncurrent (investments and funds or other assets) depending on the classification of the related debt. In either case, note disclosure is appropriate. If the compensating balance arrangement is informal and no contractual agreement restricts the use of cash, note disclosure of the arrangement including amounts involved is appropriate. The compensating balance can be included in the cash and cash equivalents category of current assets. Question 7-5Yes, IFRS and U.S. GAAP differ in how bank overdrafts are treated. Under IFRS, overdrafts can be offset against other cash accounts. Under U.S. GAAP overdrafts must be treated as liabilities.Answers to Questions (continued)Question 7-6Trade discounts are reductions below a list price and are used to establish a final price for a transaction. The reduced price is the starting point for initial valuation of the transaction. A cash discount is a reduction, not in the selling price of a good or service, but in the amount to be paid by a credit customer if the receivable is paid within a specified period of time.The gross method of accounting for cash discounts considers discounts not taken as part of sales revenue. The net method considers discounts not taken as interest revenue, because they are viewed as compensation to the seller for allowing the buyer to defer payment.Question 7-8When returns are material and a company can make reasonable estimates of future returns, an allowance for sales returns is established. At a financial reporting date, this provides an estimate of the amount of future returns for prior sales, and involves a debit to sales returns and a credit to allowance for sales returns for the estimated amount. Allowance for sales returns is a contra account to accounts receivable. When returns actually occur in the future reporting period, the allowance for sales returns is debited.Question 7-9Even when specific customer accounts haven’t been proven uncollectible by the end of the reporting period, bad debt expense properly should be matched with sales revenue on the income statement for that period. Likewise, since it’s not expected that all accounts receivable will be collected, the balance sheet should report only the expected net realizable value of that asset. So, to record the bad debt expense and the related reduction of accounts receivable when the amount hasn’t been determined, an estimate is needed. In an adjusting entry, we record bad debt expense and reduce accounts receivable for an estimate of the amount that eventually will prove uncollectible.If uncollectible accounts are immaterial or not anticipated, or it’s not possible to reliably estimate uncollectible accounts, an allowance for uncollectible accounts is not appropriate. In these few cases, any bad debts that do arise simply are written off as bad debt expense at the time they prove uncollectible.Answers to Questions (continued)Question 7-10The income statement approach to estimating bad debts determines bad debt expense directly by relating uncollectible amounts to credit sales. The balance sheet approach to estimating future bad debts indirectly determines bad debt expense by estimating the net realizable value for accounts receivable that exist at the end of the period. In other words, the allowance for uncollectible accounts at the end of the period is estimated and then bad debt expense is determined by adjusting the allowance account to reflect net realizable value.Question 7-11A company has to separately disclose trade receivables and receivables from related parties under U.S. GAAP, but not under IFRS.Question 7-12The assignment of all accounts receivable in general as collateral for debt requires no special accounting treatment other than note disclosure of the agreement. Question 7-13The accounting treatment of receivables factored with recourse depends on whether certain criteria are met. If the criteria are met, the factoring is accounted for as a sale. If they are not met, the factoring is accounted for as a loan. In addition, note disclosure may be required. Accounts receivable factored without recourse are accounted for as the sale of an asset. The difference between the book value and the fair value of proceeds received is recognized as a gain or a loss.Question 7-14U.S. GAAP focuses on whether control of assets has shifted from the transferor to the transferee. In contrast, IFRS focuses on whether the company has transferred “substantially all of the risks and rewards of ownership,” as well as whether the company has transferred control. Under IFRS:If the company transfers substantially all of the risks and rewards of ownership, the transfer is treated as a sale.If the company retains substantially all of the risks and rewards of ownership, the transfer is treated as a secured borrowing. If neither conditions 1 or 2 hold, the company accounts for the transaction as a sale if it has transferred control, and as a secured borrowing if it has retained control.Answers to Questions (continued)When a note is discounted, a financial institution, usually a bank, accepts the note and gives the seller cash equal to the maturity value of the note reduced by a discount. The discount is computed by applying a discount rate to the maturity value and represents the financing fee the bank charges for the transaction.The four-step process used to account for a discounted note receivable is as follows:1. Accrue any interest revenue earned since the last payment date (or date of thenote).2. Compute the maturity value.3. Subtract the discount the bank requires (discount rate times maturity valuetimes the remaining length of time from date of discounting to maturity date) from the maturity value to compute the proceeds to be received from the bank (maturity value less discount)./doc/2db73084591b6bd97f192279168884868762b8ba.html pute the difference between the proceeds and the book value of the noteand related interest receivable. The treatment of the difference will depend on whether the discounting is accounted for as a sale or as a loan. If it’s a sale the difference is recorded as a loss or gain on the sale; if it’s a loan the difference is viewed as interest expense or interest revenue.Question 7-16A company’s investment in receivables is influenced by several related variables, to include the level of sales, the nature of the product or service, and credit and collection policies. The receivables turnover and average collection period ratios are designed to monitor receivables.Question 7-17The items necessary to adjust the bank balance might include deposits outstanding (including undeposited cash), outstanding checks, and any bank errors discovered during the reconciliation process. The items necessary to adjust the book balance mi ght include collections made by the bank on the company’s behalf, service and other charges made by the bank, NSF (nonsufficient funds) check charges, and any company errors discovered during the reconciliation process.Answers to Questions (concluded)Question 7-18A petty cash fund is established by transferring a specified amount of cash from the company’s general checking account to an employee designated as the petty cash custodian. The fund is replenished by writing a check to the petty cash custodian for the sum of the bills paid with petty cash. The appropriate expense accounts are recorded from petty cash vouchers at the time the fund is replenished.Question 7-19When a creditor’s investment in a receivable becomes impaired, due to a troubled debt restructuring or for any other reason, the receivable is re-measured based on the discounted present value of currently expected cash flows at the loan’s original effective rate (regardless of the extent to which expected cash receipts have been reduced). The extent of the impairment is the difference between the carrying amount of the receivable (the present value of the receivable’s cash flows prior to the restructuring) and the present value of the revised cash flows discounted at the loan’s original effective rate. This difference is recorded as a loss at the time the receivable is reduced.Question 7-20No. Under both U.S. GAAP and IFRS, a company can recognize in net income the recovery of impairment losses of accounts and notes receivable.BRIEF EXERCISESBrief Exercise 7-1The company could improve its internal control procedure for cash receipts by segregating the duties of recordkeeping andthe handling of cash. Jim Seymour, responsible for recordkeeping, should not also be responsible for depositing customer checks.Brief Exercise 7-2Under IFRS the cash balance would be $245,000, because they could offset the two accounts. Under U.S. GAAP the balance would be $250,000, because they could not offset the two accounts.Brief Exercise 7-3All of these items would be included as cash and cash equivalents except the U.S. Treasury bills, which would be included in the current asset section of the balance sheet as short-term investments.Brief Exercise 7-4Income before tax in 2012 will be reduced by $2,500, the amount of the cash discounts.$25,000 x 10 = $250,000 x 1% = $2,500Brief Exercise 7-5Income before tax in 2011 will be reduced by $2,500, the anticipated amount of cash discounts.$25,000 x 10 = $250,000 x 1% = $2,500Brief Exercise 7-6Estimated returns = $10,600,000 x 8% = $848,000Less: Actual returns (720,000)Remaining estimated returns $128,000Brief Exercise 7-7Singletary cannot combine the two types of receivables under U.S. GAAP, as the director is a related party. Under IFRS a combined presentation would be allowed. Brief Exercise 7-8(1) Bad debt expense = $1,500,000 x 2% = $30,000(2) Allowance for uncollectible accounts:Beginning balance $25,000Add: Bad debt expense 30,000Deduct: Write-offs (16,000)Ending balance $39,000Brief Exercise 7-9(1) A llowance for uncollectible accounts:Beginning balance $ 25,000Deduct: Write-offs (16,000)Required allowance (33,400)*Bad debt expense $24,400(2) Required allowance = $334,000** x 10% = $33,400* Accounts receivable:Beginning balance $ 300,000Add: Credit sales 1,500,000Deduct: Cash collections (1,450,000)Write-offs (16,000)Ending balance $ 334,000** Brief Exercise 7-10 Allowance for uncollectible accounts:Beginning balance $30,000Add: Bad debt expense 40,000Deduct: Required allowance (38,000)Write-offs $32,000Brief Exercise 7-11Credit sales $8,200,000Deduct: Cash collections (7,950,000)Write-offs (32,000)* Year-end balance in A/R (2,000,000) Beginning balance in A/R $1,782,000*Allowance for uncollectible accounts:Beginning balance $30,000Add: Bad debt expense 40,000Deduct: Required allowance (38,000)Write-offs $32,000 Brief Exercise 7-122011 interest revenue:$20,000 x 6% x 1/12 =$1002012 interest revenue:$20,000 x 6% x 2/12 =$200Brief Exercise 7-13Assets decrease by $7,000:Cash increases by $100,000 x 85% = $ 85,000 Receivable from factor increases by($11,000 – $3,000 fee) 8,000Accounts receivable decrease (100,000)Net decrease in assets $ (7,000)Liabilities would not change as a result of this transaction.Income before income taxes decreases by $7,000(the loss on sales of receivables)The journal entry to record the transaction is as follows:Brief Exercise 7-14Logitech would account for the transfer as a secured borrowing. The receivables remain on the company’s books and a liability is recorded for the amount borrowed plus the bank’s fee.Brief Exercise 7-15Under IFRS, Huling would treat this transaction as a secured borrowing, because they retain substantially all of the risks and rewards of ownership. Under U.S. GAAP, Huling would treat this transaction as a sale, because they have transferred control. Note, however, that in practice we would typically expect for the entity that has the risks and rewards of ownership to also have control over the assets, so we would expect these criteria to usually lead to the same accounting.Brief Exercise 7-16Brief Exercise 7-17Receivables turnover = $320,000 = 5.33$60,000*($50,000 + 70,000) 2 = $60,000*Average collection = 365 = 68 daysperiod 5.33EXERCISESExercise 7-1Requirement 1Cash and cash equivalents includes:a. Balance in checking account $13,500Balance in savings account 22,100b. Undeposited customer checks 5,200c. Currency and coins on hand 580f. U.S. treasury bills with 2-month maturity 15,000Total $56,380Requirement 2d. The $400,000 savings account will be used for future plant expansion andtherefore should be classified as a noncurrent asset, either in other assets orinvestments.e. The $20,000 in the checking account is a compensating balance for a long-term loan and should be classified as a noncurrent asset, either in otherassets or investments.f. The $20,000 in 7-month treasury bills should be classified as a current assetalong with other temporary investments.Exercise 7-2Requirement 1Cash and cash equivalents includes:Cash in bank – checking account $22,500U.S. treasury bills 5,000Cash on hand 1,350Undeposited customer checks 1,840Total $30,690Requirement 2The $10,000 in 6-month treasury bills should be classified as a current asset along with other temporary investments. Exercise 7-3Requirement 1: U.S. GAAPCurrent Assets:Cash $175,000Current Liabilities:Bank Overdrafts $ 15,000 Requirement 2: IFRSCurrent Assets:Cash $160,000(No current liabilities with respect to overdrafts.)Exercise 7-4Requirement 1Sales price = 100 units x $600 = $60,000 x 70% = $42,000Requirement 2Exercise 7-4 (concluded) Requirement 3Requirement 1, using the net method:Requirement 2, using the net method:Exercise 7-5Requirement 1Sales price = 1,000 units x $50 = $50,000Requirement 2。

Chapter 1 Environment and Theoretical Structure of Financial AccountingQUESTIONS FOR REVIEW OF KEY TOPICSQuestion 1-5The primary objective of financial accounting is to provide investors and creditors with information that will help them make investment and credit decisions.Question 1-7GAAP (generally accepted accounting principles) are a dynamic set of both broad and specific guidelines that a company should follow in measuring and reporting the information in their financial statements and related notes. It is important that all companies follow GAAP so that investors can compare financial information across companies to make their resource allocation decisions.Question 1-9Auditors are independent, professional accountants who examine financial statements to express an opinion. The opinion reflects the auditors’ assessment of the statements' fairness, which is determined by the extent to which they are prepared in compliance with GAAP. The auditor adds credibility to the financial statements, which increases the confidence of capital market participants relying on that information. Question 1-11New accounting standards, or changes in standards, can have significant differential effects on companies, investors and creditors, and other interest groups by causing redistribution of wealth. There also is the possibility that standards could harm the economy as a whole by causing companies to change their behavior.Question 1-13The purpose of the conceptual framework is to guide the Board in developing accounting standards by providing an underlying foundation and basic reasoning on which to consider merits of alternatives. The framework does not prescribe GAAP.Question 1-14Relevance and faithful representation are the primary qualitative characteristics that make information decision-useful. Relevant information will possess predictive and/or confirmatory value. Faithful representation is the extent to which there is agreement between a measure or description and the phenomenon it purports to represent.The benefit from providing accounting information is increased decision usefulness. If the information is relevant and possesses faithful representation, it will improve the decisions made by investors and creditors. However, there are costs to providing information that include costs to gather, process, and disseminate that information. There also are costs to users in interpreting the information as well as possible adverse economic consequences that could result from disclosing information. Information should not be provided unless the benefits exceed the costs.Question 1-17Information is material if it is deemed to have an effect on a decision made by a user. The threshold for materiality will depend principally on the relative dollar amount of the transaction being considered. One consequence of materiality is that GAAP need not be followed in measuring and reporting a transaction if that transaction is not material. The threshold for materiality has been left to subjective judgment. Question 1-19The four basic assumptions underlying GAAP are (1) the economic entity assumption, (2) the going concern assumption, (3) the periodicity assumption, and (4) the monetary unit assumption.Question 1-22The four key broad accounting principles that guide accounting practice are (1) the historical cost or original transaction value principle, (2) the realization or revenue recognition principle, (3) the matching principle, and (4) the full disclosure principle.Question 1-23Two important reasons to base valuation on historical cost are (1) historical cost provides important cash flow information since it represents the cash or cash equivalent paid for an asset or received in exchange for the assumption of a liability, and (2) historical cost valuation is the result of an exchange transaction between two independent parties and the agreed upon exchange value is, therefore, objective and possesses a high degree of verifiability.Question 1-25The four different approaches to implementing the matching principle are:1. Recognizing an expense based on an exact cause-and-effect relationship between a revenue andexpense event. Cost of goods sold is an example of an expense recognized by this approach.2. Recognizing an expense by identifying the expense with the revenues recognized in a specific timeperiod. Office salaries is an example of an expense recognized by this approach.3. Recognizing an expense by a systematic and rational allocation to specific time periods.Depreciation is an example of an expense recognized by this approach.4. Recognizing expenses in the period incurred, without regard to related revenues. Advertising is anexample of an expense recognized by this approach.GAAP prioritizes the inputs companies should use when determining fair value. The highest and most desirable inputs, Level 1, are quoted market prices in active markets for identical assets or liabilities. Level 2 inputs are other than quoted prices that are observable including quoted prices for similar assets or liabilities in active or inactive markets and inputs that are derived principally from observable related market data. Level 3 inputs, the least desirable, are inputs that reflect the entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.EXERCISESExercise 1-2Requirement 1Requirement 2Amount owed at the end of year one $ 5,000Advertising costs incurred in year two 25,00030,000Amount paid in year two (15,000)Liability at the end of year two 15,000Less cash paid in year three (35,000)Advertising expense in year three $20,000*Exercise 1-7List A List Bo 1. Predictive value a. Decreases in equity resulting from transfers toowners.h 2. Relevance b. Requires consideration of the costs and value ofinformation.g 3. Timeliness c. Important for making interfirm comparisons.a 4. Distribution to owners d. Applying the same accounting practices over time.j 5. Confirmatory value e. Users understand the information in the context of thedecision being made.e 6. Understandability f. Agreement between a measure and the phenomenonit purports to represent.n 7. Gain g. Information is available prior to the decision.f 8. Faithful representation h. Pertinent to the decision at hand.k 9. Comprehensive income i. Implies consensus among different measurers.p 10. Materiality j. Information confirms expectations.c 11. Comparability k. The change in equity from nonowner transactions.m 12. Neutrality l. The process of admitting information into financial statements.l 13. Recognition m. The absence of bias.d 14. Consistency n. Results if an asset is sold for more than its bookvalue.b 15. Cost effectiveness o. Information is useful in predicting the future.i 16. Verifiability p. Concerns the relative size of an item and its effect ondecisions.Exercise 1-121. Disagree —Monetary unit assumption2. Disagree —Full disclosure principle3. Agree —The matching principle4. Disagree —Historical cost (original transaction value) principle5. Agree —Realization (revenue recognition) principle6. Agree —Materiality7. Disagree —Periodicity assumption。

会计学国外教材
在国外，一些知名的会计学教材包括：
《Warren Buffett Accounting Book》：作者是Stig Brodersen，本书是会计领域的经典教材之一，对于会计学的基本概念和原则有深入的解析。

《Accounting Principles》：作者是Gregory Becker，本书全面介绍了
会计学的基本原理，为初学者提供了基础的知识体系。

《Intermediate Accounting》：作者是Donald E. Kieso，本书是美国畅销书籍之一，深入解析了GAAP（一般公认会计原则）的概念和实践。

《Essentials of Accounting》：作者是Leslie K. Breitner，本书适合作为入门教材，内容涵盖了会计的基本概念和流程。

《Financial Accounting》：作者是韦尔斯，这本书被广泛用于大学本科的会计课程。

《Management Accounting》：作者是安东尼，本书对管理会计的概念、原则、方法、技巧等方面进行了全面深入的探讨。

《Research Methods in Accounting》：作者是安东尼，本书详细介绍了会计研究的各种方法和技巧。

此外，还有《成本会计学》等书籍，介绍了成本会计的基本概念、原则、方法和技巧，涵盖了成本核算、成本控制、成本分析等方面的内容。

以上书籍仅供参考，如需更多国外会计学教材信息，可以访问图书馆网站或咨询专业人士。