Abacab Company’s shares are listed on the New Market Stock Exchange, which allows the use of either International Financial Reporting Standards (IFRS) or U.S. GAAP. On January 1, Year 1, Abacab Company acquired a building at a cost of $10 million. The building has a 20-year useful life and no residual value and is depreciated on a straight-line basis. On January 1, Year 3, the company hired an appraiser who determines the fair value of the building (net of any accumulated depreciation) to be $12 million.IAS 16, “Property, Plant, and Equipment,” requires assets to be initially measured at cost. Subsequent to initial recognition, assets may be carried either at cost less accumulated depreciation and any impairment losses (the cost model) or at a revalued amount equal to fair value at the date of the revaluation less any subsequent accumulated depreciation and impairment losses (the revaluation model). If a firm chooses to use the revaluation model, the counterpart to the revaluation of the asset is recorded as an increase in Accumulated Other Comprehensive Income (stockholders’ equity). Subsequent depreciation is based on the revalued amount less any residual value. U.S. GAAP requires items of property, plant, and equipment to be initially measured at cost. U.S. GAAP does not allow property, plant, and equipment to be revalued above original cost at subsequent balance sheet dates. The cost of property, plant, and equipment must be depreciated on a systematic basis over its useful life. Subsequent to initial recognition, assets must be carried at cost less accumulated depreciation and any impairment losses. Required a. Determine the amount of depreciation expense recognized in Year 2, Year 3, and Year 4 under (a) the revaluation model in IAS 16 and (b) U.S. GAAP. b. Determine the book value of the building under the two different sets of accounting rules at January 2, Year 3; December 31, Year 3; and December 31, Year 4. c. Summarize the difference in net income and in stockholders’ equity over the 20-year life of the building using the two different sets of accounting rules.
> Domer Corporation is preparing to issue a relatively small amount of securities and does not want to go to the trouble and expense of filing a registration statement with the SEC. Company officials hope to be exempt under provisions of Regulation A. Thes
> In general terms, how does IFRS for SMEs differ from full IFRS?
> What is a prospectus? What does a prospectus contain?
> Which organizations are normally exempted from the SEC’s registration requirements?
> Mondesto Company has the following debts: Unsecured creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $230,000 Liabilities with priority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> What is a letter of comments? By what other name is it often called?
> What is a prefiling conference, and why might it be helpful to a registrant?
> What is incorporation by reference?
> Two forms commonly used in the registration process are Form S–1 and Form S–3. Which registrants should use each form?
> How does the SEC generate revenues?
> The following separate income statements are for Burks Company and its 80 percent–owned subsidiary, Foreman Company: Additional Information ∙ Amortization expense resulting from Foreman’s excess acq
> What are the two parts of a registration statement? What does each part contain?
> Under what law is a registration statement filed?
> What is the purpose of a registration statement?
> Historically, what factors contributed to the diversity of accounting systems worldwide?
> Chesterfield Company holds cash of $60,000, inventory worth $110,000, and a building worth $140,000. Unfortunately, the company also has accounts payable of $190,000, a note payable of $90,000 (secured by the inventory), liabilities with priority of $22,
> Explain each of the following items: a. Staff Accounting Bulletins. b. Wraparound filing. c. Incorporation by reference. d. Division of Corporation Finance. e. Integrated disclosure system. f. Management’s discussion and analysis. g. Chief accountant of
> What was the SEC’s response to the FASB’s handling of accounting for oil- and gas-producing companies, and why was this action considered so significant?
> What is the purpose of Financial Reporting Releases and Staff Accounting Bulletins?
> How does the SEC affect the development of generally accepted accounting principles in the United States?
> Why is the content of a proxy statement considered to be so important?
> What information is required in a proxy statement?
> What are the goals of the SEC?
> What does the Securities Exchange Act of 1934 cover?
> Garfun, Inc., owns all of the stock of Simon, Inc. For 2018, Garfun reports income (exclusive of any investment income) of $480,000. Garfun has 80,000 shares of common stock outstanding. It also has 5,000 shares of preferred stock outstanding that pay a
> What does the Securities Act of 1933 cover?
> What is the purpose of Regulation S–K? a. Defines generally accepted accounting principles in the United States. b. Establishes required disclosure of nonfinancial information with the SEC. c. Establishes required financial disclosures with the SEC. d. I
> What are some of the major divisions and offices within the SEC?
> Pavin acquires all of Stabler’s outstanding shares on January 1, 2015, for $460,000 in cash. Of this amount, $30,000 was attributed to equipment with a 10-year remaining life and $40,000 was assigned to trademarks expensed over a 20-yea
> On January 1, 2016, Parker, Inc., a U.S.-based firm, acquired 100 percent of Suffolk PLC located in Great Britain for consideration paid of 52,000,000 British pounds ($), which was equal to fair value. The excess of fair value over book value is attribut
> What is covered by Regulation S–X?
> What is covered by Regulation S–K?
> What is the purpose of the inspection process created by the Sarbanes–Oxley Act?
> How has the Sarbanes–Oxley Act attempted to ensure that external auditors will be completely independent in the future?
> What is the impact of being registered with the PCAOB?
> Who must register with the Public Company Accounting Oversight Board?
> What is the SEC’s relationship to the Public Company Accounting Oversight Board?
> Aceton Corporation owns 80 percent of the outstanding stock of Voctax, Inc. During the current year, Voctax made $140,000 in sales to Aceton. How does this transfer affect the consolidated statement of cash flows? a. The transaction should be included if
> List several provisions of the Sarbanes–Oxley Act that are designed to restore public confidence in the U.S. capital market system.
> Primus, Inc., owns all outstanding stock of Sonston, Inc. For the current year, Primus reports net income (exclusive of any investment income) of $600,000. Primus has 100,000 shares of common stock outstanding. Sonston reports net income of $200,000 for
> Describe the provisions of the Sarbanes–Oxley Act as they relate to the creation and responsibilities of the Public Company Accounting Oversight Board.
> The income statement and the balance sheet are produced using a worksheet, but a consolidated statement of cash flows is not. What process is followed in preparing a consolidated statement of cash flows?
> Charles Edward Company established a subsidiary in a foreign country on January 1, 2017, by investing FC 3,200,000 when the exchange rate was $0.50/FC. Charles Edward negotiated a bank loan of FC 3,000,000 on January 5, 2017, and purchased plant and equi
> What are some of the possible reasons for the numerous corporate accounting scandals discovered during 2001 and 2002?
> Why were federal securities laws originally enacted by Congress?
> The IFRS Foundation and IASB maintain a website at www.ifrs.org. Go to this website and access “Jurisdiction Profiles" to complete this case. (Under the IFRS tab, click on “Use around the world,” or under Quick Links, click on “Who uses IFRS?") Required
> Unless they use IFRS, foreign companies with securities listed in the United States (in the form of ADRs) are required to reconcile their net income and stockholders’ equity to U.S. GAAP in the annual report (Form 20–F) they file with the Securities and
> Quantacc Ltd. began operations on January 1, 2015, and uses IFRS to prepare its consolidated financial statements. Although not required to do so, to facilitate comparisons with companies in the United States, Quantacc reconciles its net income and stock
> Ataway Company has severe financial difficulties and is considering filing a bankruptcy petition. At this time, it has the following assets and liabilities. The assets are stated at net realizable value. Assets (pledged against debts of $70,000) . . . .
> Hirsch Company acquired equipment at the beginning of 2017 at a cost of $135,000. The equipment has a five-year life with no expected salvage value and is depreciated on a straight-line basis. At December 31, 2017, Hirsch compiled the following informati
> Rawl Corporation sold a building to a bank at the beginning of 2017 at a gain of $76,000 and immediately leased the building back for a period of four years. The lease is accounted for as an operating lease. a. Determine the appropriate accounting for th
> What is the importance of a Form 8–K? What is the importance of a proxy statement?
> What are blue sky laws?
> Trecek Corporation incurs research and development costs of $650,000 in 2017, 30 percent of which relate to development activities subsequent to IAS 36 criteria having been met that indicate an intangible asset has been created. The newly developed produ
> Parnell Company acquired construction equipment on January 1, 2017, at a cost of $78,400. The equipment was expected to have a useful life of six years and a residual value of $10,000 and is being depreciated on a straight-line basis. On January 1, 2018,
> Hughes Inc. has a wholly owned subsidiary in Canada that previously had been determined as having the Canadian dollar as its functional currency. Due to a recent restructuring, Hughes Inc.’s CFO believes that the functional currency of the Canadian compa
> Porter Corporation owns all 30,000 shares of the common stock of Street, Inc. Porter has 60,000 shares of its own common stock outstanding. During the current year, Porter earns net income (without any consideration of its investment in Street) of $150,0
> Harrington Company was sued by an employee in late 2017. General counsel concluded that there was an 80 percent probability that the company would lose the lawsuit. The range of possible loss is estimated to be $20,000 to $70,000, with no amount in the r
> Xavier Company is going through a Chapter 7 bankruptcy. All assets have been liquidated, and the company retains only $26,200 in free cash. The following debts, totaling $43,050, remain: Government claims to unpaid taxes . . . . . . . . . . . . . . . . .
> Tapatio S.A. de C.V. acquired a new piece of manufacturing equipment on January 1, 2016, for a cash price of 500,000 pesos. The equipment was expected to have a useful life of 10 years and no residual value, and is being depreciated on a straight-line ba
> Sapporo K.K. was sued by a competitor in late 2017, and company management concluded that there was a 55 percent probability that the company would lose the lawsuit. The best estimate of the loss on December 31, 2017, was 4,000,000 yen. In 2018, the laws
> Llungby AB spent 1,000,000 krone in 2017 on the development of a new product. The company determined that 25 percent of this amount was incurred after the criteria in IAS 36 for capitalization as an intangible asset had been met. The newly developed prod
> Mikkeli OY acquired a brand name with an indefinite life in 2015 for 40,000 markkas. At December 31, 2017, the brand name could be sold for 35,000 markkas, with zero costs to sell. Expected cash flows from the continued use of the brand are 42,000 markka
> On January 1, 2017, Xiamen Company made amendments to its defined benefit pension plan that resulted in 60,000 yuan of past service cost. The plan has 5,000 active employees with an average expected remaining working life of 15 years. There currently are
> Which forms do most companies file with the SEC in connection with the offering of securities to the public?
> Surat Limited paid cash to acquire an aircraft on January 1, 2017, at a cost of 30,000,000 rupees. The aircraft has an estimated useful life of 40 years and no salvage value. The company has determined that the aircraft is composed of three significant c
> Izmir A.S. issued convertible bonds at their face value of 100,000 lira on December 31, 2017. The bonds have a 10-year life with interest of 10 percent payable annually. At the date of issue, the prevailing interest rate for similar debt without a conver
> Sorocaba Ltda. sold a building to Banco Janeiro on January 1, 2017, for 200,000 reais and then leased it back under a 10-year lease agreement, which is accounted for as an operating lease. The building had a carrying amount of 150,000 reais and a fair va
> Lynch Corporation has a wholly owned subsidiary in Mexico (Lynmex) with two distinct and unrelated lines of business. Lynmex’s Small Appliance Division manufactures small household appliances such as toasters and coffeemakers at a factory in Monterrey, N
> The Walston Company is to be liquidated and has the following liabilities: Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,000 Notes payable (secured by land) . . . . . . . . . . . . . . .
> In which of the following areas does the IASB not allow firms to choose between two acceptable treatments? a. Measuring property, plant, and equipment subsequent to acquisition. b. Measuring noncontrolling interest in a business combination. c. Recognizi
> Alford Company and its 80 percent–owned subsidiary, Knight, have the following income statements for 2018: Additional Information for 2018 ∙ Intra-entity inventory transfers during the year amounted to $90,000. All i
> Under IFRS, when an entity chooses the revaluation model as its accounting policy for measuring property, plant, and equipment, which of the following statements is correct? a. When an asset is revalued, the entire class of property, plant, and equipment
> Which companies are required to provide a U.S. GAAP reconciliation in their annual report filed with the SEC? a. All foreign companies listed on a U.S. securities exchange. b. Foreign companies listed on a U.S. securities exchange that use IFRS in prepar
> Which of the following best describes the extent to which the SEC requires or permits the use of IFRS by U.S. public companies? a. U.S. public companies are required to use IFRS. b. U.S. public companies may choose between IFRS and U.S. GAAP. c. U.S. pub
> Niceville Company pays property taxes of $100,000 in the second quarter of the year. Which of the following statements is true with respect to the recognition of property tax expense in interim financial statements? a. Under U.S. GAAP, the company would
> Which forms do most companies file with the SEC on a periodic basis? Explain the purpose of each form and its primary contents.
> Which of the following items is not required to be reported in interim financial statements for each material operating segment? a. Revenues from external customers. b. Intersegment revenues. c. Segment assets. d. Segment profit or loss.
> Which of the following statements is true for a foreign company registered with the U.S. SEC to list its stock on the New York Stock Exchange? a. The company must file an annual report with the SEC that is prepared in accordance with U.S. GAAP. b. The co
> Which of the following items must be disclosed in interim reports? a. Total assets. b. Total liabilities. c. Cash flow from operating activities. d. Gross revenues.
> For a company emerging from bankruptcy, how are liabilities (other than deferred income taxes) reported? a. At their historical value. b. At zero because of fresh start accounting. c. At the present value of the future cash flows. d. At the negotiated va
> For interim financial reporting, a gain from the sale of land occurring in the second quarter should be a. Recognized ratably over the last three quarters. b. Recognized ratably over all four quarters, with the first quarter being restated. c. Recognized
> How should material seasonal variations in revenue be reflected in interim financial statements? a. The seasonal nature should be disclosed, and the interim report should be supplemented with a report on the 12-month period ended at the interim date for
> In considering interim financial reporting, how does current U.S. GAAP require that such reporting be viewed? a. As a special type of reporting that need not follow generally accepted accounting principles. b. As useful only if activity is evenly spread
> Which of the following statements is true for a company that has managers responsible for product and service lines of business and managers responsible for geographic areas (matrix form of organization)? a. Under U.S. GAAP, the company must base operati
> Which of the following information items with regard to a major customer must be disclosed? a. The identity of the major customer. b. The percentage of total sales derived from the major customer. c. The operating segment making sales to the major custom
> What information about revenues by geographic area should a company present? a. Disclose separately the amount of sales to unaffiliated customers and the amount of intra-entity sales between geographic areas. b. Disclose as a combined amount sales to una
> For a U.S.-based company, which of the following would be an acceptable presentation of countries for providing information by geographic area? a. United States, Mexico, Japan, Spain, All Other Countries. b. United States, Canada and Mexico, Germany, Ita
> Discuss the methods by which the SEC can influence the development of generally accepted accounting principles in the United States.
> Assume the same information as in question (16) except that Metcalf issues a 10 percent stock dividend instead of selling new shares of stock. How does this transaction affect the business combination? In question (16) Washburn Company owns 75 percent o
> Which of the following items is required to be disclosed by geographic area? a. Total assets. b. Revenues from external customers. c. Profit or loss. d. Capital expenditures.
> If the reorganization value of a company emerging from bankruptcy is larger than the fair values that can be assigned to specific assets, what accounting is made of the difference? a. Because of conservatism, the difference is simply ignored. b. The diff
> What was the purpose of creating the EDGAR system?
> What is the so-called Norwalk Agreement? a. An agreement between the FASB and SEC to allow foreign companies to use IFRS in their filing of financial statements with the SEC. b. An agreement between the U.S. FASB and the U.K. Accounting Standards Board t
> Plume Company has a paper products operating segment. Which of the following items does it not have to report for this segment? a. Interest expense. b. Research and development expense. c. Depreciation and amortization expense. d. Interest income.
> Which of the following statements concerning U.S. GAAP is true? a. Does not require segment information to be reported in accordance with generally accepted accounting principles. b. Does not require a reconciliation of segment assets to consolidated ass
> Which of the following is a criterion for determining whether an operating segment is separately reportable? a. Segment liabilities are 10 percent or more of consolidated liabilities. b. Segment profit or loss is 10 percent or more of consolidated net in
> Which of the following is not necessarily true for an operating segment? a. An operating segment earns revenues and incurs expenses. b. The chief operating decision maker regularly reviews an operating segment to assess performance and make resource allo
> Which of the following statements is not true under U.S. GAAP? a. Operating segments can be determined by looking at a company’s organization chart. b. Companies must combine individual foreign countries into geographic areas to comply with the geographi
> In determining whether a particular operating segment is of significant size to warrant disclosure, which of the following is true? a. Three tests are applied, and all three must be met. b. Four tests are applied, and only one must be met. c. Three tests
