FASB ASC Project

Accounting 331/531
Intermediate Accounting I
FASB ASC Project
50 Points
Instructions: You have been asked to comment on the accounting treatment for various
independent transactions by citing the appropriate section of the FASB ASC. Your first
paragraph(s) should be the citation from the FASB ASC supporting your decision. Your second
paragraph (or more) should be in your own words explaining how the ASC applies to your
decision – be specific. Show support for your choice in your second paragraph. You can include
things like why we do things in the manner prescribed by the FASB ASC, alternative accounting
treatment, etc. This is where you show your understanding of accounting. For all of the
questions assume that you are a for-profit entity. Limit each question to one citation from the
ASC. If you believe that there is more than one citation from the ASC that is appropriate, choose
the one that you believe is the “best.” You cannot use the Master Glossary as a citation. Be
sure to “cut and paste” the FASB ASC citation – do not retype it – and show the citation number
as presented in the example below. Only include information from the ASC relevant to your
responses – do not “cut and paste” the complete citation if it is not relevant.
Put your answer to each question on a separate page(s). Your responses should be no more than
two-typed pages per question, double-spaced, Times New Roman font size 12, with two-sided
printing preferred. Put your name and your course section number at the top of the first page.
Be sure to type “331” (undergraduate) or “531” (graduate) and your class section number after
your name. The due date is Thursday, October 31, at the start of class. Do not email me your
paper – a hard copy must be turned in. I will not accept any late papers. You must do the work
on your own. If you use additional outside sources be sure to show them at the end of each
question to avoid plagiarizing. Your grade will be based on your answers and your writing-style.
Failure to follow the instructions can result in a grade of 0 for the Project.
SAMPLE QUESTION: Working as an accountant in the music industry, you capitalized rather
than expensed the record master cost for a just released CD. The recording artist has recently
completed a sold-out tour, and has had successive platinum records. Justify why you did this.
FASB ASC CITATION:
Record Master Costs
928-340-25-2 The portion of the record master cost borne by the record company shall be
reported as an asset if the past performance and current popularity of the artist provides a sound
basis for estimating that the cost will be recovered from future sales.
YOUR RESPONSE: The ASC allows for record master costs to be capitalized when there is
evidence that the future revenues will be sufficient to recover the record master costs. The artist
had successive platinum CDs and is currently touring with all concert dates sold-out. By
capitalizing the costs (treating them as an asset), the entity can defer recognition of the initial
cost as an expense (recognizing the expense as a period cost), and better match the expense with
the revenue generated by the sales of the CD. This would be an example of the expense
recognition (matching) principle. The alternative accounting treatment would be to etc., etc., etc.
(NOTE: Your response should be much more detailed than my example.)

On the FASB ASC website there is a link at the bottom of the home page titled “Help, FAQ,
Learning Guide, and About the Codification.” If you are having problems searching the FASB
ASC look at these available resources. The Learning Guide is 200 pages but most of what you
need to do a search can be found in the first 30 pages.
Your independent questions to answer are:
1. Your client needs personal financial statements prepared. At what amount should you report
your client’s receivables in his/her personal financial statements?
2. If a reporting unit has goodwill assigned to it, and the carrying amount of a reporting unit is
greater than zero and its fair value exceeds its carrying amount, is goodwill impaired?
3. As a debtor the “right of setoff” exists and you have the ability to use it if you choose.
However, you do not plan to use it. Is it representationally faithful to present the right of setoff
in the statement of financial position if you do not plan to use it?
4. Your Company spends a significant amount of money on research and development activities.
Are you required to disclose this amount in the income statement in the period the expense is
recognized?
5. On the balance sheet date (12/31/2013) a customer owes you a large sum of money. After the
balance sheet date (1/15/2014), but before you issue the financial statements (2/15/2014), the
customer files for bankruptcy. Should the customer’s bankruptcy filing on 1/15/2014 be used to
determine the amount of your estimated uncollectible account amount at the balance sheet date
(12/31/2013)?
6. Your business issued $10 par (per-share) of preferred stock. It has preference in case of
involuntary liquidation in the amount of $11 per-share. Should this information be disclosed? If
so, where should you disclose the information and how should you disclose the information?