Homework

Homework Assignments Week 2

Walker

Assessing problems and conducting research are daily occurrences in the work force for an accountant. Case 2 revolves around two corporations that conduct an exchange. The first is Marvin Corporation, which has a building that had a cost of $125,000. The building was appraised at $175,000, which would now be considered the fair value of the building. The second corporation is Valerie Corporation. This corporation recently purchased a vehicle for $140,000. The issue at hand is that Marvin Corporation has promised to transfer the building in return they will receive the vehicle from Valerie Corporation. According to the FASB, the definition of an exchange is: “Exchange (or exchange transaction) is a reciprocal transfer between an enterprise and another entity that results in the enterprise's acquiring assets or services or satisfying liabilities by surrendering other assets or services or incurring other obligations. A reciprocal transfer of a nonmonetary asset shall be deemed an exchange only if the transferor has no substantial continuing involvement in the transferred asset such that the usual risks and rewards of ownership of the asset are transferred. “ (FASB, n.d.). However, the problem that is presented is the fact that while Marvin Corporation as received the vehicle, they did not transfer the title to the building. When analyzing this case, the problem statement is: Two corporations made an agreement to exchange non-monetary assets. By the end of the year in which the exchange is to take place, only one corporation has fulfilled their obligation. How should Marvin Corporation and Valerie Corporation account for the transactions on their books?

Research questions include the following:•How is the building accounted for in the books for each corporation?•How does the fact that the title has not been transferred effect the accounting for the items?•How should each corporation proceed?

Michelle

Marvin Corporation and Valerie Corporation Asset Exchange Case 2 Key Terms The following terms will need to be defined and explained so we can research specifically what we need to know to determine the correct way to record the transactions in the case. We will need to determine if the agreement between Marvin Corporation and Valerie Corporation is a contract and determine the elements of the contract. A contract is defined as an agreement with specific terms between two or more persons or entities in which there is a promise to do something in return for a valuable benefit known as consideration. The existence of a contract requires finding the following factual elements: a) an offer; b) an acceptance of that offer which results in a meeting of the minds; c) a promise to perform; d) a valuable consideration; e) a time or event when performance must be made (meet commitments); f) terms and conditions for performance, including fulfilling promises; g) performance, if the contract is “unilateral”. Contracts can be either written or oral, but oral contracts are more difficult to prove. There are a variety of types of contracts: “conditional” on an event occurring; “joint and several,” in which several parties make a joint promise to perform, but each is “implied,” in which the courts will determine there is a contract based on the circumstances (Law.com.,n.d.).The fair value of the assets being transferred between Marvin Corporation and Valerie Corporation will need to be determined. Fair value is defined as the amount at which an asset (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties. We will need to determine with what probability Marvin Corporation was likely to follow through with transferring the title to Valerie Corporation.

MARVIN CORP AND VALERIE CORP CASE 2 ANALYSIS3•Probable – The future event or events are likely to occur.We will need to determine if consideration was given between the parties to have an enforceable contract. •Consideration – a vital element in the law of contracts, consideration is a benefit which must be bargained for between the parties and is the essential reason for a party entering into a contract. Consideration must be of value (at least to the parties) and is exchanged for the performance or promise of performance by the other party (such performance itself is consideration). Contracts may become unenforceable or rescindable (undone by rescission) for “failure of consideration” when the intended consideration is found to be worth less than expected, is damaged or destroyed, or performance is not made properly (Law.com., (n.d.).We will need the net book value of the building and the vehicle to determine gain or loss when recording the transfer of assets.•Net Book Value– Original Asset Cost less accumulated depreciation.

Noel

The case involves the transfer of a building that cost $125,000 with an appraised value of $175,000 from Marvin Corporation to Valerie Corporation for vehicle valued at $140,000 with no conditions attached by the end of year 2 of the agreement. However, by the end of the period Marvin has not transferred the building but has received the vehicle. According to IFRS, the asset transfer should be recognized based on the fair value (Abdallah, 2017). Therefore, in the books of Marvin Corporation, we have;