Project accounting standards codifications (ASC)

MGMT 350 Intermediate Accounting I

Summer 2020

Research Project

Background

As discussed in Chapter 1 of the textbook, US GAAP standards are created by the Financial Accounting Standards Board. The standards are compiled in the Accounting Standards Codification (ASC). You may refer back to pages 1-12 to 1-13 in Chapter 1 for a refresher on the ASC. There are also two videos posted in the Research Project folder that explain how to use the ASC to look up accounting standards.

The Uniform CPA Exam contains cases that require test takers to use accounting knowledge and a database of authoritative literature to address proper accounting treatments. In the Financial Accounting and Reporting section of the exam, the database is the ASC. Regardless of whether the CPA Exam is in your future, the ability to research proper accounting treatments is critical. To provide some exposure to such research, you will be required to complete a short research assignment. The assignment will be graded on writing as well as accounting content. You may work with other students as you conduct research, but you must write your own report. Please submit your report using the Research Project Submission link in the Research Project folder in Brightspace. The project is due at 11:30pm on Sunday, June 28, but you can always turn it in earlier. Late submissions will not be accepted.

Requirements

Select one of the following scenarios and address the question posed. You may use accounting sources other than the Accounting Standards Codification (ASC), but you must find the appropriate section of the ASC that describes the accounting for the issue. As a hint, sometimes if you can find an article, textbook, etc., that explains how to account for the transaction, that source will give you the appropriate ASC reference. You still need to find that reference in the ASC. You should directly quote (i.e. copy and paste) the language from the ASC that supports your accounting treatment.

Submit a report describing the proper accounting treatment for the transaction or event described in the case you select. Your report should contain at least two sources. At least one of these should be the accounting standards codification (ASC). You should also use some other accounting source as well. Citation of contiguous paragraphs of the AICPA does not count as two references. The report should be about three pages, double-spaced, neatly organized and formatted.

Case 1

Frank Services is selling a parcel of land to Estelle Products for use as a potential building site. The sales agreement, signed on June 1, required Estelle Products to provide a deposit of $5,000 with a balance of $95,000 due within one year. Estelle Products paid the $5,000 deposit on June 1. Estelle Products is depending on a good year to provide the cash needed to consummate the purchase. If Estelle fails to complete the purchase within the specified one-year period, the deposit is not refundable and Frank can proceed to market the parcel to other interested parties. What journal entry or entries should Frank make to record this transaction?

Case 2

On July 1, Kramerica Enterprises received a donation of 100 acres of land from the city of East Lafayette as an incentive for Kramerica to locate a new plant in East Lafayette. The city requires that Kramerica Enterprises must build a manufacturing plant and a warehouse containing at least 180,000 square feet. In addition, at least 20 acres must be used as a greenspace that is open to the public. All construction must be completed within three years. At the time of the donation, the fair market value of the tract of land was $2,200,000. As of December 31, construction had not begun. How should this transaction be reflected in Kramerica’s December 31 financial statements?

Case 3

Morty Enterprises, is a new start-up company. Morty Enterprises has been preparing to begin operations for the past six months and is almost ready to start production. It has incurred significant costs but no revenue has yet to be earned. Organization costs such as legal fees and advertising have been capitalized as start-up costs. Morty Enterprises has expensed all payroll expenses, rent, and other similar costs as incurred—this has resulted in a significant loss being reported on the first year’s financial statements. Is Morty’s accounting treatment in accordance with GAAP?

If you need help formatting your report, please refer to the Purdue Online Writing Lab:

http://owl.english.purdue.edu/owl/resource/632/1/

The sources used in your report should be properly cited using the formatting style of your choice (e.g. MLA, Chicago, etc.,) and your paper should include internal citations. The accounting standards codification should be cited as shown below. If you need examples of how to cite sources, see the section titled Citations on the following website:

http://owl.english.purdue.edu/owl/resource/682/01/

The project is worth 30 points--10 points for your analysis of the accounting issues, 15 points for correctly identifying the appropriate guidance in the ASC, and 5 points for your writing (grammar, spelling, etc.).

Suggestions

Even though this is a relatively short assignment, don’t put it off. You’ll be busy at the end of the term, and it will be nice to have this out of the way.

Citing Codified Accounting Standards

Accounting standards must be cited using the numbers in the Codification’s structural organization. As an example, for disclosure standards for unrecognized tax benefits, the relevant Topic is Income Taxes (740), the Subtopic is Overall (10), the Section is Disclosure (50), and the Paragraph is 15. Thus, the proper reference would be FASB ASC 740-10-50-15.

Examples of Citing Codified Accounting Standards in Papers

Internal citation

(FASB, 2014) or

(FASB ASC 740-10-50-15)

Bibliographic reference

Financial Accounting Standards Board (FASB). 2014. Income Taxes.  FASB ASC 740-10-50-15.