Statement Financial Accounting

Intermediate Accounting I

Fall 2013

Research Project

The computer-based CPA Exam contains cases that require test takers to use accounting knowledge and a database of authoritative literature to address proper accounting treatments. 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. The project is due in my office (KRAN 433) before 6pm on Tuesday, December 3, but you can always turn it in earlier. Late submissions will not be accepted.

Requirements

Select one of the following scenarios:

Case 1

You work in the financial reporting group at Joyner, Inc., a corporation that is in its first year as a publicly-traded company. Your group is preparing the company’s first quarter financial statements. Your supervisor has asked you to make sure the expenses are correctly presented in the quarterly report. Joyner has a long standing policy of paying generous year-end bonuses to its employees, typically 5% of the company’s net income before bonuses. As you work on your section of the quarterly report, you wonder if the bonuses should be reflected in first-quarter expenses. The projected net income before bonuses for the year is $17.2 million. The preliminary net income before bonuses for the first quarter is $3.7 million.

Case 2

Sandberg Company has two wholly-owned subsidiaries, Lee Corporation and Ruiz Company. During the year, Lee Corporation sold an asset to Ruiz Company. Lee recognized a gain of $19,000 on the transaction. For the year, Lee recognized net income of $33,000, including the gain. Ruiz recognized net income of $51,000. Sandberg recognized net income of $23,000, before considering the results of the subsidiaries. Other than the asset sale, there were no other transactions between Lee, Ruiz, and Sandberg. What amount should be reported as net income on Sandberg Company’s Consolidated Statement of Income?

Case 3

Howard Company is a manufacturing company located in and operating almost exclusively in the United States of America. On September 3, Howard purchased a production machine from a Mexican company on account and took delivery of the machine that day. The invoice price was 500,000 pesos. Howard exchanged US dollars for pesos on September 15 and paid the seller. The following January, you are assigned to prepare Howard’s financial statements for the year ended December 31. You want to make sure you value the machine correctly on the balance sheet. On September 3, the exchange rate was 1 peso = 8 cents, and on September 15, it was 1 peso = 7 cents. On December 31, the exchange rate was 1 peso = 6 cents.

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 an authoritative document (i.e. the accounting standards codification). You should directly quote (i.e. copy) the language from the ASC that supports your accounting treatment. The report should be about three pages, double spaced, neatly organized and formatted. If you need help formatting the 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.). The accounting standards codification should be cited as shown below. If you need examples of how to cite sources, see:

http://www.lib.purdue.edu/rguides/studentinstruction/citingsources.html or

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

The project is worth 20 points--15 points for your analysis of the accounting issues, 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 semester, 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.

Citing Codified Accounting Standards in Papers

Internal citation

(FASB, 2013) or

(FASB ASC 740-10-50-15)

Bibliographic reference

Financial Accounting Standards Board (FASB). 2013. Income Taxes.  FASB ASC 740-10-50-15.