You are the accountant for Speedy Company and are preparing the financial statements for 2019. Near the end of 2019, Speedy loaned its president $100,000 (a material amount) because she was having financial difficulties. The note was properly recorded as a note receivable by Speedy. You are unsure of how to classify this note on the 2019 ending balance sheet and ask the president when the note is due. She replies, “We never really set a due date; I might repay it in 2020 or maybe in a couple of years when I get more financially secure. It would be best to classify this note as a current asset in the usual manner because that will increase our
Required:
From financial reporting and ethical perspectives, what do you think of the president’s suggestion?
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Chapter 4 Solutions
Intermediate Accounting: Reporting And Analysis
- It is February 16, 2020, and you are auditing Davenport Corporation's financial statements for 2019 (which will be issued in March 2020). You read in the newspaper that Travis Corporation, a major customer of Davenport, is in financial difficulty. Included in Davenports accounts receivable is 50,000 (a material amount) owed to it by Travis. You approach Jim Davenport, president, with this information and suggest that a reduction of accounts receivable and recognition of a loss for 2019 might be appropriate. Jim replies, Why should we make an adjustment? Ted Travis, the president of Travis Corporation, is a friend of mine; he will find a way to pay us, one way or another. Furthermore, this occurred in 2020, so lets wait and see what happens; we can always make an adjustment later this year. Our 2019 income and year-end working capital are not that high; our creditors and shareholders wouldnt stand for lower amounts than they already are. Required: From financial reporting and ethical perspectives, prepare a response to Jim Davenport regarding this issue.arrow_forwardYour client is preparing financial statements to show the bank. You know that he has incurred a refrigeration repair expense during the month, but you see no such expense on the books. When you question the client, he tells you that he has not yet paid the 1,255 bill. Your client is on the accrual basis of accounting. He does not want the refrigeration repair expense on the books as of the end of the month because he wants his profits to look good for the bank. Is your client behaving ethically by suggesting that the refrigeration repair expense not be booked until the 1,255 is paid? Are you behaving ethically if you agree to the clients request? What principle is involved here?arrow_forwardBlue Company, an architectural firm, has a bookkeeper who maintains a cash receipts and disbursements journal. At the end of the year (2019), the company hires you to convert the cash receipts and disbursements into accrual basis revenues and expenses. The total cash receipts are summarized as follows. The accounts receivable from customers at the end of the year are 120,000. You note that the accounts receivable at the beginning of the year were 190,000. The cash sales included 30,000 of prepayments for services to be provided over the period January 1, 2019, through December 31, 2021. a. Compute the companys accrual basis gross income for 2019. b. Would you recommend that Blue use the cash method or the accrual method? Why? c. The company does not maintain an allowance for uncollectible accounts. Would you recommend that such an allowance be established for tax purposes? Explain.arrow_forward
- On January 20, 2019, Tamira Nelson, the accountant for Picton Enterprises, is feeling pressure to complete the annual financial statements. The company president has said he needs up-to-date financial statements to share with the bank on January 21 at a dinner meeting that has been called to discuss Picton’s obtaining loan financing for a special building project. Tamira knows that she will not be able to gather all the needed information in the next 24 hours to prepare the entire set of adjusting entries. Those entries must be posted before the financial statements accurately portray the company’s performance and financial position for the fiscal period ended December 31, 2018. Tamira ultimately decides to estimate several expense accruals at the last minute. When deciding on estimates for the expenses, she uses low estimates because she does not want to make the financial statements look worse than they are. Tamira finishes the financial statements before the deadline and gives them…arrow_forwardIn January 2022, Sonja deposited $20,000 in a bank in the Bahamas. She earned $500 interest income. She closed the account in December 2022. Question Content Area a. Is Sonja subject to the FBAR reporting requirement? Sonja is required to file an FBAR form for 2022 because on at least one day during 2022 she had over $fill in the blank 08426906fff3031_1 in a foreign bank account. Question Content Area b. Is the interest income taxable in the United States? , of the interest income earned from this account is taxable in the United States.arrow_forwardThe net income of Sogo & Sons, a department store, decreased sharply during 2019. Mohan Sogo, manager of the store, anticipates the need for a bank loan in 2020. Late in 2019, Mohan Sogo instructs the store’s accountant to record a RM2,000 sale of furniture to the Sogo’s family, even though the goods will not be shipped from the manufacturer until January 2020. Mohan Sogo also tells the accountant not to make the following 31st December 2019, adjusting entry: Salaries owed to employees Prepaid insurance that has expired RM900 400 Requirements: 2(a). Compute the overall effects of these transactions on the store’s reported income for 2019. 2(b). Why is Mohan Sogo taking this action? Is his action ethical? Give your reason, identifying the parties helped and the parties harmed by his action. 2(c). As a personal friend, what advice would you give the accountant?arrow_forward
- Hugo Garcia is preparing his balance sheet and income and expense statement for the year ending December 31, 2020. He is having difficulty classifying a few items and asks for your help. Which of the transactions are assets, liabilities, income, or expense items? a. Hugo rents a house for $1,350 a month. b. Hugo bought diamond earrings for his wife and charged them using his Visa card. The earrings cost $900, but he hasn’t yet received the bill. c. Hugo borrowed $3,500 from his parents last fall, but so far, he has made no payments to them. d. Hugo makes monthly payments of $225 on an installment loan; about half of it is interest, and the balance is repayment of principal. He has 20 payments left, totaling $4,500. e. Hugo paid $3,800 in taxes during the year and is due a tax refund of $650, which he hasn’t yet received. f. Hugo invested $2,300 in a mutual fund. g. Hugo’s Aunt Lydia gave him a birthday gift of $300.arrow_forwardChris Nelson, the new assistant controller for Grand Company, is preparing for the firm’s year-end closing procedures. On December 30, 2019,a memorandum from the controller directed Nelson to make a journal entry debiting Cash and crediting Long-Term Advances to Officers for $1,000,000 . Not finding the $1,000,000 in the cash deposit prepared for the bank that day, Nelson went to the controller for a further explanation. In response, the controller took from her desk drawer a check for $1,000,000 payable to Grand Company from Jason Grand, chief executive officer of the firm. Attached to the check was a note from Jason Grand saying that if this check were not needed to return it to him next week. “This check is paying off a$1,000,000 advance the firm made to Jason Grand six years ago,”stated the controller.“ Mr.Grand has done this every year since the advance; each time we have returned the check to him in January of the following year. We plan to do so again this time. In fact, when…arrow_forwardYou are the Senior Credit Officer at your bank. Miss James, your Junior Credit Officer, has presented the following projected data for 2019 supplied by The Mosely Corporation. She has asked for assistance in completing the statement of financial position. The Mosely Corporation has applied for a loan to start a project that you will eventually make the credit decision on. Mosely's actual sales for 2018 were $2,400,000. your The bank's lending policy requires that a borrower's financial position must show equity of at least 20% in order to attract the bank's funding. (a) Use the data to complete the statement of financial position for 2019arrow_forward
- On December 29, 2019, an employee received a 5,000 check from her employers client. The check was payable to the employer. The employee did not remit the funds to the employer until December 30, 2019. The employer deposited the check on December 31, 2019, but the bank did not credit the employers bank account until January 2, 2020. When is the cash basis employer required to include the 5,000 in gross income?arrow_forwardYou are the junior accountant at CBW Bank. You have been asked to assist with the 30 June 2022 tax work: As part of the bank manager’s contract she was provided with a BMW luxury motor vehicle for her work travel. The contract for the provision of the car was entered into on 1 January 2020. The bank manager is permitted to take the car home at the end of the day and there is no restriction on her use of the car for non-work purposes. The car was originally acquired by the bank on 1 January 2019. The cost of the car was $90,000. Other details regarding the car are as follows: Petrol and oil $6,000 Registration $2,000 Insurance $1,800 Repairs and Maintenance $1,000 Speeding fine $600 The manager is required to contribute $100 per month. The car travelled 50,000 km for the year FBT year. Of these, 30,000 km related to business travel. Required: Calculate FBT liability for the car based on the most effective tax method. Type your answer in the space provided.arrow_forwardThe net income of Steinbach & Sons, a landscaping company, decreased sharply during 2018. Mort Steinbach, owner and manager of the company, anticipates the need for a bank loan in 2019. Late in 2018, Steinbach instructs the company’s accountant to record $2,000 service revenue for landscape services for the Steinbach family, even though the services will not be performed until January 2019. Steinbach also tells the accountant not to make the following December 31, 2018, adjusting entries: Requirements Compute the overall effects of these transactions on the company’s reported net income for 2018.arrow_forward
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