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Chapter 5: Question 11Q (page 237)
11. Should available-for-sale securities always be reported as a current asset? Explain.
No, reporting available for sale securities as current assets depends uponthe business entity's expectations to generate cash within the operating period.
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(Reporting the Financial Effects of Varied Transactions) In an examination of Arenes Corporation as of 31 Dec, 2017, you have learned that the following situations exist. No entries have been made in the accounting records for these items.
1. The corporation erected its present factory building in 2001. Depreciation was calculated by the straight-line method, using an estimated life of 35 years. Early in 2017, the board of directors conducted a careful survey and estimated that the factory building had a remaining useful life of 25 years as of 1 Jan, 2017.
2. An additional assessment of 2016 income taxes was levied and paid in 2017.
3. When calculating the accrual for officers’ salaries at 31 Dec, 2017, it was discovered that the accrual for officers’ salaries for 31 Dec, 2016, had been overstated.
4. On 15 Dec, 2017, Arenes Corporation declared a cash dividend on its common stock outstanding, payable 1 Feb, 2018, to the common stockholders of record 31 Dec, 2017.
Instructions
Describe fully how each of the items above should be reported in the financial statements of Arenes Corporation for the year 2017.
5. A company has purchased a tract of land and expects to build a production plant on the land in approximately five years. During the 5 years before construction, the land will be idle. Under IFRS, the land should be reported as:
(a) land expense.
(b) property, plant, and equipment.
(c) an intangible asset.
(d) a long-term investment.
1. Which of the following statements about IFRS and GAAP accounting and reporting requirements for the balance sheet is not correct?
(a) Both IFRS and GAAP distinguish between current and non-current assets and liabilities.
(b) The presentation formats required by IFRS and GAAP for the balance sheet are similar.
(c) Both IFRS and GAAP require that comparative information be reported.
(d) One difference between the reporting requirements under IFRS and those of the GAAP balance sheet is that an IFRS balance sheet may list long-term assets first.
Included in Outkast Company’s December 31, 2017, trial balance are the following accounts: Prepaid Rent \(5,200, Debt Investments (to be held to maturity until 2020) \)56,000, Unearned Fees \(17,000, Land (held for investment) \)39,000, and Notes Receivable (long-term) $42,000. Prepare the long-term investments section of the balance sheet.
What is meant by liquidity? Rank the following assets from one to five in order of liquidity.
(a) Goodwill.
(b) Inventory.
(c) Buildings.
(d) Short-term investments.
(e) Accounts receivable.
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