Recognition and Measurement Concept
ACC 4998 / 7998 Dr. NogaraAssignment #1: SU 1, 2, 3, 5 –(12 PTS) 1. Conceptual FrameworkListed below are several terms associated with recognition and measurement concepts. For each of the following items, list the letter of the term that corresponds to the most appropriate recognition and measurement concept.A) Materiality B) Conservatism C) Industry PracticeD) Full Disclosure E) Revenue Recognition F) Matching ConceptG) Economic Entity H) Going ConcernNote: Each category can be used once, more than once, or not at all.Ex. The records of the business should be kept separate from that of the owners. G1. Smart-Way Corporation accrued salaries of $2,000,000 at year-end becausethe pay date for employees occurs in the following year.2. Arc Corp, a publicly traded company, elected to expense the $100 purchaseof small tools instead of capitalizing this cost. The auditors had no objections.3. Delta Construction Corporation accounted for projects using the Cost-to-Costmethod. Other construction businesses also use this method.4. Fischer Company selected to use the FIFO method of accounting for itsbecause this method is less likely to overstate the inventory5. Forde Corporation sold goods to a customer and allocated a portion of thissale to a warranty it provided. The warranty was properly recognized over athree year period.6. Subsequent to the balance sheet date, Erlo Company suffered a fire in itsmain warehouse that caused significant damage. This was properly stated inErlo’s footnotes.2 PTS) 2. Cost-to-Cost Method (% of Completion)Cyber Construction Company uses the cost-to-cost method to record revenues andgross profit for all of its projects. Cyber began a three-year project on January 1, 2019. Costs for the project expect to total $2,100,000. Cyber will receive a total of $3,600,000 in revenue for this project.Data for the project appears below:2019 2020 202Costs to date $ 840,000 $1,365,000 $2,100,000Estimated remaining costs 1,260,000 735,000 -Progress Billings during the year 1,400,000 1,000,000 1,200,000Cash collected during the year 1,050,000 940,000 1,610,000Calculate Cyber’s revenue and gross profit for each of the three years.Place all answers on the lines provided and show all work in the space below.Revenue Gross Profit201920202021(14 PTS) 3. Classified Balance SheetListed below are several main categories from the classified balance sheet. For each of the following items, list the appropriate category of the classified balance sheet that item should appear. If an item does not appear on the balance sheet, select item H) Not on Balance Sheet.A) Current Assets B) Investments C) Property, Plant, and EquipmentD) Intangible Assets E) Current Liabilities F) Long-Term LiabilitiesG) Stockholders’ Equity H) Not on Balance SheetNote: Each category can be used once, more than once, or not at all.A ex. Inventory1. Bonds Payable – Due in 5 years2. Marketable Trading Securities3. Goodwill, recorded on the acquisition of another company4. Preferred Stock – Issued at par5. Sales Returns and Allowances6. Land, held for resale and not used by the business7. Six month note payable, as of the balance sheet date the business hasthe positive intent and ability to refinance with a 5 year note (14 PTS) 4. Multiple-Step Income StatementListed below are several main categories from the income statement. For each of the following items, list the appropriate category of the multiple-step income statement that item should appear. If an item does not appear on the income statement, select item H) Not on Income Statement.A) Revenues B) Cost of Goods Sold C) Selling ExpensesD) General and Administrative Expenses E) Other RevenuesF) Other Expenses G) Discontinued Operations H) Not on Income StatementNote: Each category can be used once, more than once, or not at all.C ex. Advertising Expense1. Interest Received2. Dividends Paid3. Sales Returns and Allowances4. Unearned Revenue5. Gain from the Sale of a Major Business Segment6. Depreciation on Office Equipment7. Freight-Out(16 PTS) 5. Error Corrections and Accounting ChangesDragon Corporation manufactures heavy equipment. List A represents theclassification of a transaction and List B represents the accounting treatment that Dragon should use.For each transaction, select one from List A and one from List B.List A List BA. Change in accounting principle. X. Retrospective application.B. Change in estimate. Y. Retroactive restatement.C. Correction of an error. Z. Prospective approach.D. Neither an accounting change nor an error.Note: Each category can be used once, more than once, or not at all.List A List B(A) (B) (C) (D) (X) (Y) (Z)1. Dragon determined that equipment previously depreciatedover 12 years should now be depreciated over 10 years. 2. During the year, Dragon determined that a three-year insurancepolicy was expensed entirely in the previous year.3. Dragon changed from LIFO to FIFO to account for its finishedgoods inventory.4. Due to production efficiencies, Dragon reduced its warrantycosts from 4% of sales to 3% . 5. Dragon had been using the cash basis of accounting andchanged to the accrual basis during the year.(18 PTS) 6. Earnings Per ShareFor each of the following independent cases, calculate either the Basic or Diluted EPS.Place answers on the lines provided and show all work in the space above each answer.A) Ryan Company had net income of $400,000 for the year and paid no dividends. Ryan began the year with 100,000 shares of common stock and issued 20,000 more shares on March 1. On June 1, Ryan issued a 50% stock dividend. On November 1, Ryan issued 30,000 more shares of common stock.Calculate the Basic EPS.Basic EPSB) Orion Corporation had net income (after tax) of $2,000,000 and paid dividends of $25,000 to preferred stockholders. Orion had 100,000 shares of common stock issued and outstanding the entire year. Orion also had $1,500,000 of 10% convertible bonds. These bonds were convertible into 30,000 shares of common stock. Orion’s tax rate is 40%.Calculate the Diluted EPS.Diluted EPSC) Zenith Corporation had net income of $280,000 and paid no dividends during the year. Zenith had 80,000 shares of common stock issued and outstanding the entire year. Zenith had 10,000 options exercisable into 10,000 shares of common stock at $10 per share. These options were outstanding the entire year. The average market price of Zenith’s stock was $25.Calculate the Diluted EPS.Diluted EPS(14 PTS) 7. Investments – Debt and Equity SecuritiesListed below are several terms associated with debt and equity securities. For each of the following items, list the letter of the term that best corresponds to this description.A) Trading Securities B) Available-for-Sale SecuritieC) Held-to-Maturity Securities D) Unrealized GainE) Fair Value Method–Equity Securities F) Equity Method-Equity SecuritiesG) Dividend Income H) Securities Fair Value AdjustmentI) Investment in SubsidiaryNote: Each category can be used once, more than once, or not at all.1. A company that owns equity securities in which it has little or no influenceover uses this method to record transactions with these securities.2. Investments are classified in this category when the business has thepositive intent and ability to sell these securities in the near future.3. This account is debited to record the appreciation in value of debt securitiesthat the business is unsure whether it plans to keep or sell.4. This account is credited when a business receives dividends from asubsidiary in which it has significant influence over.5. This account is credited when a business receives dividends from asubsidiary in which it does not have significant influence over.6. These debt securities are classified as long-term investments and thebusiness plans to keep for the life of the debt security.7. This account is credited to record the appreciation in value of debtsecurities that the business plans to sell.