Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
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Chapter 5, Problem 4P
Financial Statement Violations of U.S. GAAP The following are the financial statements issued by Allen Corporation for its fiscal year ended October 31, 2019:
Notes to Financial Statements:
1. Long-Term Lease. Under the terms of a 5-year, noncancelable lease for a building, Allen is obligated to make annual rental payments of $40,000 in each of the next 4 fiscal years.
2. Pension Plan. Substai1tially all employees are covered by Allen’s defined benefit pension plan. Pension expense is equal to the total of pension benefits accrued and paid to retired employees during the year. Because it is a defined benefit plan that is paid every year, no pension liability exists.
3. Patent. The patent had an estimated remaining life of 10 years at the time of purchase. Allen’s patent was purchased from Apex Corporation on January 1, 2019, for $250,000.
4.
5. Warrants. On January 1, 2018, one common stock warrant was issued to shareholders of record for each common share owned. An additional share of common stock is to be issued upon exercise of 10 stock warrants and receipt of an amount equal to par value. For the 6 months ended October 31, 2019, the average market value for Allen’s common stock was $5 per share and no warrants had yet been exercised.
6.
Required:
Next Level Review the preceding financial state1nents and related notes. Identify any inclusions or exclusions from them that would be in violation of GAAP, and indicate corrective action to be taken. Do not comment as to format or style. Respond in the following order:
1.
2. Notes
3. Income statement
4. Statement of
5. General
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Accounting
The Lessor Company leases equipment to the
Lessee Company on January 1, 2020. The lease
is appropriately recorded as a purchase for
accounting purposes for Lessee and as a sale for
accounting purposes for Lessor. The lease is for
a ten-year period. Equal annual payments under
the lease are $30,000 and are due on January 1
of each year. The first payment is made on
January 1, 2022. The cost of the equipment on
Lessor's accounting records is $100,000. The
equipment has an estimated useful life of ten
years with no residual value expected. The of
interest contemplated by Lessor and Lessee is 9
percent. Assume that the present value of the
lease payments equals the market value of the
equipment (selling price). Assume this is a sales-
type lease.
A.Prepare the entry or entries required for Lessor
on January 1, 2022.
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on December 31, 2022.
A.Prepare the entry or entries required for Lessor
on January 1, 2023.
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Chapter 5 Solutions
Intermediate Accounting: Reporting And Analysis
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