Chapter 13: Q26Q (page 658)
Question: When must a company recognize an asset retirement obligation?
Answer
A company recognizes asset retirement obligation when:
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Question: On February 1, 2018, one of the huge storage tanks of Viking Manufacturing Company exploded. Windows in houses and other buildings within a one-mile radius of the explosion were severely damaged, and a number of people were injured. As of February 15, 2018 (When the December 31, 2017, financial statements were completed and sent to the publisher for printing and public distribution), no suits had been filed or claims asserted against the company as a consequence of the explosion. The company fully anticipates that suits will be filed and claims asserted for injuries and damages. Because the casualty was uninsured and the company is considered at fault, Viking Manufacturing will have to cover the damages from its own resources.InstructionsDiscuss fully the accounting treatment and disclosures that should be accorded the casualty and related contingent losses in the financial statements dated December 31, 2017.
(Fair Value Option) Presented below is selected information related to the financial instruments of
Dawson Company at December 31, 2017. This is Dawson Company’s first year of operations.
Carrying Fair Value
Amount (at December 31)
Investment in debt securities (intent is to hold to maturity) \( 40,000 \) 41,000
Investment in Chen Company stock 800,000 910,000
Bonds payable 220,000 195,000
Instructions
(a) Dawson elects to use the fair value option for these investments. Assuming that Dawson’s net income is $100,000 in2017 before reporting any securities gains or losses determine Dawson’s net income for 2017. Assume that the differencebetween the carrying value and fair value is due to credit deterioration.
(b) Record the journal entry, if any, necessary at December 31, 2017, to record the fair value option for the bonds payable
Distinguish between a determinable current liability and a contingent liability. Give two examples of each type.
Question: In determining the amount of a provision, a company using IFRS should generally measure:
(a) Using the midpoint of the range between the lowest possible loss and the highest possible loss.
(b) Using the minimum amount of the loss in the range.
(c) Using the best estimate of the amount of the loss expected to occur.
(d) Using the maximum amount of the loss in the range.
On January 1, 2017, Roosevelt Company purchased 12% bonds, having a maturity value of \(500,000, for \)537,907.40.
The bonds provide the bondholders with a 10% yield. They are dated January 1, 2017, and mature January 1, 2022, with interest
received January 1 of each year. Roosevelt’s business model is to hold these bonds to collect contractual cash flows.
Instructions
(a) Prepare the journal entry at the date of the bond purchase.
(b) Prepare a bond amortization schedule.
(c) Prepare the journal entry to record the interest revenue and the amortization for 2017.
(d) Prepare the journal entry to record the interest revenue and the amortization for 2018
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