chapter 2 - 2-1Odd-numbered SolutionsCHAPTER 2BALANCE...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 2-1Odd-numbered SolutionsCHAPTER 2BALANCE SHEET: PRESENTING THE INVESTMENTSAND FINANCING OF A FIRMQuestions, Short Exercises, Exercises, Problems, and Cases: Answers and Solutions2.1See the text or the glossary at the end of the book.2.3The justification relates to the need for a reasonably high degree of reliabilityin the preparation of the financial statements. When there is an exchangebetween a firm and some other entity, there is market evidence of theeconomic effects of the transaction. The independent auditor verifies theseeconomic effects by referring to contracts, cancelled checks and otherdocuments underlying the transaction. If accounting recognized eventswithout such a market exchange (for example, the increase in market valueof a firm's assets), increased subjectivity would enter into the preparation ofthe financial statements.2.5Accountants record assets at acquisition cost. Cash discounts reduceacquisition cost and, therefore, the amount recorded for merchandise orequipment.2.7a.LiabilityReceivable from Supplier or Prepaid Merchandise Orders.b.LiabilityInvestment in Bonds.c.AssetInterest Payable.d.AssetInsurance Premiums Received in Advance.e.LiabilityPrepaid Rent.2.9(Citigroup; asset recognition and valuation.)Although the tuition support clearly benefits future periods, the benefits toCitigroup are too difficult to measure reliably to justify recognition of anasset. Citigroup would treat the $10 million as an expense.Odd-numbered Solutions2-22.11(Pizza Hut; asset valuation.)The acquisition cost of the van includes the purchase price of $14,500 andthe cost of painting the van of $1,200, for a total of $15,700. The license feeand insurance are annual operating expenses and are not part of theacquisition cost of the van. Pizza Hut should include the license fee andinsurance in Prepayments on the balance sheet.2.13(Leonard Corporation; journal entry for acquisition.) (Amounts in Millions)Inventory........................................................................................20Land, Buildings, and Equipment................................................40Goodwill and Other Intangibles..................................................35Cash.......................................................................................10Liabilities...............................................................................25Common Stock.....................................................................60Assets=Liabilities+Shareholders'Equity(Class.)+20+25+60ContriCap+40+3510To record the acquisition of the assets and the assumption ofthe liabilities of Newsome Corporation with cash andcommon stock.2.15(Delta Air Lines; asset recognition and valuation.)a.The placing of an order does not give rise to an asset....
View Full Document

This note was uploaded on 05/31/2008 for the course ORIE 310 taught by Professor Callister during the Fall '07 term at Cornell.

Page1 / 20

chapter 2 - 2-1Odd-numbered SolutionsCHAPTER 2BALANCE...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online