Spring2009 Exam 2 solution

Spring2009 Exam 2 solution - ACCTG 321 Exam II Spring, 2009...

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ACCTG 321 Exam II Spring, 2009 Solution I. A. 1. Only disclosure in footnotes to the financial statements; no journal entry. 2. This is an Executory Contract where both parties still have to fulfill the contract. Executory Contracts do not give rise to an Accounting journal entry. 3. NONE B. Estimated Loss on Purchase Commitment 120,000,000 Estimated Liability on Purchase Commitment 120,000,000 C. Fair Value Or, Lower of Cost or Market Or, Conservatism D. The liability recorded in part B is only $120,000,000, but the total liability is $210,000,000. Thus Hammond Company is only recording part of the liability. E. 1. If you answered Fair Value is part C, an acceptable answer is: Hammond would record a gain as they priced the contract at its Fair Value. Fair Value requires Hammond Company to value the contract at the price Hammond would pay to transfer the liability on December 31, 2009 (Thus, the reduction in the liability). If you answered either Lower of Cost or Market or Conservatism in part B, an acceptable answer is: Hammond Company would do nothing because Lower of Cost or Market and Conservatism do not allow the recording of Gains, the write up of asset values or the decrease of liabilities upon the increase in the contract value. 2. If you answered Fair Value is part C: Estimated Liability on Purchase Commitment 60,000,000 Estimated Gain on Purchase Commitment 60,000,000 If you answered either Lower of Cost or Market or Conservatism in part B: NO JOURNAL ENTRY 1
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II. A.
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This note was uploaded on 01/06/2010 for the course ACCTG 321 taught by Professor Will during the Spring '08 term at San Diego State.

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Spring2009 Exam 2 solution - ACCTG 321 Exam II Spring, 2009...

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