Chapter2_ Solutions

# Chapter2_ Solutions - Chapter 2 Assigned Problems 12 14 16...

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

Chapter 2 Assigned Problems: 12, 14, 16, 22, 23 12. a. Most industrial and retail firms regard revenue as earned at the point of sale. This is usually the earliest point at which the significant risks and rewards of ownership pass to the buyer, and at which the amount of revenue can be determined with reasonable reliability. b. Under RRA, revenue is recognized when oil and gas reserves are proven. This point in the operating cycle does not meet either of IAS 18 criteria for revenue recognition. Since the reserves are not sold, the significant risks and rewards of ownership have not been passed on. Also, the large number of revisions to estimates under RRA casts doubt on the reliability of the amount of revenue recognized. Presumably, this is why RRA is presented as supplementary information only. 14. a. Sure Corp. Balance Sheet As at December 31, 2008 Financial Asset Shareholders’ equity Cash (500-50) \$450.00 Capital stock \$1336.51 Capital asset, at PV \$916.70 Net income \$80.19 Dividend (50.00) \$1366.70 \$1366.70 Sure Corp. Income Statement For the year ended December 31, 2008 Net Income (1336.51×.06) \$80.19 b. Page 1 of 6 19 . 0 8 \$ .06 1,336.51 discount) of (Accretion Income Net 70 . 916 \$ 06 . 1 500 06 . 1 500 51 . 1336 \$ 06 . 1 500 06 . 1 500 06 . 1 500 ) 1 ( 2 1 3 2 1 0 = × = = + = = + + = + = = PA i R PA n j j j

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

View Full Document
Cash includes \$450 ×.06=\$27 interest on cash balance. Retained earnings calculated as \$80.19-50+82-50=\$62.19 Sure Corp. Balance Sheet As at December 31, 2009 Financial Asset Shareholders’ equity Cash (450+500+27-50) \$927.00 Capital stock \$1336.51 Capital asset, at PV 471.70 Retained Earnings \$62.19 \$1398.70 \$1398.70 Sure Corp. Income Statement For year ended December 31, 2009 Net Income (1,366.70×.06) \$82.00 c. Under ideal conditions, present value and market value are equal. This is because of arbitrage. Under real conditions, market values provide only a partial implementation of fair value accounting. Because of incomplete markets, market values are not available for all assets and liabilities. If market values are not available for all assets and liabilities, fair value accounting based on market values cannot be fully implemented. d. The main reason is the difficulty of estimating future cash flows. Since, under realistic conditions these estimates are subject to error and bias, reliability is reduced. Another reason arises from possible error and bias in the choice of interest rate for discounting. However, the prime bank rate and central bank rate are available as proxies.
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern