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3.Ordinary shares account does not reflect the par value of the outstanding shares (11,000).Increase ordinary shares by par value of 1,000 shares.4.No statement of shareholders’ equity and explanation of shares issued is presented.The statement should be provided, including dates and numbers of shares issued, peso amounts assigned, and the bases for assigning peso values in noncash transactions. Also, land given by Mario should be recorded at fair value; services by Pedro should be
14-12 Solutions Manual to Accompany Applied Auditing, 2014 Editionrecognized as an expense at fair value. Additional paid-in capital may be recognized as the result of the above.5.No accumulated deficit presented.“Deficit accumulated during development stage” should be included in the shareholders’ equity section. The amount results from corrections made in items 1 and 2 above.Requirement (b) Additional items which should be included are:1.Statement of Comprehensive Income,including amounts of revenue andexpenses recognized since the inception of the enterprise in 2015.2.Statement of cash flows,including cumulative amounts of sources and uses ofcash since the inception of the enterprise.3.Additional disclosures: identification of the company as a development-stageenterprise, and description of significant development-stage activities.14-12.Nikko CorporationRequirement (a)In a purchase transaction, assets are recorded at their acquisition price, whichbecomes the cost basis to the acquiring corporation. The book values of the assetsfor Rain Company are irrelevant.Requirement (b)When a price is paid for a group of assets, the total price must be allocated to theindividual assets. Because we know neither the total fair value of the tangible andother intangible assets acquired from Rain Company nor the price to be paid bythe Nikko Corporation, we cannot determine whether Nikko Corporation has anygoodwill to record. The total price to be paid by the Nikko Corporation isindefinite but it may be estimated by discounting the expected receipts (1% of netsales) at the end of each of the next 5 years and adding the initial P450,000 cashpayment. If the estimated purchase price exceeds the sum of the estimated fairvalues of the tangible and other assets purchased, then the excess may be recordedas goodwill.
Substantive Tests of Intangible Assets 14-1314-13.Golden Springs Shopping Center, Inc.Interest on mortgage bonds: An amount equal to the interest cost incurred in 2009(P60,000) is clearly a cost that can be associated with the normal constructionperiod and can be regarded as a normal element of the capitalized cost of thephysical assets of the shopping center because the construction period would haveended at the end of the year if the typhoon had not occurred. The decision to usedebt capital to finance the shopping center was made with full knowledge thatinterest would accrue during the construction period and add to the total cost ofbuilding the center and bringing it to the point at which it would produce revenue.