Instructions: You have been asked to comment on the accounting treatment for six various independent transactions by citing the appropriate section of the FASB ASC. Your first paragraph should be the citation from the FASB ASC supporting your decision. Your second paragraph (or more) should be in your own words explaining how the ASC applies to your decision be specific. Show support for your choice in your second paragraph. You can include things like why we do things in the manner prescribed by the FASB ASC, alternative accounting treatment, etc. This is where you show your understanding of accounting. For all of the questions assume that you are a for-profit entity. Limit each question to one citation from the ASC. If you believe that there is more than one citation from the ASC that is appropriate, choose the one that you believe is the best. You cannot use the Master Glossary as a citation. Be sure to cut and paste the FASB ASC citation do not retype it and show the citation number as presented in the example below. Only include information from the ASC relevant to your responses do not cut and paste the complete citation if it is not relevant.

Put your answer to each question on a separate page(s). Your responses should be no more than two-typed pages per question, double-spaced, Times New Roman font size 12. You are not required to submit two-pages for each question, just no more than two-pages per question. Put your name at the top of the first page. The due date is by Sunday, August 9, 11:55PM. I will not accept any late papers. You must do the work on your own. If you use additional outside sources be sure to show them at the end of each question to avoid plagiarizing. Your grade will be based on your answers and your writing-style. Failure to follow the instructions can result in a grade of 0 for the Project.

SAMPLE QUESTION: Working as an accountant in the music industry, you capitalized rather than expensed the record master cost for a just released CD. The recording artist has recently completed a sold-out tour, and has had successive platinum records. Justify why you did this.

FASB ASC CITATION:

Record Master Costs

928-340Currently Viewing:

928 EntertainmentMusic

340 Other Assets and Deferred Costs

25 Recognition

General

> Licensor Accounting

>> Record Master Costs

928-340-25-2 The portion of the record master cost borne by the record company shall be reported as an asset if the past performance and current popularity of the artist provides a sound basis for estimating that the cost will be recovered from future sales.

Now you write your paragraph(s).

YOUR RESPONSE: The ASC allows for record master costs to be capitalized when there is evidence that the future revenues will be sufficient to recover the record master costs. The artist had successive platinum CDs and is currently touring with all concert dates sold-out. By capitalizing the costs (treating them as an asset), the entity can defer recognition of the initial

continued

cost as an expense (recognizing the expense as a period cost), and better match the expense with the revenue generated by the sales of the CD. This would be an example of the expense recognition (matching) principle. Since the revenue will be recognized in the future when the music is sold, by recognizing the expenses in the same period the results of the operating performance for that period will be better reported to the users of financial information. The alternative treatment would be to immediately expense the record master costs etc., etc.

Your response should be much more detailed than my example response above. You can discuss alternative accounting treatments; the concepts, principles, assumptions, etc., on why we do it in this manner, or anything that you can think of related to your citation. You can discuss the definitions of assets and expenses as found in SFAC 6 related to the elements of accounting and discuss which you believe is better to record this transaction as an asset or expense. There are many different ways you can expand on the answer from the citation.

928-340Currently Viewing:

928 EntertainmentMusic

340 Other Assets and Deferred Costs

25 Recognition

General

> Licensor Accounting

>> Record Master Costs

Your six independent, equally weighted questions to answer are:

1. The inventory at your company consists of computer software that the company has developed and is planning to sell. All beta testing on the software is completed and its ready to distribute. You capitalized (rather than expensed) the cost of duplicating the software, the instruction manuals, and training material that are sold with the software. Justify why you capitalized the development costs.

2. On October 1, 2015 your company paid $2,000,000 for a 30-second commercial to be aired during the SuperBowl almost five months from today. The ad has already been produced at a cost of $1,000,000. You capitalized the $2,000,000 cost of showing the ad on television rather than expensing it. You operate on a calendar business year. Were you correct in capitalizing the $2,000,000?

3. Your company sells a product in which the right of return exists. The amount of future returns cannot be reasonably estimated, therefore, you do not record the sale or cost of goods sold until the return privilege has expired. Is this correct?

4. Your company has goods that are for resale. You have been asked whether or not they are considered nonmonetary assets. Are they nonmonetary assets?

5. Your company has an unconditional legal obligation to perform an asset retirement activity (asset retirement obligation) in the future. The only uncertainty is whether the obligation will be enforced. Should you record the asset retirement obligation?

6. You use accounting accruals to record probable loss contingencies. Does the recording of the accruals provide financial protection, for example, is it the same as setting aside specific assets to cover the probable claims?