Question
You have been hired at an audit firm as a first year staff. This firm requires that all references to generally accepted accounting principles in
You have been hired at an audit firm as a first year staff. This firm requires that all references to generally accepted accounting principles in the audit workpapers include the corresponding FASC citation (topic and subtopics). Below are three independent situations found at your clients that require research and documentation.
For each question, (1) provide the citation number (topic and subtopic) that addresses the question and (2) answer the question. Document this under the question, indenting your answer or otherwise indicating it is the answer (bold, underline, different color, etc.)
- Asset Impairments
Your client provides warehousing services for companies in several midwestern cities. The client has not been performing well due to increased competition and the loss of several customers that have recently gone out of business. Your client suspects that the plant and equipment may be impaired and wonders whether those assets should be written down. Given the company's prior success, this issue has never arisen in the past. Your client has asked you to assist researching this issue.
(a) What is the primary authoritative guidance for asset impairments? Briefly discuss the scope of the standard (i.e., explain the types of transactions to which the standard applies).
(b) Give several examples of events that would cause an asset to be tested for impairment.
(c) What is the best evidence of fair value? Describe alternate methods of estimating fair value?
(d) Does it appear that ABC should perform an impairment test? Explain.
- Goodwill
King Company is contemplating the purchase of a smaller company, which is a distributor of King's products. Top management of King is convinced that the acquisition will result in significant synergies in its selling and distribution functions. You audit senior asked you to document the effects of the acquisition on the combined company's financial statements.
(a) Identify the primary authoritative guidance that addresses goodwill and other intangible assets.
(b) Define goodwill.
(c) Is goodwill subject to amortization? If not, would it ever be reflected in the income statement? Explain.
(d) When goodwill is recognized for a subsidiary, how should it be reviewed or tested for impairment?
- Stock Based Compensation
Richardson Company is contemplating the establishment of a share-based compensation plan to provide long-run incentives for its top management. However, members of the compensation committee of the board of directors have voiced some concerns about adopting these plans, based on news accounts related to a recent accounting standard in this area. They have asked you to conduct some research on this recent standard so they can be better informed about the accounting for these plans.
(a) Identify the primary authoritative guidance that addresses the accounting for share-based payment compensation plans.
(b) Briefly discuss the objectives for the accounting for stock compensation. What is the role of fair value measurement?
(c) The Richardson Company board is also considering an employee share-purchase plan, but the Board does not want to record expense related to the plan. What criteria must be met to avoid recording expense on an employee stock-purchase plan?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started