1. You acquire the outstanding loan (note) of Shepard Company, who is having financial difficulty. Because of the financial difficulty, Shepard Company's credit rating has been downgraded and you acquire the note at a discount. To determine the purchase price of the note you discount it at the effective rate of interest rather than the rate of interest stated on the note. According to the FASB ASC, is it correct to discount the loan at the effective interest rate? (This is not troubled debt restructuring.) Please include the appropriate FASB ASC citation in your answer.
2. Your company began operations on March 1, 2011, and incurred $60,000 of organization costs for starting-up the new business. These costs were the fees you paid to the State that you incorporated in. You expensed these costs rather than capitalizing them as an asset. According to the FASB ASC, is it correct to expense these costs? Please include the appropriate FASB ASC citation in your answer.
3. Your company is suing a competitor for infringing on a patent held by your company. Your company lawyers are certain that your company will win the case and recover $2,500,000 in damages. The case will be heard in court next month and it is expected that the judge will make her ruling this year, before the end of your calendar year. You have been told to make a journal entry today for this contingency by recording a receivable and a gain. You believe that this contingency should not be recorded until it is realized. According to the FASB ASC, is that correct? Please include the appropriate FASB ASC citation in your answer.
4. On June 1, 2010, your company has prepaid a significant amount of money for television advertising during next year's SuperBowl to be broadcasted in February, 2011. You are uncertain as to whether to record the prepaid amount as an asset (prepaid advertising) or expense (advertising expense). According to the FASB ASC, should you capitalize or expense the cost of advertising? (This is not direct-response advertising.) Please include the appropriate FASB ASC citation in your answer.
5. Your intent is to refinance a current note payable with long-term financing. You have demonstrated the ability to refinance in this manner. According to the FASB ASC, should you continue to show the note payable as a current liability? Please include the appropriate FASB ASC citation in your answer.
6. You exchange a note to receive goods. According to the FASB ASC, what two elements make up the note? Please include the appropriate FASB ASC citation in your answer.