Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Accounting Basics Expert

Soon after beginning the year-end audit work on Oct 24th at the Wallenda Company, the auditor has the following conversation with the controller.
Controller: The year ended October 31st should be our most profitable in history and, as a consequence, the Board of Directors has just awarded the officers generous bonuses.
Auditor: I thought profits were down this year in the industry, according to your latest interim report.
Controller: Well, they were down but 10 days ago we closed a deal that will give us a substantial increase for the year.
Auditor: 0h, what was it?
Controller: Well, you remember a few years ago our former president bought stock in Pearson Enterprises because he had grandiose ideas about becoming a conglomerate. For six years we have not been able to sell this stock, which cost us $3,000,000 and has not paid a nickel in dividends. Thursday we sold this stock to Union City, Inc. for $4,000,000. So we have a gain of $700,000 ($1,000.000 pretax) which will increase our net income for the year to $4,000,000 compared with last year's $3,800,000. As far as I know, we'll be the only company in the industry to register an increase in net income this year. That should help the market value of the stock!
Auditor: Do you expect to receive the $4,000,000 in cash by Octobrt 31st, your fiscal year end?
Controller: No. Although Union City is an excellent company, they are a little tight for cash because of their rapid growth. Consequently, they are going to give us a $4,000,000 noninterest-bearing note due $400,000 per year for the next 10 years. The first payment is due on March 31 of next year.
Auditor: Why is the note noninterest-bearing?
Controller: Because that's what everybody agreed to. Since we don't have any interest-bearing debt, the funds invested in the note do not cost us anything and besides, we were not getting any dividends on Pearson Enterprises stock.
1. What was the value of stock--when it was purchased and when it was sold?

 

2.Given the uncertainty surrounding the collectability of the note, did an exchange occur? How do we account for the different scenarios, exchange or no exchange?

 


3.What goes into determining an interest rate?

 


4.What is the value of the note? Why does it matter and how do we account for it?

 


5.What is the value of the gain/loss and how does it effect net income?

 

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M939861

Have any Question? 


Related Questions in Accounting Basics

1 the concept of cost-benefit permeates smart decision

1. The concept of "Cost-Benefit" permeates smart decision making and accounting principles. How does this concept relate to incremental analysis. Provide an example to illustrate your point. Cost Benefit Respond 2. A cos ...

Accounting for gov amp not for profit1 explain in 2-4

ACCOUNTING FOR GOV & NOT FOR PROFIT 1. Explain in 2-4 sentences the difference between government Agency funds and Fiduciary funds. 2. What information is or is not required to be reported in the RSI for pension plans un ...

Your city has decided to build a new library the projected

Your city has decided to build a new library. The projected cost is $2 million. A bond issue for $1.2 million has been authorized, and the remainder is supposed to come from a contribution of $800,000 from the general fu ...

Question 1jian rarimbal and dan are considering setting up

Question 1: Jian, Rarimbal and Dan are considering setting up a company providing 2 hour hot air balloon trips for groups of 10 tourists at a time. The trips will include some food and drink for the tourists. They have d ...

Individual research papercompany case study assignmentthis

Individual Research Paper Company Case Study Assignment This assignment has a number of learning objectives, sources, and opportunities: 1. You will explore financial performance and investor information available fromva ...

Qestion 1beginning inventory24 tires 61purchase6 tires

QUESTION 1. Beginning inventory........24 tires @ $61 Purchase.........6 tires @ $76 Sale.......17 tires @ $105 Requirements 1. Compute cost of goods sold and gross profit under FIFO. 2. Compute cost of goods sold and gr ...

Almas recording studio rents studio time to musicians in

Alma's Recording Studio rents studio time to musicians in 2-hour blocks. Each session includes the use of the studio facilities, a digital recording of the performance, and a professional music producer/mixer. Anticipate ...

Dine corp international publishes ratings and reviews of

Dine corp international publishes ratings and reviews of the world finest restaurants.following are the facts you need to prepare dine corp's march bank reconcilation. Balance per company records at end of month  $      ...

International accounting1 when discussing foreign currency

International Accounting 1. When discussing foreign currency exchange, there are several arrangements. List two of these. 2. A _________ is a contract between two or more parties. 3. What are the timelines for the new re ...

Milestone three guidelinesoverview the final project for

Milestone Three Guidelines Overview: The final project for this course is the creation of a portfolio consisting of a report and spreadsheets. You will be placed in a real-world scenario in which you will take the role o ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro