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

Financial paperso the idea is to have the same lenght

Financial Paper So the idea is to have the same lenght, quality and structure. The only thing missing on this paper is a conclusion, that will have to be at least half a page. The company to be compare on the paper will ...

Accounting individual assignmentpart 1 - royal oak taxation

ACCOUNTING INDIVIDUAL ASSIGNMENT PART 1 - Royal Oak Taxation Advisory Service has the following transactions for the month of December 2016: Dec. 1 Commenced business by depositing $50 000 in a bank account in the name o ...

Background of projectthe industry of medical devices

Background of Project The industry of medical devices involves a number of monitoring and reconstructive devices. Some of those devices include cardiac and diabetic care as well as hip and knee replacements. The owners o ...

Assignmentapplication break-even analysiswhen expenses and

Assignment Application: Break-Even Analysis When expenses and revenues are equal, this is known as the "break-even point" or BEP. To determine break-even, an examination of fixed and variable costs (expenses) in relation ...

1 which of the following would definitely improve both

1. Which of the following would definitely improve both gross profit as reported in the Income Statement and gross profit margin (assuming cost price per unit stays the same)? A. Selling more units at a higher selling pr ...

How much did you borrow for your house if your monthly

How much did you borrow for your house if your monthly mortgage payment for a 30 year mortgage at 6.65% APR is $1,600?? A $218,080 B $202,503 C $186,926 D $233,658 E $249,235 F $264,812 Shady Rack Inchas a bond outstandi ...

Kiona co set up a petty cash fund for payments of small

Kiona Co. set up a petty cash fund for payments of small amounts. The following transactions involving the petty cash fund occurred in May (the last month of the company's fiscal year). May 1 Prepared a company check for ...

Governmental accounting1 which of the following statements

GOVERNMENTAL ACCOUNTING 1. Which of the following statements is true about U.S. taxation of foreign subsidiaries? A)The U.S. does not tax income generated on subsidiaries incorporated in foreign countries. B)U.S. multina ...

Ics manufacturing company produces plastic parts for the

ICS Manufacturing Company produces plastic parts for the automotive industry. Here is their Income Statement for 2015 - ICS Manufacturing Company Income Statement for 2015 Sales Revenue $35,500,000 Cost of Goods Sold 12, ...

In this assignment you will use the internet and other

In this assignment, you will use the Internet and other sources to gather and interpret information related to service and manufacturing organizations. Select either a service or a manufacturing organization of interest ...

  • 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