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

To understand the accounting equation and its

To understand the accounting equation and its elements QUESTION Mr. "A" starts a new business. Before to start the business operation, he has purchased vehicle Rs. 1,500,000, office premises Rs. 3,000,000, stock of goods ...

Discussion questions 1 and 2dq 1 accounting equationas you

Discussion Questions 1 and 2 DQ #1: Accounting Equation As you have learned in this week's readings, the Accounting Equation is Assets = Liabilities + Owners' Equity. Is the accounting equation true in all instances? Pro ...

1 what is the beta of a firm whose equity has an expected

1. What is the beta of a firm whose equity has an expected return of 21.30%, the risk-free rate is 7%, and the expected return on the stock market is 18%? 2. Two reasons for the agency problem in modern corporations is: ...

1 a b and c are the members of all llc a limited liability

1. A, B and C are the members of All, LLC, a limited liability company that is treated as a partnership for federal income tax purposes. All, LLC is contemplating taking a loan of $90,000 from a local Maryland bank to fi ...

Please answer the following question analysis needed with

Please answer the following question. Analysis needed with explanation. Use in-text citation and reference page if necessary in APA format. Answers should be must be plagiarism free. Zaldor Corporation sells a specialize ...

Section i multiple choicemark one box only to indicate the

Section I: Multiple Choice Mark one box only to indicate the answer you consider correct for each question 1. Which of the following is the goal of the U.S. health care system? a. Access b. Cost c. Quality d. All of the ...

On january 1 2011 ajax corporation signed a 1000000 7

On January 1, 2011, Ajax Corporation signed a $1,000,000, 7%, 10-year mortgage note to buy a new warehouse. The note will be repaid in 10 equal annual installments of $142,378. The first payment was made on December 31, ...

A company is considering to replace an existing machine for

A Company is considering to replace an existing machine for which two suppliers have given quotation. Supplier A has proposed a machine costing Rs. 180 lakh that uses the existing boiler while supplier B has quoted for t ...

Assignment accounting qualitybased on the requirements of

Assignment: Accounting Quality Based on the requirements of the Sarbanes-Oxley Act and SEC reporting requirements for publically traded companies, Write a five page paper in which you: 1. Assess the roles of the Board of ...

Accounting for nonfinancial assets will experience some

Accounting for nonfinancial assets will experience some major changes with the convergence to IFRS. One of the key issues will be that of fair value. Research this topic, and give your argument for or against the use of ...

  • 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

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

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen