Question

use the online Professional View of the FASB Accounting Standards Codification (ASC) to answer several questions in a written report.

In the entire report, be sure to use “quotation marks” whenever you are not using your own words

For the first set of questions (under the heading “Where in the Codification…”) your answer should include one or more search keywords if you used keywords rather than browsing and drilling down by topic and one or more references to the codification in the form “ASC Topic-Subtopic-SectionParagraph” or ASC XXX-YY-ZZ-#. (If you are making a reference to the Glossary, the appropriate reference may be ASC Glossary or ASC XXX-YY-20.)

Where in the Codification are these GAAP requirements described? What keywords did you use to find the Codification reference? (9 points)

1. Revenues, expenses, gains and losses that are excluded from net income are referred to as other comprehensive income. Comprehensive income includes net income and other comprehensive income. i. Where in the Codification will you find examples of items included in other comprehensive income? ii. Where in the Codification does it say that comprehensive income can be presented in a single financial statement, or two separate consecutive financial statements?

2. Where in the Codification does it say that in the statement of cash flows, companies are required to classify cash receipts and payments into one of three categories: operating, investing and financing?

3. Where in the Codification does it say that a company that has a discontinued operation must present earnings per share amounts for those line items either on the face of the income statement or in the notes to the financial statements?

4. When events or changes in circumstances indicate that a company may not be able to recover the net book value of a piece of property, plant, and equipment, the company should conduct a recoverability test to determine whether an impairment has occurred. Where in the Codification does it indicate that such a test involves a comparison of the expected future net cash flows (undiscounted) to the carrying amount of the asset?

5. Where in the Codification will you find content that states that under an accounting alternative, goodwill can be amortized on a straight-line basis over 10 years, or less if another useful life is more appropriate

6. Use the FASB Codification to determine whether GAAP requires the establishment of an allowance account for all accounts receivables. Specifically, identify the Codification reference(s) that you used to support your conclusion.

7. Utilizing the FASB’s Codification System, determine with specific authoritative reference the proper valuation of the diamond inventory. 8. Where in the Codification does it say how to initially recognize/account for asset retirement obligations?

Answer 1

Yes, US GAAP require the establishment of an allowance account based on the estimation of our receivables going to be bad. In the question it is stated that without recording bad debt expense will increase net income by $250,000, hence this amount is bad debt. However based on the discussion of Jim with Nancy about the good debtors scenario, this amount can be reduced to a certain extent. unaer OAAR wnean we make saies to customers. e on our income statement- even when the customers don't pay immediately. When we are unable to collect on customers' accounts, we have to report an expense to offset the revenue we reported at the time of the sale. This is known as a "bad debt expense." But here's where it gets tricky: We don't wait for accounts to go bad before reporting an expense. Rather, we report an expense based on the estimate we arrived at when we analyzed our accounts receivable. Say you have $50,000 in A/R, and your analysis suggests that $1,500 will not be collectible. GAAP requires you to report that $1,500 bad debt expense immediately. You don't know which particular accounts will go bad - but you know that some will, and GAAP insists that your financial statements reflect that.