The following accounting issues have arisen at T-Shirts Plus, Inc.:
Requirements
1. Corporations sometimes purchase their own stock. When asked why they do so, T-Shirts Plusmanagement responds that the stock is undervalued. What advantage would T-ShirtsPlus gain by buying and selling its own undervalued stock?
2. T-Shirts Plus earned a significant profit in the year ended December 31, 2012, because landthat it held was purchased by the State of Nebraska for a new highway. The company proposes to treat the sale of land as operating revenue. Why do you think the company isproposing this plan? Is this disclosure appropriate?
3. The treasurer of T-Shirts Plus wants to report a large loss as an extraordinary item because the company produced too much product and cannot sell it. (Under the rules of the lowerof cost or market, this situation, in which the net realizable value of inventory is less thanthe book value, would trigger a write-down of inventory.) Why do you think the treasurerwants to report the loss as extraordinary? Would that be acceptable?
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