...Chapter 6 Property and Equipment and Other Assets Overview 6.01 Health care entities use various kinds of property and equipment. Those assets are generally significant to the financial position of institutional health care entities, such as hospitals and nursing homes. Typical accounts used to record property and equipment transactions are land, land improvements, buildings and improvements, leasehold improvements, equipment (fixed and movable), leased property and equipment, accumulated depreciation and amortization, and construction in progress. Health care entities also have intangible assets, which may be acquired in connection with business combinations or purchases, or developed from other resources of the entity. Intangibles with finite lives are amortized according to their useful life. Examples of intangibles include: Health Plans customer relationships, such as employer groups or members provider networks trademarks trade names software licenses favorable leases non-compete agreements goodwill Hospitals and other health care facilities licenses certificates of need managed care contracts goodwill Physician practices medical charts non-compete agreements managed care contracts goodwill 6.02 6.03 Supplies inventories are generally not very significant to the financial position of health care entities. However, because of the volume and cost of supplies used, they may be much more significant to operating expenses and the statement of operations. Supplies typically...
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...research on leases and lease structure. Through intensive research on the Financial Accounting Standards Board (FASB), three sub-types of leases were found for lessors to account for the leases. The three sub-types are direct financing, sales-type, and operating leases. The international accounting standards board (IASB) and FASB are proposing a draft for lease accounting. The critics are disputing some of the concerns with operating lease financial reporting. This memo will address the proposal changes for operating leases. Also included is a lease type recommendation for the client. According to FASB ASC 840-30-05-4 (2009), lease capitalization includes direct financing and sales-type leases. These types of leases are recognizable by meeting one of the four criteria’s. A lessee under the capital lease method recognizes the lease according to FASB ASC 840-30-25-1 (2009), as an asset and as a commitment. The lessee accounts for the lease commitment in accordance to FASB ASC 840-30-30-1 (2009), at inception when the amount is equal to the present value (PV). In addition, the lease term will exclude the payment portion that represents specific cost such as insurance, maintenance, and taxes. For capital leases, a lessee recognizes lease assets and liabilities on the balance sheet (FASB, 2013). The lessee will determine the amount to record in accordance with FASB ASC 840-30-55-6 (2009), the minimum rental payments over the lease term is the number of months of the lease times...
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...auditor and management would like to know how to book presentation of cash flows through the use of a revolving line of credit is whether to report the amounts borrowed and repaid on a net basis or on a gross basis. FASB’s Accounting Standards Codification 230-10-45-7 states “information about the gross amounts of cash receipts and cash payments during a period is more relevant than information about the net amounts of cash receipts and payments.” (FASB, ASC 230-10-45-7). However it is often enough to report the net amount of these cash receipts and payments. ASC 230-10-45-8 states that net presentation if appropriate when there is a quick turnover with large amounts and short maturities. Solution 1 — Classification with the Statement of Cash Flows Buck should present the borrowing and payment activity as a cash flow from financing activities. ASC 230-10-45-14 states that “proceeds from issuing bonds, mortgages, notes, and from other short- or long-term borrowing” are a cash inflow from financing activities. Similarly, ASC 230-10-45-15 states that “repayments of amounts borrowed” are a cash outflow for financing activities. For these reasons Buck should present the borrowing and payment activity related to its revolving line of credit as cash flows under financing activities. Solution 2 — Gross versus net presentation Scenario 1 The first case involves the $100 million borrowing capacity with all draws from the line of credit being due on demand. Buck...
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...for share-based payment transactions and special purpose entities and discusses how these requirements relate to the auditing process. Share-based payment reporting: Financial Accounting Standards Board (FASB) defines share-based payment arrangements as follows: “An arrangement under which either of the following conditions is met: a. One or more suppliers of goods or services (including employees) receive awards of equity shares, equity share options, or other equity instruments. b. The entity incurs liabilities to suppliers that meet either of the following conditions: 1. The amounts are based, at least in part, on the price of the entity’s shares or other equity instruments. (The phrase at least in part is used because an award may be indexed to both the price of the entity’s shares and something other than either the price of the entity’s shares or a market, performance, or service condition.) 2. The awards require or may require settlement by issuance of the entity’s shares” (FASB ASC 718-10-20). FASB 718-10-25 details specific guidelines for the recognition of share-based payment transactions (FASB ASC 718-10-25). FASB specifies when the services and costs related to the share-based payment transactions should be recognized; according to FASB: “25-2 An entity shall recognize the services received in a share-based payment transaction with an employee as services are received. Employee services themselves are not recognized before they are received...
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...Alfred Auletta 16 September 2012 Professor Shahid ACC 301 CA 7-1 (Bad-debt Accounting) A. What are the deficiencies of the direct write-off method? The deficiency of the direct write-off method is that it fails to match the costs with the revenues in a specific period. It also does not show the net realizable value of receivables in the balance sheet. The only time that the direct write-off method is appropriate is when the amount that is uncollectible is deemed immaterial. B. What are the two basic allowance methods used to estimate bad debts, and what is the theoretical justification for each? The two basic allowance methods used to estimate the bad debts are the Percentage-of-sales approach and the Percentage-of-receivables approach. With the percentage-of-sales approach, the expense is getting matched with the revenue because it is showing the relation between the charge and the sale in a specific period. Using this method, it is being shown the past relationship between the sales and costs in a period. Simms Company would be anticipating for the future based on the costs and revenues. It is also known as the Income Statement Approach. When using the percentage-of-receivables approach, the company could find out what percentage of their receivables would be deemed uncollectible. The Simms Company would find out the actual value of their receivables instead of having to wait. The difference between this method and the other is the fact that...
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...FASB Codification System Orientation ACC/497 The Financial Accounting Standards Board (FASB) became necessary to accounting standards in order to ensure certain methods and structures are followed. The FASB is not the primary group to hold this responsibility, and because of this confusion can arise from complying with Generally Accepted Accounting Principles (GAAP). In order for the FASB to simplify standards, the Accounting Standards Codifications was established. The FASB ASC is designed to simplify user access to GAAP. Due to the access granted to the FASB, the FASB ASC has a complete source on GAAP. The ASC makes an effort to provide users with updated GAAP information, in an easy to access location. The FASB ASC is able to improve accuracy with accounting practices through the simplified and updated research system. One way that the ASC simplified GAAP, by created nine sections in the ASC. The nine sections include general principles, presentation, assets, liabilities, equity, revenue, expenses, broad transactions, and industry. Each section gives the user guidance on the related field of accounting. Such that the general principles section is considered to be an overview on GAAP and the presentation sections covers the financial statement presentation guidelines. Accounting can be considered living as it continually is evolving with society and the rules and regulations are updated consistently. From the constant feed of change from accounting standards, the...
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...Sandra E Matos FASB Codification ACCT 525 Professor Dorothy Brandt Week 3 Abstract The Financial Accounting Standard Board (FASB) was created in 1973 with the purpose of the board is to (according with FASB) establish standards of financial accounting that govern the preparation of financial reports by nongovernmental entities. Those standards are officially recognized as authoritative by the Securities and Exchange Commission (SEC) (Financial Reporting Release No. 1, Section 101, and reaffirmed in its April 2003 Policy Statement) and the American Institute of Certified Public Accountants (Rule 203, Rules of Professional Conduct, as amended May 1973 and May 1979). FASB Accounting Standards Codification (Accounting Standards Codification) which represents the source of authoritative standards of accounting and reporting, other than those issued by the SEC, recognized by the FASB to be applied by nongovernmental entities. Some of those standards are; ASC 830-230-55-1 - Statement of Cash Flows for Manufacturing Entity with Foreign Operations, ASC 926-330-35-1 - Products Held for Sale, ASC 954-440-25-2 - Continuing Care Retirement Community, ASC 505-20-50-1 – Equity, Stock Dividends and Stock Split and Disclosure, ASC 710-10-05-6 - Compensated Absences. FASB Accounting Standards Codification (Accounting Standards Codification) which represents the source of authoritative standards of accounting and reporting...
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...RESEARCH: Accounting Standard Codification (ASC) 1. FASB had four primary goals in developing the codification. List these four goals: 1. Reduce the amount of time and effort required to solve an accounting research issue 2. Mitigate the risk of noncompliance through improved usability of the literature 3. Provide accurate information with real-time updates as Accounting Standards Updates are released 4. Assist the FASB with the research and convergence efforts. 2. List three SEC authoritative guidance, standard and interpretations included in the codification: 1. Regulation S-X - The Sarbanes-Oxley Act 2002 2. Staff Accounting Bulletins (SAB) 3. EITF Topic - Emerging Issues Task Force 3. The accounting literature replaced by the FASB Codification includes (list five): 1. Improve the usefulness of financial reporting by focusing on the primary characteristics of relevance and reliability, and on the qualities of comparability and consistency. 2. Keep standards current to reflect changes in methods of doing business and in the economy. 3. Consider promptly any significant areas of deficiency in financial reporting that might be improved through standard setting. 4. Promote international convergence of accounting standards concurrent with improving the quality of financial reporting. 5. Improve common understanding of the nature and purposes...
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... Hossain Fall Quarter 2012 CALIFORNIA STATE UNIVERSITY, LOS ANGELES ACCT 495: Bordwell RESEARCH: Accounting Standard Codification (ASC) 1. FASB had four primary goals in developing the codification. List these four goals: 1) Simplify user access by codifying all authoritative U.S. GAAP 2) Ensure that the codification content accurately represented authoritative US GAAP 3) Mitigate the risk of noncompliance with standards through improved usability of the literature 4) Provide codification research system that is accurate with real-time updates as new standards are released 2. List three SEC authoritative guidance, standard and interpretations included in the codification: 1) Regulation S-X (SX) 2) Financial Reporting Releases (FRR)/Accounting Series Releases (ASR) 3) Interpretive Releases (IR) 3. The accounting literature replaced by the FASB Codification includes (list five): 1) Accounting Research Bulletins (ARB) 2) Accounting Principles Board Opinions (APB) 3) AICPA Accounting Interpretations (AIN) 4) Statements of Financial Accounting Standards (SFAS) 5) FASB Interpretations (FIN) 4. For the following five FASB standards (FAS), provide the corresponding ASC Topic#: FAS 141(R): FAS 52: FAS 13: FAS 133: FAS 115: ! ASC 805 ASC 830 ASC 840 ASC 815 ASC 320 1 ACCT 495: Bordwell 5. Explain the following ASC references: FASB ASC 310-10-05-2: The Overall Subtopic establishes general guidance for receivables. The guidance is presented in the following two Subsections:...
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...FASB Accounting Standards Codification Case 1 ACC 310 – Section 2 1. The topic number that addresses the accounting for agricultural production activities in the FASB Accounting Standards Codification is, FASB ASC 905. The title of this topic is Agriculture. 2. Entities that must apply the guidance contained in topic FASB ASC 905, are noted in FASB ASC 905-10-15-3, “The Agriculture Topic provides guidance for all entities in the agricultural industry, including agricultural producers and agricultural cooperatives.” According to FASB ASC 905-10-15-4, the following entities would not apply the guidance in this topic: a. Growers of timber b. Growers of pineapple and sugarcane in tropical regions c. Raisers of animals for competitive sports d. Merchants or noncooperative processors of agricultural products that purchase commodities from growers, contract harvesters, or others serving agricultural producers. The Red Hen Company produces, processes, and sells fresh eggs. The guidance in this topic would apply to The Red Hen Company according to FASB ASC 906-10-05-1 “Operating poultry and egg production facilities” is listed as one of the examples of the entities that follow the guidance in this topic. 3. FASB ASC 905-360-30-4 describes the type of animal that the egg-laying flock would be categorized as: The production costs of chickens raised for an egg-laying unit shall include the initial cost of the birds (or, if hatched, the costs of eggs...
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...researched the FASB Codification to provide you with solutions to the five client issues. Here are my recommendations, with their governing accounting standards. 1. Amazing Falafel should record the cost of the free incentive falafels as an expense. Entities should recognize the cost of free incentive goods provided to customers as expenses because they are not discounts or rebates of previous sales (FASB, 2010, ASC ¶ ---). 2. Applegate should report fees paid to Supersavers retailer as a reduction of revenue in its income statement. As stated by the FASB (2010, ASC ¶ ﾇﾗﾜ--ﾃ-ﾃﾋ-ﾋ) and clarified by ASC ¶ ߥ∑-ｿｺ-ｺﾛ-ﾑ, slotting fees cannot be separated from the purchase of merchandise; they have to be reported as a reduction to revenue in the income statement. Examples provided in FASB (2010) ASC ¶¶ ｱﾛｻ-ｻﾜ-ﾜﾊ-ﾊ and dﾛ-ﾛ support application of these paragraphs. 3. TipTop Petroleum may capitalize the costs of refining contaminated soil because the property is being held for sale. According to the FASB (2010, ASC ¶ ｦﾃｾ-ｾｱ-ｱｼ-ｼ) “In general, environmental contamination treatment costs shall be charged to expense.” There are few exceptions, as FASB ASC ¶ ｸﾁﾆ-ﾆﾖ-ﾖﾈ-ﾈ states: “Those costs may be capitalized if recoverable and but only if one of the following criteria is met…. The costs are incurred in preparing for sale that property currently held for sale” (2010). 4. Atlanta Co. can debit the proper amount to the current-year expenses for its customers’ bad debts. FASB (2010)...
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...RESEARCH: Accounting Standard Codification (ASC) 1. FASB had four primary goals in developing the codification. List these four goals: 1. Simplify user access to all authoritative U.S. GAAP by putting them all in one place with codification 2. Assist FASB with the research and international convergence efforts required during the standard-setting process 3. Become the authoritative source of literature for the completed extensible business reporting language (XBRL) taxonomy 4. Clarify that only guidance contained in the Codification is authoritative and other sources are not authoritative 2. List three SEC authoritative guidance, standard and interpretations included in the codification: 1. Regulation S-X (SX) 2. Financial Reporting Releases (FRR)/Accounting Series Releases (ASR) 3. Interpretive Releases (IR) 3. The accounting literature replaced by the FASB Codification includes (list five): 1. Accounting Research Bulletins (ARB) 2. Accounting Principles Board Opinions (APB) 3. AICPA Accounting Interpretations (AIN) 4. Statements of Financial Accounting Standards (SFAS) 5. FASB Interpretations (FIN) 4. For the following five FASB standards (FAS), provide the corresponding ASC Topic#: FAS 141(R): ASC 805 FAS 52: ASC 830 FAS 13: ASC 840 FAS 133: ASC 815 FAS 115: ASC 320 5. Explain the following ASC references: FASB ASC 310-10-05-2: 310 Receivables 10 Overall ...
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...intent to not sell the debt securities on March 31,20X6 and determined that it is not more-likely-than-not that they will sell the securities before fully recovering the amortized cost bases. Refer to Client Memorandum on file on March 31,20X6. On April 30, 20X6 Company A sold certain of the “temporarily impaired” debt securities in its portfolio and realized a loss on the sale. Through inquires with management we were told the reason to be that Company A’s head traded decided to sell to invest in new securities with higher yield. Accounting Question 1 Our recommendation on the classification of the Available for Sale securities as “temporary”. Authoritative Literature FASB ASC 320-10-35-33 Evaluate Whether an Impairment Is Other than Temporary-Debt Securities Accounting Discussion 1 Under FASB ASC 320-10-35-33, impairment shall be classified as other-than-temporarily impaired in the period which the investor decides to sell the investment. For the reporting period ending March 31, 20X6, Company A memo states that they do not intend to sell the debt securities at the first quarter period ending date. Furthermore, Section 320-10-35-33B states “If the entity more likely than not will be required to sell the security before recovery of its amortized cost basis, an other-than-temporary impairment shall be considered to have occurred.” Our client has provided written evidence that it is not more-likely-than-not that they will be required to sell the securities before recovery...
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...Date: June 7, 2016 To: Claire Sanders From: Chace Sauls Subject: Smooth Brew Body: Background: Mrs. Sanders, Smooth Brew Company has recently acquired a brewery located in Georgia. The brewery is unique in that a sparkling stream runs through the plants facility giving the beer a unique flavor. The company’s president informed me that an excessive price was paid for the plant due to the flavor enhancing stream. Problem: Our client stated that $1 million was paid in excess of fair value to acquire the plant. The president has requested that the $1 million be set up on the balance sheet in an account entitled water. Relevant Guidance: FASB ASC paragraph 350-20-35-39 through 44. FASB ASC paragraph 350-20-35-1. FASB ASC paragraph 350-20-35-16. FASB ASC paragraph 350-20-45-1. Application: Goodwill is considered an asset representing future economic profit stemming from the acquisition of other assets in a business combination. The amount of money given for acquiring a business over the fair value of the assigned assets and liabilities of a reporting unit is considered goodwill. Goodwill is not to be amortized but rather tested for impairment. To be able to test for impairment, the amount of goodwill should be assigned to a reporting unit. The amount assigned to the reporting units should depend on the degree to which it will benefit from the business combination. The number of reporting units used can vary depending on the method used. The method for allocating...
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...to be more careful about their decisions and ethics. One way goodwill could go down is if a company’s reputation were to be damaged. When a company’s reputation goes down it can cause their stock prices to go down; therefore, reducing their market value. When the market value of a company goes down, their goodwill goes down as well, and this is called impairment. Impairment is when the carrying amount of goodwill is greater than its implied fair value (ASC 350-20-35-2). According to the Financial Accounting Standards Board (FASB), Impairment must be tested annually anytime during the fiscal year as long as it is done the same time every year by using the two-step process and if impairment exists, the impairment losses are put in the income statement (ASC 350-20-35-28)(ASC 350-30-45-2). Before taking the two-step impairment test, you must first conduct a Qualitative Assessment; which is used “to determine whether or not it is more likely than not that the fair value of the reporting unit is less than its carrying amount” (ASC 350-20-55-25). If the result of the Qualitative Assessment is “it is more likely than not”, you would...
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