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Ryan Corporation Pipe Cost

In: Business and Management

Submitted By juandez08
Words 574
Pages 3
1. What is the main accounting issue?

How should Ryan Corporation report the cost of replacing the lead pipes in its financial statements?

2. Prepare a problem statement.
Should Ryan Corporation recognize the removal and renovation of the lead pipes as assets Statement of Financial Position (Balance Sheet) or as expenses in the Statement of Profit and Loss (Income Statement)? 3. List five key words to use to search the authoritative literature. * Removal expenses * Renovation expenses * Capital enhancements * Capitalization of costs * Building restoration
Exercise 2. Case 2.2, Derecognition of a liability. Chapter 2, Page 43. 1. FASB ASC 405-20-40-1 (Liabilities->Extinguishments of Liabilities->Derecognition->General)

One is able to derecognize a liability only when the debtor has been relieved of its obligation or paid the creditor. The creditor may be paid by cash, delivery of other financial assets, delivery of goods or services by the debtor. Also, reacquisition by the debtor of its outstanding debt securities whether the securities are cancelled or held as so-called treasury bonds, constitutes relieving the obligation. Also, Alliance may be relieved of the obligation judicially. Given that Mr. Baker is deceased but the obligation has not been relieved either judicially or Alliance. Upon careful interpretation, Alliance Corp. is liable to Mr. Baker for $1 million until this liability relieved either judicially or by the creditor (Mr. Baker) and cannot simply derecognized it. 2. In arriving at the codification above, I used the FASB website link provided by Professor Siyi Li. I knew that the ultimate key word should be “Derecognition.” Thus, given this was a “liability,” I chose “Liabilities” from the initial 9 broad sections. Chose 405 Liabilities which then took me to link “20 Extinguishments of

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