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Wilson Corp. experienced a $50,000 decline in the market value of its inventory in the first quarter of its fiscal year. Wilson had expected this decline to reverse in the third quarter, and in fact, the third quarter recovery exceeded the previous decline by $10,000. Wilson's inventory did not experience any other declines in market value during the fiscal year. What amounts of loss and/or gain should Wilson report in its interim financial statements for the first and third quarters?
Choice 'a' is correct. Temporary market declines in inventory need not be recognized at interim when a turn-around can reasonably be expected to occur before the end of the fiscal year.
Which of the following statements regarding fair value is/are correct?
1. The fair value of an asset or liability is specific to the entity making the fair value measurement.
2. Fair value is the price to acquire an asset or assume a liability.
3. Fair value includes transportation costs, but not transaction costs.
4. The price in the principal market for an asset or liability will be the fair value measurement.
Choice 'd' is correct. Statements III and IV are correct. Statement I is incorrect because fair value is a market-specific measure, not an entity-specific measure. Statement II is incorrect because fair value is an exit price (the price to sell an asset or transfer a liability), not an entrance price.
Choices 'a', 'b' and 'c' are incorrect, per the above Explanation: .
In Yew Co.'s 1992 annual report, Yew described its social awareness expenditures during the year as follows:
"The Company contributed $250,000 in cash to youth and educational programs. The Company also gave $140,000 to health and human-service organizations, of which $80,000 was contributed by employees through payroll deductions. In addition, consistent with the Company's commitment to the environment, the Company spent $100,000 to redesign product packaging."
What amount of the above should be included in Yew's income statement as charitable contributions expense?
Choice 'a' is correct. Charitable contributions include amounts the company gave to recognized charities. This includes:
Note: Of the $140,000, employees gave $80,000, and the company $60,000. Redesigning packaging is not a contribution to a charity.
Choice 'b' is incorrect. The company gave only $60,000 of the $140,000. Employees gave $80,000.
Choice 'c' is incorrect. Redesigning packaging is not a contribution to a charity.
Choice 'd' is incorrect. The company gave only $60,000 of the $140,000. Employees gave $80,000.
Redesigning packaging is not a contribution to a charity.
A transaction that is unusual, but not infrequent, should be reported separately as a(an):
Choice 'd' is correct. A transaction that is unusual, but not 'infrequent' should be reported separately as a component of continuing operations, (gross) but not net of applicable income taxes.
Choices 'a' and 'b' are incorrect. An extraordinary item has to be both 'unusual' and 'infrequent.'
Choice 'c' is incorrect, per 'd' above.
Gown, Inc. sold a warehouse and used the proceeds to acquire a new warehouse. The excess of the proceeds over the carrying amount of the warehouse sold should be reported as a(an):
Choice 'b' is correct. Part of continuing operations.
Rule: When a fixed asset is sold, gain or loss is recognized as part of income from continuing operations. The amount of the gain or loss is equal to the difference between the proceeds from the sale and the carrying amount (FMV) of the fixed asset sold.
Choice 'a' is incorrect. The gain is not extraordinary and is shown gross - not net of tax.
Choice 'c' is incorrect. The gain is part of continuing operations - not discontinued operations.
Choice 'd' is incorrect. The gain is not reported as a reduction of the cost of the new warehouse.
