The following transactions fall somewhere in the continuum of choices in accounting decision-making. The company president...

 

 

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The following transactions fall somewhere in the continuum of choices in accounting decision-making. The company president approaches one of the company's creditors to ask for a modification of the repayment terms so that they extend beyond the current year. This would make the liabilities long-term rather than short-term and would improve the company's current ratio. 1. 2. 3. 4. 5. 6. 7. The controller determines that significant amounts of capital assets are impaired and should be written off. Coincidentally, the company is currently showing lower levels of net income but expects better results in the following years. The company management decides to use FIFO as opposed to weighted average, since it more closely approximates the flow of costs. The vice-president of finance decides to capitalize interest during the self-construction of its properties. This policy will increase net income and several profitability ratios. The business owner enters into an arrangement with a business associate whereby they will buy each other's merchandise before year end. The merchandise will then be shipped to customers after year end from the holding company's warehouse. The assets and liabilities of an investment have been consolidated into Maher Company's annual financial statements. Maher Company does not have the power to direct the investee's activities. The corporate litigation lawyer representing the business in its defence against a patent infringement lawsuit is uncertain about the possible outcome of the case, as he has just recently been engaged in the matter. Although there is considerable work to be done to establish the merits of the case, management has decided to accrue in the current period half of the amount claimed under the lawsuit. Management is worried that the Board of Directors may declare dividends in the current year that will have to be reduced in a subsequent year, v the case is ultimately settled. For each situation, state where it falls in the continuum of choices in decision-making. The following transactions fall somewhere in the continuum of choices in accounting decision-making. The company president approaches one of the company's creditors to ask for a modification of the repayment terms so that they extend beyond the current year. This would make the liabilities long-term rather than short-term and would improve the company's current ratio. 1. 2. 3. 4. 5. 6. 7. The controller determines that significant amounts of capital assets are impaired and should be written off. Coincidentally, the company is currently showing lower levels of net income but expects better results in the following years. The company management decides to use FIFO as opposed to weighted average, since it more closely approximates the flow of costs. The vice-president of finance decides to capitalize interest during the self-construction of its properties. This policy will increase net income and several profitability ratios. The business owner enters into an arrangement with a business associate whereby they will buy each other's merchandise before year end. The merchandise will then be shipped to customers after year end from the holding company's warehouse. The assets and liabilities of an investment have been consolidated into Maher Company's annual financial statements. Maher Company does not have the power to direct the investee's activities. The corporate litigation lawyer representing the business in its defence against a patent infringement lawsuit is uncertain about the possible outcome of the case, as he has just recently been engaged in the matter. Although there is considerable work to be done to establish the merits of the case, management has decided to accrue in the current period half of the amount claimed under the lawsuit. Management is worried that the Board of Directors may declare dividends in the current year that will have to be reduced in a subsequent year, v the case is ultimately settled. For each situation, state where it falls in the continuum of choices in decision-making.

Answer rating: 100% (QA)

1 The company president approaches one of the companys creditors to ask for a modification of the repayment terms so that they extend beyond the current year This would make the liabilities longterm r... View the full answer