Identify the errors, Accounting Basics

Company A has only been in existence for two full years as a public company. Prior to this, it was a segment of large multinational and was spun off as stand-alone, public company.  It commenced its first year of operations as a public company on January 1, 20X1, and its fiscal year-end is on December 31. also, Company A acquired 100% of the stock of Company B at November 1 20X1 for $200M. Company B has a fiscal year that ends on October 31. At the acquisition date, Company B becomes a fully consolidated subsidiary of Company A.

Company A was issued a qualified audit opinion resulting in a material weakness, by it s external, independent auditors due to a litany of accounting problems as noted below. Company A, has engaged your firm, a CPA advisory firm, to help it navigate the process of evaluating its income statement and balance sheet.

Identify the errors, if any, and determine the correcting entries for below:

1. The acquisition of Company B was financed by Company A with cash and by issuance of 2M common shares for $100M. Company A forgot to record the stock issuance.

2. Company A depreciates equipment using the straight line method.  Prior to the acquisition, Company B had not been depreciating some equipment for the eleven calendar months prior to the acquisition. At the acquisition date, that equipment had a Fair Market Value of $10M, a remaining useful life of 5 Yrs, and accumulated depreciation on Company B’s books of $7M with zero residual value. Company A forgot to depreciate the acquired equipment in 20X1 and 20X2. However, Company A believes that it can sell the equipment for $1M for parts at the end of its useful life.

3. At December 15, 20X1, Company A did not recognize a fixed asset impairment of $40Mrelated to factory equipment at one of its overseas facilities . According to the foreign jurisdictions and local industry practice, the local, foreign tax authorities said that it was ok not to impair the equipment since it would not affect the sales quota of the foreign subsidiary. 

4. At December 31, 20X1, Company A recognized a $50M impairment expense for Goodwill related to the acquisition of Company B.

5. At Jan 1, 20X2, Company A issued 1,000 bonds and received proceeds of $1,000,000. The Bonds have detachable warrants to purchase 1 share of common stock. One warrant and $1,250 can be exchanged for one share of common stock. The bonds sold for$1,076,395. Common stock par value is $200. The FV of the warrants are $150,000. Half the warrants (500) are exercised on Jan 1, 20X2.

The remainder expire at some later time. Company A made no entries for this transaction

Posted Date: 6/14/2013 10:20:07 PM | Location : United States







Related Discussions:- Identify the errors, Assignment Help, Ask Question on Identify the errors, Get Answer, Expert's Help, Identify the errors Discussions

Write discussion on Identify the errors
Your posts are moderated
Related Questions
Goods purchased from ranu p5000

Q. Explain about Long-term investments? A long-term investment habitually consists of securities of another company held with the intention of (a) obtaining control of another

briefly explain the accounting concepts which guide the accountant at the recording stage

Acme Inc. has total liabilities of $120,000, total sales of $80,000, net income of $12,000, current assets of $90,000 and total assets of $150,000. What is the debt to equity rat

A store receives $400 cash after offering a chain discount of 10/10/5 on a good. What was the list price? A. $492.20 B. $519.82 C. $533.33 D. $612.00


Cargin Company uses the FIFO method in its process costing system. The Assembly Department started the month with 15,000 units in its beginning work in process inventory that wer

1. Whate are the challenges faced in trade and solutions those problems?

application/realization in history of accounting

Oil production has been proposed for an area along the coast off Southern California. Oil production would jeopardize the use of beaches along 10 miles of coast which are a major v