/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Q10_1FC_2 Wild Adventure conducts tours of... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 10: Q10_1FC_2 (page 576)

Wild Adventure conducts tours of wildlife reserves around the world. The company recently purchased a lodge in Adelaide, Australia, securing a 4% mortgage from First Bank. In addition to monthly payments, Wild Adventure must provide annual reports to the bank showing that the company has a current ratio of 1.2 or better. After reviewing the annual reports, the CEO, N. O. Scrooge, approached Carl Hauptfleisch, the CFO, and stated, 鈥淲e鈥檝e decided we are going to move all our long-term debt investments into our brokerage account so we can sell them soon. Carl, go ahead and make the adjusting entries as of the current year-end.鈥� Carl made the adjustments even though he doesn鈥檛 think the company will actually go ahead with the planned sale of the long-term debt investments. The subsequent year, the economy turned, and the company鈥檚 travel revenues dropped more than 60%. Wild Adventure eventually defaulted on the First Bank loan.

Requirements

What type of information in the financial reports would have helped the bank detect this reclassification?

Short Answer

Expert verified

The bank will detect the reclassification of the assets through the footnotes of the balance sheet.

Step by step solution

01

Definition of Footnotes

The notes disclosed at the bottom of the financial statement reflecting the additional information not reflected in the financial statement are known as footnotes.

02

Information in the Financial Statements that will help the Bank to Detect the Reclassification of Assets

The full disclosure principle requires the business entity to report all the financial information on its financial statement. Some information cannot be reported in the financial statement, and the business entity report such information in a footnote or note to the financial statement.

Therefore, the transfer of assets from long-term to current assets will be reported in the note to the financial statement.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Classifying and accounting for equity investments

Boston Today Publishers completed the following investment transactions during 2018 and 2019:

2018

Dec. 6 Purchased 2,500 shares of Loveable stock at a price of \(24.00 per share, intending to sell the investment next month. Boston did not have significant influence over Loveable.

23. Received a cash dividend of \)1.50 per share on the Loveable stock.

31. Adjusted the investment to its market value of \(11.00 per share.

2019

Jan. 27 Sold the Loveable stock for \)18.20 per share.

Requirements

1. Journalize Boston Today鈥檚 investment transactions. Explanations are not required.

Classifying and accounting for equity investments

Boston Today Publishers completed the following investment transactions during 2018 and 2019:

2018

Dec. 6 Purchased 2,500 shares of Loveable stock at a price of \(24.00 per share, intending to sell the investment next month. Boston did not have significant influence over Loveable.

23. Received a cash dividend of \)1.50 per share on the Loveable stock.

31. Adjusted the investment to its market value of \(11.00 per share.

2019

Jan. 27 Sold the Loveable stock for \)18.20 per share.

Requirements

On December 31, 2018, how would the Loveable stock be classified and at what value would it be reported on the balance sheet?

Question: P10-20A Accounting for equity investments

The beginning balance sheet of Waterfall Source Co. included a \(400,000 investment in Evan stock (20% ownership, Waterfall has significant influence over Evan). During the year, Waterfall Source completed the following investment transactions:

Mar. 3 Purchased 4,000 shares at \)11 per share of Lili Software common stock as a long-term equity investment, representing 7% ownership, no significant influence.

May 15 Received a cash dividend of \(0.61 per share on the Lili investment.

Dec. 15 Received a cash dividend of \)70,000 from Evan investment.

31 Received Evan鈥檚 annual report showing \(300,000 of net income.

31 Received Lili鈥檚 annual report showing \)120,000 of net income for the year.

31 Evan鈥檚 stock fair value at year-end was \(390,000.

31 Lili鈥檚 common stock fair value at year-end was \)12 per share.

Requirements

2. Post transactions to T-accounts to determine December 31, 2018, balances related to the investment and investment income accounts.

Question: P10-21B Accounting for debt investments

Suppose Hale and Sons purchases $800,000 of 3.5% annual bonds of Tyson Way Corporation at face value on January 1, 2018. These bonds pay interest on June 30 and December 31 each year. They mature on December 31, 2022. Hale and Sons intends to hold the Tyson Way bond investment until maturity.

Requirements

2. Journalize the entry required on the Tyson Way bonds maturity date. (Assume the last interest payment has already been recorded.)

Question: What method is used for investments in equity securities with more than 50% ownership? Briefly describe this method.
See all solutions

Recommended explanations on Business Studies Textbooks

Business Case Studies

Read Explanation

Strategic Analysis

Read Explanation

Insurance

Read Explanation

Organizational Communication

Read Explanation

Human 91影视

Read Explanation

Strategic Direction

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.