Part 1: Capital leases and operating leases are the two classifications of leases described in FASB pronouncements from the standpoint of the lessee.\n

RNA Inc. manufactures a variety of consumer products. The company’s founders have run the company for 30 years and are now interested in retiring. Consequently, they are seeking a purchaser who will continue its operations, and a group of investors, Morgan Inc., is looking into the acquisition of RNA. To evaluate its financial stability and operating efficiency, RNA was requested to provide the latest financial statements and selected financial ratios. Summary information provided by RNA is as follows.     Instructions (a) Calculate a new set of ratios for the fiscal year 2015 for RNA based on the financial statements presented. (b) Explain the analytical use of each of the six ratios presented, describing what the investors can learn about RNA’s financial stability and operating efficiency. (c) Identify two limitations of ratio analysis.

Instructions Go to the book’s companion website and use information found there to answer the following questions related to The Coca-Cola Company and PepsiCo, Inc. (a) (1) What specific items does Coca-Cola discuss in its Note 1—Accounting Policies? (Prepare a list of the headings only.) (2) What specific items does PepsiCo discuss in its Note 2—Our Summary of Significant Accounting Policies? (Prepare a list of the headings only.) (b) For what lines of business or segments do Coca-Cola and PepsiCo present segmented information? (c) Note and comment on the similarities and differences between the auditors’ reports submitted by the independent auditors of Coca-Cola and PepsiCo for the year 2011.

The financial statements of Marks and Spencer plc (M&S) are available at the book’s companion website or can be accessed at http://annualreport.marksandspencer.com/_assets/downloads/ Marks-and-Spencer-Annual-report-and-financial-statements-2012.pdf. Instructions Refer to M&S’s financial statements and the accompanying notes to answer the following questions. (a) What specific items does M&S discuss in its Note 1—Summary of Significant Accounting Policies? (List the headings only.) (b) For what segments did M&S report segmented information? Which segment is the largest? Who is M&S’s largest customer? (c) What interim information was reported by M&S?

As part of the year-end audit, you are discussing the disclosure checklist with your client. The checklist identifies the items that must be disclosed in a set of IFRS financial statements. The client is surprised by the disclosure item related to accounting policies. Specifically, since the audit report will attest to the statements being prepared in accordance with IFRS, the client questions the accounting policy checklist item. The client has asked you to conduct some research to verify the accounting policy disclosures. Instructions Access the IFRS authoritative literature at the IASB website (http://eifrs.iasb.org/). (Click on the IFRS tab and then register for free eIFRS access if necessary.) When you have accessed the documents, you can use the search tool in your Internet browser to respond to the following questions. (Provide paragraph citations.) (a) In general, what should disclosures of accounting policies encompass? (b) List some examples of the most commonly required disclosures.

Snider Corporation, a publicly traded company, is preparing the interim financial data which it will issue to its shareholders at the end of the first quarter of the 2014–2015 fiscal year. Snider’s financial accounting department has compiled the following summarized revenue and expense data for the first quarter of the year. Sales revenue $60,000,000 Cost of goods sold 36,000,000 Variable selling expenses 1,000,000 Fixed selling expenses 3,000,000 Included in the fixed selling expenses was the single lump-sum payment of $2,000,000 for television advertisements for the entire year. Instructions (a) Snider Corporation must issue its quarterly financial statements in accordance with IFRS regarding interim financial reporting. (1) Explain whether Snider should report its operating results for the quarter as if the quarter were a separate reporting period in and of itself, or as if the quarter were an integral part of the annual reporting period. (2) State how the sales revenue, cost of goods sold, and fixed selling expenses would be reflected in Snider Corporation’s quarterly report prepared for the first quarter of the 2014–2015 fiscal year. Briefly justify your presentation. (b) What financial information, as a minimum, must Snider Corporation disclose to its shareholders in its quarterly reports?

Bill Novak is working on an audit of an IFRS client. In his review of the client’s interim reports, he notes that the reports are prepared on a discrete basis. That is, each interim report is viewed as a distinct period. Is this acceptable under IFRS? If so, explain how that treatment could affect comparisons to a GAAP company.

Dierdorf Inc., a closely held corporation, has decided to go public. The controller, Ed Floyd, is concerned with presenting interim data when an inventory write-down is recorded. What problems are encountered with inventories when quarterly data are presented?

What are interim reports? Why is a complete set of financial statements often not provided with interim data? What are the accounting problems related to the presentation of interim data?

For each of the following subsequent events, indicate whether a company should (a) adjust the financial statements, (b) disclose in notes to the financial statements, or (c) neither adjust nor disclose. ________ 1. Settlement of a tax case at a cost considerably in excess of the amount expected at year-end. ________ 2. Introduction of a new product line. ________ 3. Loss of assembly plant due to fire. ________ 4. Sale of a significant portion of the company’s assets. ________ 5. Retirement of the company president. ________ 6. Issuance of a significant number of ordinary shares. ________ 7. Loss of a significant customer. ________ 8. Prolonged employee strike. ________ 9. Material loss on a year-end receivable because of a customer’s bankruptcy. _______ 10. Hiring of a new president. _______ 11. Settlement of prior year’s litigation against the company (no loss was accrued). _______ 12. Merger with another company of comparable size.

Keystone Corporation’s financial statements for the year ended December 31, 2014, were authorized for issue on March 10, 2015. The following events took place early in 2015. (a) On January 10, 10,000 ordinary shares of $5 par value were issued at $66 per share. (b) On March 1, Keystone determined after negotiations with the taxing authorities that income taxes payable for 2014 should be $1,320,000. At December 31, 2014, income taxes payable were recorded at $1,100,000. Instructions Discuss how the preceding subsequent events should be reflected in the 2014 financial statements.

Morlan Corporation is preparing its December 31, 2014, financial statements. Two events that occurred between December 31, 2014, and March 10, 2015, when the statements were authorized for issue, are described below. 1. A liability, estimated at $160,000 at December 31, 2014, was settled on February 26, 2015, at $170,000. 2. A flood loss of $80,000 occurred on March 1, 2015. Instructions What effect do these subsequent events have on 2014 net income?

What are the major types of subsequent events? Indicate how each of the following “subsequent events” would be reported. (a) Collection of a note written off in a prior period. (b) Issuance of a large preference share offering. (c) Acquisition of a company in a different industry. (d) Destruction of a major plant in a flood. (e) Death of the company’s chief executive officer (CEO). (f) Additional wage costs associated with settlement of a four-week strike. (g) Settlement of an income tax case at considerably more tax than anticipated at year-end. (h) Change in the product mix from consumer goods to industrial goods.