Intermediate accounting-income reporting, Simpson Inc, accounting homework help

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Writing Assignment   Intermediate Accounting I     S2016

CA4-4. 

(Income Reporting Items)

Simpson Corp. is an entertainment firm that derives approximately 30% of its income from the Casino Knights Division, which manages gambling facilities. As auditor for Simpson Corp., you have recently overheard the following discussion between the controller and financial vice president.

Vice President:

If we sell the Casino Knights Division, it seems ridiculous to segregate the results of the sale in the income statement. Separate categories tend to be absurd and confusing to the stockholders. I believe that we should simply report the gain on the sale as other income or expense without detail.?

Controller:

Professional pronouncements would require that we report this information separately in the income statement. If a sale of this type is considered unusual and infrequent, it must be reported as an extraordinary item.

Vice President:

What about the walkout we had last month when employees were upset about their commission income? Would this situation not also be an extraordinary item?

Controller:

I am not sure whether this item would be reported as extraordinary or not.

Vice President:

Oh well, it doesn't make any difference because the net effect of all these items is immaterial, so no disclosure is necessary.

Instructions

(a) 

On the basis of the foregoing discussion, answer the following questions. Who is correct about handling the sale? What would be the correct income statement presentation for the sale of the Casino Knights Division?

(b) 

How should the walkout by the employees be reported?

(c) 

What do you think about the vice president's observation on materiality?

(d) 

What are the earnings per share implications of these topics?

Specifications: Assignment should be (1) an APA paper, (2) double spaced, 12 font, 1 inch margin (top, bottom, left and right), and (3)  at least three (3) sources other than the textbook.(4) The paper should have at least 3 pages of research content information.

Due Date: Tuesday, July 5th

I     S2016

CA4-4. 

(Income Reporting Items)

Simpson Corp. is an entertainment firm that derives approximately 30% of its income from the Casino Knights Division, which manages gambling facilities. As auditor for Simpson Corp., you have recently overheard the following discussion between the controller and financial vice president.

Vice President:

If we sell the Casino Knights Division, it seems ridiculous to segregate the results of the sale in the income statement. Separate categories tend to be absurd and confusing to the stockholders. I believe that we should simply report the gain on the sale as other income or expense without detail.?

Controller:

Professional pronouncements would require that we report this information separately in the income statement. If a sale of this type is considered unusual and infrequent, it must be reported as an extraordinary item.

Vice President:

What about the walkout we had last month when employees were upset about their commission income? Would this situation not also be an extraordinary item?

Controller:

I am not sure whether this item would be reported as extraordinary or not.

Vice President:

Oh well, it doesn't make any difference because the net effect of all these items is immaterial, so no disclosure is necessary.

Instructions

(a) 

On the basis of the foregoing discussion, answer the following questions. Who is correct about handling the sale? What would be the correct income statement presentation for the sale of the Casino Knights Division?

(b) 

How should the walkout by the employees be reported?

(c) 

What do you think about the vice president's observation on materiality?

(d) 

What are the earnings per share implications of these topics?

Specifications: Assignment should be (1) an APA paper, (2) double spaced, 12 font, 1 inch margin (top, bottom, left and right), and (3)  at least three (3) sources other than the textbook.(4) The paper should have at least 3 pages of research content information.



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Explanation & Answer

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Running Head: INTERMEDIATE ACCOUNTING-INCOME REPORTING, SIMPSON INC

Intermediate accounting-income reporting, Simpson Inc
Name
Institution
Date

INTERMEDIATE ACCOUNTING-INCOME REPORTING, SIMPSON INC

1.

2

On the basis of the foregoing discussion, answer the following questions. Who is
correct about handling the sale? What would be the correct income statement
presentation for the sale of the Casino Knights Division?
The controller is correct about how this sale will be handled. Personal feelings are

considered irrelevant in the handling and reporting of accounting information. Basic numbers
and figures are the most important when it comes to reporting of accounting information (Bartov,
1993). In any case, the accounting figures directly affect the real income that a company has.
This can then affect the way a cash flow statement and balance sheet of a company is. Because
of this reason, all monies that relate to any transaction that the company engages in are liable for
reporting. The same will apply for all monies that the company earns from its engagement in
business or investment in other businesses, be they subsidiaries or fully fledged separate
businesses. In this case, the company earns 30% of its revenue from its investment in the casino.
The casino might be a separate business with...

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