Audit and revise a cover letter to company

timer Asked: Mar 6th, 2018
account_balance_wallet $30

Question description

I am an auditior, and I have to revise and write a cover letter explaining to the company in correct format the revision I have completed.

ACNT 2303 INTERMEDIATE ACCOUNTING I WRITING ASSIGNMENT – SPRING 2018 FACTS AND CRITICAL INFORMATION You are currently an accountant for ABC Auditors, LLP, who is consulting the McGuire Corporation regarding their selfconstruction of a new corporate headquarters to be located in downtown Houston, Texas. At the conclusion of their 2017 fiscal year at December 31, you begin to review the company’s process for capitalizing construction costs and specifically reviewed the interest charges that were capitalized. The new corporate building in downtown Houston was project to cost around $10 million dollars when completed. Construction began on January 1, 2017, and was scheduled to last for 2 years. The following schedule of project expenditures were noted by your review: January 1, 2017 March 1, 2017 April 30, 2017 June 1, 2017 September 30, 2017 December 1, 2017 Total Expenditures in 2017 $ 1,200,000 1,200,000 800,000 1,100,000 650,000 700,000 $ 5,650,000 To help finance construction of the new corporate headquarters, the company obtained a $3,000,000 construction loan from First Houston Bank with a 6.5% interest rate. Per your review of the company’s other debt obligations, you noted the following that were outstanding during the entire construction process in 2017: Loan Description Long-term note #1 Long-term note #2 Long-term note #3 Interest Rate 7% 6% 4% Principal Amount $ 2,000,000 4,500,000 600,000 When looking at the project’s ledger transactions, you noted that $195,000 of interest was capitalized to the project in 2017. When discussing this amount with the company’s accounting direct, Ms. Jennifer Clark, she noted that the amount of interest that was capitalized corresponded directly to the amount of the construction loan used specifically in the project: “These loan proceeds were directly used in financing construction costs for the year. Our accounting system did not specify which funds were used to finance this project other than the specific construction loan that was obtained for this purpose. Thus, only the interest related to the construction loan for 2017 were capitalized.” REQUIRED Prepare a written communication to Ms. Clark discussing the capitalization of interest during 2017. The format should include the following: 1. Introduction & Summary of Key Issues – this should provide a quick introduction of the matter, the company’s treatment of interest capitalization, and whether it was correct or incorrect. 2. Review of related rules and accounting standards – this information can come directly from the textbook. However, PLEASE AVOID DIERCTLY COPYING THE WORDS INTO YOUR COMMUNICATION! This is considered plagiarism and can result in severe academic penalties! Please paraphrase any information used from the textbook or any other sources if used. Additionally, please cite any sources used including the textbook. This can be done by: a. Including the title, authors, and edition of the textbook in the paragraph where the information is used. An example: i. “According to Intermediate Accounting (Spiceland, Nelson, & Thomas; 9th edition)…” ii. At the end of the paragraph where the information is used, put (Intermediate Accounting; Spiceland, Nelson, & Thomas; 9th edition). b. If using another resource besides the textbook, please use all available information to cite your information that one could use to clearly identify and find your information source. For this section, you will address the following questions as well: • • What is the accounting treatment of interest costs related to self-constructed assets? What are the rules for this? 3. Application of rules and standards to the issue – here you will indicate whether the company used the correct methods to determine the amount of interest to be capitalized in 2017 based on the rules and accounting standards in #2 above: a. Explain where the company was incorrect (if so); and b. Explain what the company should do to correct this issue (if needed). This can include showing any necessary calculations needed to get the correct amount of interest capitalized if the incorrect amount was determined to have been recorded. 4. Summary of Communication and Closing Remarks – here, you will again summarize the correct accounting method used (whether it was the company’s method or another method that should have been used). Finally, close with professional language that leaves the company feeling positive about the information provided. OVERALL FORMATTING This communication must be professional in nature and utilize excellent grammar and writing skills. This is an ability that MUST be developed and mastered as many communications will occur over the course of your accounting career, whether in the form of emails, letters, memos, reports, and so on. Please refrain from using any slang or other casual language. Furthermore, please format your communication in a professional format: • • • • Avoid use of numbering your responses like you might for an exam or other academic written prompt. Please use a professional font at a 12-inch size with bold and italics used sparingly (mainly to attract attention to a particular piece of information). Please include proper greetings and salutations (i.e. “To Whom It May Concern,” or “Sincerely”). Any other professional communication formatting options such as letterhead or other similar items can be used but in a professional manner.

Tutor Answer

School: UCLA






Writing Assignment – Spring 2018


Writing Assignment – Spring 2018

To whom it may concern
Introduction and summary of key issues
Capitalized interest refers to the cost of funds that an organization constructs for itself
to use in funding the construction of long-term assets. The concept of capitalizing interests is
a vital component of the accrual basis of accounting because it increases the value of fixed
assets of a firm. In practice, this interest is added to the cost of the construction that becomes
a long-term asset for the company, and also appears in its balance sheet. This interest is
treated just in a similar way as other asset of the company. Based on the information
provided, McGuire Corporation’s treatment of interest capitalization focused only on the
amount of the specific construction loan that was acquired from First Houston Bank instead
of considering the three long-term notes whose proceeds directly funded the construction
costs in 2017. Therefore, the company’s treatment of interest capitalization was incorrect.
Review of related rules and accounting standards
Accounting treatment of interest costs
Firms often finance the construction of long-term assets by raising equity or by
arranging for loans from loan lenders such as banks. According to Financial accounting: an
introduction to concepts, methods and uses (Weil, Schipper, & Francis; 14th edition), the
accounting treatment of interest costs requires firms to base the capitalized interest costs on
the loans received to fund the construction of their long-term assets. In...

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Outstanding Job!!!!

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