ACC120 Study Guide - Final Guide: Cupcake, Accounts Receivable, Income Statement

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greenmuskrat329

21 Jan 2019

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Problem 1-2b: (a) the computer science students should incorporate their business because of their concerns about legal liabilities. A corporation is the only form of business that provides limited liability to its owners. (b) aspe will likely be the accounting standards followed, as they are simpler to follow. This is the best form of business for them to choose because they expect to raise funds in the coming year and it is easier to raise funds in a corporation. A corporation may also receive more favourable income tax treatment. (b) aspe will likely be the accounting standards followed, as they are simpler to follow. The business would not be a publicly traded corporation requiring the use of ifrs: (a) a partnership would be the most likely form of business for. It is simpler to form than a corporation and less costly. (b) aspe will likely be the accounting standards followed, as they are simpler to follow.

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(Refinancing of Short-Term Debt)

On December 31, 2017, Hornsby Corporation had $1.2 million ofshort-term debt in the form of notes payable due on February 2,2018. On January 21, 2018, in order to ensure that it hadsufficient funds to pay for the short-term debt when it matured,Hornsby issued 25,000 common shares for $38 per share, receiving$950,000 in proceeds after brokerage fees and other costs ofissuance. On February 2, 2018, the proceeds from the sale of theshares, along with an additional $250,000 cash, were used toliquidate the $1.2-million debt. The December 31, 2017 balancesheet is issued on February 23, 2018.

Instructions

(a)

Assuming that Hornsby follows ASPE, show how the $1.2 million ofshort-term debt should be presented on the December 31, 2017balance sheet, including the note disclosure.

(b)

Assuming that Hornsby follows IFRS, explain how the $1.2 millionof short-term debt should be presented on the December 31, 2017statement of financial position.

(c)

Considering only the effect of the $1.2-million short-term notespayable, would Hornsby's current ratio appear higher if Hornsbyfollowed ASPE, or if Hornsby followed IFRS? Discuss your answerfrom the perspective of a creditor.

1. Dave and Cindy, who want to start a law firm, each have$1,000 to invest in the business and no personal assets and wantlimited liability protection and only 1 level of taxation. Theywant your advice on whether they should form their law firm as: 1)a general partnership; or 2) a limited liability corp (LLC) Whatbusiness entity would you recommend? Why?

2. Karen, who is setting up a new business, expects that her newbusinessâ income in the first year will be $10,000. If the businessis a C (regular) corporation assume it has distributed $5,000 ofits $10,000 income to Karen as a dividend. Corpâs income tax rateis 35%. Karenâs income tax rate is 30% and her dividend tax rate is20%. For federal income tax purposes, how much would be the incometaxes paid on her businessâ projected income if Karenâs businesswas a C (regular) corporation or was a sole proprietorship?

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The International Organization of Securities Commissions (IOSCO)is a group of top securities administrators from about 50countries. The Securities and Exchange Commission (SEC) is a memberof IOSCO. IOSCO is a primary supporter of the internationalizationof financial reporting standards through the InternationalAccounting Standards Board (IASB). At a recent meeting, adiscussion of the pros and cons of internationalizing financialreporting standards included the following arguments:

Pro:

Having the same accounting standards for external financialreporting for all securities markets will reduce misunderstandingsand create comparable information. For example, investors will beable to compare the financial reports of similar companies locatedin the United States with those located in China and decide wherebest to allocate their investments. One set of accounting standardswill also save corporations money because they will not needmultiple sets of books to track their international operations.

Con:

Requiring companies that list on all global securities exchangesto use the same external reporting requirements will misleadinvestors. For example, in countries where the majority ofinvestment funds come from banks in the form of long-termborrowing, debt to equity ratios will look very different thanthose of comparable U.S. firms. Accounting information must reflectits environment. Besides, as all business becomes global, reportingrequirements will naturally evolve to what investors demand.

Instructions

Write a one-page summary reflecting your opinion about the valueof harmonizing accounting standards for global equity markets.Support your opinions by referencing comparable cross-countrycompanies you have located on the Internet.

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ACC120 Study Guide - Final Guide: Cupcake, Accounts Receivable, Income Statement

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