1) The gain or loss on the constructive retirementof debt is recognized subsequently by
the individual companies. Explain.
2) GASB 45 requires that the expected future costs of retiree health costs be recognized
in the current period. Prior to this, governments used a pay-as-you-go plan in which
only the current years actual payments affected the financial statements. Suppose you
are working for a government prior to the issuance of GASB 45. As part of the
collective bar-gaining agreement, the government offers employees increased health
benefits.
1> Prior to the issuance of GASB 45, what would be the impact on the governments
financial statements?
2> Under GASB 45, what are the financial statement implications?
3> Why might the current governmental leaders agree to offer such a benefit?4.What
are the ethical issues involved in this decision?
3) What is the relationship (if any) between board-designated funds and nonmandatory
transfers?
4) On November 1, 2013, Platte Corporation, a calendar-year U.S. Corporation,
invested in a speculative contract to purchase 700,000 euros on January 31, 2014, from
a German brokerage firm. Platte agreed to buy 700,000 euros at a fixed price of $1.46
per euro. The brokerage firm agreed to send 700,000 euros to Platte on January 31,
2014. The spot rates for euros are:
November 1, 20131 euro = 1.45
December 31, 20131 euro = 1.43
January 31, 20141 euro = 1.44
Required:
Prepare the journal entries that Platte would record on November 1, December 31, and
January 31.
5) On January 1, 2013, Terminator, Inc. owed 9th National Bank $12 million on a 10%
note due December 31, 2014. Interest was last paid on December 31, 2008. Terminator
was experiencing severe financial difficulties and asked 9th National Bank to modify
the terms of the debt agreement. After negotiation 9th National Bank agreed to:
– Forgive the interest accrued for the year just ended,
– Reduce the remaining two years interest payments to $900,000 each and delay the first
payment until December 31, 2014, and
– Reduce the unpaid principal amount to $9,600,000.
Required:
Prepare the journal entries for Terminator, Inc. necessitated by the restructuring of the
debt at (1) January 1, 2013, (2) December 31, 2014, and (3) December 31, 2012.
6) What is the major difference in accounting between conditional and unconditional
pledges? Give an example of each.
7) Accounting for a foreign currency transaction involves the terms measured and
denominated. Describe a foreign currency transaction and distinguish between the terms
measured and denominated.
8) Explain how a parent company that owns less than100% of a subsidiary can purchase
an entire new is-sue of common stock directly from the subsidiary.
9) Under what two conditions will the bonus and goodwill methods of recording the
admission of a partner yield the same result?