Explanation Memo A memo is a way or medium of communication between different personnel mainly used within organizations. Memos must be clear, brief and to the point. Involuntary Conversion: When a taxpayer is forced to disclose involuntarily any property which was stolen, destroyed or damaged and in return the taxpayer receives another property as a compensation for that property. The taxpayer as a result can lose or gain during involuntary conversion but it must not be taxpayer’s house. Journalizing: Journalizing is the process of recording the transactions of an organization in a chronological order. Based on these journal entries recorded, the accounts are posted to the relevant ledger accounts. Accounting rules for journal entries: To increase balance of the account: Debit assets, expenses, losses and credit all liabilities, capital, revenue and gains. To decrease balance of the account: Credit assets, expenses, losses and debit all liabilities, capital, revenue and gains. In the provided case, the company experienced three different unfortunate events in the current year. Following is the memo to the file using the codification: To: Client (Company E.M) From: Student Name Date: July 4, 2018 Subject: Accounting for involuntary conversions. Dear client, E.M Company sells fruits and vegetables and has experienced three different unfortunate events in the current year as mentioned below: During February, the government acquired 20 acres from the company in an eminent domain case. E.M Company was carrying the land on its balance sheet at $6,000. The company being paid $10,000 by the government. An additional land of 20 acres being purchased by the company for $25,000 in June for compensating the loss. During the month of July, the barns of the company destroyed by the fire. The original cost of that barn was $200,000 and accumulated depreciation amounted to $120,000. The company expected to receive $50,000 for insurance whose proceeds were received in November. In the month of December, one of the EMC’s tractors was stolen. The original cost of the tractor was $45,000 and the accumulated depreciation was $42,500. The tractor was insured, but as of December 31, it had not been determined exactly how much the insurance company would pay EMC, although it is likely to be around $5,000. As per ASC 605-40-25, a gain or a loss is recorded when the book value or the carrying value of the non-monetary asset is different from the amount of proceed received from selling the asset. The total gain or loss is calculated as the difference between the carrying amount and the value of proceeds calculated. Gains and losses need to be recognized on an involuntary conversion, though the company reinvests those proceeds in the replacement of the converted asset. However, if the amount of monetary assets is not determined at the end of the year, then those gains and losses must be recognized as contingencies which indicate that loss will be recognized if it is probable whereas the gain will not be recognized at all...

1st Edition

ISBN: 9780132162302

Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella

Publisher: PEARSON

See similar textbooks

Question

Chapter 11, Problem 2SSC

To determine

To prepare: A memo to the file using the codification for support.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Chapter 11, Problem 1SSC

Chapter 11, Problem 3SSC

Students have asked these similar questions

Jillian Company purchased a van with a fair market value of $55,000 for $40,000 and then leased this van for 5 years to the Bryant Corporation. Jillian Company typically resells these vans but has decided to lease them as a favor for Bryant Corp. Which of the following statements is true? Question 11 Jan Company purchased a van with a fair market value of $55.000 for $40.000 and then leased this van for 5 years to the Bryant Corporation in Company typically resells these vans but has decided lease them as a favor for Brant Corp. Which of the following statements is true Show Transcribed Text A if the van has an expected life of 8 years, then both parties must report the transaction as a capital lease per US GAAP B. Since this van is normally sold, Bryant must report it as a sales-type lease. C. If the van has an expected life of six years, then both parties must report the transaction as a capital lease per US GAAP D. Since this vehicle is normally sold, the lease contract should be…

A state owns a machine that produces license plates. Due to the required technological changes to the types of license plates. A new machine as much time to produce each license plate. The machine was purchased 30 ears ago for 300,000 and is depreciated on a straight line based for its 40 year useful life. A modern replacement for the machine costs 600,000. What is the amount of the impairment loss on the machine А 75,000 B 225,000 С 300,000 D 600,000

Note : Please answer part B and Part D only, thanks Deliveries Ltd leased a truck from a truck dealer, City Vans Ltd. City Vans plc acquired the truck at a cost of $196,000.The truck will be painted with Deliveries Ltd’s logo and advertising and the cost of repainting the truck to make it suitable for another owner four years later is estimated to be $56,000. Deliveries Ltd plans to keep the truck after the lease but has not made any commitment to the lessor to purchase it. The terms of the lease are as follows: • Date of entering lease: 1 July 2019. • Duration of lease: 4 years. • Life of leased asset: 5 years, after which it will have no residual value. • Lease payments: $116,000 at the end of each year. • Interest rate implicit in the lease: 10 per cent. • Unguaranteed residual: $66,000. • Fair value of truck at inception of the lease: $412,786. Required: (a) Demonstrate that the interest rate implicit in the lease is 10 per cent. (b) Prepare the journal entries to account for…

Chapter 11 Solutions

Intermediate Accounting

Ch. 11 - Stephen J. Cosgrove is the Former Vice President....Ch. 11 - Prob. 11.2Q Ch. 11 - Prob. 11.3Q Ch. 11 - Prob. 11.4Q Ch. 11 - Will the expense/capitalization choice impact...Ch. 11 - Prob. 11.6Q Ch. 11 - Prob. 11.7Q Ch. 11 - For a long-lived operating asset acquired by...Ch. 11 - Prob. 11.9Q Ch. 11 - Prob. 11.10Q

Knowledge Booster

A memo to the file using the codification for support.

Solution Summary: The author explains that memos are a way of communication between different personnel mainly used within organizations.

To prepare: A memo to the file using the codification for support.

Want to see the full answer?

Chapter 11 Solutions