You work as an accountant for regional CPA firm of Cash and Green. Your supervisor asked
you to conduct research for three unrelated clients.
1. On January 1, 2021, the J. Fields Company issues 100,000 shares of its stock (which is
valued at $10 per share) to acquire the M. Nagy Company. The purchase agreement also
states that J. Fields will pay $200,000 in year two if M. Nagy has net income of at least
$400,000 in 2022. There is a 50% chance M. Nagy will meet or exceed $400,000 of net
income in 2022. How should J. Fields recognize this transaction?
2. Da Bears Corporation has 70% of the outstanding voting stock of E. Jackson Corporation
and 10% of the voting stock of Mack Corporation. E. Jackson also just spent $10,000 to
acquire 20% of Mack’s voting stock. E. Jackson has issued irrevocable letters of credit to
guarantee Mack’s notes payable. In the current year, Mack lost $100,000. How should
the parties report the above arrangements in its consolidated financial statements?
3. Scranton Epilepsy Association is a not-for-profit agency. Ryan Howard is the Chair of its
Voluntary Board of Directors. He is also the owner of Dunder-Mifflin Insurance
Company. The Association rents its facilities from Dunder-Mifflin Insurance Company.
The Company charges the Association $10 per square foot of space per month. This
amount is considerably below the City’s average “market” rate of $14 for similar office
space. The rental rates have not changed during the five years that the Association has
occupied its present location. However, no formal agreement for this rental situation
exists. Ryan has “hinted” that “one day” the Company may ask the Association to
significantly increase its rental payments or move to another location. What disclosures,
if any, should the Association make regarding this situation?
Required:
a) Provide responses for each independent case on the appropriate accounting treatment.
b) Support your responses with code sections from the FASB Accounting Standards
Codification