IHI 55.doc



1 (Accounting Principles—Comprehensive) Presented below is information related to Wang, Inc.
Comment on the appropriateness of the accounting procedures followed by Wang, Inc.
(a) Depreciation expense on the building for the year was ¥60,000. Because the building was increasing in value during the year, the controller decided to charge the depreciation expense to retained earnings instead of to net income. The following entry is recorded.
Retained Earnings 60,000
Accumulated Depreciation—Buildings 60,000
(b) Materials were purchased on January 1, 2011, for ¥120,000 and this amount was entered in the Materials account. On December 31, 2011, the materials would have cost ¥141,000, so the following entry is made.
Inventory 21,000
Gain on Inventories 21,000
(c) During the year, the company purchased equipment through the issuance of ordinary shares. The shares had a par value of ¥135,000 and a fair value of ¥450,000. The fair value of the equipment was not easily determinable. The company recorded this transaction as follows.
Equipment 135,000
Share Capital 135,000
(d) During the year, the company sold certain equipment for ¥285,000, recognizing a gain of ¥69,000. Because the controller believed that new equipment would be needed in the near future, she decided to defer the gain and amortize it over the life of any new equipment purchased.
(e) An order for ¥61,500 has been received from a customer for products on hand. This order was shipped on January 9, 2012. The company made the following entry in 2011.
Accounts Receivable 61,500
Sales 61,500

2 Full Disclosure Principle Presented below are a number of facts related to Weller, Inc. Assume that no mention of these facts was made in the financial statements and the related notes.
Assume that you are the auditor of Weller, Inc. and that you have been asked to explain the appropriate accounting and related disclosure necessary for each of these items.
(a) The company decided that, for the sake of conciseness, only net income should be reported on the income statement. Details as to revenues, cost of goods sold, and expenses were omitted.
(b) Equipment purchases of $170,000 were partly financed during the year through the issuance of a $110,000 notes payable. The company offset the equipment against the notes payable and reported plant assets at $60,000.
(c) Weller has reported its ending inventory at $2,100,000 in the financial statements. No other information related to inventories is presented in the financial statements and related notes.
(d) The company changed its method of valuing inventories from weighted-average to FIFO. No mention of this change was made in the financial statements.