Question for Kim Park(a) and Kim Park(B)

Kim Park A

True Star Electronics Company

1. Look at the list of expenditures related to the self-construction of additional wing of an existing factory. Please classify the expenditures into three groups: a. should be included in the cost of the new wing; b. should not be included in the cost of the new wing; c. not sure.

The Two Airlines

2. Do you think it reasonable for the two airlines to apply different useful life and residual value to similar aircraft? Please explain the reason.

Infosys Technologies Ltd.

3. In Infosys Technologies Ltd. Case, do you agree that the value or cost of human recourses be recognized in financial statements? Please explain your reason.

Kim Park B

Austral Electronics Company

1. How should the company account for the zero coupon bonds at the following three dates: issue date, the first year end, the third year end.

United Airlines, Inc.

2. How should airlines account for their frequent flyer obligations?

Intel Corporation

3. Consider the following dates in the evolution of the Pentium chip flaw during 1994:

June 30: Intel has discovered the flaw

October 31: Dr. Nicely has posted information about the flaw on the Internet and started

an active discussion group.

November 25: Article in Electrical Engineering Times has appeared, a story has been

broadcast on CNN and articles have appeared in the New York Times and

Boston Globe.

December 12: IBM announces that it has stopped shipments of its computers with the

flawed Pentium chip.

At any of these dates, did Intel have a contingent liability? If so, when should management have recognized a liability on the company’s balance sheet for this contingent liability? How should the company report this contingent liability in its financial statements issued before the capitalization decision? What are the accounting entries for recognizing and derecognizing the liability?