Client Understanding

Client Understanding

Debra McCaster

ACC/541

July 4, 2011

Ken Burton

Client Understanding

As the newly hired Staff 1, the required responsibility is to analyze the company’s client working papers and explain what is asked of the client. The client is requesting information regarding the adjusting lower cost of market, capitalizing interest on building construction, the recording of gain and loss on asset disposal, and adjusting good will for impairment. Below will give the answers to each of the four questions that has been asked by the client.

Adjusting of Lower Cost of Market Inventory on Valuation

When choosing to use the lower cost of market value, options need to be considered. Under GAAP the company is required to have their inventory to be stated valued under cost or market value. Using the one that is much lower of the two would be a better option according to SFAC no. 2. A loss in inventory is to be reported during the period in which the loss took place. If the company is selling televisions at $800, and the market is $750 the adjustment needs to be made on the balance sheet as follows $50 debit loss because of decrease in the market and a $50 credit to inventory. An account needs to be created to show the loss of the inventory when it is sold at a lower price. There has been criticism about the use of LCM because losses are too be recognized and gains are to be ignored.

Capitalization Interest on Building Construction

Buildings are long-term assets on the balance sheet that are considered to be part of the business in the future. When a building has been constructed the company has to include all costs that are associated with the construction of the building. This would include the expense to pay for labor, overhead cost, and the materials that is needed to be used. Interest that has been capitalized...