Financial Accounting Standards Codification Research Assignment Write your name and student number in the space below. Student (L, F):___________________________

I. FASB Accounting Standards Codification (FASC) Questions

This section deals with certain general background considerations and information related to the FASC and the answers can be found by clicking the “About the Codification” and “Notice to Constituents” sections on the FASC Welcome Page. This section is a good general source of information about the FASC and should be reviewed prior to starting to answer the specific questions set forth in all sections. The related research questions that you must answer are:

(a) When did the FASC Codification become effective?

(b) Did the FASC change prior GAAP?

(c) What does the FASB expect from the new FASC structure and system?

(d) What are the “topics” used in the ASC?

(e) Are Securities and Exchange Commission (SEC) references included in the ASC?

II. Topic-Specific Research

You have been hired at an audit firm as a first year staff. This firm requires that all references to generally accepted accounting principles in the audit workpapers include the corresponding FASC citation (topic and subtopics). Below are three independent situations found at your clients that require research and documentation.

For each question, (1) provide the citation number (topic and subtopic) that addresses the question and (2) answer the question. Document this under the question, indenting your answer or otherwise indicating it is the answer (bold, underline, different color, etc.)

1. Inventories

You have been assigned to an agricultural client. You are not familiar with accounting for inventory in the agricultural industry. You need to do some research to familiarize yourself with the issues involved.

(a) Identify the primary authoritative guidance for the accounting for inventories.

(b) Define the meaning of cost as it applies to the initial measurement of inventory.

(c) Indicate the circumstances when it is appropriate to initially measure agricultural inventory at fair value.

(d) What is a major objective of accounting for inventory?

(e) Are abnormal freight charges included in the cost of inventory?

2. Equity

Hincapie Co., a specialty bike-accessory manufacturer, is expecting growth in sales of some products targeted to the low-price market. Hincapie is contemplating a preferred stock issue to help finance this expansion in operations. The company is leaning toward participating preferred stock because ownership will not be diluted, but the investors will get an extra dividend if the company does well. The company management wants to be certain that its reporting of this transaction is transparent to its current shareholders and asks you to research the disclosure requirements related to its capital structure.

(a) Identify the primary authoritative guidance that addresses disclosure of information about capital structure.

(b) Find definitions of the following:

(i)   Securities.

(ii)   Participation rights.

(iii)   Preferred stock.

(c) What information about securities must companies disclose? Discuss how Hincapie should report the proposed preferred stock issue.

3. Pensions

Monat Company has grown rapidly since its founding in 2004. To instill loyalty in its employees, Monat is contemplating establishment of a defined benefit plan. Monat knows that lenders and potential investors will pay close attention to the impact of the pension plan on the company's financial statements, particularly any gains or losses that develop in the plan. Monat has asked you to conduct some research on the accounting for gains and losses in a defined benefit plan.

(a) Identify the primary authoritative guidance that addresses the accounting for defined benefit plans.

(b) Briefly describe how pension gains and losses are accounted for.

(c) Explain the rationale behind the accounting method described in part (b).

(d) What is the related pension asset or liability that will show up on the balance sheet? When will each of these situations occur?