Financial Reporting Assignment
Researching a Financial Accounting Issue
Corporate Accounting I
Financial Reporting Assignments
Portions of this document are based on: May, C. and May, G.S. Effective
Writing: A Handbook for Accountants, 4th Ed. Upper Saddle River, NJ:
Prentice Hall 1996.
Research in financial accounting is often required because certain financial
transactions and issues encountered in business may not always be clearly
addressed in the professional accounting literature. In these cases, a staff
accountant may be directed to research the transaction, find whatever guidance
might be available in the professional literature, provide alternative treatments for
the issue, and make a recommendation on the proper accounting treatment.
Accountants most often use a database maintained by the Financial Accounting
Standards Board (FASB) to perform their professional research. The public
version of this database is called FARS; several public accounting firms have
developed their own databases encompassing the same literature and using a
very similar search engine. FARS is available online and access to it is available
to students at reasonable rates.
The Financial Reporting Assignments that we use in this course are fairly simple
issues so that you can get used to working with FARS as well as writing a
technical memo. Try to follow these steps when doing your financial accounting
1. Determine the relevant facts.
2. Identify the issues involved.
3. Research the accounting literature (FARS).
4. Identify alternative solutions and arguments for and against each.
5. Evaluate alternative solutions and choose the one that can be best
6. Communicate the results of your research to the interested parties.
Financial Reporting Assignment
Corporate Accounting I
#5: Current Liabilities
Pleasant Co. manufactures specialty bike accessories. The company is known for product quality. It has offered one of the best warranties in the industry on its higher-priced products – a lifetime guarantee, performing all the warranty work in its own shops. The warranty on these products is included in the sales price.
Due to the recent introduction and growth in sales of some products targeted to the low-price market, Pleasant Co. is considering partnering with another company to do the warranty work on its lower-priced products. Pleasant Co. has called you to advice the company on the accounting for this new warranty arrangement.
Use the FASB Codification to respond to the following issues.
What is a warranty?
- In what conditions can Pleasant Co. accrue losses from warranty obligations that incur in connection with the sales of its higher-priced products?
- Pleasant Co. is considering to design the new warranty arrangement on its lower-price products to be extended and separately priced. What is the accounting literature that addresses the accounting for the type of separately priced extended warranty? What is a separately priced extended warranty?
- When should Pleasant Co. recognize revenue from a separately priced warranty?
- How should Pleasant Co. recognize costs from a separately priced warranty?
Your paper should include responses to each of the above questions, and consist of at least 3 paragraphs: an introduction, one or more paragraphs containing the results of your research, and a conclusion. Your paper should be well written and well constructed and should be written in a professional tone (and not a casual or familiar tone). Also, it should be formatted as an integrated essay or memorandum rather than a bulleted list of answers. Your paragraph must be in your own words and you may NOT use direct quotations. You must also provide a full citation reference.
The citation expected should include a reference to the topic number, subtopic number, section number, and paragraph number. As an example, suppose that the question you are asked to research is why to report “comprehensive income.” Go to the area of “Presentation”, access the topic “220 – Comprehensive Income” and then access the subtopic “10-Overall”. Further choose the section “10 – Objectives”. You will find that paragraph 10-1 describes the objective as “to report a measure of all changes in equity of an entity that result from recognized transactions and other economic events of the period other than transactions with owners in their capacity as owners.”
The proper citation is FASB ASC 220-10-10-1. Of course, you would need to phrase the definition in your own words rather than providing the quotation as I did above. For example:
The objective for a company to report comprehensive income is to report all changes that affect owners’ equity in a company, except those resulting from owners’’ own activities (FASB ASC 220-10-10-1).
Submit the completed Word document through the assignment tool on LEARN. If you meet technical difficulties in submitting work through LEARN, you can bring and submit a hardcopy at the beginning of the class (No handwriting work will be accepted!!) Your submission may not exceed two double spaced pages, but brevity is greatly appreciated (i.e., less is often more!). This assignment will be graded on the basis of style, grammar and content and is worth a maximum of 10 points. This assignment is intended to be an individual assignment (not a group assignment), so it is CHEATING to copy all or a part of another student’s work.