please the attachment ... you will find the question and also you will find the sloution for it ... please try to revise the the answer . it is due on 23 September 2011

It is due on Friday 23 at 12 pm
Research Memo
You are assisting the engagement partner with the audit of Conglomention, Inc , a
new client. The partner has reviews the financial statements of the company and
commenced field work in the performance of an audit . He asks you to research the
following two issue and to provide a memo for his use. He asks you clearly document
. the foundations for your advice
Conglomention, Inc offers customers purchasing its appliances separately priced
(extended) warranties. Lowland services these extended warranties. Its
customers can receive no refunds for not using these warranties, and, of
course, Lowland must honor these contracts—regardless of any future costs in
doing so. It also “tracks” the profits and losses these types of warranties
generate by appliance category—in order to help maintain a competitive price
and costing structures. How should Lowland recognize the revenues and
?expenses of such extended warranties
Conglomention has construction subsidiary which build various commercial
structures such as gymnasiums, hotel and strip mall. The company building a
hotel for speculative purposes. That is, the Company has not yet found a
buyer for the hotel, but expects to do so within a few months.
Conglomention ,who expects to spend about another two years to complete
construction of the hotel, asks his accountant if interest and property taxes
associated with this construction site should be capitalized or expensed. At
?what rate of interest should Herb use, if any, to capitalize any interest costs
In good form, please present the requested advice along with your key words search,
.the databases used, and accounting authorities used to support your conclusions
See the solution manual : Please do not try to do the same solution manual .. try to
use your own words ….. If you use the same solution it considered cheating … I bring
: the solution to help you so you do not need to have time to figure the solutions
Conglomention offers customers purchasing its appliances separately priced
(extended) warranties. Lowland services these extended warranties. Its
customers can receive no refunds for not using these warranties, and, of
course, Lowland must honor these contracts—regardless of any future costs in
doing so. It also “tracks” the profits and losses these types of warranties
generate by appliance category—in order to help maintain a competitive price
and costing structures. How should conglomention recognize the revenues
?and expenses of such extended warranties
Problem Identification: How should a company recognize revenues and
expenses associated with separately priced, extended warranties? Such
.contracts generally are (potential) loss contingencies
Keywords: Loss contingency; non-refundable
Conclusion: Per 605-20-25-3, such extended warranties constitute “product
maintenance contracts,” where Lowland agrees to perform certain agreedupon services to these products for a specific time period. As such, it should
recognize revenue on a straight-line basis over the contract period, unless
sufficient historical evidence indicates a superior alternative method of doing
so. Lowland should also “match” any related costs in the same time period as
the associated revenues. Moreover, Lowland should recognize a loss on such
contracts that have an expected net cumulative loss over the remaining
contract periods. Further information on this topic also appears in 450-20-053 and 460-10-25-5; FASB Concepts Statement No. 5, pars. 83 and 84; and
.FASB Concepts Statement No. 6, par.197
Conglomention Construction Company is building a hotel for speculative
purposes. That is, the Company has not yet found a buyer for the hotel, but
expects to do so within a few months. Conglomention , who expects to spend
about another two years to complete construction of the hotel, asks his
accountant if interest and property taxes associated with this construction site
should be capitalized or expensed. At what rate of interest should Herb use, if
?any, to capitalize any interest costs
Problem Identification: Should property taxes and interest during construction of a
hotel be capitalized or expensed? What rate of interest should be used to capitalize
any interest costs? Does the fact that no present buyer for the project does not exists
?affects he results derived
.Keywords:
Property taxes; interest: capitalization; construction
Conclusion: Per 720-30-45-3, property taxes paid for property under development
for use or sale can be capitalized but is usually treated as a period expense. Assets
constructed for sale are considered qualifying assets for interest capitalization per
835-20-15-5. Per 835-20-30-3 through 30-4, Herb should use a rate of interest that
can be “directly” associated with the project under construction. Or a weighted
average of rates applicable to other debt that Conglomention has incurred (even if it
.(were associated with other projects