Explanation Memo A memo is a way or medium of communication between different personnel mainly used within organizations. Memos must be clear, brief and to the point. Involuntary Conversion: When a taxpayer is forced to disclose involuntarily any property which was stolen, destroyed or damaged and in return the taxpayer receives another property as a compensation for that property. The taxpayer as a result can lose or gain during involuntary conversion but it must not be taxpayer’s house. Journalizing: Journalizing is the process of recording the transactions of an organization in a chronological order. Based on these journal entries recorded, the accounts are posted to the relevant ledger accounts. Accounting rules for journal entries: To increase balance of the account: Debit assets, expenses, losses and credit all liabilities, capital, revenue and gains. To decrease balance of the account: Credit assets, expenses, losses and debit all liabilities, capital, revenue and gains. In the provided case, the company experienced three different unfortunate events in the current year. Following is the memo to the file using the codification: To: Client (Company E.M) From: Student Name Date: July 4, 2018 Subject: Accounting for involuntary conversions. Dear client, E.M Company sells fruits and vegetables and has experienced three different unfortunate events in the current year as mentioned below: During February, the government acquired 20 acres from the company in an eminent domain case. E.M Company was carrying the land on its balance sheet at $6,000. The company being paid $10,000 by the government. An additional land of 20 acres being purchased by the company for $25,000 in June for compensating the loss. During the month of July, the barns of the company destroyed by the fire. The original cost of that barn was $200,000 and accumulated depreciation amounted to $120,000. The company expected to receive $50,000 for insurance whose proceeds were received in November. In the month of December, one of the EMC’s tractors was stolen. The original cost of the tractor was $45,000 and the accumulated depreciation was $42,500. The tractor was insured, but as of December 31, it had not been determined exactly how much the insurance company would pay EMC, although it is likely to be around $5,000. As per ASC 605-40-25, a gain or a loss is recorded when the book value or the carrying value of the non-monetary asset is different from the amount of proceed received from selling the asset. The total gain or loss is calculated as the difference between the carrying amount and the value of proceeds calculated. Gains and losses need to be recognized on an involuntary conversion, though the company reinvests those proceeds in the replacement of the converted asset. However, if the amount of monetary assets is not determined at the end of the year, then those gains and losses must be recognized as contingencies which indicate that loss will be recognized if it is probable whereas the gain will not be recognized at all...

2nd Edition

ISBN: 9780134730370

Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella

Publisher: PEARSON

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Chapter 11, Problem 2SSC

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To prepare: A memo to the file using the codification for support.

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Chapter 11 Solutions

Intermediate Accounting (2nd Edition)

Ch. 11 - Stephen J. Cosgrove is the Former Vice President....Ch. 11 - Prob. 11.2Q Ch. 11 - Prob. 11.3Q Ch. 11 - Prob. 11.4Q Ch. 11 - Will the expense/capitalization choice impact...Ch. 11 - Prob. 11.6Q Ch. 11 - Prob. 11.7Q Ch. 11 - For a long-lived operating asset acquired by...Ch. 11 - Prob. 11.9Q Ch. 11 - Prob. 11.10Q

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A memo to the file using the codification for support.

Solution Summary: The author explains that memos are a way of communication between different personnel mainly used within organizations.

To prepare: A memo to the file using the codification for support.

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Chapter 11 Solutions