AC 320 PU Stellar Bright Solar Prepaid Expenses & the FASB Codification Case Study

Introduction

In the real-world financial accountants use the FASB Codification to research financial reporting issues for clients and companies they work for. The research process and findings are documented in a formal memorandum.

Skills: The purpose of this assignment is to help you practice the following skills that are essential to your success in this course and professional life. In addition these skills are tested on the CPA exam.

• Identify problematic accounting issues in a case setting
• Apply research skills using the FASB Codification database
• Formulate a conclusion using reasoning skills and information obtained via research
• Justify your case resolution by providing documentation from FASB rulings
• Write clearly and effectively

Knowledge: This assignment will also help you to become familiar with the following content knowledge in accounting.

• Rule-making role of the FASB
• The structure of the FASB Codification database

Directions

1. Access FASB Accounting Standards Codification materials. The access information changes annually.
   Here is updated access information for this academic year:

2020 – 2021 FASB Student Login

*****PLEASE SEE ATTACHED FOR LOGIN INFO****

Access FASB – GARS here (Links to an external site.)

1. View the accompanying recorded lecture FASB Codification Research (Links to an external site.) which provides training on the database and the process of writing a formal research memorandum.
2. Using the FASB Codification Database, research the Spare the Rod case below. To document your process and findings, prepare a short memo to Jessie that (1) summarizes the case facts, (2) identifies the accounting issues pertinent to the case, and (3) summarizes your FASB Codification research findings. Follow the same research process(es) and memo writing techniques as demonstrated in the lecture.Spare the Rod case (adapted from Trueblood Cases – Deloitte Development, LLC)Stellar Bright Solar (SBS or the “Company”) is a business that contracts to develop, construct, and operate solar power plants.SBS entered into a contract to support the Big Desert solar power plant. According to the contract terms, SBS is responsible for the day-to-day operations of Big Desert as well as for general maintenance and repairs. Big Desert expects SBS to provide routine maintenance for continued operation of the plant and respond to equipment breakdowns and failures by providing immediate repairs. In addition, the terms of the contract require SBS to procure necessary materials to operate, maintain, and repair the plant. To comply with this requirement, the Company must maintain a certain level of materials and supplies (the “spare parts”) at all times.On a regular basis, SBS reviews a listing provided by Big Desert of recommended spare parts for various components of the solar power plant and procures the necessary parts. Vendors deliver the parts to SBS along with a complete listing that describes the quantity and cost of the parts provided. SBS maintains this listing and uses it to (1) track expected usage of the spare parts and (2) determine their expected useful lives.The spare parts consist of customized and generic parts that vary in cost, procurement time, expected usage (i.e., emergency replacement, standard replacement), and expected useful life. Big Desert uses the composite depreciation method for substantially all of the plant, and it expenses all major plant maintenance.SBS’s controller, Jessie Palmer, is determining how to report these items on the financial statements. Jessie has reasoned through two possible options. The spare parts expected to be used within one year could be reported as inventory or perhaps it should be reported as a prepaid/other current asset. She isn’t quite sure. As assistant controller, Jessie has asked you to research the FASB Codification database to provide clarity how this should be reported.Criteria for Success:The following grading rubric will be used by the instructor to assign points. Here are two sample research cases containing effectively written memos: FASB Demo Memos
3. Access additional research tips (if they are helpful) here: FASB Codification Search Tips
4. Submit completed research memo.