You are the independent accountant assigned to the audit of Neophyte Company. The company’s accountant, a graduate

of Rival State University, has prepared financial statements that contained the following questionable items:

(a) The balance sheet reports land at $100,000. Included in this amount is a piece of property held for speculation at a cost of $30,000.

(b) Current liabilities include $50,000 for long-term debt that comes due in 3 months. The company has received a suitable firm commitment to refinance the debt for 5 years and intends to do so.

(c) Investments in marketable securities include $20,000 in short-term, high-grade commercial paper which is a cash equivalent.

(d) Please discuss how the above items should be classified and accounted for.

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12. (TCOs 2 & 11) Judy, a calendar year cash basis taxpayer, owns and operates several TV rental outlets in

North Carolina and wants to expand into the TV rental business in South Carolina and Georgia. During 2009, she spends $30,000 to investigate TV rental businesses in South Carolina and $15,000 to investigate TV rental businesses in Georgia. She acquires the South Carolina operations, but not the outlets in Georgia. As to these expenses, Judy should: (Points : 5)

amortize $30,000 over 60 months and capitalize $15,000.

expense $45,000 for 2009.

expense $15,000 for 2009 and capitalize $30,000.

capitalize $45,000.

None of the above

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