Reference no: EM131770484

Gumbo and Izzy

Gumbo Corp begins operations on January 3, 2010. The Company is based in the USA. Gumbo prepares its financial statements in accordance with U.S. GAAP. Because of interest from possible investors in Europe, Gumbo deems it beneficial to show its financial statements using International Financial Reporting Standards in addition to its GAAP financials. This will require a reconciliation between the two standards at financial reporting dates.

You are the controller for Gumbo. Because your company is small, you decide that at this point you will "mirror" Gumbo company transactions using IFRS and will create a "phantom" company named Izzy

Required:

Using an excel spreadsheet, organize the books and records for each Gumbo and Izzy and record the various transactions under each standard.

For each year (or reporting period), maintain at a minimum a current balance sheet, income statement, general journal. For each general journal transaction indicate if the entry affects either the balance sheet (BS) for Income Statement (IS). Use additional sheets for support calculations for your journal entries. I suggest you also keep track of the cash balance and fixed assets balances.

1/3/10 Sells 100,000 shares of common stock ($1 par) for $50,000,000

1/3/10 Borrows $25,000,000 from the bank (10% note, simple interest, due in 10 year, interest paid annual January 3)

1/3/10 Purchases specialized equipment (Equip #2) for $600,000 (no residual value, estimated useful life of 6 years)

Year End Information

12/31/10 --- During the year $5,000,000 was spent on research of the new idea. Gumbo still owes $1,000,000 to vendors at year end.

12/31/10 during the year Gumbo billed consulting fees (revenue) to a client totaling $3,000,000. $500,000 has not been collected at year end.

12/31/10 Operating expenses of $500,000 were incurred and paid during the year.

Based on the above information, prepare the yearend financial statements.

You have indications that the specialized equipment might be impaired. Create and maintain a "reference table" that will assist and guide you through the accounting treatment for certain transactions.

Note: For the transactions listed above, Assume GAAP and IFRS accounting is identical.

In continuing the closing process for 2010 an impairment test is performed on the specialized equipment. The following is noted regarding the equipment

Selling Price $400,000

Cost of Disposal $10,000

Expected future cash flows (undiscounted) $550,000

Present value of future cash flows $450,000

You also note that 70% of the operating expenses for the year meet the criteria to be treated as development expenses. Any capitalized development expenses will be amortized beginning January 2011.

2. What is 2010 Gumbo Corp net income and shareholders' equity under both US GAAP and IFRS?