Monday, August 9, 2010

BYP 14-7 BYP14-7 BYP 14-7 BYP14-7 Tappit Corp. is a medium-sized wholesaler of automotive parts

ACC 280 / XACC 280

Axia College of University of Phoenix (UoP)

Principles of Accounting

Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2008). Financial Accounting (6th ed.). Hoboken, NJ: Wiley.

ACC 280 / XACC 280 Solution
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Ethics Case

BYP 14-7 Tappit Corp. is a medium-sized wholesaler of automotive parts. It has 10 stockholders who have been paid a total of $1 million in cash dividends for 8 consecutive years. The board’s policy requires that, for this dividend to be declared, net cash provided by operating activities as reported in Tappit’s current year’s statement of cash flows must exceed $1 million. President and CEO Willie Morton’s job is secure so long as he produces annual operating cash flows to support the usual dividend. At the end of the current year, controller Robert Jennings presents president Willie Morton with some disappointing news: The net cash provided by operating activities is calculated by the indirect method to be only $970,000. The president says to Robert, “We must get that amount above $1 million. Isn’t there some way to increase operating cash flow by another $30,000?” Robert answers, “These figures were prepared by my assistant. I’ll go back to my office and see what I can do.” The president replies, “I know you won’t let me down, Robert.”

Upon close scrutiny of the statement of cash flows, Robert concludes that he can get the operating cash flows above $1 million by reclassifying a $60,000, 2-year note payable listed in the financing activities section as “Proceeds from bank loan—$60,000.” He will report the note instead as “Increase in payables—$60,000” and treat it as an adjustment of net income in the operating activities section. He returns to the president, saying, “You can tell the board to declare their usual dividend. Our net cash flow provided by operating activities is $1,030,000.”

“Good man, Robert! I knew I could count on you,” exults the president.

Instructions
(a) Who are the stakeholders in this situation?
(b) Was there anything unethical about the president’s actions? Was there anything unethical about the controller’s actions?
(c) Are the board members or anyone else likely to discover the misclassification?

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BYP1-7 BYP 1-7 BYP1-7 BYP 1-7 Wayne Terrago Wayne Terrago, controller for Robbin Industries, was reviewing production cost reports for the year

ACC 280 / XACC 280

Axia College of University of Phoenix (UoP)

Principles of Accounting

Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2008). Financial Accounting (6th ed.). Hoboken, NJ: Wiley.

ACC 280 / XACC 280 Solution
Help in ACC 280
Help in XACC 280


Ethics Case

BYP 1-7 Wayne Terrago, controller for Robbin Industries, was reviewing production cost reports for the year. One amount in these reports continued to bother him-advertising. During the year, the company had instituted an expensive advertising campaign to sell some of its slower-moving products. It was still too early to tell whether the advertising campaign was successful. There had been much internal debate as how to report advertising cost. The vice president of finance argued that advertising costs should be reported as a cost of production, just like direct materials and direct labor. He therefore recommended that this cost be identified as manufacturing overhead and reported as part of inventory costs until sold. Others disagreed. Terrago believed that this cost should be reported as an expense of the current period, based on the conservatism principle. Others argued that it should be reported as Prepaid Advertising and reported as a current asset.

The president finally had to decide the issue. He argued that these costs should be reported as inventory. His arguments were practical ones. He noted that the company was experiencing financial difficulty and expensing this amount in the current period might jeopardize a planned bond offering. Also, by reporting the advertising costs as inventory rather than as prepaid advertising, less attention would be directed to it by the financial community.

Instructions
(a) Who are the stakeholders in this situation?
(b) What are the ethical issues involved in this situation?
(c) What would you do if you were Wayne Terrago?

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BYP8-6 BYP 8-6 BYP8-6 BYP 8-6 Riverside Bottling Company BYP8-6 BYP 8-6 BYP8-6 BYP 8-6 Riverside Bottling Company BYP8-6 BYP 8-6 BYP8-6 BYP 8-6

ACC 280 / XACC 280

Axia College of University of Phoenix (UoP)

Principles of Accounting

Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2008). Financial Accounting (6th ed.). Hoboken, NJ: Wiley.

ACC 280 / XACC 280 Solution
Help in ACC 280
Help in XACC 280


Ethics Case BYP 8-6
You are the assistant controller in charge of general ledger accounting at Riverside Bottling Company. Your company has a large loan from an insurance company. The loan agreement requires that the company’s cash account balance be maintained at $200,000 or more, as reported monthly. At June 30 the cash balance is $80,000, which you report to Gena Schmitt, the financial vice president. Gena excitedly instructs you to keep the cash receipts book open for one additional day for purposes of the June 30 report to the insurance company. Gena says, “If we don’t get that cash balance over $200,000, we’ll default on our loan agreement. They could close us down, put us all out of our jobs!” Gena continues, “I talked to Oconto Distributors (one of Riverside’s largest customers) this morning. They said they sent us a check for $150,000 yesterday. We should receive it tomorrow. If we include just that one check in our cash balance, we’ll be in the clear. It’s in the mail!”

Instructions
(a) Who will suffer negative effects if you do not comply with Gena Schmitt’s instructions? Who will suffer if you do comply?
(b) What are the ethical considerations in this case?
(c) What alternatives do you have?

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On December 1, 2010, Moreland Company had the following account balances

ACCT 100 : Introduction to Financial Accounting
San Francisco State University (SFSU)

Financial Accounting
Jerry J. Weygandt

Decision Making Across The Organization

Comprehensive Problem 7 (CP7) On December 1, 2010, Moreland Company had the following account balances.

AND SO ON

Instructions
(a) Journalize the December transactions. (Assume a perpetual inventory system.)
(b) Enter the December 1 balances in the ledger T accounts and post the December transactions. Use Cost of Goods Sold, Depreciation Expense, Insurance Expense, Salaries Expense, Sales, Sales Discounts, Income Tax Payable, and Income Tax Expense.
(c) The statement from Lyon County Bank on December 31 showed a balance of $22,164. A comparison of the bank statement with the cash account revealed the following facts.
1. The bank collected a note receivable of $2,500 for Moreland Company on December 15.
2. The December 31 receipts of $2,736 were not included in the bank deposits for December. The company deposited these receipts in a night deposit vault on December 31.
3. Checks outstanding on December 31 totaled $1,210.
4. On December 31 the bank statement showed a NSF charge of $800 for a check received by the company from C. Park, a customer, on account. Prepare a bank reconciliation as of December 31 based on the available information.
(Hint: The cash balance per books is $21,990. This can be proven by finding the balance in the Cash account from parts (a) and (b).)
(d) Journalize the adjusting entries resulting from the bank reconciliation and adjustment data.
(e) Post the adjusting entries to the ledger T accounts.
(f) Prepare an adjusted trial balance.
(g) Prepare an income statement for December and a classified balance sheet at December 31.

Check: (f) Totals $89,425; (g) Net income $ 1,325; Total assets $72,550

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Friday, August 6, 2010

Fly Paper’s stock Fly Paper’s stock Fly Paper’s stock Fly Paper’s stock Fly Paper’s stock

Corporate Finance

Principles of Corporate Finance
Brealey, Myers, Allen

Chapter 4: The Value of Bonds and Common Stocks

Practice Question 6: In March 2004, Fly Paper’s stock sold for about $73. Security analysts were forecasting a long-term earnings growth rate of 8.5 percent. The company is expected to pay a dividend of $1.68 per share.
a. Assume dividends are expected to grow along with earnings at g _ 8.5 percent per year in perpetuity. What rate of return r were investors expecting?
b. Fly Paper was expected to earn about 12 percent on book equity and to pay out about 50 percent of earnings as dividends. What do these forecasts imply for g? For r? Use the perpetual-growth DCF formula.

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