Comprehensive Problem 1 The Accounting Cycle

The General's Favorite Fishing Hole

College Accounting
Heintz and Parry.
The General’s Favorite Fishing Hole

Comprehensive Problem 1, Period 1 The Accounting Cycle SOLUTION

Comprehensive Problem 1, Period 2 The Accounting Cycle SOLUTION

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
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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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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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ACC 281 Final Exam / ACC281 Final Exam

ACC 281

Axia College of University of Phoenix (UoP)

Financial Accounting Transaction Analysis

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

ACC 281 FINAL EXAM

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Answer

PART I — MULTIPLE CHOICE (90 points)

Instructions
Designate the best answer for each of the following questions.

Questions 1 and 2 are based on the following information:
Bono Company recently incurred the following costs:
AND SO ON

1. The building should be recorded on Bono's books at
2. Land should be recorded on Bono's books at
3. Carson Supply bought equipment at a cost of $72,000 on January 2, 2005. It originally had an estimated life of ten years and a salvage value of $12,000. Carson uses the straight-line depreciation method. On December 31, 2008, Carson decided the useful life likely would end on December 31, 2012, with a salvage value of $6,000. The depreciation expense recorded on December 31, 2008, should be
4. In order to be relevant, accounting information must
5. Riodan Company sold old equipment for $35,000. The equipment had a cost of $70,000 and accumulated depreciation of $42,000. The entry to record the sale of the equipment would include a
6. The cost of intangible assets should be
7. In a period of rising prices, the inventory method that results in the lowest income tax payment is
8. On November 30, Thatcher Company issued a $6,000, 6%, 4-month note to the National Bank. The entry on Thatcher's books to record the payment of the note at maturity will include a credit to Cash for
9. The inventory methods that result in the most current costs in the income statement and balance sheet are
10. The following information is available for Lighten Company:
11. If ending inventory is understated, net income and assets will be
12. One of the two constraints in accounting is
13. The assumption that assumes a company will continue in operation long enough to carry out its existing objectives is the
14. All of the following are intangible assets except
15. A daily cash count of register receipts made by a cashier department supervisor demonstrates an application of which of the following internal control principles?
16. When the allowance method is used for bad debts, the entry to write off an individual account known to be uncollectible involves a
17. Shipping terms of FOB destination mean that the
18. Bates Company has a $300,000 balance in Accounts Receivable and a $2,000 debit balance in Allowance for Doubtful Accounts. Credit sales for the period totaled $1,800,000. What is the amount of the bad debt adjusting entry if Bates uses a percentage of receivables basis (at 10%)?
19. The constraint of conservatism is best expressed as
20. If merchandise is sold for $2,000 subject to credit terms of 2/10, n/30, the entry to record collection in full within the discount period would include a
21. Barker Company's records show the following for the month of January:
22. Jetson Company's financial information is presented below.
23. The necessity of making adjusting entries relates mostly to the
24. The preparation of closing entries
25. Allowance for Doubtful Accounts is reported in the
26. Current liabilities are obligations that are reasonably expected to be paid from
27. Which of the following errors will cause a trial balance to be out of balance? The entry to record a payment on account was
28. The primary accounting standard-setting body in the United States is the
29. Lawford Company's equipment account increased $600,000 during the period; the related accumulated depreciation increased $45,000. New equipment was purchased at a cost of $1,050,000 and used equipment was sold at a loss of $30,000. Depreciation expense was $150,000. Proceeds from the sale of the used equipment were
30. Which of the following would not be included in the operating activities section of a statement of cash flows?
31. Which of the following combinations presents correct examples of liquidity, profitability, and solvency ratios, respectively?
32. Nadine Manufacturing declared a 10% stock dividend when it had 200,000 shares of $5 par value common stock outstanding. The market price per common share was $12 per share when the dividend was declared. The entry to record this dividend declaration includes a credit to
33. Which of the following pairs of terms in the area of financial statement analysis are synonymous?
34. Which of the following statements is true?
35. Dividends received are credited to what account under the equity method and cost method, respectively?
36. In accounting for available-for-sale securities, the Unrealized Loss—Equity account should be classified as a
37. Carr Corporation has the following stock outstanding:
38. The statement of cash flows is a(n)
39. The directors of Chandler Corp. are trying to decide whether they should issue par or no par stock. They are considering two alternatives for their new stock, which they are assuming will be issued at $8 per share. The alternatives are: (A) $5 par value and (B) no par, no stated value. If 100,000 shares are issued, what amount will be credited to the common stock account in each of these cases?
40. Fison Corp. purchased 20,000 shares of its $2 par common stock at a cost of $13 per share on April 30, 2008. The stock was originally issued at $11 per share. The entry to record the purchase of the stock should include a debit to
41. What is the effect on total paid-in capital of a stock dividend and a stock split, respectively?
Stock Dividend Stock Split
42. Which of the following should be classified as an extraordinary item?
43. A Discount on Bonds Payable account
44. In order to be considered extraordinary, an item must be
45. If the market rate of interest is lower than the stated rate, bonds will sell at an amount

PART II — MATCHING (50 points)

Instructions
Designate the terminology that best represents the definition or statement given below by placing the identifying letter(s) in the space provided. No letter should be used more than once.

1. The periodic write-off of an intangible asset.
2. The total amount subject to depreciation.
3. The principle that efforts be matched with accomplishments.
4. An expenditure charged against revenues as an expense when incurred.
5. The inventory costing method that assumes that the costs of the earliest goods purchased are the first to be recognized as cost of goods sold.
6. Use of the same accounting principles and methods from period to period by the same business enterprise.
Consistency
7. A measure of solvency calculated as cash provided by operating activities divided by average total liabilities.
8. An inventory costing method that assumes that the latest units purchased are the first to be allocated to cost of goods sold.
9. An assumption that economic events can be identified with a particular unit of accountability.
10. A characteristic of information that means it is capable of making a difference in a decision.
11. An assumption that the economic life of a business can be divided into artificial time periods.
12. This method of accounting for uncollectible accounts is required when bad debts are significant in size.
13. An accounting method in which cash dividends received are credited to Dividend Revenue.
14. Used by a bank when a previously deposited customer’s check “bounces” because of insufficient funds.
15. The assumption that the enterprise will continue in operation long enough to carry out its existing objectives and commitments.
16. A system in which detailed records are not maintained and cost of goods sold is determined only at the end of an accounting period.
17. The difference between inventory reported using LIFO and inventory reported using FIFO.
18. The methods and measures adopted within a business to safeguard its assets and enhance the accuracy and reliability of its accounting records.
19. Revenue, expense, and dividends accounts whose balances are transferred to retained earnings at the end of an accounting period.
20. A technique for evaluating financial statements that expresses the relationship among selected financial statement data.
21. A depreciation method that applies a constant rate to the declining balance book value of the asset and produces a decreasing annual depreciation expense over the useful life of the asset.
22. A pro rata distribution of a corporation’s own stock to its stockholders.
23. Events and transactions that are unusual in nature and infrequent in occurrence.
24. The disposal of a significant segment of a business.
25. The net income earned by each share of outstanding common stock.


PART III — INVENTORY (5 points)

Elston Company had a beginning inventory of 200 units at a cost of $12 per unit on August 1. During the month, the following purchases and sales were made.

Purchases Sales
August 4 250 units at $13 August 7 150 units
August 15 350 units at $15 August 11 100 units
August 28 200 units at $14 August 17 250 units
August 24 200 units

Elston uses a periodic inventory system.

Instructions
Determine ending inventory and cost of goods sold under (a) average cost, (b) FIFO, and (c) LIFO.


PART IV — DEPRECIATION (5 points)

Thomas Company purchased equipment for $640,000 cash on January 1, 2007. The estimated life is 5 years or 1,000,000 units; salvage value is estimated at $40,000. Actual activity was 180,000 units in 2007, and 200,000 units in 2008.

Instructions: Compute the annual depreciation expense for 2007 and 2008, and book value at December 31, 2008, under the following depreciation methods: (a) units-of-activity, (b) straight-line, and (c) double-declining-balance.

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