Ashford University ACC 205 All Weeks DQ, Week 1, 2 and 5 Problems and Final Paper

Ashford University ACC 205 All Weeks DQ, Week 1, 2 and 5 Problems and Final PaperWk 1 DQDQ 1 Accounting and the Business EnvironmentAccounting and the Business Environment. From Chapter 1, Ethical Issue 1-1, page 59. Complete all parts of the case and respond to at least two of your classmates’ postings.Ethical Issue 1-1 The board of directors of Xiaping Trading Company is meeting to discuss the past year’s results before releasing financial statements to the bank. The discussion includes this exchange:Wai Lee, company owner: “This has not been a good year! Revenue is down and expenses are way up. If we are not careful, we will report a loss for the third year in a row. I can temporarily transfer some land that I own into the company’s name, and that will beef up our balance sheet. Brent, can you shave $500,000 from expenses? Then we can probably get the bank loan that we need.”Brent Ray, company chief accountant: “Wai Lee, you are asking too much. Generally accepted accounting principles are designed to keep this sort of thing from happening.”Requirements1. What is the fundamental ethical issue in this situation?2. How do the two suggestions of the company owner differ?DQ 2 Recording Business TransactionsRecording Business Transactions. Define the terms “debit” and “credit”. Explain how debits and credits affect the following: assets, liabilities, owner’s capital account, revenues and expenses. Respond to at least two of your classmates’ postingsWeek 2The Adjusting ProcessFrom Chapter 3, Ethical Issue 3-1.Complete all parts of the case and respond to at least two of your classmates’ postings.Ethical Issue 3-1The net income of Steinbach & Sons, a department store, decreased sharply during 2014. Mort Steinbach, manager of the store, anticipates the need for a bank loan in 2015. Late in 2014, Steinbach instructs the store’s accountant to record a $2,000 sale of furniture to the Steinbach family, even though the goods will not be shipped from the manufacturer until January 2015. Steinbach also tells the accountant not to make the following December 31, 2014, adjusting entries:Salaries owed to employees $900Prepaid insurance that has expired 400Requirements1.Compute the overall effects of these transactions on the store’s reported income for 2014.2.Why is Steinbach taking this action? Is his action ethical? Give your reason, identifying the parties helped and the parties harmed by Steinbach’s action. (Challenge)3. As a personal friend, what advice would you give the accountant? (Challenge)Completing the Accounting CycleExplain the purpose of adjusting entries.How is net income affected if adjusting entries are not made?Describe the four closing entries and explain their purpose.Week 3DQ 1 Merchandising OperationsFrom Chapter 5, Ethical Issue 5-1. Complete all parts of the case and respond to at least two of your classmates’ postings.Dobbs Wholesale Antiques makes all sales under terms of FOB shipping point. The company usually ships inventory to customers approximately one week after receiving the order. For orders received late in December, Kathy Dobbs, the owner, decides when to ship the goods. If profits are already at an acceptable level, Dobbs delays shipment until January. If profits for the current year are lagging behind expectations, Dobbs ships the goods during December.Requirements1.Under Dobbs’ FOB policy, when should the company record a sale?2.Do you approve or disapprove of Dobbs’ manner of deciding when to ship goods to customers and record the sales revenue? If you approve, give your reason. If you disapprove, identify a better way to decide when to ship goods.DQ 2 Merchandise InventoryMerchandise Inventory.Describe the inventory valuation methods FIFO and LIFO.Which items are included in ending inventory under each method?Wk 4 DQDQ 1 Internal Control and CashFrom Chapter 7, Fraud Case 7-1. Complete all parts of the case and respond to at least two of your classmates’ postings.Levon Helm was a kind of one-man mortgage broker. He would drive around Tennessee looking for homes that had second mortgages, and if the criteria were favorable, he would offer to buy the second mortgage for “cash on the barrelhead.” Helm bought low and sold high, making sizable profits. Being a small operation, he employed one person, Cindy Patterson, who did all his bookkeeping. Patterson was an old family friend, and he trusted her so implicitly that he never checked up on the ledgers or the bank reconciliations. At some point, Patterson started “borrowing” from the business and concealing her transactions by booking phony expenses. She intended to pay it back someday, but she got used to the extra cash and couldn’t stop. By the time the scam was discovered, she had drained the company of funds that it owed to many of its investors. The company went bankrupt, Patterson did some jail time, and Helm lost everything.Requirements1.What was the key control weakness in this case?2.Many small businesses cannot afford to hire enough people for adequate separation of duties. What can they do to compensate for this?DQ 2 ReceivablesDiscuss the allowance method and the direct write-off method of accounting for bad debts. When is the expense for uncollected accounts receivable recognized under eachWK 5 DQ & ProblemsDQ 1 Plant Assets and IntangiblesFrom Chapter 9, Fraud Case 9-1. Complete all parts of the case and respond to at least two of your classmates’ postings.Jim Reed manages a fleet of utility trucks for a rural county government. He’s been in his job 30 years, and he knows where the angles are. He makes sure that when new trucks are purchased, the salvage value is set as low as possible. Then, when they become fully depreciated, they are sold off by the county at salvage value. Jim makes sure his buddies in the construction business are first in line for the bargain sales, and they make sure he gets a little something back. Recently, a new county commissioner was elected with vows to cut expenses for the taxpayers. Unlike other commissioners, this man has a business degree, and he is coming to visit Jim tomorrow.Requirements1.When a business sells a fully depreciated asset for its salvage value, is a gain or loss recognized?2.How do businesses determine what salvage values to use for their various assets?3. How would an organization prevent the kind of fraud depicted here?DQ 2 Current Liabilities and PayrollThere are two types of current liabilities that must be estimated. Describe them and explain why they must be estimated. How are the financial statements affected if they are not estimated?Week One Exercise AssignmentBasic Accounting Equations1. Recognition of normal balancesThe following items appeared in the accounting records of Triguero’s, a retail music store that also sponsors concerts. Classify each of the items as an asset, liability; revenue; or expense from the company’s viewpoint. Also indicate the normal account balance of each item.a. Amounts paid to a mall for rent.b. Amounts to be paid in 10 days to suppliers.c. A new fax machine purchased for office used. Land held as an investment..e. Amounts due from customers.f. Daily sales of merchandise sold.g. Promotional costs to publicize a concert.h. A long-term loan owed to Citizens Bank.i. The albums, tapes, and CDs held for sale to customers.2.Basic journal entriesThe following transactions pertain to the Jennifer Royall Company:May 1Jenni­fer Royall invested cash of $25,000 and land valued at $15,000 into the business.5Provided $1,000 of services to Jason Ratchford, a client, on account.9Paid $1,250 of salaries to an employee.14Acquired a new computer for $4,200, on account.20Collected $800 from Jason Ratchford for services provided on May 5.24Borrowed $2,500 from BestBanc by securing a six-month loan.Prepare journal entries (and explanations) to record the preceding transactions and events.3. Balance sheet preparation.The following data relate to Preston Company as of December 31, 20XX:Building $40,000 Accounts receivable $24,000Cash 21,000 Loan payable 30,000J. Preston, Capital 65,000 Land 21,000Accounts payable ?Prepare a balance sheet as of December 31, 20XX. (See Exhibit 1.1 and 1.4)4. Basic transaction processing. On November 1 of the current year, Richard Simmons established a sole proprietorship. The following transactions occurred during the month:1: Simmons invested $32,000 into the business for $32,000 in common stock.2: Paid $5,000 to acquire a used minivan.3: Purchased $1,800 of office furniture on account.4: Performed $2,100 of consulting services on account.5: Paid $300 of repair expenses.6: Received $800 from clients who were previously billed in item 4.7: Paid $500 on account to the supplier of office furniture in item 3.8: Received a $150 electric bill, to be paid next month.9: Simmons withdrew $800 from the business.10: Received $250 in cash from clients for consulting services rendered.Instructionsa. Arrange the following asset, liability, and owner’s equity elements of the account­ing equation: Cash, Accounts Receivable, Office Furniture, Van, Accounts Payable, Common Stock/Dividends, and Revenues/Expenses. (See Exhibit 1.5)c. Answer the following questions for Simmons.(1) How much does the company owe to its creditors at month-end? On which financial statement(s) would this information be found? (2) Did the company have a “good” month from an accounting viewpoint? Briefly explain5. Transaction analysis and statement preparation. The transactions that followrelate to Burton Enterprises for March 20X1, the company’s first month of activity.3/1Joanne Burton, the owner, invested $20,000 cash into the business.3/4Performed $2,400 of services on account.3/7Acquired a small parcel of land by paying $6,000 cash3/12Received $500 from a client who was billed previously on March 4.3/15Paid $200 to the Journal Herald for advertising expense.3/18Acquired 9,000 of equipment from Park Central Outfitters by Paying$7,000 down and agreeing to remit the balance owed within two weeks (A/P).3/22Received $300 cash from clients for services.3/24Paid $1,500 on account to Park Central Outfitters in partial settlement ofthe balance due from the transaction on March 18.3/28Rented a car from United Car Rental for use on March 28. Total chargesamounted to $125, with United billing Burton for the amount due.3/31Paid $600 for March wages3/31Processed a $600 cash withdrawal (dividend) from the business for Joanne BurtonInstructionsa. Determine the impact of each of the preceding transactions on Burton’s assets,liabilities, and owner’s equity. See exhibit 1.5. Use the following format:b. Prepare an income statement, a statement of retained earnings, and a balance sheet, (See Exhibit 1.2, 1.3 and 1.4)6.Entry and trial balance preparation. Lee Adkins is a portrait artist. The following schedule represents Lee’s combined chart of accounts and trial balance as of May 31.Account number Account name Debit Credit110Cash$ 2,700120Accounts Receivable12,100130Equipment and Supplies2,800140Studio45,000210Accounts Payable$2,600310Lee Adkins, Capital57,400320Lee Adkins, Drawing30,000410Professional Fee Revenue39,000510Advertising Expense2,300520Salaries Expense2,100540Utilities Expense2,000$99,000$99,000The general ledger also revealed account no. 530, Legal and Accounting Expense. The following transactions occurred during June:6/2Collected $3,000 on account from customers6/7Sold 25% of the equipment and supplies to a young artist for $700 cash6/10Received a $300 invoice from the accountant for preparing last quarter’s financial Statements.6/15Paid $1,900 to creditors on account.6/27Adkins withdrew $2,000 cash for personal use.6/30Billed a customer $3,000 for a portrait painted this month.a.Record the necessary journal entries for June on page 2 of the company’s general journal. (See Exhibit 2.6)b. Open running balance ledger “T” accounts by entering account titles, account num­bers, and May 31 balances. (See exhibit 2.3 and 2.4)c. Post the journal entries to the “T” accounts.b. Prepare a trial balance as of June 30. (See exhibit 2.9)7. Journal entry preparation.On January 1 of the current year, Peter Houston invested $80,000 cash into his company MuniServ. The cash was obtained from an owner investment by Peter Houston of $50,000 and a $30,000 bank loan. Shortly thereafter, the company ac­quired selected assets of a bankrupt competitor. The acquisition included land ($10,000), a building ($40,000), and vehicles ($10,000). MuniServ paid $45,000 at the time of the transaction and agreed to remit the remaining balance due of $15,000 (an account payable) by February 15.During January, the company had additional cash outlays for the follow­ing items:Purchases of store equipment$4,600Note payment500Salaries expense2,300Advertising expense700The January utility bill of $200 was received on January 31 and will be paid next month. MuniServ rendered services to clients on account amounting to $9,400. All customers have been billed; by month end, $3,700 had been received in settlement of account balances.Instructionsa.Present journal entries that reflect MuniServ’s January transactions, including the $80,000 raised from the owner investment and loan. (See exhibit 2.6).8181819915771px;”=””>Week 2 AssignmentACC 205Date:1. Recognition of concepts. Jim Armstrong operates a small company that books enter­tainers for theaters, parties, conventions, and so forth. The company’s fiscal year ends on June 30. Consider the following items and classify each as either (1) pre­paid expense, (2) unearned revenue, (3) accrued expense, (4) accrued revenue, or (5) none of the foregoing.a Interest owed on the company’s bank loan, to be paid in early July b Professional fees earned but not billed as of June 30c Office supplies on hand at year-endd An advance payment from a client for a performance next month at a conventione The payment in part (d) from the client’s point of viewf Amounts paid on June 30 for a 1-year insurance policyg The bank loan payable in part (a)h Repairs to the firm’s copy machine, incurred and paid in June2. Understanding the closing process. Examine the following list of accounts:Note PayableAccumulated Depreciation: BuildingAlex Kenzy, DrawingAccounts PayableProduct RevenueCashAccounts ReceivableSupplies ExpenseUtility ExpenseWhich of the preceding accountsa. appear on a post-closing trial balance?b. are commonly known as temporary, or nominal, accounts?c. generate a debit to Income Summary in the closing process?d. are closed to the capital account in the closing process?3. Adjusting entries and financial statements. The following information pertains to Sally Corporation:· The company previously collected $1,500 as an advance payment for services to be rendered in the future. By the end of December, one half of this amount had been earned.· Sally Corporation provided $1,500 of services to Artech Corporation; no billing had been made by December 31.· Salaries owed to employees at year-end amounted to $1,000.· The Supplies account revealed a balance of $8,800, yet only $3,300 of supplies were actually on hand at the end of the period.· The company paid $18,000 on October 1 of the current year to Vantage Property Management. The payment was for 6 months’ rent of Sally Corporation’s headquarters, beginning on November 1.Sally Corporation’s accounting year ends on December 31.InstructionsAnalyze the five preceding cases individually and determine the following:a. The typeof adjusting entry needed at year-end (Use the following codes: A, adjust­ment of a prepaid expense; B, adjustment of an unearned revenue; C, adjustment to record an accrued expense; or D, adjustment to record an accrued revenue.)b. The year-end journal entry to adjust the accountsc. The income statement impact of each adjustment (e.g., increases total revenues by $500)• The company previously collected $1,500 as an advance payment for services to be rendered in the future. By the end of December, one half of this amount had been earned.1.) B, adjustment of an unearned revenue2.) Sally Corporation provided $1,500 of services to Artech Corporation; no billing had been made by December 31.3.) Salaries owed to employees at year-end amounted to $1,000.4.) The Supplies account revealed a balance of $8,800, yet only $3,300 of supplies were actually on hand at the end of the period.5.) The company paid $18,000 on October 1 of the current year to Vantage Property Management. The payment was for 6 months’ rent of Sally Corporation’s headquarters, beginning on November 1.4. Adjusting entries. You have been retained to examine the records of Mary’s Day Care Center as of December 31, 20X3, the close of the current reporting period. In the course of your examination, you discover the following:On January 1, 20X3, the Supplies account had a balance of $1,350. During the year, $5,520 worth of supplies was purchased, and a balance of $1,620 remained unused on December 31.· Unrecorded interest owed to the center totaled $275 as of December 31.· All clients pay tuition in advance, and their payments are credited to the Unearned Tuition Revenue account. The account was credited for $65,500 on August 31. With the exception of $15,500 all amounts were for the current semester ending on December 31.· Depreciation on the school’s van was $3,000 for the year.· On August 1, the center began to pay rent in 6-month installments of $24,000. Mary wrote a check to the owner of the building and recorded the check in Pre­paid Rent, a new account.· Two salaried employees earn $400 each for a 5-day week. The employees are paid every Friday, and December 31 falls on a Thursday.· Mary’s Day Care paid insurance premiums as follows, each time debiting Pre­paid Insurance:Date PaidPolicy No.Length of PolicyAmountFeb. 1, 20X21033MCM191 year$540Jan. 1, 20X37952789HP1 year912Aug. 1, 20X3XQ943675ST2 years840InstructionsThe center’s accounts were last adjusted on December 31, 20X2. Prepare the adjusting entries necessary under the accrual basis of accounting.A. On January 1, 20X3, the Supplies account had a balance of $1,350. During the year, $5,520 worth of supplies was purchased, and a balance of $1,620 remained unused on December 31.B. Unrecorded interest owed to the center totaled $275 as of December 31C. All clients pay tuition in advance, and their payments are credited to the Unearned Tuition Revenue account. The account was credited for $65,500 on August 31. With the exception of $15,500 all amounts were for the current semester ending on December 31.D. Depreciation on the school’s van was $3,000 for the year.E. On August 1, the center began to pay rent in 6-month installments of $24,000. Mary wrote a check to the owner of the building and recorded the check in Prepaid Rent, a new account.F. Two salaried employees earn $400 each for a 5-day week. The employees are paid every Friday, and December 31 falls on a Thursday.G. Mary’s Day Care paid insurance premiums as follows, each time debiting Prepaid Insurance:5. Bank reconciliation and entries. The following information was taken from the accounting records of Palmetto Company for the month of January:Balance per bank$6,150Balance per company records3,580Bank service charge for January20Deposits in transit940Interest on note collected by bank100Note collected by bank1,000NSF check returned by the bank with the bank statement650Outstanding checks3,080Instructions:a. Prepare Palmetto’s January bank reconciliation.b. Prepare any necessary journal entries for Palmetto.6. Direct write-off method. Harrisburg Company, which began business in early 20X7, reported $40,000 of accounts receivable on the December 31, 20X7, balance sheet. Included in this amount was $550 for a sale made to Tom Mattingly in July. On January 4, 20X8, the company learned that Mattingly had filed for personal bankruptcy. Harrisburg uses the direct write-off method to account for uncollectibles.a. Prepare the journal entry needed to write off Mattingly’s account.b. Comment on the ability of the direct write-off method to value receivables on the year-end balance sheet.7. Allowance method: analysis of receivables. At a January 20X2 meeting, the presi­dent of Sonic Sound directed the sales staff “to move some product this year.” The president noted that the credit evaluation department was being disbanded be­cause it had restricted the company’s growth. Credit decisions would now be made by the sales staff.By the end of the year, Sonic had generated significant gains in sales, and the president was very pleased. The following data were provided by the accounting department:20X220X1Sales$23,987,000$8,423,000Accounts Receivable, 12/3112,444,0001,056,000Allowance for Uncollectible Accounts, 12/31?23,000 cr.The $12,444,000 receivables balance was aged as follows:Age of ReceivableAmountPercentage of Accounts Expected to Be CollectedUnder 31 days$4,321,00099%31260 days4,890,0009061290 days1,067,00080Over 90 days2,166,00060Assume that no accounts were written off during 20X2.Instructionsa. Estimate the amount of Uncollectible Accounts as of December 31, 20X2.b. What is the company’s Uncollectible Accounts expense for 20X2?c. Compute the net realizable value of Accounts Receivable at the end of 20X1 and 20X2.d. Compute the net realizable value at the end of 20X1 and 20X2 as a percentage of respective year-end receivables balances. Analyze your findings and comment on the president’s decision to close the credit evaluation department.Week Five Exercise AssignmentFinancial Ratios1.Liquidity ratios.Edison, Stagg, and Thornton have the following financial information at the close of business on July 10:EdisonStaggThorntonCash$6,000$5,000$4,000Short-term investments3,0002,5002,000Accounts receivable2,0002,5003,000Inventory1,0002,5004,000Prepaid expenses800800800Accounts payable200200200Notes payable: short-term3,1003,1003,100Accrued payables300300300Long-term liabilities3,8003,8003,800Compute the current and quick ratios for each of the three companies. (Round calculations to two decimal places.) Which firm is the most liquid? Why?2.Computation and evaluation of activity ratios.The following data relate to Alaska Products, Inc:20X520X4Net credit sales$832,000$760,000Cost of goods sold530,000400,000Cash, Dec. 31125,000110,000Average Accounts receivable205,000156,000Average Inventory70,00050,000Accounts payable, Dec. 31115,000108,000Instructionsa. Compute the accounts receivable and inventory turnover ratios for 20X5. Alaska rounds all calculations to two decimal places.3. Profitability ratios, trading on the equity.Digital Relay has both preferred and common stock outstanding. The com­pany reported the following information for 20X7:Net sales$1,750,000Interest expense120,000Income tax expense80,000Preferred dividends25,000Net income130,000Average assets1,200,000Average common stockholders’ equity500,000Compute the profit margin on sales ratio, the return on equity and the return on assets, rounding calculations to two decimal places.Does the firm have positive or negative financial leverage? Briefly ex­plain.4. Horizontal analysis. Mary Lynn Corporation has been operating for several years. Selected data from the 20X1 and 20X2 financial statements follow.20X220X1Current Assets$86,000$80,000Property, Plant, and Equipment (net)99,00090,000Intangibles25,00050,000Current Liabilities40,80048,000Long-Term Liabilities153,000160,000Stockholders’ Equity16,20012,000Net Sales500,000500,000Cost of Goods Sold322,500350,000Operating Expenses93,50085,000a. Prepare a horizontal analysis for 20X1 and 20X2. Briefly comment on the results of your work.5.Vertical analysis. Mary Lynn Corporation has been operating for several years. Selected data from the 20X1 and 20X2 financial statements follow.20X220X1Current Assets$86,000$80,000Property, Plant, and Equipment (net)99,00080,000Intangibles25,00050,000Current Liabilities40,80048,000Long-Term Liabilities153,000150,000Stockholders’ Equity16,20012,000Net Sales500,000500,000Cost of Goods Sold322,500350,000Operating Expenses93,50085,000a. Prepare a vertical analysis for 20X1 and 20X2. Briefly comment on the results of your work.6. Ratio computation.The financial statements of the Lone Pine Company follow.LONE PINE COMPANYComparative Balance SheetsDecember 31, 20X2 and 20X1 ($000 Omitted)20X220X1AssetsCurrent AssetsCash and Short-Term Investments$400$600Accounts Receivable (net)3,0002,400Inventories3,0002,300Total Current Assets$6,400$5,300Property, Plant, and EquipmentLand$1,700$500Buildings and Equipment (net)1,5001,000Total Property, Plant, and Equipment$3,200$1,500Total Assets$9,600$6,800Liabilities and Stockholders’ EquityCurrent LiabilitiesAccounts Payable$2,800$1,700Notes Payable1,1001,900Total Current Liabilities$3,900$3,600Long-Term LiabilitiesBonds Payable4,1002,100Total Liabilities$8,000$5,700Stockholders’ EquityCommon Stock$200$200Retained Earnings1,400900Total Stockholders’ Equity$1,600$1,100Total Liabilities and Stockholders’ Equity$9,600$6,800LONE PINE COMPANYStatement of Income and Retained EarningsFor the Year Ending December 31,20X2 ($000 Omitted)Net Sales*$36,000Less: Cost of Goods Sold$20,000Selling Expense6,000Administrative Expense4,000Interest Expense400Income Tax Expense2,00032,400Net Income$3,600Retained Earnings, Jan. 1900Ending Retained Earnings$4,500Cash Dividends Declared and Paid3,100Retained Earnings, Dec. 31$1,400*All sales are on account.InstructionsCompute the following items for Lone Pine Company for 20X2, rounding all calcu­lations to two decimal places when necessary:a. Quick ratiob. Current ratioc. Inventory-turnover ratiod. Accounts-receivable-turnover ratioe. Return-on-assets ratiof. Net-profit-margin ratiog. Return-on-common-stockholders’ equityh. Debt-to-total assetsi. Number of times that interest is earnedFinal Exam – The Modernization of Accounting Systems and the Difference it has made