ACC 305 Week 2 Quiz
Assignments: E4-16,
E4-19, E4-22, E5-3, E5-10, Integrating Case 5-23, Judgment Case 4-9. Judgment Case 4-3, Judgment Case 5-2
E4-16 The following summary transactions occurred during 2011 for Bluebonnet Bakers:
E4-16 Statement
of cash flows preparation
E4-16 Bluebonnet Bakers
The following summary transactions
occurred during 2011 for Bluebonnet Bakers:
Cash received from: Customers
$380,000 interest on note receivable 6,000 Principal on note receivable 50,000
sale of investments 30,000 Proceeds from note payable 5,000 Purchase of
equipment 85,000 salaries to employees 90,000 Principal on note payable 25,000
payment of dividends to shareholders
The
balance of cash and cash equivalents at the beginning of 2011 was $17,000.
Required:
Prepare
a statement of cash flows for 2011 for Bluebonnet Bakers. Use the direct method
for reporting operating activities.
E4-19 The following transactions occurred during March 2011 for the Wainwright Corporation. The company
E 4-19 Statement of cash
flows directly from transactions
E 4-19 Wainwright
Corporation
The following transactions occurred during March 2011 for the
Wainwright Corporation. The company owns and operates a wholesale warehouse.
[These are the same transactions analyzed in Exercise 2-1, when we determined their effect on
elements of the accounting equation.]
1. Issued 30,000 shares of capital stock in exchange for
$300,000 in cash.
2.
Purchased equipment at a cost of $40,000. $10,000
cash was paid and a note payable was signed for the balance owed.
3.
Purchased inventory on account at a cost of
$90,000. The company uses the perpetual inventory system.
4.
Credit sales for the month totaled $120,000. The
cost of the goods sold was $70,000.
5. Paid $5,000 in rent on the warehouse building for the month
of March.
6.
Paid $6,000 to an insurance company for fire and
liability insurance for a one-year period beginning April 1, 2011.
7. Paid $70,000 on account for the merchandise purchased in 3.
8. Collected $55,000 from customers on account.
9. Recorded depreciation expense of $1,000 for the month on the
equipment.
Required:
1. Analyze each transaction and classify
each as a financing, investing and/or operating activity (a transaction can
represent more than one type of activity). In doing so, also indicate the cash
effect of each, if any. If there is no cash effect, simply place a check mark
(√) in the appropriate column(s).
Example:
2. Prepare a statement of cash flows, using the direct method to
present cash flows from operating activities. Assume the cash balance at the
beginning of the month was $40,000.
E4-22 Presented below is the 2011 income statement and comparative balance sheet information for Tiger Enterprises.
E 4-22 Statement of cash flows;
indirect method
E 4-22 Tiger Enterprises.
Presented
below is the 2011 income statement and comparative balance sheet information
for Tiger Enterprises.
TIGER
ENTERPRISES Income Statement For the Year Ended December 31, 2011($ in
thousands) Sales revenue $7,000 Operating expenses: Cost of goods sold $3,360
Depreciation 240 insurance 100 Administrative and other 1,800 Total operating
expenses 5,500 Income before income taxes 1,500 income tax expense 600 Net
income $900
Balance
sheet information ($ in thousands) Dec. 31,2011 Dec. 31, 2010 Assets: Cash $300
$200 Accounts receivable 750 830 Inventory 640 600 Prepaid insurance 50 20
Plant and equipment 2,100 1,800 Less Accumulated depreciation (840) (600) Total
assets $3,000 $2,850 Liabilities and shareholder’s Equity: Accounts payable
$300 $360 Accounts payable 300 400 Income taxes payable 200 150 Notes payable
(due 12/31/2012 800 600 Common stock 900 800 retained earnings 500 540 Total
liabilities and share holders equity $3000 $2850
Required:
Prepare
Tiger's statement of cash flows, using the indirect method to present cash
flows from operating activities. (Hint: You will have to calculate dividend
payments.)
E5-3 Charter Corporation, which began business in 2011, appropriately uses the installment sales method of
E
5-3 Installment sales method; journal entries
[This
is a variation of Exercise 5-2 focusing on journal entries.]
Charter
Corporation, which began business in 2011, appropriately uses the installment
sales method of accounting for its installment sales. The following data were
obtained for sales during 2011 and 2012:
Required:
Prepare
summary journal entries for 2011 and 2012 to account for the installment sales
and cash collections. The company uses the perpetual inventory system.
E5-10 On June 15, 2011, Sanderson Construction entered into a long-term construction contract to build
E5-10 Long-term contract; percentage of completion, completed contract and cost
recovery methods
E5-10 Sanderson Construction
E5-10 On
June 15, 2011, Sanderson Construction entered into a long-term construction
contract to build a baseball stadium in Washington D.C. for $220 million. The
expected completion date is April 1 of 2013, just in time for the 2013 baseball
season. Costs incurred and estimated costs to complete at year-end for the life
of the contract are as follows ($ in millions):
2011
2012 2013 Costs incurred during the year $40 $80 $50 Estimated costs to
complete as of 12/31
1. Determine the amount of gross profit or loss to be recognized in each of the
three years using the percentage- of-completion method.
2. How much revenue will Sanderson report in its 2011 and 2012 income statements related to this contract using the percentage-of-completion method?
3. Determine the amount of gross profit or loss to be recognized in each of the three years using the completed contract method.
4. Determine the amount of revenue, cost, and gross profit or loss to be
recognized in each of the tree
years under IFRS, assuming that using the
percentage-of-completion method is not appropriate.
5. Suppose the estimated costs to complete at the end of 2012 are $80 million instead of $60 million. Determine the amount of gross profit or loss to be recognized in 2012 using the percentage-of-completion method.
Integrating Case 5-23. You are a new staff accountant with a large regional CPA firm, participating in your first audit.
● Net income $15,000
Required:
You are requested to approximate the current year’s balances in the form of a balance sheet and income statement, to the extent the information allows. Accompany those financial statements with the calculations you use to estimate each amount reported.
Judgment Case 4-9 on page 227
Discussion Questions
Required:
5. Suppose the estimated costs to complete at the end of 2012 are $80 million instead of $60 million. Determine the amount of gross profit or loss to be recognized in 2012 using the percentage-of-completion method.
Integrating Case 5-23. You are a new staff accountant with a large regional CPA firm, participating in your first audit.
You are a new staff accountant with a large regional CPA firm,
participating in your first audit. You recall from your auditing class that
CPAs often use ratios to test the reasonableness of accounting numbers provided
by the client. Since ratios reflect the relationships among various account
balances, if it is assumed that prior relation- ships still hold, prior years’
ratios can be used to estimate what current balances should approximate.
However, you never actually performed this kind of analysis until now. The CPA
in charge of the audit of Covington Pike Corporation brings you the list of
ratios shown below and tells you these reflect the relationships maintained by
Covington Pike in recent years.
Profit margin on sales = 5% Return on assets = 7.5% Gross profit margin = 40% Inventory turnover ratio = 6 times Receivables turnover ratio = 25 Acid-test ratio = .9 Current ratio = 2 to 1 Return on shareholders’ equity = 10% Debt to equity ratio = 1/3 Times interest earned ratio = 12 times Jotted in the margins are the following notes:
Profit margin on sales = 5% Return on assets = 7.5% Gross profit margin = 40% Inventory turnover ratio = 6 times Receivables turnover ratio = 25 Acid-test ratio = .9 Current ratio = 2 to 1 Return on shareholders’ equity = 10% Debt to equity ratio = 1/3 Times interest earned ratio = 12 times Jotted in the margins are the following notes:
● Net income $15,000
● Property, plant, and equipment are the only noncurrent assets
● Bonds payable are the only noncurrent liabilities
● The effective interest rate on short-term notes and bonds is 8%
● No investment securities
● Cash balance totals $15,000
Required:
You are requested to approximate the current year’s balances in the form of a balance sheet and income statement, to the extent the information allows. Accompany those financial statements with the calculations you use to estimate each amount reported.
Judgment Case 4-9 on page 227
Judgment Case 4-9 Income statement presentation
Each
of the following situations occurred during 2011 for one of your audit clients:
1.
The write-off of inventory due to obsolescence
2.
Discovery that depreciation expenses were omitted by accident from 2010's
income statement.
3.
The useful lives of all machinery were changed from eight to five years.
4.
The depreciation method used for all equipment was changed from the
declining-balance to the straight-line method.
5.
Ten million dollars face value of bonds payable were repurchased (paid off)
prior to maturity resulting in a material loss of $500,000. The company
considers the event unusual and infrequent.
6.
Restructuring costs were incurred.
7.
The Stridewell Company, a manufacturer of shoes, sold all of its retail
outlets. It will continue to manufacture and sell its shoes to other retailers.
A loss was incurred in the disposition of the retail stores. The retail stores
are considered components of the entity.
8.
The inventory costing method was changed from FIFO to average cost.
Required:
1. For each situation, identify the appropriate
reporting treatment from the list below (consider each event to be material):
a.
As an extraordinary item
b.
As an unusual or infrequent gain or loss.
c.
As a prior period adjustment
d.
As a change in accounting principle
e.
As a discontinued operation.
f.
As a change in accounting estimate.
g.
As a change in accounting estimate achieved by a change in accounting
principle.
2.
Indicate whether each situation would be included in the income statement in
continuing operations (CO) or below continuing operations (BC), or if it would
appear as an adjustment to retained earnings (RE). Use the format shown below
to answer requirements 1 and 2
(K)
Discussion Questions
Judgment Case 4-3 Companies often
are under pressure to meet or beat Wall Street earnings projections in order to
increase stock prices and also to increase the value of stock options. Some
resort to earnings management practices to artificially create desired results.
Required:
Is earnings management always intended to produce higher income?
Explain.
Judgment Case 5-2 Revenue earned by a
business enterprise is recognized for accounting purposes at different times,
Judgment Case 5-2Revenue recognition
Revenue earned by a business enterprise is recognized for
accounting purposes at different times, according to the circumstances. In some
situations revenue is recognized approximately as it is earned in the economic
sense. In other situations revenue is recognized at point of delivery.
Required:
1. Explain and justify why revenue often is recognized as earned
at point of delivery.
2. Explain in what situations it would be useful to recognize
revenue as the productive activity takes place
3. At what times, other than those included in (1) and (2)
above, may it be appropriate to recognize revenue?
SOLUTION PREVIEW
Exercise
4-16
Bluebonnet
Bakers
Statement
of Cash Flows
For
the Year Ended December 31, 2011
|
Cash flows from
operating activities:
|
$380,000
|
|
|
Collections from customers
|
6,000
|
|
|
Purchase of inventory
|
(160,000)
|
|
|
Interest on note payable
|
(5,000)
|
|
|
Payment of salaries
|
(90,000)
|
|
|
Net
cash flows from operating activities
|
|
$131,000
|
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