ACC 205 Week 5

Fraud Case 9-1

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.

Requirements

1. 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? Are there hard and fast rules for salvage values?

3. How would an organization prevent the kind of fraud depicted here?

Accounting, 9e

P10-15A Journalizing liability transactions

LO 1, 2 [30-40 minutes]

Students please fill-in areas that are shaded

Student Name

Course Name

Student ID:

Date:

The following transactions of Denver Pharmacies occurred during 2011 and 2012:

2011

Jan 9 Purchased computer equipment at a cost of $9,000, signing a six-month,

6% note payable for that amount.

29 Recorded the weeks sales of $64,000, three-fourths on credit, and

one-fourth for cash. Sales amounts are subject to a 6% state sales tax.

Feb 5 Sent the last weeks sales tax to the state.

28 Borrowed $204,000 on a four-year, 10% note payable that calls for $51,000

annual installment payments plus interest. Record the current and

long-term portions of the note payable in two separate accounts.

Jul 9 Paid the six-month, 6% note, plus interest, at maturity.

Aug 31 Purchased inventory for $12,000, signing a six-month, 9% note payable.

Dec 31 Accrued warranty expense, which is estimated at 2% of sales of $603,000.

31 Accrued interest on all outstanding notes payable. Make a separate

interest accrual for each note payable.

2012

Feb 28 Paid the first installment and interest for one year on the four-year note

payable.

29 Paid off the 9% note plus interest at maturity.

Requirements

1. Journalize the transactions in Denvers general journal. Explanations are not

required.

P9-28A Capitalized asset cost and first year depreciation, and identifying depreciation results that meet management objectives [3040 min]

On January 3, 2012, Trusty Delivery Service purchased a truck at a cost of $90,000. Before placing the truck in service, Trusty spent $3,000 painting it, $1,500 replacing tires, and $4,500 overhauling the engine. The truck should remain in service for five years and have a residual value of $9,000. The truck's annual mileage is expected to be 22,500 miles in each of the first four years and 10,000 miles in the fifth year100,000 miles in total. In deciding which depreciation method to use, Mikail Johnson, the general manager, requests a depreciation schedule for each of the depreciation methods (straight-line, units-of-production, and double-declining-balance).

Requirements

1. Prepare a depreciation schedule for each depreciation method, showing asset cost, depreciation expense, accumulated depreciation, and asset book value.

2. Trusty prepares financial statements using the depreciation method that reports the highest net income in the early years of asset use. For income tax purposes, the company uses the depreciation method that minimizes income taxes in the early years. Consider the first year that Trusty uses the truck. Identify the depreciation methods that meet the general manager's objectives, assuming the income tax authorities permit the use of any of the methods.

Week 5 DQ2 Current Liabilities and Payroll - ACC205 Principles of Accounting I AU

Current Liabilities and Payroll. There 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?

Final Paper

Focus of the Final Paper

Submit a paper on one of the major topics listed below using course topics previously referenced as the basis for the paper and incorporating at least two other related articles of the students choice:

? How have modern accounting systems made a difference in modern organizations?

Cash vs. accrual: Is there a difference in recognizing transactions?

Why are accurate financial statements important for outside business interests?

How does depreciation accounting help the firm manage equipment investment costs and taxes?

How should the following types of current liabilities be accounted for? Include in your discussion examples of each type of current liability.

1. Current liabilities of known amount

2. Current liabilities that must be estimated

3. Contingent liabilities

Writing the Final Paper

The Final Paper:

1. Must be 4 to 6 double-spaced pages in length, and formatted according to APA style as outlined in the Ashford Writing Center.