ACC 305 Week 1

ACC 305 Week 1 Quiz

Assignments

E3-18 The current asset section of the Excalibur Tire Companys balance sheet consists of cash, marketable securities, accounts receivable, and inventories. The December 31, 2011, balance sheet revealed the following:

Required:

Determine the following 2011 balance sheet items:

1. Current assets

2. Shareholders equity

3. Noncurrent assets

4. Long-term liabilities

E3-20 Most decisions made by management impact the ratios analysts use to evaluate performance. Indicate (by letter) whether each of the actions listed below will immediately increase (I), decrease (D), or have no effect (N) on the ratios shown. Assume each ratio is less than 1.0 before the action is taken.

Judgment Case 3-5 You recently joined the internal auditing department of Marcus Clothing Corporation. As one of your first assignments, you are examining a balance sheet prepared by a staff accountant

Required:

Identify and explain the deficiencies in the statement prepared by the companys accountant. Include in your answer items that require additional disclosure, either on the face of the statement or in a note.

Discussion Questions

Research Case 1-3 The purpose of this case is to introduce you to the information available on the website of the Financial Accounting Standards Board (FASB).

Required:

Access the FASB home page on the Internet. The web address is www.fasb.org. Answer the following questions.

1.Describe the mission of the FASB.

2.Who are the current Board members? Briefly describe their backgrounds.

1. How are topics added to the FASBs technical agenda?

Ethics Case 1-8 It is the responsibility of management to apply accounting standards when communicating with investors and creditors through financial statements. Another group, auditors, serves as an independent intermediary to help ensure that management has in fact appropriately applied GAAP in preparing the companys financial statements. Auditors examine (audit) financial statements to express a professional, independent opinion. The opinion reflects the auditors assessment of the statements fairness, which is determined by the extent to which they are prepared in compliance with GAAP.

Some feel that it is impossible for an auditor to give an independent opinion on a companys financial state- ments because the auditors fees for performing the audit are paid by the company. In addition to the audit fee, quite often the auditor performs other services for the company such as preparing the companys income tax returns.

Required:

How might an auditors ethics be challenged while performing an audit?

Judgment Case 2-1 You have recently been hired by Davis & Company, a small public accounting firm. One of the firms partners, Alice Davis, has asked you to deal with a disgruntled client, Mr. Sean Pitt, owner of the citys largest hardware store. Mr. Pitt is applying to a local bank for a substantial loan to remodel his store. The bank requires accrual based financial statements but Mr. Pitt has always kept the companys records on a cash basis. He does not see the purpose of accrual based statements. His most recent outburst went something like this: After all, I collect cash from customers, pay my bills in cash, and I am going to pay the bank loan with cash. And, I already show my building and equipment as assets and depreciate them. I just dont understand the problem.

Required:

1.Explain the difference between a cash basis and an accrual basis measure of performance.

1. Why, in most cases, does accrual basis net income provide a better measure of performance than net operating cash flow?

3.Explain the purpose of adjusting entries as they relate to the difference between cash and accrual accounting.

Judgment Case 3-6 You recently joined the auditing staff of Best, Best, and Krug, CPAs. You have been assigned to the audit of Clearview, Inc., and have been asked by the audit senior to examine the balance sheet prepared by Clearviews accountant.

Required:

Identify the items in the statement that most likely would require further disclosure either on the face of the statement or in a note. Further identify those items that would require disclosure in the significant accounting policies note.