ACC 305 Week 2

ACC 305 Week 2 Quiz

Assignments

E4-16 Bluebonnet Bakers

Required:

Prepare a statement of cash flows for 2011 for Bluebonnet Bakers. Use the direct method for reporting operating activities.

E4-19 - Wainwright Corporation

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).

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 - Tiger Enterprises

Required:

Prepare Tigers statement of cash flows, using the indirect method to present cash flows from operating activities.

E5-3 on page 275 - Charter Corporation

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 Sanderson Construction

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 three 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 on page 296

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:

? Net income $15,000

? Only one short-term note ($5,000); all other current liabilities are trade accounts

? 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 years 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

Required:

1.For each situation, identify the appropriate reporting treatment from the list below (consider each event to be material):

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).

Discussion Questions

Judgment Case 4-3 (page 225)

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 (page 291)

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?