Category: Accounting

The amount recorded as depreciation expense each year starting in 2016

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11. Royal Company purchased a dump truck at the beginning of 2014 at a cost of $60,000. The truck had an estimated life of 6 years and an estimated residual value of $24,000. On January 1, 2016, the company made major repairs of $20,000 to the truck that extended the life 1 year. Thus, starting with 2016, the truck has a remaining life of 5 years and a new salvage value of $8,000. Royal uses the straight-line depreciation method. What amount should be recorded as depreciation expense each year starting in 2016?
  a. $6,000
  b. $12,000
  c. $13,600
  d. $14,400
12. At the end of 2016, Clock Products, Inc. determined that one of its patents was worthless. The patent had a cost of $300,000. The patent had been amortized for 5 years of its estimated 15-year legal life. Which of the following statements is correct?
  a. Clock Products must continue to amortize the patent over its remaining 10 years of life.
  b. The patent must be reduced to 5/15, or 33.3% of its original cost and amortized over the remaining 10 years.
  c. The remaining unamortized cost must be removed from the accounting records and treated as a loss on the income statement.
  d. Clock Products must correct its financial statements for the past five years, so that the entire cost is allocated to that five-year period.
13. At the end of 2016, Mirror Productions determined that one of its copyrights was worthless. The copyright had a cost of $320,000. The copyright had been amortized for 8 years of its estimated 25-year legal life. Which of the following statements is the justification for removing the remaining cost of the copyright from the accounting records?
  a. The copyright no longer represents a future benefit to the company.
  b. The federal government does not allow copyrights to be recorded as assets once they are deemed worthless.
  c. The cost of the copyright represents an obligation to return capital contributions to the stockholders.
  d. The cost of the copyright has usefulness that will impact the net income of future accounting periods.
14. A bank loaned Darden Company $10,000 on a 1-year, 6% note, but deducted the interest in advance. The journal entry made by Darden to record receipt of the cash would include a
  a. an increase in Cash for $9,400
  b. an increase in Cash for $600
  c. a decrease in Notes Payable for $10,600
  d. a decrease in Notes Payable for $9,400
15. Assume the current ratio is 2 to 1. Payment on accrued salaries payable would cause the current ratio to
  a. increase
  b. decrease
  c. be unchanged since the effects offset one another
  d. be unchanged since it has no impact on any current accounts
16. Proctor Inc. has a weekly payroll of $8,000 for a 5-day workweek, Monday through Friday. If December 31, the last day of the accounting year, falls on Wednesday, Proctor would make an adjusting entry that would
  a. increase wages expense $4,800.
  b. decrease wages payable $4,800.
  c. decrease cash $4,800.
  d. increase wages payable $8,000.
17. On May 1, the Chris Company borrowed $30,000 from the Third Street Bank on a 1-year, 6% note. If the company keeps its records on a calendar year, an entry is needed on December 31 to increase
  a. Interest Expense, $600.
  b. Interest Expense, $1,800.
  c. Interest Payable, $900.
  d. Interest Payable, $1,200.
18. Almost all current liabilities affect the operating category of the statement of cash flows, but one that does not affect cash provided by operating activities is
  a. accounts payable.
  b. interest payable.
  c. notes payable.
  d. taxes payable.
19. Which of the following is an example of a contingent liability?
  a. A liability for notes payable with interest included in the face amount.
  b. The liability for future warranty repairs on computers sold during the current period.
  c. A lawsuit pending against a restaurant chain for improper preparation of food.
  d. A corporate long-term employment contract with the chief executive officer.
20. To determine whether a lottery winner would prefer to receive the money in a single lump sum immediately or receive an equal amount over a period of years, you would use which type of time value of money calculation?
  a. The future value of a single amount.
  b. The present value of a single amount.
  c. The future value of an annuity.
  d. The present value of an annuity.

The balance of Accounts Receivable at December 31, 2016

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Music Corporation
The data below is for Music Corporation for 2016.
Accounts receivable—January 1, 2016 $236,000
Credit sales during 2016 820,000
Collections from credit customers during 2016 590,000
Customer accounts written off as uncollectible during 2016 8,000
Allowance for doubtful accounts—January 1, 2016 8,700
Estimated uncollectible accounts based on an aging analysis 9,600
1. Refer to the data for Music Corporation.
What is the balance of Accounts Receivable at December 31, 2016?
  a. $336,000
  b. $448,400
  c. $458,000
  d. $466,000
2. Refer to the data for Music Corporation.
If the aging approach is used to estimate bad debts, what amount should be recorded as bad debt expense for 2016?
  a. $8,000
  b. $8,100
  c. $8,700
  d. $8,900
3. Refer to the data for Music Corporation.
If the aging approach is used to estimate bad debts, what is the balance in the Allowance for Doubtful Accounts after the bad debt expense adjustment?
  a. $8,000
  b. $8,100
  c. $8,900
  d. $9,600
4. Router Inc. lends $70,000 on a 120-day, 9% promissory note. The total interest that Router will receive at maturity is
  a. $6,300
  b. $2,100
  c. $525
  d. $1,890
5. Textbooks.com accepts VISA for payments of purchases made by students. The credit card drafts are deposited directly in a bank account. VISA charges a 2% collection fee. Credit card drafts totaling $12,000 are deposited during September. The effect on the accounting equation to record the sales and deposits will include
  a. An increase in Cash for $12,000
  b. An increase to Sales for $11,760
  c. An increase to Accounts Receivable for $11,760
  d. An increase in Collection Fee Expense for $240
6. When a company discounts an interest-bearing note at a bank with recourse:
  a. The company is assured payment at maturity.
  b. The company will receive the full amount of the note plus interest.
  c. The company has a contingent liability from the time the note is discounted until its maturity date.
  d. The bank assumes the credit risk on non-payment at the maturity date.
7. Using different depreciation methods for book purposes versus tax purposes for the same asset is
  a. not allowed since the amount can only be calculated one way or the other, not both.
  b. the direct result of the differing goals of financial and tax accounting.
  c. contrary to GAAP.
  d. against the Internal Revenue Code, and as such, against the law.
8. Newco Publishing Company purchased equipment at the beginning of 2016 for $200,000. The company decided to depreciate the equipment over an 8-year period using the straight-line method. The company estimated the equipment’s residual value at $20,000. The journal entry to record depreciation expense for 2016 will
  a. increase Depreciation Expense and increase Accumulated Depreciation for $25,000.
  b. increase Accumulated Depreciation and decrease Equipment for $25,000.
  c. increase Depreciation Expense and decrease Equipment for $22,500.
  d. increase Depreciation Expense and increase Accumulated Depreciation for $22,500.
9. Delmont Fire Co. purchased identical equipment having an estimated useful life of ten years. Wind Chime uses the straight-line depreciation method and Fire Hut uses the double-declining-balance method of depreciation. Assuming the two entities are similar in all other respects, which of the following statements is correct?
  a. Wind Chime’s depreciation expense will be greater in the second year than Fire Hut’s depreciation expense.
  b. Fire Hut’s book value will be greater than Wind Chime’s book value at the end of year one.
  c. Wind Chime’s net income will be greater than Fire Hut’s net income in year nine.
  d. Fire Hut’s book value will be less than Wind Chime’s book value at the end of year two.
10. Royal Company purchased a dump truck at the beginning of 2014 at a cost of $60,000. The truck had an estimated life of 6 years and an estimated residual value of $24,000. On January 1, 2016, the company made major repairs of $20,000 to the truck that extended the life 1 year. Thus, starting with 2016, the truck has a remaining life of 5 years and a new salvage value of $8,000. Royal uses the straight-line depreciation method. What is the book value of the truck to be reported on the balance sheet at December 31, 2016?
  a. $44,000
  b. $50,000
  c. $56,000
  d. $62,000

Calculating the WACC

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Calculating the WACC
Skye Computer Company: Balance Sheet as of December 31
(in thousands of dollars)
2021
Current assets$2,000
Net fixed assets3,000
Total assets$0
Accounts payable and accruals$700
Short-term debt200
Long-term debt1,850
Preferred stock400
Common stock900
Retained earnings950
  Total common equity$0
Total liabilities and equity$0
Last year’s earnings per share$2.60
Current price of common stock, P0$50.00
Last year’s dividend on common stock, D0$1.70
Growth rate of common dividend, g10%
Flotation cost for common stock, F11%
Common stock outstanding40,000
Current price of preferred stock, Pp$30.00
Dividend on preferred stock, Dp$2.70
Preferred stock outstanding15,000
Before-tax cost of debt, rd10%
Market risk premium, rM – rRF5%
Risk-free rate, rRF6%
Beta1.384
Tax rate25%
Total debt $2,050 thousand
a.  Calculating the cost of each capital component (using the DCF method to find
     the cost of common equity)
After-tax cost of debt
Cost of preferred stock
Cost of retained earnings
Cost of new common stock
b.  Calculating the cost of common equity from retained earnings, using the CAPM method
Cost of retained earnings
c.  Calculating the cost of new common stock based on the CAPM
Flotation cost adjustment
Cost of new common stock
d.  Calculating the firm’s WACC assuming that (1) it uses only retained earnings for equity and
     (2) if it expands so rapidly that it must issue new common stock

Helen Company’s fiscal year ends on June 30th Research Memorandum

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Prepare a comprehensive research memorandum on the case that you chose.

Case 3
Helen Company’s fiscal year ends on June 30th. Its employees (with at least three months of
experience) are entitled to 12 paid sick days annually for each calendar year beginning on January 1st.
An employee not taking his or her earned sick days would receive payment thereon on December 31st
of that year. How should Helen Company record and measure such a liability as of June 30th?

Opportunities and Challenges of Implementing Integrated Reporting in Contemporary Organizations

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Critically examine opportunities and challenges of implementing Integrated Reporting in contemporary organizations. How can these challenges be addressed? Explicitly comment on strategies that organizations can adopt to improve their financial reporting practices in the future by using Integrated Reporting.
Use academic literature and examples to illustrate your argument in 2500 words maximum.

 

Management should continue to have different accounting alternatives or there should be a narrowing of alternatives available.

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PART I: Debating Current Accounting Issues
OBJECTIVE: The purpose of this assignment is to expose the student to a current accounting issue and be prepared to take a side in a debate concerning this issue.
Decide whether you want to argue “in favor” or argue “against. Present your argument cogently, using whatever background information from a reliable online source you need to support your argument.
Debate: Whether management should continue to have different accounting alternatives or there should be a narrowing of alternatives available.

PART II:Technology Stock
REQUIRED:
1) For the “technology” stock you selected at the beginning of the semester, provide an update of the stock price history through the last week of the semester. Compare to the broader indexes over the same time period (since SEPTEMBER1, 2023) and discuss how your company performed as compared to the markets. Use more than one index to compare.
2) Review the quarterly earnings which were released during the semester for your company and summarize the quarter’s performance versus last year (minimum 2-3 paragraphs).
3) Based on the limited knowledge you have about this company, give this stock a buy, sell or hold recommendation. Compare with the analysts’ opinions for this company if possible. Discuss as fully as possible, using whatever information you can obtain to support your opinion.

The Role of Reference Accounts in Enhancing Transaction-Related Internal Control Objectives

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1) The screen below shows the result of completing step 5 of the exercise before selecting enter. Which transaction-related internal control objective (discussed in the SAP Chapter 1 text) is most enhanced through using a reference account to create another account? Explain.
2) Is the use of a reference account to create another account a preventive control or is it a detective control? Explain.

The reconciliation of the balance per the general ledger to the balance per the bank statement is primarily a detective control.

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A general ledger bank account was created in this exercise. Reconciling the balance per the general ledger to the balance per the bank statement is a very important internal control procedure. Is the reconciliation of the balance per the general ledger to the balance per the bank statement a preventive control or is it a detective control? Explain.