ACC 205 Complete Class Week 1 – 5 All Assignments – Exercise  - Journal and  Discussion Questions – A+ Graded Course Material – Ashford - *Latest*

Week 1 Exercise Assignment Basic Accounting Equations

1.  Basic concepts. Jean's Marine Supply specializes in the sale of boating equipment and acces­sories. Identify the items that follow as an asset (A), liability (L), revenue (R), or expense (E) from the firm's viewpoint.

a.   The inventory of boating supplies owned by the company.

b.   Monthly rental charges paid for store space.

c.   A loan owed to Citizens Bank.

d.   New computer equipment purchased to handle daily record keeping.

e.  Daily sales made to customers.

f.   Amounts due from customers.

g.   Land owned by the company to be used as a future store site.

h.   Weekly salaries paid to salespeople.

2.  Basic computations. The following selected balances were extracted from the accounting records of  Rossi Enterprises on December 31, 20X3:

Accounts Payable   $3,200   Interest Expense   $2,500

Accounts Receivable   14,800   Land   18,000

Auto Expense  1,900   Loan Payable   40,000

Building   30,000   Tax Expense   3,300

Cash  7,400   Utilities Expense   4,100

Fee Revenue  56,900   Wage Expense   37,500

a. Determine Rossi’s total assets as of December 31.

b. Determine the company’s total liabilities as of December 31.

c. Compute 20X3 net income or loss.

3. Balance sheet preparation.  The following data relate to Preston Company as of December 31, 19XX:

Building    $44,000    Accounts receivable    $24,000

Cash    17,000  Loan payable  30,000

J. Preston, Owners Equity  65,000  Land  21,000

Accounts payable    ?

Prepare a balance sheet as of December 31, 19XX. (See Exhibit 1.1 and 1.4)

4. Basic transaction processing.  On November 1 of the current year, Richard Parker established a sole proprietorship. The following transactions occurred during the month:

1: Parker invested $19,000 into the business.

2: Paid $9,000 to acquire a used minivan.

3: Purchased $1,800 of office furniture on account.

4: Performed $2,100 of consulting services on account.

5: Paid $300 of repair expenses.

6: Received $800 from clients who were previously billed in item 4.

7: Paid $500 on account to the supplier of office furniture in item 3.

8: Received a $150 electric bill, to be paid next month.

9: Parker withdrew $600 from the business.

10: Received $250 in cash from clients for consulting services rendered.

Instructions

a. Arrange the following asset, liability, and owner’s equity elements of the account­ing equation: Cash,  Accounts Receivable, Office Furniture, Van, Accounts Payable, Investments/Withdrawals, and Revenues/Expenses. (See Exhibit 5)

b. Record each transaction on a separate line. After all transactions have been recorded, compute the balance in each of the preceding items.

c. Answer the following questions for Parker.

(1) How much does the company owe to its creditors at month-end? On which financial statement(s) would this information be found?

(2) Did the company have a “good” month from an accounting viewpoint? Briefly explain.

5. Transaction analysis and statement preparation. The transactions that follow

relate to Burton Enterprises for March 20X1, the company’s first month of activity.

6. Recognition of normal balances

The following items appeared in the accounting records of Triguero's, a retail music store that also sponsors concerts. Classify each of the items as an asset, liability; revenue; or expense from the company's viewpoint. Also indicate the normal account balance of each item.

a.  The albums, tapes, and CDs held for sale to customers.

b.  A long-term loan owed to Citizens Bank.

c.  Promotional costs to publicize a concert.

d.  Daily receipts for merchandise sold,

e.  Amounts due from customers,

f.  Land held as an investment,

g.  A new fax machine purchased for office use.

h.  Amounts to be paid in 10 days to suppliers,

i.  Amounts paid to a mall for rent.

7.Basic journal entries

The following transactions pertain to the Jennifer Royall Company:

Apr. 1

Jenni­fer Royall invested cash of $15,000 and land valued at $10,000 from into the business.

5

Provided $1,200 of services to Jason Ratchford, a client, on account.

9

Paid $250 of salaries to an employee.

14

Acquired a new computer for $3,200, on account.

20

Collected $800 from Jason Ratchford for services provided on April 5.

24

Borrowed $7,500 from BestBanc by securing a six-month loan.

Prepare journal entries (and explanations) to record the preceding transactions and events.

8. Trial balance preparation. Brighton, a sole proprietorship began operation on March 1 of the current year. The following account balances were extracted from the general led­ger on March 31; all accounts have normal balances.

Accounts Payable

$ 12,000

Interest Expense

$ 300

Accounts  Receivable

8,800

Land

?

Advertising Expense

5,700

Loan Payable

26,000

Bob Brighton, Owners Equity

30,000

Salaries Expense

11,100

Cash

22,500

Utilities Expense

700

Fees Earned  18,900

a. Determine the cost of the company’s land by preparing a trial balance. (Remember, the trial balance debits must equal the credits, see Exhibit 2.9)

b. Determine the firm’s net income for the period ending March 31.

9. Entry and trial balance preparation. Lee Adkins is a portrait artist. The following schedule represents Lee’s combined chart of accounts and trial balance as of May 31.

10. Journal entry preparation. On January 1 of the current year, Peter Houston invested $100,000 cash into his company MuniServ. Shortly thereafter, the company ac­quired selected assets of a bankrupt competitor. The acquisition included land ($15,000), a building ($40,000), and vehicles ($10,000). MuniServ paid $45,000 at the time of the transaction and agreed to remit the remaining balance due of $20,000 (an account payable) by February 15.

Week 1 Discussion Questions

Accounting Equation

As you have learned in this week’s readings the Accounting Equation is + Owners’ Equity.  Is the accounting equation true in all instances?  Provide sample transactions from your own experiences to demonstrate the validity of the Accounting Equation.  

Accounts

What does the term “account” mean?  What are the different classifications of accounts?  How do the rules for Debits and Credits impact accounts?  Please provide an example of how debits and credits impact accounts.

Week 1 Journal

Balance Sheet Journal 

The Balance Sheet is a financial snap shot of a company at  a particular point in time.  The Balance Sheet lists the assets, liabilities, and equity of the company.  Reflect on your personal financial situation, can you apply the concepts of the Balance Sheet?  What did you learn from this reflection?

Week 2 Exercise Assignment Revenue and Expenses

1. Recognition of concepts. Ron Carroll operates a small company that books enter­tainers for theaters, parties, conventions, and so forth. The company’s fiscal year ends on June 30. Consider the following items and classify each as either (1) pre­paid expense, (2) unearned revenue, (3) accrued expense, (4) accrued revenue, or (5) none of the foregoing.

a. Amounts paid on June 30 for a 1-year insurance policy

b. Professional fees earned but not billed as of June 30

c. Repairs to the firm’s copy machine, incurred and paid in June

d. An advance payment from a client for a performance next month at a convention

e. The payment in part (d) from the client’s point of view

f. Interest owed on the company’s bank loan, to be paid in early July

g. The bank loan payable in part (f)

h. Office supplies on hand at year-end

2. Analysis of prepaid account balance. The following information relates to Action Sign Company for 20X2:

Compute the balance in the Prepaid Insurance account on January 1, 20X2.

3. Understanding the closing process. Examine the following list of accounts:

Interest Payable

Accumulated Depreciation: Equipment

Alex Kenzy, Drawing

Accounts Payable

Service Revenue

Cash

Accounts Receivable

Supplies Expense

Interest Expense

Which of the preceding accounts

a. appear on a post-closing trial balance?

b. are commonly known as temporary, or nominal, accounts?

c. generate a debit to Income Summary in the closing process?

d. are closed to the capital account in the closing process?

4. Adjusting entries and financial statements. The following information pertains to Fixation Enterprises:

5. Adjusting entries. You have been retained to examine the records of Kathy’s Day Care Center as of December 31, 20X3, the close of the current reporting period. In the course of your examination, you discover the following:

·  On January 1, 20X3, the Supplies account had a balance of $2,350. During the year, $5,520 worth of supplies was purchased, and a balance of $1,620 remained unused on December 31.

·  Unrecorded interest owed to the center totaled $275 as of December 31.

·  All clients pay tuition in advance, and their payments are credited to the Unearned Tuition Revenue account. The account was credited for $75,500 on August 31. With the exception of $15,500 all amounts were for the current semester ending on December 31.

·  Depreciation on the school’s van was $3,000 for the year.

·  On August 1, the center began to pay rent in 6-month installments of $21,000. Kathy wrote a check to the owner of the building and recorded the check in Pre­paid Rent, a new account.

·  Two salaried employees earn $400 each for a 5-day week. The employees are paid every Friday, and December 31 falls on a Thursday.

·  Kathy’s Day Care paid insurance premiums as follows, each time debiting Pre­paid Insurance:

Date Paid

Policy No.

Length of Policy

Amount

Feb. 1, 20X2

1033MCM19

1 year

$540

Jan. 1, 20X3

7952789HP

1 year

912

Aug. 1, 20X3

XQ943675ST

2 years

840

Instructions

The center’s accounts were last adjusted on December 31, 20X2. Prepare the adjusting entries necessary under the accrual basis of accounting.

6. Bank reconciliation and entries. The following information was taken from the accounting records of Palmetto Company for the month of January:

7. Direct write-off method. Harrisburg Company, which began business in early 20X7, reported $40,000 of accounts receivable on the December 31, 20X7, balance sheet. Included in this amount was  $550 for a sale made to Tom Mattingly in July. On January 4, 20X8, the company learned that Mattingly had filed for personal bankruptcy. Harrisburg uses the direct write-off method to account for uncollectibles.

a. Prepare the journal entry needed to write off Mattingly’s account.

b. Comment on the ability of the direct write-off method to value receivables on the year-end balance sheet.

8. Allowance method: estimation and balance sheet disclosure. The following pre-­adjusted information for the Maverick Company is available on December 31:

9. Direct write-off and allowance methods: matching approach. The December 31, 20X2, year-end trial balance of Targa Company revealed the following account information:

Debits

Credits

Accounts Receivable

$252,000

Allowance for Uncollectible Accounts

$ 3,000

Sales

855,000

10. Allowance method: analysis of receivables. At a January 20X2 meeting, the presi­dent of Sonic Sound directed the sales staff “to move some product this year.” The president noted that the credit evaluation department was being disbanded be­cause it had restricted the company’s growth. Credit decisions would now be made by the sales staff.

By the end of the year, Sonic had generated significant gains in sales, and the president was very pleased. The following data were provided by the accounting department:

Week 2 Discussion Questions

Accounting Cycle

Financial statements are a product of the accounting cycle.  Think about two different companies, one a manufacturing company, the other a retail company.  Why would different companies have different accounting cycles?  Would you expect the steps of the accounting cycle to be the same for each company?  Why or why not?

Bank Reconciliation

What is the purpose of a bank reconciliation?  What are the reasons there are differences between the cash reported in the accounting records and the cash balance in the bank statements? 

Analyze several of your peers’ postings.  Let at least two of your peers know what happens to the discrepancies between the book balance and the bank balance.  Could these differences just be written off. 

Week 2 Journal

Income Statement Journal 

The Income Statement measures the income and expenses of a company over a specific period of time.  Reflecting on your personal financial statement for the past month, can you apply the principles of the Income Statement?  What did you learn from this experience?

Week 3 Exercise Assignment Inventory

1. Specific identification method. Boston Galleries uses the specific identification method for inventory valuation. Inventory information for several oil paintings follows.

  Painting

  Cost

1/2 Beginning inventory

Woods

$11,000

4/19 Purchase

Sunset

21,800

6/7 Purchase

Earth

31,200

12/16 Purchase

Moon

4,000

Woods and Moon were sold during the year for a total of $35,000. Determine the firm’s

a. cost of goods sold.

b. gross profit.

c. ending inventory.

2. Inventory valuation methods: basic computations. The January beginning inven­tory of the White Company consisted of 300 units costing $40 each. During the first quarter, purchases were:

3. Perpetual inventory system: journal entries. At the beginning of 20X3, Beehler Company implemented a computerized perpetual inventory system. The following transactions occurred:

·  Purchases on account: 500 units @$4 =  $2,000

·  Sales on account: 300 units @ $5 = $1,500

·  Purchases on account: 600 units @$5 =  $3,000

·  Sales on account: 300 units @ $5 = $1,500

a. Prepare journal entries for the above purchases and sales.

b. Calculate the balance in the firm’s Inventory account.

4. Inventory valuation methods: computations and concepts. Wave Riders Surfboard Company began business on January 1 of the current year. Below are the transactions for the year

5. Depreciation methods. Betsy Ross Enterprises purchased a delivery van for $30,000 in January 20X7. The van was estimated to have a service life of 5 years and a resid­ual value of $6,000. The company is planning to drive the van 20,000 miles annually. Compute depreciation expense for 20X8 by using each of the following methods:

a. Units-of-output, assuming 17,000 miles were driven during 20X8

b. Straight-line

c. Double-declining-balance

6. Depreciation computations. Alpha Alpha Alpha, a college fraternity, purchased a new heavy-duty washing machine on January 1, 20X3. The machine, which cost $1,000, had an estimated residual value of $100 and an estimated service life of 4 years (1,800 washing cycles). Calculate the following:

7. Depreciation computations: change in estimate. Aussie Imports purchased a specialized piece of machinery for $50,000 on January 1, 20X3. At the time of acquisition, the machine was estimated to have a service life of 5 years (25,000 operating hours) and a residual value of $5,000. During the 5 years of operations (20X3 - 20X7), the machine was used for 5,100, 4,800, 3,200, 6,000, and 5,900 hours, respectively.

Instructions

a. Compute depreciation for 20X3 - 20X7 by using the following methods: straight line, units of output, and double-declining-balance.

b. On January 1, 20X5, management shortened the remaining service life of the machine to 20 months. Assuming use of the straight-line method, compute the company’s depreciation expense for 20X5.

c. Briefly describe what you would have done differently in part (a) if Aussie Imports had paid $47,800 for the machinery rather than $50,000 In addition, assume that the company incurred $800 of freight charges $1,400 for machine setup and testing, and $300 for insurance during the first year of use.

Week 3 Discussion Questions

LIFO vs. FIFO

The controller of Sagehen Enterprises believes that the company should switch from the LIFO method to the FIFO method.  The controller’s bonus is based on the next income.  It is the controller’s belief that the switch in inventory methods would increase the net income of the company.  What are the differences between the LIFO and FIFO methods?  

Depreciation

There is a variety of depreciation methods used to allocate the cost of an asset to all of the accounting periods benefited by the use of the asset.  Your client has just purchased a piece of equipment for $100,000.  Explain the concept of depreciation.  Which of the following depreciation methods would you recommend: straight-line depreciation, double declining balance method, or an alternative method?  

Week 3 Journal

Inventory Journal 


Reflect for a moment on the LIFO (Last in First Out) and FIFO (First in First Out) inventory methods. If you were starting a small manufacturing company, what inventory method do you believe would provide the most accurate financial statements? Why do you believe this is the case?

Week 4 Exercise Assignment Liability

1.  Partner investments; journal entriesThe LP partnership was formed on January 1, 19X7, by investments from Bill Levy and Marv Parcells. Levy contributed $30,000 cash and $80,000 of land. Parcells contributed cash of $50,000 and equipment with a value of $20,000.

a.    Prepare the journal entries needed to record the investments of Levy and Parcells.

2. Payroll accounting. Assume that the following tax rates and payroll information pertain to Brookhaven Publishing:

3.  Current liabilities: entries and disclosure. A review of selected financial activities of Visconti’s during 20XX disclosed the following:

12/1

Borrowed $20,000 from the First City Bank by signing a 3- month, 15% note payable. Interest and principal are due at maturity.

2/10

Established a warranty liability for the XY-80, a new product. Sales are expected to total 1,000 units during the month. Past experience with similar products indicates that 2% of the units will require repair, with warranty costs averaging $27 per unit.

12/22

Purchased $16,000 of merchandise on account from Oregon Company, terms 2/10, n/30.

12/26

Borrowed $5,000 from First City Bank; signed a note payable due in 60 days.

12/31

Repaired six XY-80s during the month at a total cost of $162.

12/31

Accrued 3 days of salaries at a total cost of $1,400.

Instructions

a. Prepare journal entries to record the transactions.

b. Prepare adjusting entries on October 31 to record accrued interest.

c. Prepare the Current Liability section of Red Bank’s balance sheet as of October 31. Assume that the Accounts Payable account totals $203,600 on this date.

4. Issuance of stock: organization costs. Snowbound Corporation was incorporated in July. The firm’s charter authorized the sale of 200,000 shares of $10 par-value common stock. The following transactions occurred during the year:

5. Notes payable. Red Bank Enterprises was involved in the following transactions during the fiscal year ending October 31:

Week 4 Discussion Questions

Current Liability

What is a current liability?  From a user of financial statements perspective why do you believe current liabilities are separated from long-term liabilities?  Based on your current experience and any additional research you may have done provide two examples of situations where businesses collect monies from customers and employees and reports these amounts as a current liability. 

Client Recommendations

A client comes to you thinking about starting a consulting business.  Specifically your client is interested in what type of entity should be created for this new business.  Based on your readings or any additional research you may have done, discuss the advantages and disadvantages of the following: sole proprietorship, partnership, and corporation.  Based on these advantages and disadvantages provide a clear recommendation to your client.  

Let at least two of your peers posts know if an alternative choice of entity would be possible.  What would be the benefits of this new entity choice?  Would there be any disadvantages associated with this new entity selection.

Week 4 Journal

Future Obligations Journal

 
The current liability section of the balance sheet lists the liabilities that are due within the next 12 months.  Reflecting on your current financial situation, apply the concept of current liabilities.  What does this analysis tell you about your future obligations?  What did you learn from this experience?

Week 5 Exercise Assignment Financial Ratios

1.  Liquidity ratiosEdison, Stagg, and Thornton have the following financial information at the close of business on July 10:

Edison

Stagg

Thornton

Cash

$4,000

$2,500

$1,000

Short-term investments

3,000

2,500

2,000

Accounts receivable

2,000

2,500

3,000

Inventory

1,000

2,500

4,000

Prepaid expenses

800

800

800

Accounts payable

200

200

200

Notes payable: short-term

3,100

3,100

3,100

Accrued payables

300

300

300

Long-term liabilities

3,800

3,800

3,800

Compute the current and quick ratios for each of the three companies. (Round calculations to two decimal places.) Which firm is the most liquid? Why?

2.  Computation and evaluation of activity ratiosThe following data relate to Alaska Products, Inc:

Compute the accounts receivable and inventory turnover ratios for 19X5. Alaska rounds all calculations to two decimal places.

3.  Profitability ratios, trading on the equityDigital Relay has both preferred and common stock outstanding. The com­pany reported the following information for 19X7:

4.  Horizontal analysis. Mary Lynn Corporation has been operating for several years. Selected data from the 20X1 and 20X2 financial statements follow.

Prepare a horizontal analysis for 20X1 and 20X2. Briefly comment on the results of your work.

5.  Vertical analysis. Mary Lynn Corporation has been operating for several years. Selected data from the 20X1 and 20X2 financial statements follow.

6. Ratio computation. The financial statements of the Lone Pine Company follow.

LONE PINE COMPANY

Instructions

Compute the following items for Lone Pine Company for 20X2, rounding all calcu­lations to two decimal places when necessary:

a. Quick ratio

b. Current ratio

c. Inventory-turnover ratio

d. Accounts-receivable-turnover ratio

e. Return-on-assets ratio

f. Net-profit-margin ratio

g. Return-on-common-stockholders’ equity

h. Debt-to-total assets

i. Number of times that interest is earned

j. Dividend payout rate

Week 5 Discussion Questions

Ratios

Ratios provide the users of financial statements with a great deal of information about the entity.  Do ratios tell the whole story?  How could liquidity ratios be used by investors to determine whether or not to invest in a company? 

Profit Margin

Above is a comparative income statement for Cecil, Inc. for the years 2010, 2011, and 2012.  Calculate the profit margin  for each of these years.  Comment on the profit margin trend.  

Week 5 Journal

Most Important Ratio Journal

Reflect for a moment on the ratios (working capital, current ratio, quick ratio, debt to asset, debt to equity, times interest earned, gross margin and net margin) presented this week.  If you were considering investing in a company what ratio would be the most important to you?  Formulate and argument to defend your position.

Carefully review the Grading Rubric for the criteria that will be used to evaluate your journal entry.

Week 5 Assignment Final Paper

Focus of the Final Paper

Write a five-to seven-page financial statement analysis of a public company, formatted according to APA style as outlined in the Ashford Writing Center.  In this analysis you will discuss the financial health of this company with the ultimate goal of making a recommendation to other investors.  Your paper should consist of the following sections: introduction, company overview, horizontal analysis, ratio analysis, final recommendation, and conclusions.  

Here is a breakdown of the sections within the body of the assignment:  
Company Overview 
Provide a brief overview of your company (one to two paragraphs at most).  What industry is it in?  What are its main products or services?  Who are its competitors?  
Horizontal Analysis of Income Statement and Balance Sheet
Prepare a three-year horizontal analysis of the income statement and balance sheet of your selected company.  Discuss the importance and meaning of horizontal analysis.  Discuss both the positive and negative trends presented in your company.  
Ratio Analysis
Calculate the current ratio, quick ratio, cash to current liabilities ratio, over a two-year period.  Discuss and interpret the ratios that you calculated.  Discuss potential liquidity issues based on your calculations of the current and quick ratios.  Are there any factors that could be erroneously influencing the results of the ratios?  Discuss liquidity issues of competitive companies within the same industry.  
Recommendation
Based on your analysis would you recommend an individual invest in this company?  What strengths do you see?  What risks do you see?  It is perfectly acceptable to state that you would recommend avoiding this company as long as you provide support for your position.  

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