Tuesday 19 March 2013

1.   Identify accounts by category in the financial statements 

Identify the category for each of the following financial accounts and in which financial statement those accounts appear:

2013 Spring2

Category

Financial Statement

Assets

A

Balance Sheet

BS

Liability

L

Income Statement

IS

Owners’ Equity

OE

 

 

Revenue

R

 

 

Expense

E

 

 

Gain

G

 

 

Loss

LS

 

 

 

Instructions: classify using abbreviations, A, L, OE, R, E, G, LS in column 2 and BS or IS in column 3 below:>

 

 

Category

Financial Statement(s)

Cash…………………………………

A

BS

Accounts payable…………….……………..

 

 

Common stock………………………………

 

 

Depreciation expense………………………..

 

 

Net sales……………………………………..

 

 

Income tax expense………………………….

 

 

Short‑term investments……………………...

 

 

Gain on sale of land………………………….

 

 

Retained earnings……………………………

 

 

Dividends payable…………………………..

 

 

Accounts receivable…………………………

 

 

Short‑term debt………………………………

 

 

 

 

 

2.   Transaction analysis – various accounts

For each of the following transactions or adjustments indicate the effect of the transaction or adjustment on the appropriate balance sheet category and on net income by entering for each account affected the amount indicating whether it is an addition / increase (+) or subtraction / decrease (-), following the example of transaction a shown below.  In some cases only one column may be affected because all of the specific accounts affected by the transaction are included in that category.

Instructions: for each row of transaction, fill in the appropriate column with the entry title (e.g. Interest Receivable, Interest Income, Cash, Accounts Receivable, etc.) and the amount with its sign (e.g., +15, +1,000, -1,500, etc.).

The following table is what our Exercises refer to as the horizontal model.  Therefore the Net Income column in the table below really refers to Revenues accounts and Expenses accounts.

 

 

Balance Sheet

 

 

 

Transaction

 

Current Assets

Current Liabilities

Owners Equity

 

Net Income

a.

Accrued interest income of $15 on a Note Receivable.    

+15 Interest Receivable

 

 

+15

Interest Income

b.

Borrowed $1,000 from the bank.

 

 

 

 

c.

Issued new equity to shareholders receiving $500 in cash.

 

 

 

 

d.

Paid $800 of wages for the current month.

 

 

 

 

e.

Paid $2,600 of wages accrued at the end of the prior month.

 

 

 

 

f.

Received cash of $1,500 on accounts receivable accrued in prior month.

 

 

 

 

g.

Determined that the Allowance for Bad Debts balance should be increased by $1,200.                              

 

 

 

 

h.

Recognized bank service charges of $50 for the month.

 

 

 

 

i.

 

Received $50 cash for interest receivable that had been accrued in a prior month.                                     

 

 

 

 

j.

Purchased 10 units of a new item of inventory on account at a cost of $55 each.                                                    

 

 

 

 

k.

Purchased 10 more units of the above item at a cost of $58 each. [assume either with cash or on account]

 

 

 

 

l.

Sold 15 of the items purchased for Inventory                                            

(in j and k above), and recognized the cost of goods sold using the FIFO cost‑flow assumption.                           

 

 

 

 

 


3.  Bad Debt Analysis – Allowance Account

On January 1, 2010 the balance in Zenith Co.’s Accounts Receivable was $200,000 and Allowance for Bad Debts account was $15,200. 

 

a.      Based on the state of the economy, management decides to increase the provision for bad debts by $3,000. Record this adjusting entry by: 

<filling the journal entry below …>

Journal entry title

Debit

Credit

 

 

 

 

 

 

 

 

 

 

 

<… OR by filling in the horizontal model below>

Assets

Liabilities

Owners’ Equity

 

Net Income

Revenues

Expenses

 

 

 

 

 

 

 

 

b.     After a comprehensive review of its customers, Zenith decides that customers owing it $4,200 will never pay what they owe. The company had previously made provisions for possible bad debts.  Record this adjusting entry by: 

<filling the journal entry below…>

Journal entry title

Debit

Credit

 

 

 

 

 

 

 

<… OR by filling in the horizontal model below>

Assets

Liabilities

Owners’ Equity

 

Net Income

Revenues

Expenses

 

 

 

 

 

 

 

 

 

 

c.      After these transactions what was the NET Accounts Receivable?

(Hint: The balance of any account will always be the Beginning Balance + Additions – Subtractions = Ending Balance.)

 

 

Before

Transactions

a) Create New Provisions for Bad Debt

Balance after (a)

b) Write-off $4200 of Bad Debts

c) Ending Balance

Gross Accounts Receivable

+200,000

 

 

 

 

Allowance for Bad Debts

-15,200

 

 

 

 

Net Accounts Receivable

+184,800

 

 

 

 

Net Income

 

 

 

 

 


4.  Notes Receivable – Interest accrual and collection

Apollo, Inc. accepted a 10-month 10.8% (annual rate) $8,500 note from one of its customers on September 15th, interest is payable with the principal at maturity.

 

  1. Calculate how much interest income will have accrued by December 31st. 

Show interest calculation in space here …

 

 

Then record the interest earned by Apollo during the year ended Dec. 31st

<by filling in the horizontal model below …>

Assets

Liabilities

Owners’ Equity

 

Revenues

Expenses

 

 

 

 

 

 

 

<… OR by filling in the journal entry below>

Journal entry title

Debit

Credit

 

 

 

 

 

 

 

 

  1. Calculate the total amount of interest earned on the note by maturity. 

<show any other interest calculations in space here below. Hint: in (a), you calculated interests till end of the year. Here, you calculate the remaining interest from beginning of year till maturity>

Show calculations here …

 

 

Then record collection of the note and interest at maturity

<by filling the horizontal model below …>

Assets

Liabilities

Owners’ Equity

 

Revenues

Expenses

 

 

 

 

 

 

 

<… OR by filling in the journal entry below>

Journal entry title

Debit

Credit

 

 

 

 

 

 

 

 

 

 

 

 

 


5.  Capitalizing versus Expensing

For each of the following expenditures, indicate the type of account (Capitalize into asset or Expensed) in which the expenditure should be recorded.  Also explain your answers.

a.      $15,000 annual cost of routine repair and maintenance expenditures for a fleet of delivery vehicles.

Put answer here …

 

 

b.     $60,000 cost to develop a coal mine, from which an estimated 1 million tons of coal can be extracted.

Put answer here …

 

 

 

c.      $124,000 cost to replace the roof on a building.

Put answer here …

 

 

 

d.     $4,000 cost of grading and leveling land so that a building can be constructed.

Put answer here …

 

 

6.   Calculating Depreciation

Jones Manufacturing buys a new injection moulding machine for $10,000.  It has an estimated economic life of 5 years at the end of which the used machine could be sold for $1,000. 

 

a.      What would be the straight line depreciation amount on the machine in the first year?

 

 

 

b.     If Jones uses double declining balance accelerated depreciation method, what would be the depreciation in the first and second year?

<show calculations below>


7.   Effect of depreciation on ROI

Alpha Inc. and Beta Co. are sheet metal processors that supply component parts for consumer product manufacturers.  Alpha has been in business since 1980 and is operating in its original plant facilities.  Much of its equipment was acquired in the 1980s.  Beta was stared two years ago and acquired its building and equipment (new) then.  Each firm has about the same sales revenue and material and labor costs are about the same for each firm.  What would you expect Alpha’s ROA (Return on Assets = Net Income / Assets)  to be relative to Beta’s?  Explain your answer.  What are the implications of this ROA difference for a firm seeking to enter an established industry?

 

<provide your essay response below>

 



CLICK HERE TO GET THE ANSWER !!!! 1. Identify accounts by category in the financial statements Identify the category for each of the following financial accounts and in which financial statement those accounts appear: 2013 Spring2 Category Financial Statement Assets A Balance Sheet BS Liability L Income Statement IS Owners’ Equity OE Revenue R Expense E Gain G Loss LS Instructions: classify using abbreviations, A, L, OE, R, E, G, LS in column 2 and BS or IS in column 3 below:> Category Financial Statement(s) Cash………………………………… A BS Accounts payable…………….…………….. Common stock……………………………… Depreciation expense……………………….. Net sales…………………………………….. Income tax expense…………………………. Short‑term investments……………………... Gain on sale of land…………………………. Retained earnings…………………………… Dividends payable………………………….. Accounts receivable………………………… Short‑term debt……………………………… 2. Transaction analysis – various accounts For each of the following transactions or adjustments indicate the effect of the transaction or adjustment on the appropriate balance sheet category and on net income by entering for each account affected the amount indicating whether it is an addition / increase (+) or subtraction / decrease (-), following the example of transaction a shown below. In some cases only one column may be affected because all of the specific accounts affected by the transaction are included in that category. Instructions: for each row of transaction, fill in the appropriate column with the entry title (e.g. Interest Receivable, Interest Income, Cash, Accounts Receivable, etc.) and the amount with its sign (e.g., +15, +1,000, -1,500, etc.). The following table is what our Exercises refer to as the horizontal model. Therefore the Net Income column in the table below really refers to Revenues accounts and Expenses accounts. Balance Sheet Transaction Current Assets Current Liabilities Owners Equity Net Income a. Accrued interest income of $15 on a Note Receivable. +15 Interest Receivable +15 Interest Income b. Borrowed $1,000 from the bank. c. Issued new equity to shareholders receiving $500 in cash. d. Paid $800 of wages for the current month. e. Paid $2,600 of wages accrued at the end of the prior month. f. Received cash of $1,500 on accounts receivable accrued in prior month. g. Determined that the Allowance for Bad Debts balance should be increased by $1,200. h. Recognized bank service charges of $50 for the month. i. Received $50 cash for interest receivable that had been accrued in a prior month. j. Purchased 10 units of a new item of inventory on account at a cost of $55 each. k. Purchased 10 more units of the above item at a cost of $58 each. [assume either with cash or on account] l. Sold 15 of the items purchased for Inventory (in j and k above), and recognized the cost of goods sold using the FIFO cost‑flow assumption. 3. Bad Debt Analysis – Allowance Account On January 1, 2010 the balance in Zenith Co.’s Accounts Receivable was $200,000 and Allowance for Bad Debts account was $15,200. a. Based on the state of the economy, management decides to increase the provision for bad debts by $3,000. Record this adjusting entry by: Journal entry title Debit Credit <… OR by filling in the horizontal model below> Assets Liabilities Owners’ Equity Net Income Revenues Expenses b. After a comprehensive review of its customers, Zenith decides that customers owing it $4,200 will never pay what they owe. The company had previously made provisions for possible bad debts. Record this adjusting entry by: Journal entry title Debit Credit <… OR by filling in the horizontal model below> Assets Liabilities Owners’ Equity Net Income Revenues Expenses c. After these transactions what was the NET Accounts Receivable? (Hint: The balance of any account will always be the Beginning Balance + Additions – Subtractions = Ending Balance.) Before Transactions a) Create New Provisions for Bad Debt Balance after (a) b) Write-off $4200 of Bad Debts c) Ending Balance Gross Accounts Receivable +200,000 Allowance for Bad Debts -15,200 Net Accounts Receivable +184,800 Net Income 4. Notes Receivable – Interest accrual and collection Apollo, Inc. accepted a 10-month 10.8% (annual rate) $8,500 note from one of its customers on September 15th, interest is payable with the principal at maturity. Calculate how much interest income will have accrued by December 31st. Show interest calculation in space here … Then record the interest earned by Apollo during the year ended Dec. 31st Assets Liabilities Owners’ Equity Revenues Expenses <… OR by filling in the journal entry below> Journal entry title Debit Credit Calculate the total amount of interest earned on the note by maturity. Show calculations here … Then record collection of the note and interest at maturity Assets Liabilities Owners’ Equity Revenues Expenses <… OR by filling in the journal entry below> Journal entry title Debit Credit 5. Capitalizing versus Expensing For each of the following expenditures, indicate the type of account (Capitalize into asset or Expensed) in which the expenditure should be recorded. Also explain your answers. a. $15,000 annual cost of routine repair and maintenance expenditures for a fleet of delivery vehicles. Put answer here … b. $60,000 cost to develop a coal mine, from which an estimated 1 million tons of coal can be extracted. Put answer here … c. $124,000 cost to replace the roof on a building. Put answer here … d. $4,000 cost of grading and leveling land so that a building can be constructed. Put answer here … 6. Calculating Depreciation Jones Manufacturing buys a new injection moulding machine for $10,000. It has an estimated economic life of 5 years at the end of which the used machine could be sold for $1,000. a. What would be the straight line depreciation amount on the machine in the first year? b. If Jones uses double declining balance accelerated depreciation method, what would be the depreciation in the first and second year? 7. Effect of depreciation on ROI Alpha Inc. and Beta Co. are sheet metal processors that supply component parts for consumer product manufacturers. Alpha has been in business since 1980 and is operating in its original plant facilities. Much of its equipment was acquired in the 1980s. Beta was stared two years ago and acquired its building and equipment (new) then. Each firm has about the same sales revenue and material and labor costs are about the same for each firm. What would you expect Alpha’s ROA (Return on Assets = Net Income / Assets) to be relative to Beta’s? Explain your answer. What are the implications of this ROA difference for a firm seeking to enter an established industry? CLICK HERE TO GET THE ANSWER !!!!

1.   Identify accounts by category in the financial statements 

Identify the category for each of the following financial accounts and in which financial statement those accounts appear:

2013 Spring2

Category

Financial Statement

Assets

A

Balance Sheet

BS

Liability

L

Income Statement

IS

Owners’ Equity

OE

 

 

Revenue

R

 

 

Expense

E

 

 

Gain

G

 

 

Loss

LS

 

 

 

Instructions: classify using abbreviations, A, L, OE, R, E, G, LS in column 2 and BS or IS in column 3 below:>

 

 

Category

Financial Statement(s)

Cash…………………………………

A

BS

Accounts payable…………….……………..

 

 

Common stock………………………………

 

 

Depreciation expense………………………..

 

 

Net sales……………………………………..

 

 

Income tax expense………………………….

 

 

Short‑term investments……………………...

 

 

Gain on sale of land………………………….

 

 

Retained earnings……………………………

 

 

Dividends payable…………………………..

 

 

Accounts receivable…………………………

 

 

Short‑term debt………………………………

 

 

 

 

 

2.   Transaction analysis – various accounts

For each of the following transactions or adjustments indicate the effect of the transaction or adjustment on the appropriate balance sheet category and on net income by entering for each account affected the amount indicating whether it is an addition / increase (+) or subtraction / decrease (-), following the example of transaction a shown below.  In some cases only one column may be affected because all of the specific accounts affected by the transaction are included in that category.

Instructions: for each row of transaction, fill in the appropriate column with the entry title (e.g. Interest Receivable, Interest Income, Cash, Accounts Receivable, etc.) and the amount with its sign (e.g., +15, +1,000, -1,500, etc.).

The following table is what our Exercises refer to as the horizontal model.  Therefore the Net Income column in the table below really refers to Revenues accounts and Expenses accounts.

 

 

Balance Sheet

 

 

 

Transaction

 

Current Assets

Current Liabilities

Owners Equity

 

Net Income

a.

Accrued interest income of $15 on a Note Receivable.    

+15 Interest Receivable

 

 

+15

Interest Income

b.

Borrowed $1,000 from the bank.

 

 

 

 

c.

Issued new equity to shareholders receiving $500 in cash.

 

 

 

 

d.

Paid $800 of wages for the current month.

 

 

 

 

e.

Paid $2,600 of wages accrued at the end of the prior month.

 

 

 

 

f.

Received cash of $1,500 on accounts receivable accrued in prior month.

 

 

 

 

g.

Determined that the Allowance for Bad Debts balance should be increased by $1,200.                              

 

 

 

 

h.

Recognized bank service charges of $50 for the month.

 

 

 

 

i.

 

Received $50 cash for interest receivable that had been accrued in a prior month.                                     

 

 

 

 

j.

Purchased 10 units of a new item of inventory on account at a cost of $55 each.                                                    

 

 

 

 

k.

Purchased 10 more units of the above item at a cost of $58 each. [assume either with cash or on account]

 

 

 

 

l.

Sold 15 of the items purchased for Inventory                                            

(in j and k above), and recognized the cost of goods sold using the FIFO cost‑flow assumption.                           

 

 

 

 

 


3.  Bad Debt Analysis – Allowance Account

On January 1, 2010 the balance in Zenith Co.’s Accounts Receivable was $200,000 and Allowance for Bad Debts account was $15,200. 

 

a.      Based on the state of the economy, management decides to increase the provision for bad debts by $3,000. Record this adjusting entry by: 

<filling the journal entry below …>

Journal entry title

Debit

Credit

 

 

 

 

 

 

 

 

 

 

 

<… OR by filling in the horizontal model below>

Assets

Liabilities

Owners’ Equity

 

Net Income

Revenues

Expenses

 

 

 

 

 

 

 

 

b.     After a comprehensive review of its customers, Zenith decides that customers owing it $4,200 will never pay what they owe. The company had previously made provisions for possible bad debts.  Record this adjusting entry by: 

<filling the journal entry below…>

Journal entry title

Debit

Credit

 

 

 

 

 

 

 

<… OR by filling in the horizontal model below>

Assets

Liabilities

Owners’ Equity

 

Net Income

Revenues

Expenses

 

 

 

 

 

 

 

 

 

 

c.      After these transactions what was the NET Accounts Receivable?

(Hint: The balance of any account will always be the Beginning Balance + Additions – Subtractions = Ending Balance.)

 

 

Before

Transactions

a) Create New Provisions for Bad Debt

Balance after (a)

b) Write-off $4200 of Bad Debts

c) Ending Balance

Gross Accounts Receivable

+200,000

 

 

 

 

Allowance for Bad Debts

-15,200

 

 

 

 

Net Accounts Receivable

+184,800

 

 

 

 

Net Income

 

 

 

 

 


4.  Notes Receivable – Interest accrual and collection

Apollo, Inc. accepted a 10-month 10.8% (annual rate) $8,500 note from one of its customers on September 15th, interest is payable with the principal at maturity.

 

  1. Calculate how much interest income will have accrued by December 31st. 

Show interest calculation in space here …

 

 

Then record the interest earned by Apollo during the year ended Dec. 31st

<by filling in the horizontal model below …>

Assets

Liabilities

Owners’ Equity

 

Revenues

Expenses

 

 

 

 

 

 

 

<… OR by filling in the journal entry below>

Journal entry title

Debit

Credit

 

 

 

 

 

 

 

 

  1. Calculate the total amount of interest earned on the note by maturity. 

<show any other interest calculations in space here below. Hint: in (a), you calculated interests till end of the year. Here, you calculate the remaining interest from beginning of year till maturity>

Show calculations here …

 

 

Then record collection of the note and interest at maturity

<by filling the horizontal model below …>

Assets

Liabilities

Owners’ Equity

 

Revenues

Expenses

 

 

 

 

 

 

 

<… OR by filling in the journal entry below>

Journal entry title

Debit

Credit

 

 

 

 

 

 

 

 

 

 

 

 

 


5.  Capitalizing versus Expensing

For each of the following expenditures, indicate the type of account (Capitalize into asset or Expensed) in which the expenditure should be recorded.  Also explain your answers.

a.      $15,000 annual cost of routine repair and maintenance expenditures for a fleet of delivery vehicles.

Put answer here …

 

 

b.     $60,000 cost to develop a coal mine, from which an estimated 1 million tons of coal can be extracted.

Put answer here …

 

 

 

c.      $124,000 cost to replace the roof on a building.

Put answer here …

 

 

 

d.     $4,000 cost of grading and leveling land so that a building can be constructed.

Put answer here …

 

 

6.   Calculating Depreciation

Jones Manufacturing buys a new injection moulding machine for $10,000.  It has an estimated economic life of 5 years at the end of which the used machine could be sold for $1,000. 

 

a.      What would be the straight line depreciation amount on the machine in the first year?

 

 

 

b.     If Jones uses double declining balance accelerated depreciation method, what would be the depreciation in the first and second year?

<show calculations below>


7.   Effect of depreciation on ROI

Alpha Inc. and Beta Co. are sheet metal processors that supply component parts for consumer product manufacturers.  Alpha has been in business since 1980 and is operating in its original plant facilities.  Much of its equipment was acquired in the 1980s.  Beta was stared two years ago and acquired its building and equipment (new) then.  Each firm has about the same sales revenue and material and labor costs are about the same for each firm.  What would you expect Alpha’s ROA (Return on Assets = Net Income / Assets)  to be relative to Beta’s?  Explain your answer.  What are the implications of this ROA difference for a firm seeking to enter an established industry?

 

<provide your essay response below>

 



CLICK HERE TO GET THE ANSWER !!!!

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