1. A contingent loss should be reported in a footnote to the financial statements rather than being accrued if: (Points : 1)

MULTIPLE CHOICE

1. A contingent loss should be reported in a footnote to the financial statements rather than being accrued if: (Points : 1)

2. Which of the following investment securities held by Zoogle Inc. may be classified as held-to-maturity securities in its balance sheet? (Points : 1)

3. Large, highly rated firms sometimes sell commercial paper: (Points : 1)

4. Which of the following increases the investment account under the equity method of accounting? (Points : 1)

5. When the equity method of accounting for investments is used by the investor, the investment account is increased when: (Points : 1)

6. Which of the following is a contingency that would most likely require accrual? (Points : 1)

7. When a product or service is delivered for which a customer advance has been previously received, the appropriate journal entry includes: (Points : 1)

8. Other things being equal, most managers would prefer to report liabilities as noncurrent rather than current. The logic behind this preference is that the long-term classification permits the company to report: (Points : 1)

9. The key accounting considerations relating to accounts payable are: (Points : 1)

10. The investment category for which the investor's "positive intent and ability to hold" is important is: (Points : 1)

Click here for the solution: 1. A contingent loss should be reported in a footnote to the financial statements rather than being accrued if: (Points : 1)

Ethics Case: It is the responsibility of management to apply accounting standards when communicating with investors and creditors through financial statements

Ethics Case 1-8 The auditors’ responsibility

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 company's 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 company's financial statement because the auditors' fees for performing the audit are paid for by the company. In addition to the audit fee, quite often the auditor performs other services for the company such as preparing the company's income tax returns.

How might an auditor's ethics be challenged while performing an audit?

Click here for the solution: Ethics Case: It is the responsibility of management to apply accounting standards when communicating with investors and creditors through financial statements

If a misstatement is immaterial to the financial statements of the entity for the current period, but is expected to have a material effect in future periods

AUDITING MULTIPLE CHOICE

1. (TCO 2) If a misstatement is immaterial to the financial statements of the entity for the current period, but is expected to have a material effect in future periods, it is appropriate to issue a(n): (Points: 2)

2. (TCO 2) When a client has not applied GAAP consistently from the prior year to the current year, the auditor does not concur with the appropriateness of the change, and the change in GAAP has a material effect on the financial statements, the auditor should issue a(n): (Points: 2)

3. (TCO 2) Which of the following is not an essential condition for issuing the standard unqualified audit opinion? (Points: 2)

4. (TCO 2) An adverse opinion is issued when the auditor believes: (Points: 2)

5. (TCO 11) A principal purpose of a letter of representation from management is to (Points: 2)

6. (TCO 11) A client representation letter is: (Points: 2)

7. (TCO 11) Inquiries of management regarding the possibility of unrecorded contingencies will not be useful in uncovering: (Points: 2)

8. (TCO 11) The audit step most likely to reveal the existence of contingent liabilities is (Points: 2)

9. (TCO 2) The standards which govern the CPA’s association with unaudited financial statements are: (Points: 2)

10. (TCO 2) A CPA firm can issue a compilation report: (Points: 2)

Click here for the solution: If a misstatement is immaterial to the financial statements of the entity for the current period, but is expected to have a material effect in future periods

The primary objective of auditing is to add credibility to the financial statements prepared by management

AUDITING - True or False / Multiple Choice / Matching Type

1. The primary objective of auditing is to add credibility to the financial statements prepared by management. True or False

2. Auditing is not possible in the absence of verifiable data. True or False

3. Compliance with “Statements on Auditing Standards” is mandatory for all auditors. True or False

4. The training called for by the first general standard comes solely from practical experience. True or False

5. The second general standard likens the auditor’s role in an audit to the role of an attorney in a legal case. True or False

6. The susceptibility of an assertion to a material misstatement, assuming that there are no controls, is: (Multiple Choice)

7. The risk that the auditor may unknowingly fail to appropriately modify his or her opinion on financial statements that are materially misstated is: (Multiple Choice)

8. The risk that a material misstatement that could occur in an assertion will not be prevented or detected on a timely basis by the entity’s internal controls is: (Multiple Choice)

9. The least costly form of testing is usually: (Multiple Choice)

10. In practice, the use of analytical procedures has proven to be: (Multiple Choice)

11. Assume the preliminary audit strategy was based on a planned assessed level of control risk at a low level. Based on the final assessed level of control risk, the auditor would need to move substantive tests from interim to year-end and increase the extent of tests of details in order to accommodate a lower acceptable level of detection risk if: (Multiple Choice)

12. Tests of details of transactions generally use evidence from: (Multiple Choice)

13. The auditor would prepare a bank reconciliation using the bank statement obtained from the client and verify major reconciling items and mathematical accuracy when detection risk is: (Multiple Choice)

REQUIRED: For the following specific audit procedures, indicate the assertion that is being tested. Use the following letters, placing your response in the space provided.
A. Existence or occurrence
B. Completeness
C. Valuation or allocation
D. Rights and obligations
E. Presentation and disclosure

14. Examine consignment agreements.

15. Examine check register for the month following year end for disbursements relating to the audit period.

16. Select high dollar items from the perpetual inventory records for inspection/counting during the physical inventory.

17. Select vendor accounts with high activity during the year, and low balance at year-end for confirmation.

18. Examine vehicle registration forms to determine the registered owner.

19. Measuring the amount of monetary errors in transactions and balances is a primary purpose of substantive tests. True or False

20. The extent of substantive tests, in practice means the length of time during which substantive tests are to be performed. True or False

Click here for the solution: AUDITING - True or False / Multiple Choice / Matching Type

(ACC 557 Week 1) The following are users of financial statements

ACC 557 Week 1 Assignment

E1-2 (a) The following are users of financial statements.
______Customers ______Securities and Exchange Commission
______Internal Revenue Service ______Store manager
______Labor unions ______Suppliers
______Marketing manager ______Vice-president of finance
______Production supervisor

Instructions
Identify the users as being either external users or internal users.

(b) The following questions could be asked by an internal user or an external user.
______Can we afford to give our employees a pay raise?
______Did the company earn a satisfactory income?
______Do we need to borrow in the near future?
______How does the company’s profitability compare to other companies?
______What does it cost us to manufacture each unit produced?
______Which product should we emphasize?
______Will the company be able to pay its short-term debts?

Instructions
Identify each of the questions as being more likely asked by an internal user or an external user.

Click here for the solution: (ACC 557 Week 1) The following are users of financial statements

The financial statements of P&G are presented in Appendix 5B or can be accessed at the book’s companion website

The financial statements of P&G are presented in Appendix 5B or can be accessed at the book’s companion website, www.wiley.com/college/kieso.

Refer to these financial statements and the accompanying notes to answer the following questions.

(a) What is the par or stated value of P&G’s preferred stock?
(b) What is the par or stated value of P&G’s common stock?
(c) What percentage of P&G’s authorized common stock was issued at June 30, 2007?
(d) How many shares of common stock were outstanding at June 30, 2007, and June 30, 2006?
(e) What was the dollar amount effect of the cash dividends on P&G’s stockholders’ equity?
(f) What is P&G’s rate of return on common stock equity for 2007 and 2006?
(g) What is P&G’s payout ratio for 2007 and 2006?
(h) What was the market price range (high/low) of P&G’s common stock during the quarter ended June 30, 2007?


Click here for the solution: The financial statements of P&G are presented in Appendix 5B or can be accessed at the book’s companion website

Information from the financial statements of Henderson-Niles Industries included the following at December 31, 2011

Information from the financial statements of Henderson-Niles Industries included the following at December 31, 2011:

Henderson-Niles' net income for the year ended December 31, 2011, is $520 million. The income tax rate is 40%. Henderson-Niles paid dividends of $2 per share on its preferred stock during 2011.

Required:
Compute basic and diluted earnings per share for the year ended December 31, 2011.


Click here for the solution: Information from the financial statements of Henderson-Niles Industries included the following at December 31, 2011

The following information is available for the preparation of the government-wide financial statements for the city of Northern Pines for the year ended June 30, 2012

2-8. The following information is available for the preparation of the government-wide financial statements for the city of Northern Pines for the year ended June 30, 2012:

Expenses:
General government $10,300,000
Public safety 22,900,000
Public works 11,290,000
Health and sanitation 6,210,000
Culture and recreation 4,198,000
Interest on long-term debt, governmental type 621,000
Water and sewer system 11,550,000
Parking system 419,000
Revenues:
Charges for services, general government 1,110,000
Charges for services, public safety 210,000
Operation grant, public safety 698,000
Charges for services, health and sanitation 2,555,000
Operating grant, health and sanitation 1,210,000
Charges for services, culture and recreation 2,198,000
Charges for services, water and sewer 12,578,000
Charges for services, parking system 398,000
Property taxes 27,112,000
Sales taxes 20,698,000
Investment earnings, business-type 319,000
Special item – gain on sale of unused land,
Governmental type 1,250,000
Transfer from governmental activities to
Business-type activities 688,000
Net assets, July 1, 2011, governmental activities 11,222,000
Net assets, July 1, 2011, business-type activities 22,333,000

From the previous information, prepare, in good form, a Statement of Activities for the city of Northern Pines for the year ended June 30, 2012. Northern Pines has no component units.


Click here for the solution: The following information is available for the preparation of the government-wide financial statements for the city of Northern Pines for the year ended June 30, 2012

The Cambridge Cartage Company has partially completed its forecast of next year’s financial statements as follows

The Cambridge Cartage Company has partially completed its forecast of next year’s financial statements as follows.

Cambridge Cartage Company Financial Plan ($000)
Income Statement Balance Sheet
Next Year Next Year
Revenue $17,220 Beginning Ending
Cost/expenses 14,120 ASSETS
EBIT $3,100 Total assets $12,540 $18,330
Interest ? LIABILITIES & EQUITY
EBT ? Current liabilities $410 $680
Tax ? Debt 5,630 ?
EAT ? Equity 6,500 ?
Total L&E $12,540 $18,330

The firm pays interest at 10% on all borrowings and pays a combined state and federal tax rate of 40%. Complete the forecast income statement and balance sheet. Begin by guessing at interest expense as 10% of beginning debt.


Click here for the solution: The Cambridge Cartage Company has partially completed its forecast of next year’s financial statements as follows

The fourth standard of reporting states: "The auditor must either express an opinion regarding the financial statements

16-38 (Types of Engagements and Reports) The fourth standard of reporting states: "The auditor must either express an opinion regarding the financial statements, taken as a whole, or state that an opinion cannot be expressed in the auditor's report. When the auditor cannot express an overall opinion, the auditor should state the reasons therefore in the auditor’s report. In all cases where an auditor's name is associated with financial statements, the auditor should clearly indicate the character of the auditor’s work, if any, and degree of responsibility the auditor is taking in the auditor’s report."

Required:
In each of the following independent situations, indicate how the CPA responds to this standard.
(a) The CPA is engaged to prepare the financial statements for a non-public entity without performing an audit or review.
(b) The CPA is engaged to compile and review the financial statements of a nonpublic company.
(c) The CPA is engaged to prepare the federal and state income tax returns. No other services are provided.
(d) The CPA is engaged to audit the annual financial statements of a public company.
(e) The CPA's name is contained in the client's registration statement that includes audited financial statements for the year ended December 31, 2010, and unaudited financial statements for the three months ended March 31, 2011. The SEC requires the CPA to include in the registration statement consent to the use of the public accounting firm's name in the statement.


Click here for the solution: The fourth standard of reporting states: "The auditor must either express an opinion regarding the financial statements

The financial statements of Ernest Banks Company appear below

P14-7A The financial statements of Ernest Banks Company appear below.

ERNEST BANKS COMPANY
Comparative Balance Sheets
December 31
Assets 2006 2005
Cash $ 23,000 $ 13,000
Accounts receivable 24,000 33,000
Merchandise inventory 20,000 27,000
Prepaid expenses 20,000 13,000
Land 40,000 40,000
Property, plant, and equipment 200,000 225,000
Less: Accumulated depreciation (50,000) (67,500)
Total $277,000 $283,500
Liabilities and Stockholders’ Equity
Accounts payable $ 9,000 $ 18,500
Accrued expenses payable 9,500 7,500
Interest payable 1,000 1,500
Income taxes payable 3,000 2,000
Bonds payable 50,000 80,000
Common stock 123,000 105,000
Retained earnings 81,500 69,000
Total $277,000 $283,500

ERNEST BANKS COMPANY
Income Statement
For the Year Ended December 31, 2006
Revenues
Sales $600,000
Gain on sale of plant assets 2,500 $602,500
Less: Expenses
Cost of goods sold 500,000
Operating expenses (excluding
depreciation) 60,000
Depreciation expense 7,500
Interest expense 5,000
Income tax expense 9,000 581,500
Net income $ 21,000

Additional information:
1. Plant assets were sold at a sales price of $62,500.
2. Additional equipment was purchased at a cost of $60,000.
3. Dividends of $8,500 were paid.
4. All sales and purchases were on account.
5. Bonds were redeemed at face value.
6. Additional shares of stock were issued for cash.

Instructions
Prepare a statement of cash flows for Ernest Banks Company for the year ended December 31, 2006, using the indirect method.


Click here for the solution: The financial statements of Ernest Banks Company appear below

In a working paper for combined financial statements of home office and branch, the branch's net income is included in

MULTIPLE CHOICE

1. In a working paper for combined financial statements of home office and branch, the branch's net income is included in: (Points : 1)

2. If both the home office and the branch of a business enterprise use the perpetual inventory system, a Shipments to Branch ledger account appears in the accounting records of: (Points : 1)

3. The following journal entry (explanation omitted) appeared in the accounting records of Marty Corporation's only branch:
Operating Expenses 600,000
Home Office 600,000
The journal entry indicates that: (Points : 1)

4. Direct out-of-pocket costs of a business combination that are part of the cost of the combinee do not include: (Points : 1)

5. The Income: Branch ledger account is maintained in the accounting records of: (Points : 1)

6. In a business combination, the appropriate accounting for an excess of current fair values the combinee's identifiable net assets over the combinor's cost is to: (Points : 1)

7. The Shipments to Branch ledger account in the accounting records of the home office of a business enterprise: (Points : 1)

8. The business enterprises that enter into a business combination are termed the: (Points : 1)

9. If at the end of an accounting period the balance of the Investment in Branch ledger account in the accounting records of the home office is $20,000 and the balance of the Home Office account in the accounting records of the branch (after the branch recorded closing entries) is $25,500, the most likely explanation for the discrepancy of $5,500 is a: (Points : 1)

10. The Home Office ledger account in the accounting records of a branch is best described as: (Points : 1)


Click here for the solution: In a working paper for combined financial statements of home office and branch, the branch's net income is included in

The condensed financial statements of Westward Corporation for 2009 and 2008 are presented below

The condensed financial statements of Westward Corporation for 2009 and 2008 are presented below.

Westward Corporation Westward Corporation
Balance Sheet Income Statement
December 31, 2009 For the Year Ended December 31, 2009

Assets Revenues $2,000,000
Current assets Expenses
Cash and temporary Cost of goods sold 1,080,000
investments $ 30,000 Selling and administrative
Accounts receivable 70,000 expenses 495,000
Inventories 120,000 Interest expense 30,000
Total current assets 220,000 Total expenses 1,605,000
Property, plant, and Income before income taxes 395,000
equipment (net) 780,000 Income tax expense 140,000
Total assets $1,000,000 Net income $ 255,000

Liabilities and Stockholders' Equity
Current liabilities $ 80,000
Long-term liabilities 300,000
Common stockholders' equity 620,000
Total liabilities and
stockholders' equity $1,000,000

Westward Corporation Westward Corporation
Balance Sheet Income Statement
December 31, 2008 For the Year Ended December 31, 2008

Assets Revenues $2,500,000
Current assets Expenses
Cash and temporary Cost of goods sold 1,750,000
investments $ 40,000 Selling and administrative
Accounts receivable 90,000 expenses 500,000
Inventories 150,000 Interest expense 30,000
Total current assets 280,000 Total expenses 2,280,000
Property, plant, and Income before income taxes 220,000
equipment (net) 800,000 Income tax expense 77,000
Total assets $1,080,000 Net income $ 143,000

Liabilities and Stockholders' Equity
Current liabilities $ 140,000
Long-term liabilities 320,000
Common stockholders' equity 620,000
Total liabilities and
stockholders' equity $1,080,000

Select data from fiscal year 2007:

Inventory: $100,000
Total assets: $900,000
Stockholders’ Equity: $540,000

Instructions
1. Compute the following listed ratios for 2009 and 2008 showing supporting calculations. (5.2 points)
a. Current ratio
b. Debt to total Assets
c. Times interest earned
d. Inventory turnover
e. Profit margin ratio
f. Return on common stockholders' equity
g. Return on assets
2. Perform horizontal and vertical analysis on Westward’s financial statements, show your results. (3.0 points)
3. Assess the financial performance of Westward, given the analysis tools used in questions 1 and 2 above. (5.3 points)
4. If the company wanted to perform industry comparison analysis, what references would you recommend it use? (1.5 points)

Click here for the solution: The condensed financial statements of Westward Corporation for 2009 and 2008 are presented below

Before preparing financial statements for the current year, the chief accountant for Springer Company discovered the following errors in the accounts

E11-16 Before preparing financial statements for the current year, the chief accountant for Springer Company discovered the following errors in the accounts.

The declaration and payment of $50,000 cash dividend was recorded as a debit to Interest Expense $50,000 and a credit to Cash $50,000.
A 10% stock dividend (1,000 shares) was declared on the $10 par value stock when the market value per share was $16. The only entry made was: Retained Earnings (Dr.) $10,000 and Dividend Payable (Cr.) $10,000. The shares have not been issued.
A 4-for-1 stock split involving the issue of 400,000 shares of $5 par value common stock for 100,000 shares of $20 par value common stock was recorded as a debit to Retained Earnings $2,000,000 and a credit to Common Stock $2,000,000.

Instructions
Prepare the correcting entries at December 31.

Click here for the solution: Before preparing financial statements for the current year, the chief accountant for Springer Company discovered the following errors in the accounts

Use the financial statements for Bernard Company from Problem 9-22 to calculate the following for 2012 and 2011

Chapter 9 Problem. Complete the following problem from Chapter 9 and submit to your instructor. Problem: 9-23. This problem will be graded for accuracy.

Use the financial statements for Bernard Company from Problem 9-22 to calculate the following for 2012 and 2011.

a. Working capital
b. Current Ratio
c. Quick Ratio
d. Accounts receivable turnover (beginning receivables at 01/01/2011, was $47,000)
e. Average number of days to collect accounts receivable
f. Inventory turnover (beginning inventory at 01/01/2011, was $140,000)
g. Average number of days to sell inventory
h. Debt to asset ratio
i. Debt to equity ratio
j. Times interest earned
k. Plant assets to long-term debt
l. Net margin
m. Asset turnover
n. Return on investment (ROI)
o. Return on Equity (ROE)
p. Earnings per share
q. Book value per share of common stock
r. Price-earnings ratio (market price per share, 2011, $11.75; 2012, $12.50)
s. Dividend yield on common stock

Click here for the solution: Use the financial statements for Bernard Company from Problem 9-22 to calculate the following for 2012 and 2011

Green, CPA, is auditing the financial statements of Taylor Corporation for the year ended December 31, 20X1

19-23 (Subsequent events) Green, CPA, is auditing the financial statements of Taylor Corporation for the year ended December 31, 20X1. Green plans to complete the fieldwork and sign the auditor’s report about May 10, 20X2. Green is concerned about events and transactions occurring after December 31, 20X1, that may affect the 20X1 financial statements.

Required
a. What are the general types of subsequent events that require Green’s consideration and evaluation?
b. What are the auditing procedures Green should consider performing to gather evidence concerning subsequent events?

Click here for the solution: Green, CPA, is auditing the financial statements of Taylor Corporation for the year ended December 31, 20X1

The fourth standard of reporting states: “The auditor must either express an opinion regarding the financial statements

16-38: The fourth standard of reporting states: “The auditor must either express an opinion regarding the financial statements, taken as a whole, or state that an opinion cannot be expressed in the auditor’s report. When the auditor cannot express an overall opinion, the auditor should state the reasons therefore in the auditor’s report. In all cases in which an auditor’s name is associated with financial statements, the auditor should clearly indicate the character of the auditor’s work, if any, and the degree of responsibility the auditor is taking in the auditor’s report.”

Required
In each of the following independent situations, indicate how the CPA responds to this standard.
a. The CPA is engaged to prepare the financial statements for a nonpublic entity without performing an audit or review.
b. The CPA is engaged to compile and review the financial statements of a nonpublic company.
c. The CPA is engaged to prepare the federal and state income tax returns. No other services are provided.
d. The CPA is engaged to audit the annual financial statements of a public company.
e. The CPA’s name is contained in the client’s registration statement that includes audited financial statements for the year ended December 31, 2010, and unaudited financial statements for the three months ended March 31, 2011. The SEC requires the CPA to include in the registration statement consent to the use of the public accounting firm’s name in that statement.

Click here for the solution: The fourth standard of reporting states: “The auditor must either express an opinion regarding the financial statements

The condensed financial statements of Miller Company for the years 2007-2008 are presented below

The condensed financial statements of Miller Company for the years 2007-2008 are presented below:

Miller Company
Comparative Balance Sheets
As of December 31, 2008 and 2007

2008 2007
Cash $ 420,000 $ 120,000
Receivables (net) 460,000 300,000
Inventories 380,000 340,000
Plant and equipment 1,700,000 1,112,000
Accumulated depreciation (260,000) (192,000)
$2,700,000 $1,680,000

Accounts payable $ 240,000 $ 160,000
Dividends payable -0- 40,000
Bonds payable 400,000 -0-
Common stock ($10 par) 1,520,000 1,200,000
Retained earnings 540,000 280,000
$2,700,000 $1,680,000

Additional data:
Market value of stock at 12/31/08 is $80 per share.
Miller sold 32,000 shares of common stock at par on July 1, 2008.

Miller
Condensed Income Statement
For the Year Ended December 31, 2008

Sales $2,400,000
Cost of goods sold 1,600,000
Gross profit 800,000
Administrative and selling expense 500,000
Net income $ 300,000

Instructions
Compute the following financial ratios by placing the proper amounts in the parentheses provided for numerators and denominators.

Click here for the solution: The condensed financial statements of Miller Company for the years 2007-2008 are presented below

Cato, Inc. is a calendar-year corporation whose financial statements for 2009 and 2010 included errors as follows

Cato, Inc. is a calendar-year corporation whose financial statements for 2009 and 2010 included errors as follows:

Year Ending Inventory Depreciation Expense
2009 $162,000 overstated $135,000 overstated
2010 54,000 understated 45,000 understated

Assume that purchases were recorded correctly and that no correcting entries were made at December 31, 2009, or at December 31, 2010. Ignoring income taxes, by how much should Cato's retained earnings be retroactively adjusted at January 1, 2011?

Click here for the solution: Cato, Inc. is a calendar-year corporation whose financial statements for 2009 and 2010 included errors as follows

Following are financial statements for the Genatron Manufacturing Corporation for 2012 and 2011

Following are financial statements for the Genatron Manufacturing Corporation for 2012 and 2011.

GENATRON MANUFACTURING CORPORATION
Balance sheet
2012 2011
Assets
Cash $40,000 $50,000
Accounts receivable 260,000 200,000
Inventory 500,000 450,000
Total current assets 800,000 700,000

AND SO ON
Income statement
2012 2011
Net sales $1,500,000 $1,300,000
Cost of goods sold 900,000 780,000
Gross profit 600,000 520,000
Expenses:
General & admin 150,000 150,000
Marketing 150,000 130,000
Depreciation 53,000 40,000
Interest 57,000 45,000
Earning before taxes 190,000 155,000
Income taxes 76,000 62,000
Net income $114,000 $93,000

a. Apply Du Pont analysis to both the 2012 and 2011 financial statements’ data.
b. Explain how financial performance differed between 2012 and 2011.

Click here for the solution: Following are financial statements for the Genatron Manufacturing Corporation for 2012 and 2011