Financial statement information about four different companies is as follows

ACC 557 Week 1 Assignment

P1–5A Financial statement information about four different companies is as follows.

Instructions
(a) Determine the missing amounts. (Hint: For example, to solve for (a), Assets _ Liabilities _ Stockholders’ Equity _ $45,000.)
(b) Prepare the retained earnings statement for Yates Company. Assume beginning retained earnings was $20,000.
(c) Write a memorandum explaining the sequence for preparing financial statements and the interrelationship of the retained earnings statement to the income statement and balance sheet.

Karma Yates McCain Dench
Company Company Company Company
January 1, 2008
Assets $ 95,000 $110,000 (g) $170,000
Liabilities 50,000 (d) 75,000 ( j)
Stockholders’ equity (a) 60,000 45,000 90,000
December 31, 2008
Assets (b) 137,000 200,000 (k)
Liabilities 55,000 75,000 (h) 80,000
Stockholders’ equity 60,000 (e) 130,000 170,000
Stockholders’ equity changes in year
Additional investment (c) 15,000 10,000 15,000
Dividends 25,000 (f) 14,000 20,000
Total revenues 350,000 420,000 (i) 520,000
Total expenses 320,000 385,000 342,000 (l)

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Selected sales and operating data for three divisions of three different companies are given below

Selected sales and operating data for three divisions of three different companies are given below:

Division X Division Y Division Z
Sales $900,000 $750,000 $600,000
Average operating assets $600,000 $150,000 $200,000
Net operating income $54,000 $30,000 $10,000
Minimum required rate of return 10% 16% 8%

a. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. Show computations
b. Compute the residual income for each division. Show computations
c. Under which of these methods would they accept an opportunity with a 15% return. Show computations and details

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Estimated cost and operating data for three companies for the upcoming year follow

Estimated cost and operating data for three companies for the upcoming year follow:

Company X Company Y Company Z
Direct labor-hours 80,000 45,000 60,000
Machine-hours 30,000 70,000 21,000
Direct materials cost $400,000 $290,000 $300,000
Manufacturing overhead cost $536,000 $315,000 $480,000

Predetermined overhead rates are computed using the following allocation bases in the three companies:

Allocation Base
Company X Direct labor-hours
Company Y Machine-hours
Company Z Direct materials cost

1. Compute each company's predetermined overhead rate.
2. Assume that Company X works on three jobs during the upcoming year. Direct labor-hours recorded by job are: Job 418, 12,000 hours; Job 419, 36,000 hours; and Job 420, 30,000 hours. How much overhead will the company apply to Work in Process for the year? If actual overhead costs total $530,000 for the year, will overhead be underapplied or overapplied? By how much?


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Companies can gain efficiencies by implementing effective monitoring of their internal control processes

5-42 (Monitoring Activities) Companies can gain efficiencies by implementing effective monitoring of their internal control processes.

Required:
a. Explain the importance of monitoring and provide examples of monitoring.
b. Identify the important monitoring procedures that a company might use in assessing its controls over revenue recognition and costs that might be utilized in each of the following situations:
• A convenience store such as a 7-Eleven
• A chain restaurant such as Olive Garden
• A manufacturing division making rubberized containers for the consumer market
c. Can the auditor focus the assessment of internal control on testing the effectiveness of the company’s monitoring? Discuss and support your conclusion. Discuss, for example, the level of comfort the auditor can get about the effectiveness of other controls by testing the effectiveness of monitoring controls.


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The PCAOB has the authority to set audit standards for all audits of public companies

2-60. (Audit Standards for NonPublic Companies, LO 5, 9, 10) The PCAOB has the authority to set audit standards for all audits of public companies. The AICPA continues to set audit standards for nonpublic companies through its auditing standards board.

Required:
a. What are the pros and cons of having the same audit standards for both public and nonpublic entities?
b. In what ways might you expect auditing standards for audits of nonpublic companies to differ from the standards for public companies? Identify three (there are not necessarily three right or wrong answers-this is an opinion and discussion question only). Identify the rationale for your answers.
c. A CPA is performing an audit of a local municipality. Where should the auditor look to determine audit standards that must be followed?
d. What role should an audit committee play in determining which standards an audit firm will use in auditing their company? Explain.


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Direct Marketing Inc. (DMI) offers database marketing strategies to help companies increase their sales

P 6. Direct Marketing Inc. (DMI) offers database marketing strategies to help companies increase their sales. DMI’s basic package of services includes the design of a mailing piece (either a Direct Mailer or a Store Mailer), creation and maintenance of marketing databases containing information about the client’s target group, and a production process that prints a promotional piece and prepares it for mailing. In its marketing strategies, DMI targets working women ages 25 to 54 who are married with children and who have an annual household income in excess of $50,000. DMI has adopted activity-based management, and its controller is in the process of developing an ABC system. The controller has identified the following primary activities of the
company:

Use database of customers Accounting
Service sales Mailer assembly
Deliver mailers to post office Process orders
Supplies storage Purchase supplies
Client follow-up Design mailer
Database research trends Building maintenance
Schedule order processing Processing cleanup
Personnel Mailer rework

Required
1. Identify the activities that do not add value to DMI’s services.
2. Assist the controller’s analysis by grouping the value-adding activities into the activity areas of the value chain shown in Figure 22-1.
3. State whether each non-value-adding activity is necessary or unnecessary. Suggest how each unnecessary activity could be reduced or eliminated.


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Which of the following companies would be MOST likely to have an operating cycle longer than one year

MULTIPLE CHOICE

1. Which of the following companies would be MOST likely to have an operating cycle longer than one year? (Points : 2)

2. Which of the following investments is NOT reported on the balance sheet at current market value? (Points : 2)

3. Marbella Company has an investment in stock, classified as available-for-sale, with the following information at December 31, 2007:
Cost = $240,000
Market value = $280,000
How would Marbella report this information? (Points : 2)

4. Cash received from the sale of long-term assets is reported as (Points : 2)

5. Emergent Markets Corporation purchased a machine for $200,000 on January 1, 2007. The estimated life is 10 years. What is the book value on the December 31, 2009 balance sheet assuming straight-line depreciation is used and estimated residual value is zero?(Points : 2)

6. The excess of cost over the fair market value of net assets acquired when one company purchases another company should be reported as a(n) (Points : 2)

7. Purple Company owns 25% of the common stock of Marroon after purchasing 45,000 shares of Marroon's stock at a price of $30 per share on January 1, 2007. At the end of the year, Marroon reported net income of $100,000 and paid dividends of $40,000. What is the book value of Purple Company's investment at year-end? (Points : 2)

8. Which statement below is true about a company's operating cycle? (Points : 2)

9. Investments in tangible assets by a company that are intended to be used in the future to manufacture and/or sell products are recorded in the books as (Points : 2)

10. The term "current assets" is usually used to refer to assets that (Points : 2)

11. Meteorite Company sells its Available-For-Sale stock investment at a price of $61 per share. It had originally been purchased at $20 per share and its most recent adjustment had been to a market value of $32 per share. What was the per share realized gain or loss on sale? (Points : 2)

12. Trading and available-for-sale securities are reported on the balance sheet at(Points : 2)

13. Which of the following is NOT an intangible asset? (Points : 2)

14. GAAP requires that intangibles other than goodwill be amortized over a period of: (Points : 2)

15. The "using-up" process or utilization of intangible assets is referred to as (Points : 2)

16. An expenditure that extends the life of an asset or enhances its value is a(n) (Points : 2)

17. The systematic allocation of the cost of a patent to the periods that benefit from its use is (Points : 2)

18. Machinery with a cost of $150,000 and a book value of $52,500 was sold for $15,000 cash plus a note receivable of $27,500. What was the net effect of this sale on the financial statement items listed below?
Assets Net Income (Points : 2)

19. A bond is purchased at a discount. What will happen to the net carrying value of the bond on the balance sheet as its maturity date approaches? (Points : 2)

20. When companies have a temporary surplus of cash, they often invest it in (Points : 2)


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Corporations invest in other companies for all of the following reasons except to

1) Corporations invest in other companies for all of the following reasons except to

2) A typical investment to house excess cash until needed is

3) Pension funds and mutual funds regularly invest in debt and stock securities to

4) On January 1, 2008, Turner Company purchased at face value, a $1,000, 7% bond that pays interest on January 1 and July 1. Turner Company has a calendar year end.
The entry for the receipt of interest on July 1, 2008, is

5) If a short-term debt investment is sold, the Investment account is

6) Steven Co. purchased 30, 6% Johnston Company bonds for $30,000 cash plus brokerage fees of $300. Interest is payable semiannually on July 1 and January 1. The entry to record the December 31 interest accrual would include a

7) If an investor owns less than 20% of the common stock of another corporation as a long-term investment,

8) If the equity method is being used, cash dividends received

9) If one company owns more than 50% of the common stock of another company,

10) The contra-account, Market Adjustment, is also called a(n)

11) The balance in the Unrealized Loss—Equity account will

12) If the cost of an available-for-sale security exceeds its fair value by $40,000, the entry to recognize the loss

13) Which of the following is a major difference when accounting for long-term debt investments versus short-term debt investments?

14) A company that acquires less than 20% ownership interest in another company should account for the stock investment in that company using

15) Securities bought and held primarily for sale in the near term to generate income on short-term price differences are

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Below is a series of cost of goods sold sections for companies B, F, L, & R

E5-15 Below is a series of cost of goods sold sections for companies B, F, L, & R.

B F L R
Beginning Inventory $150 70 1000 (J)
Purchases 1600 1080 (G) 43590
Purchase returns and allowances 40 (D) 290 (K)
Net Purchases (a) 1030 6210 41090
Freight-In 110 (E) (H) 2240
Cost of goods purchased (b) 1280 7940 (L)
Cost of goods available for sale 1820 1350 (I) 49530
Ending Inventory 310 (F) 1450 6230
Cost of goods sold (C) 1230 7490 43300

Fill in the lettered blanks to complete the cost of goods sold sections.

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Three different companies each purchased a machine on January 1, 2008, for $42,000

Problem 6-28 Determining the effect of depreciation expense on financial statements

Three different companies each purchased a machine on January 1, 2008, for $ 42,000. Each machine was expected to last five years or 200,000 hours. Salvage value was estimated to be $2,000. All three machines were operated for 50,000 hours in 2008, 55,000 hours in 2009, 40,000 hours in 2010, 44,000 hours in 2011, and 31,000 hours in 2012. Each of the three companies earned $ 30,000 of cash revenue during each of the five years. Company A uses straight- line depreciation, company B uses double- declining- balance depreciation, and company C uses units- of- production depreciation.

Required Answer each of the following questions. Ignore the effects of income taxes.
a. Which company will report the highest amount of net income for 2008?
b. Which company will report the lowest amount of net income for 2010?
c. Which company will report the highest book value on the December 31, 2010, balance sheet? d. Which company will report the highest amount of retained earnings on the December 31, 2011, balance sheet?
e. Which company will report the lowest amount of cash flow from operating activities on the 2010 statement of cash flows?

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