Cole, Inc., which owes Henry Co. $600,000 in notes payable with accrued interest of $54,000, is in financial difficulty

Cole, Inc., which owes Henry Co. $600,000 in notes payable with accrued interest of $54,000, is in financial difficulty. To settle the debt, Henry agrees to accept from Cole equipment with a fair value of $570,000, an original cost of $840,000, and accumulated depreciation of $195,000.

Instructions
(a) Compute the gain or loss to Cole on the settlement of the debt.
(b) Compute the gain or loss to Cole on the transfer of the equipment.
(c) Prepare the journal entry on Cole's books to record the settlement of this debt.
(d) Prepare the journal entry on Henry's books to record the settlement of the receivable.

Click here for the solution: Cole, Inc., which owes Henry Co. $600,000 in notes payable with accrued interest of $54,000, is in financial difficulty

1. In comparing financial and management accounting, which of the following more accurately describes management accounting information? (Points : 1)

MULTIPLE CHOICE

1. In comparing financial and management accounting, which of the following more accurately describes management accounting information? (Points : 1)

2. One major difference between financial and management accounting is that _______. (Points : 1)

3. Which of the following is not a valid method for determining product cost? (Points : 1)

4. Cost accounting is directed toward the needs of _______. (Points : 1)

5. Financial accounting _______. (Points : 1)

6. Which of the following statements is true? (Points : 1)

7. Which of the following statements is false? (Points : 1)

8. The set of processes that convert inputs into services and products that consumers use is called _______. (Points : 1)

9. The balanced scorecard perspective that focuses on using a firm's intellectual capital to adapt to customer needs through product or service innovations is the ________. (Points : 1)

10. The world has essentially become smaller because of _______. (Points : 1)

11. The term "relevant range" as used in cost accounting means the range over which ______. (Points : 1)

12. When cost relationships are linear, total variable prime costs will vary in proportion to changes in ______. (Points : 1)

13. An example of a fixed cost is _______. (Points : 1)

14. A(n) ____ cost increases or decreases in intervals as activity changes. (Points : 1)

15. When the number of units manufactured increases, the most significant change in unit cost will be reflected as a(n) ________. (Points : 1)

16. A cost driver _______. (Points : 1)

17. Product costs are deducted from revenue _______. (Points : 1)

18. Which of the following is not a product cost component? (Points : 1)

19. Davis Company manufacturers desks. The beginning balance of Raw Material Inventory was $4,500; raw material purchases of $29,600 were made during the month. At month end, $7,700 of raw material was on hand. Raw material used during the month was _______. (Points : 1)

20. Urban Company manufacturers tables. If raw material used was $80,000 and Raw Material Inventory at the beginning and end of the period, respectively, was $17,000 and $21,000, what was amount of raw material was purchased? (Points : 1)

Click here for the solution: 1. In comparing financial and management accounting, which of the following more accurately describes management accounting information? (Points : 1)

The management of Idaho Produce is considering an increase in its use of financial leverage

16-10A. (Analysis of recessionary cash flows) The management of Idaho Produce is considering an increase in its use of financial leverage. The proposal on the table is to sell $10 million of bonds that would mature in 20 years. The interest rate on these bonds would be 15 percent. The bond issue would have a sinking fund attached to it requiring that one-twentieth of the principal be retired each year. Most business economists are forecasting a recession that will affect the entire economy in the coming year. Idaho’s management has been saying, “If we can make it through this, we can make it through anything.” The firm prefers to carry an operating cash balance of $1 million. Cash collections from sales next year will total $4 million. Miscellaneous cash receipts will be $300,000. Raw material payments will be $800,000. Wage and salary costs will total $1.4 million on a cash basis. On top of this, Idaho will experience nondiscretionary cash outflows of $1.2 million including all tax payments. The firm faces a 50 percent tax rate.

a. At present, Idaho is unlevered. What will be the total fixed financial charges the firm must pay next year?

b. If the bonds are issued, what is your forecast for the firm’s expected cash balance at the end of the recessionary year (next year)?

c. As Idaho’s financial consultant, do you recommend that it issue the bonds?

Click here for the solution: The management of Idaho Produce is considering an increase in its use of financial leverage

Selected balances from a company's financial statements are shown below. Calculate the following ratios for 2012

Selected balances from a company's financial statements are shown below. Calculate the following ratios for 2012:

(a) accounts receivable turnover
(b) inventory turnover
(c) days' sales uncollected
(d) days' sales in inventory
(e) profit margin.
(f) return on total assets.

December 31 December 31
For the 2012 2011 Year 2012
Accounts receivable……………………. $ 27,000 $ 24,000
Merchandise inventory………………. 25,000 20,000
Total assets…………………………………. 296,000 244,000
Accounts payable………………………… 26,000 32,000
Salaries payable…………………………… 3,000 4,400
Sales (all on credit)………………………. $312,000
Cost of goods sold……………………….. 165,600
Salaries expenses………………………… 48,000
Other expenses…………………………… 75,000
Net income………………………………….. 24,000

Click here for the solution: Selected balances from a company's financial statements are shown below. Calculate the following ratios for 2012

Selected balances from a company's financial statements are shown below

Selected balances from a company's financial statements are shown below. Calculate the following ratios for 2012:

(a) accounts receivable turnover
(b) inventory turnover
(c) days' sales uncollected
(d) days' sales in inventory
(e) profit margin.
(f) return on total assets.

December 31 December 31
For the 2012 2011 Year 2012
Accounts receivable……………………. $ 27,000 $ 24,000
Merchandise inventory………………. 25,000 20,000
Total assets…………………………………. 296,000 244,000
Accounts payable………………………… 26,000 32,000
Salaries payable…………………………… 3,000 4,400
Sales (all on credit)………………………. $312,000
Cost of goods sold……………………….. 165,600
Salaries expenses………………………… 48,000
Other expenses…………………………… 75,000
Net income………………………………….. 24,000

Click here for the solution: Selected balances from a company's financial statements are shown below

Use the financial data shown below to calculate the following ratios for the current year

Use the financial data shown below to calculate the following ratios for the current year:

(a) Current ratio.
(b) Acid-test ratio.
(c) Accounts receivable turnover.
(d) Days' sales uncollected.
(e) Inventory turnover.
(f) Days' sales in inventory.

Income statement data
Sales (all on credit)……………………………………………….. $650,000
Cost of goods sold…………………………………………………. 425,000
Income before taxes……………………………………………. 78,000
Net Income…………………………………………………………… 54,000

Ending Beginning
Balances Balances
Cash…………………………………………………………….. $ 19,500 $ 15,000
Accounts receivable (net)………………………….. 65,000 60,000
Inventory…………………………………………………… 71,500 64,500
Plant and equipment (net) ………………………… 195,000 183,900
Total assets………………………………………………… $351,000 $323,400

Current liabilities…………………………………………. $ 62,400 $ 52,700
Long-term notes payable ……………………………. 97,500 100,000

Click here for the solution: Use the financial data shown below to calculate the following ratios for the current year

Deer Park, a public camping ground near the Lake Mead National Recreation Area, has compiled the following financial information as of December 31, 2008

ACC 557 Week 1 Assignment

E1-14 Deer Park, a public camping ground near the Lake Mead National Recreation Area, has compiled the following financial information as of December 31, 2008.

Revenues during 2008—camping fees $140,000 Notes payable $ 60,000
Revenues during 2008—general store 50,000 Expenses during 2008 150,000
Accounts payable 11,000 Supplies on hand 2,500
Cash on hand 23,000 Common stock 20,000
Original cost of equipment 105,500 Retained earnings ?
Market value of equipment 140,000

Instructions
(a) Determine Deer Park’s net income for 2008.
(b) Prepare a balance sheet for Deer Park as of December 31, 2008.

Click here for the solution: Deer Park, a public camping ground near the Lake Mead National Recreation Area, has compiled the following financial information as of December 31, 2008

Given the following financial statements (below and on page 96), historical ratios, and industry averages, calculate Sterling Company’s financial ratios

Integrative—Complete ratio analysis

Given the following financial statements (below and on page 96), historical ratios, and industry averages, calculate Sterling Company’s financial ratios for the most recent year. (Assume a 365-day year.) Analyze its overall financial situation from both a cross-sectional and a time-series viewpoint. Break your analysis into evaluations of the firm’s liquidity, activity, debt, profitability, and market.

Click here for the solution: Given the following financial statements (below and on page 96), historical ratios, and industry averages, calculate Sterling Company’s financial ratios

Amalgamated General Corporation is a consulting firm that also offers financial services through its credit division

P 12-7 Securities held-to-maturity, securities available for sale, and trading securities

Amalgamated General Corporation is a consulting firm that also offers financial services through its credit division. From time to time the company buys and sells securities intending to earn profits on short-term differences in price. The following selected transactions relate to Amalgamated's investment activities during the last quarter of 2011 and the first month of 2012. The only securities held by Amalgamated at October 1 were $30 million of 10% bonds of Kansas Abstractors, Inc., purchased on May 1 at face value. The company's fiscal year ends on December 31.

2011
Oct. 18 Purchased 2 million preferred shares of Millwork Ventures Company for $58 million as a speculative investment to be sold under suitable circumstances.
31 Received semiannual interest of $1.5 million from the Kansas Abstractors bonds.
Nov. 1 Purchased 10% bonds of Holistic Entertainment Enterprises at their $18 million face value, to be held until they mature in 2018. Semiannual interest is payable April 30 and October 31.
1 Sold the Kansas Abstractors bonds for $28 million because rising interest rates are expected to cause their fair value to continue to fall.
Dec. 1 Purchased 12% bonds of Household Plastics Corporation at their $60 million face value, to be held until they mature in 2028. Semiannual interest rate is payable May 31 and November 30.
20 Purchased U.S. Treasury bonds for $5.6 million as trading securities, hoping to earn profits on short-term differences in prices.
21 Purchased 4 million common shares of NXS Corporation for $44 million as trading securities, hoping to earn profits on short-term differences in prices.
23 Sold the Treasury bonds for $5.7 million.
29 Received cash dividends of $3 million from the Millwork Ventures Company preferred shares.
31 Recorded any necessary adjusting entry(s) and closing entries relating to the investments. The market share of the Millwork Ventures Company preferred stock was up $27.50 per share and $11.50 per share for the NXS Corporation common. The fair values of the bond investments were $58.7 million for Household Plastics Corporation and $16.7 million for Holistic Entertainment Enterprises.

2012
Jan. 7 Sold the NXS Corporation common shares for $43 million.

Required:
Prepare the appropriate journal entry for each transaction or event.

Click here for the solution: Amalgamated General Corporation is a consulting firm that also offers financial services through its credit division

The following differences between financial and taxable income were reported by Dider Corporation for the current year

2. The following differences between financial and taxable income were reported by Dider Corporation for the current year.

(a) Excess of tax depreciation over book depreciation $60,000
(b) Interest revenue on municipal bonds $9,000
(c) Excess of estimated warranty expense over actual expenditures $54,000
(d) Unearned rent received $12,000
(e) Amortization of goodwill $30,000
(f) Excess of income reported under percentage-of-completion accounting for financial reporting over competed-contract accounting used for tax reporting $45,000
(g) Interest on indebtedness incurred to purchase tax-exempt securities $3,000
(h) Unrealized losses on marketable securities recognized for financial reporting $18,000

Assume that Dider corp. had pretax accounting income [before considering items (a) through (h)] of $900,000 for the current year. Compute the taxable income for the current year. Write your figures in the form attached and show all your work

Click here for the solution: The following differences between financial and taxable income were reported by Dider Corporation for the current year

A partial statement of financial position of Century University is shown below

P19-3: Various Funds-University

A partial statement of financial position of Century University is shown below.

Century University
Partial Statement of Financial Position
June 30, 2007
Assets
Current Funds
Unrestricted
Cash $210,000
Accounts Receivable (less allowance for doubtful accounts, $9,000) 341,000
State Appropriations Receivable 75,000
Total Unrestricted 626,000
Restricted
Cash 7,000
Investments 60,000
Total Restricted 67,000
Total Current $693,000
Liabilities and Fund Balances
Current Funds
Unrestricted
Accounts Payable $ 45,000
Deferred Revenues 66,000
Fund Balance 515,000
Total Unrestricted 626,000
Restricted
Fund Balance 67,000
Total Restricted 67,000
Total Current $693,000

During the fiscal year ended June 30, 2008, the following transactions occurred:

1. A gift of $100,000 was received from an alumnus on July 7, 2007. One-half of the gift was to be used for the purchase of books for the university’s library and the rest was to be used to establish a scholarship fund per the alumnus’s request. It was also requested that the income generated by the scholarship fund be awarded annually as a scholarship for a qualified disadvantaged student. The board decided that the funds for the new scholarship should be invested in savings certificates on July 20, 2007. These savings certificates were puchased on July 21, 2007.
2. Revenue for the fiscal period from student tuition and fees amounted to $1,900,000. During the fiscal year, $1,686,000 of this amount was collected; $66,000 had been collected in the prior year. The university had also received $158,000 by June 30, 2008, for fees for the session beginning July 1, 2008.
3. During the year ended June 30, 2008, the university collected $349,000 of the outstanding accounts receivable at the beginning of the year. The balance was determined to be uncollectible and was written off against the allowance account. At June 30, 2008, the allowance account was increased by $3,000.
4. Because of late student fee payments, $6,000 in interest charges were earned and collected.
5. The state appropriation was received. Another unrestricted appropriation of $50,000 was made by the state. This had not been paid to the university by the fiscal year-end.
6. An unrestricted gift of $25,000 cash was received from alumni of the university.
7. During the year, investments of $21,000 were sold for $26,000. Investment income amounting to $1,900 was received.
8. Unrestricted operating expenses were recorded at $1,777,000, $59,000 of which remains unpaid.
9. Restricted current funds of $13,000 were spent for authorized purposes during the year.
10. The accounts payable at June 30, 2007, were paid during the year.
11. During the year, $7,000 interest was earned and received on the savings certificates purchased in accordance with the board’s resolution [in item (1)].

Required:
A. Prepare journal entries to record in summary form the transactions above for the year ended June 30, 2008. Each journal entry should be numbered to correspond with the transaction described above. Set up the following headings:
B. Prepare a statement of activities for the year ended June 30, 2008.
C. Prepare a statement of activities for the current funds for the year ended June 30, 2008. Include more details about the revenues and expenses.

Click here for the solution: A partial statement of financial position of Century University is shown below

During her first quarter review of the financial statements, Debra Bell, the CFO of HAL Computer Corporation

Problem 12-7 Foreign Currency Risk

During her first quarter review of the financial statements, Debra Bell, the CFO of HAL Computer Corporation, was distressed to notice the company’s transaction loss had been steadily increasing each month. HAL is a publicly held manufacturer of “PC clone” personal computers. Like most manufacturers of its kind, HAL does not manufacture domestically but utilizes lower cost offshore suppliers for components and subcontractors for assembly. As it is HAL’s policy to denominate foreign contracts in U.S. dollars whenever possible, the increase in transaction losses was particularly puzzling. Subsequent conversations with HAL’s controller, Tom Stewart, revealed all new contracts had been denominated in foreign currencies (primarily the South Korean won and Taiwanese dollar) in order to obtain more favorable purchase terms. Further, Mr. Stewart believed that the U.S. dollar would strengthen due to it being an election year. Since these contracts specify delivery and payment at various dates over the next 12 months, tremendous potential for exposure exists for the company if the dollar continues to decline against the major foreign currencies.

Required:
A. Mr. Stewart executed all new foreign contracts in foreign currencies in the belief it would help the company. (1) Do you think he was justified in his actions given the company policy? (2) On what basis did you decide if the controller was justified or not? (3) Was the loss a factor in your decision? Is this appropriate?
B. A substantial amount of foreign denominated contracts already exist for goods and services not yet received. (1) What actions may HAL take to minimize potential losses? (2) What are the advantages and disadvantages of these actions? (3) What implication does each of these scenarios have for financial statement disclosure?
C. Assume that you are Ms. Bell, and you are concerned about how the Board of Directors and the stockholders may react. Additionally, you are about to purchase a new home and are planning to sell some HAL stock for the down payment. (1) After carefully considering all of your options, what action do you decide to take? (2) Did concern over the Board, stockholders, or HAL’s stock price enter into your decision? Why or why not?

Click here for the solution: During her first quarter review of the financial statements, Debra Bell, the CFO of HAL Computer Corporation

Research 15-2 FASB codification; locate and extract relevant information and authoritative support for a financial reporting issue;

Research 15-2 FASB codification; locate and extract relevant information and authoritative support for a financial reporting issue; capital lease; sublease of a leased asset

“I don't see that in my intermediate accounting text I saved from college,” you explain to another member of the accounting division of Dowell Chemical Corporation. “This will take some research.” Your comments pertain to the appropriate accounting treatment of a proposed sublease of warehouses Dowell has used for product storage.

Required:
1. After the first full year under the warehouse lease, what is the balance in Dowell's lease liability? An amortization schedule will be helpful in determining this amount.
2. After the first full year under the warehouse lease, what is the carrying amount (after accumulated depreciation) of Dowell's leased warehouses?
3. Obtain the relevant authoritative literature on accounting for derecognition of capital leases by lessees using the FASB's Codification Research System. You might gain access from the FASB website (www.fasb.org), from your school library, or some other source. Determine the appropriate accounting treatment for the proposed sublease. What is the specific Codification citation that Dowell would rely on to determine:
a. if the proposal to sublease will qualify as a termination of a capital lease, and
b. the appropriate accounting treatment for the sublease?
4. What, if any, journal entry would Dowell record in connection with the sublease?

Click here for the solution: Research 15-2 FASB codification; locate and extract relevant information and authoritative support for a financial reporting issue;

Selected financial statement information and additional data for Johnston Enterprises is presented below

Selected financial statement information and additional data for Johnston Enterprises is presented below. Prepare a statement of cash flows for the year ending December 31, 2010

Johnston Enterprises
Balance Sheet and Income Statement Data
December 31, December 31,
2010 2009___
Current Assets:
Cash $153,000 $119,000
Accounts Receivable 238,000 306,000
Inventory 391,000 340,000
Total Current Assets 782,000 765,000

Property, Plant, and Equipment 1,241,000 1,122,000
Less: Accumulated Depreciation (476,000) (442,000)
Total Assets $1,547,000 $1,445,000

Current Liabilities:
Accounts Payable $187,000 $102,000
Notes Payable 51,000 68,000
Income Tax Payable 85,000 76,500
Total Current Liabilities 323,000 246,500

Bonds Payable 340,000 391,000
Total Liabilities 663,000 637,500

Stockholders' Equity:
Common Stock 510,000 467,500
Retained Earnings 374,000 340,000
Total Stockholders' Equity 884,000 807,500
Total Liabilities & Stockholders' Equity $1,547,000 $1,445,000

Sales 1,615,000 $1,513,000
Less Cost of Goods Sold 731,000 731,000
Gross Profit 884,000 782,000
Expenses:
Depreciation Expense 153,000 136,000
Salary Expense 391,000 357,000
Interest Expense 34,000 34,000
Loss on Sale of Equipment 17,000 0
Income Before Taxes 289,000 255,000
Less Income Tax Expense 119,000 102,000
Net Income $170,000 $153,000

Additional Information:
During the year, Johnston sold equipment with an original cost of $153,000 and accumulated depreciation of $119,000 and purchased new equipment for $272,000.

Click here for the solution: Selected financial statement information and additional data for Johnston Enterprises is presented below

Presented below are the financial statements of Weller Company

ACC 560 Week 9 Assignment

P13-7A Presented below are the financial statements of Weller Company.

WELLER COMPANY
Comparative Balance Sheets
December 31
Assets 2008 2007
Cash $ 35,000 $ 20,000
Accounts receivable 33,000 14,000
Merchandise inventory 27,000 20,000
Property, Plant and Equipment 60,000 78,000
Accumulated depreciation (29,000) (24,000)
Total $126,000 $108,000

Liabilities and Stockholders' Equity
Accounts payable $ 29,000 $ 15,000
Income taxes payable 7,000 8,000
Bonds payable 27,000 33,000
Common stock 18,000 14,000
Retained earnings 45,000 38,000
Total $126,000 $108,000

WELLER COMPANY
Income Statement
For the Year Ended December 31, 2008
Sales $242,000
Cost of goods sold 175,000
Gross profit 67,000
Selling expenses $18,000
Administrative expenses 6,000 24,000
Income from operations 43,000
Interest expense 3,000
Income before income taxes 40,000
Income tax expense 8,000
Net income $ 32,000

Additional data:
1. Dividends declared and paid were $25,000.
2. During the year equipment was sold for $8,500 cash. This equipment cost $18,000 originally and had a book value of $8,500 at the time of sale.
3. All depreciation expense, $14,500, is in the selling expense category.
4. All sales and purchases are on account.

Instructions
Prepare a statement of cash flows using the indirect method.


Click here for the solution: Presented below are the financial statements of Weller Company

Jarman Consulting Inc. provides financial and estate planning services on a retainer basis for the executive officers of its corporate clients

Jarman Consulting Inc. provides financial and estate planning services on a retainer basis for the executive officers of its corporate clients. It incurred the following labor costs on services for three corporate clients during March 2006:

Direct Labor
Contract 1 $12,000
Contract 2 7,200
Contract 3 28,800
Total $48,000

Jarman allocated March overhead costs of $21,600 to the contracts based on the amount of direct labor costs incurred on each contract.

Required
a. Assuming the revenue from Contract 3 was $65,600, what amount of income did Jarman earn from this contract?
b. Based on the preceding information, will Jarman report finished goods inventory on its balance sheet for Contract 1? If so, what is the amount of this inventory? If not, explain why not.


Click here for the solution: Jarman Consulting Inc. provides financial and estate planning services on a retainer basis for the executive officers of its corporate clients

Comparative financial statement data of Danfield, Inc., follow

P15-26A Using ratios to evaluate a stock investment

Comparative financial statement data of Danfield, Inc., follow:

DANFIELD, INC.
Comparative Income Statement
Years Ended December 31, 2012 and 2011
2012 2011

Net Sales $467,000 $428,000
Cost of goods sold 237,000 218,000
Gross profit $230,000 $210,000
Operating expenses 136,000 134,000
Income from operations $94, 000 $76, 000
Interest expense 9,000 10,000
Income before income tax $85,000 $66,000
Income tax expenses 24,000 27,000
Net income $61,000 $39, 000

DANFIELD, INC.
Comparative Income Statement
Years Ended December 31, 2012 and 2011
2012 2011 2010*

Current assets:
Cash $97,000 $95,000
Current recievables, net 112,000 118,000 $102,000
Inventories 145,000 163,000 203,000
Prepaid expenses 12,000 5,000
Total current assets $366,000 $381,000
Property, plant, and equipment, net 211,000 179,000
Total assets $577,000 $560,000 598,000

Total current liabilities $225,000 $246,000
Total liabilities $339,000 $343,000
Preferred stock, 3% 108, 000 108,000
Common stockholders’ equity , no par 130,000 109, 000
Total liabilities and stockholders’ equity $577,000 $560,000

• Selected 2010 amounts

1. Market price of Danfield’s common stock: $86.58 at December 31, 2012, and $46.54 at December 31, 2011.
2. Common shares outstanding: 12, 000 during 2012 and 10,000 during 2011 and 2010.
3. All sales on credit.

Requirements
1. Compute the following ratios for 2012 and 2011:
a. Current ratio
b. Times-interest earned ratio
c. Inventory turnover
d. Gross profit percentage
e. Debt to equity ratio
f. Rate of return on common stockholder’s equity
g. Earnings per share of common stock
h. Price/earnings ratio
2. Decide (a) whether Danfield’s ability to pay debts and to sell inventory improved or deteriorated during 2012 and (b) whether the investment attractiveness of its common stock appears to have increased or decreased.


Click here for the solution: Comparative financial statement data of Danfield, Inc., follow

Allison, CPA has completed the audit of the financial statements of Optima Corporation as of and for the year ended December 31, 2009

Auditing P 3-27  Allison, CPA has completed the audit of the financial statements of Optima Corporation as of and for the year ended December 31, 2009. Allison also audited and reported on the Optima financial statements for the prior year. Allison drafted the following report for 2009.

We have audited the balance sheet and statements of income and retained earnings of Optima Corporation as of December 31, 2009. We conducted our audit in accordance with generally accepted accounting standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of misstatement.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly the financial position of Optima Corporation as of December 31, 2009, and the results of its operations for the year then ended in conformity with generally accepted auditing standards, applied on a basis consistent with those of the preceding year.
Allison, CPA
(signed)

Other Information
-Optima is presenting comparative financial statements.
-Optima does not wish to present a statement of cash flows for either year.
-During 2009, Optima changed its method of accounting for long-term construction contracts and properly reflected the effect of the change in the current year's financial statements and restated the prior year's statements. Allison is satisfied with Optima's justification for making the change. The change is discussed in footnote 12.
- Allison was unable to perform normal accounts receivable confirmation procedures, but alternative procedures were used to satisfy Allison as to the existence of the receivables.
-Optima Corporation is the defendant in a litigation, the outcome of which is highly uncertain. If the case is settled in favor of the plaintiff, Optima will be required to pay a substantial amount of cash, which might require the sale of certain fixed assets. The litigation and the possible effects have been properly disclosed in footnote 11.
-Optima issued debentures on January 31, 2008, in the amount of $10 million. The funds obtained from the issuance were used to finance the expansion of plant facilities. The debenture agreement restricts the payment of future cash dividends to earnings after December 31, 2013. Optima declined to disclose this essential data in the footnotes to the financial statements.

Required:
a. Identify and explain any items included in "Other Information" that need not be part of the auditor's report.
b. Explain the deficiencies in Allison's report as drafted.


Click here for the solution: Allison, CPA has completed the audit of the financial statements of Optima Corporation as of and for the year ended December 31, 2009

The client has presented all required financial statements with the exception of the statement of cash flows

MULTIPLE CHOICE

Question 1
The client has presented all required financial statements with the exception of the statement of cash flows. The auditor has completed the audit and is satisfied that all other statements are presented fairly. The auditor:

Question 2
A CPA may wish to emphasize specific matters regarding the financial statements even though an unqualified opinion will be issued. Normally, such explanatory information is:

Question 3
Examples of unqualified opinions which contain modified wording (without adding an explanatory paragraph) include:

Question 4
When the auditor determines the financial statements are fairly stated and then determines that the auditor lacks independence, the auditor should issue:

Question 5
Which of the following is not a change that affects consistency and, therefore, does not
require an explanatory paragraph?

Question 6
The audit report date on a standard unqualified report indicates:

Question 7
GAAP requires that changes in accounting principles be to a:

Question 8
If the balance sheet of a company is dated December 31, 2009, the audit report is dated February 8, 2010, and both are released on February 15, 2010, this indicates that the auditor has searched for subsequent events that occurred up to:

Question 9
The purpose of the introductory paragraph in the standard unqualified report is:

Question 10
The introductory paragraph of the standard audit report states that the auditor is:


Click here for the solution: The client has presented all required financial statements with the exception of the statement of cash flows

How do accounting principles affect financial statement analysis?

14. How do accounting principles affect financial statement analysis?


Click here for the solution: How do accounting principles affect financial statement analysis?