F4 Intro Assignments

Fraud is an intentional misrepresentation of facts, made for the purpose of persuading

another party to act in a way that causes injury or damage to that acting party.
Charlene Clyde, an accountant for Otto Brothers Limited, discovers that her supervisor,
Bob Lusk, made several errors last year. Overall, the errors overstated the companys net
income by 20%. It is not clear whether the errors were deliberate or accidental. What
should Clyde do?
o Clyde should report the errors to Lusk because Lusk is her Clydes supervisor, and
Lusk is responsible for the errors. If Lusk fails to take action, then Clyde should
report the errors to the manager of the organization. In any event, outsiders who
are relying on Otto Brothers Limiteds financial statements must be made aware of
the need to correct the report net income figure.
List the components of internal control. Briefly describe each component.
o Control environment
Top managers must set the tone at the top to establish a control
environment.
o Information system
Accurate information is essential for success in business.
o Monitoring of controls
Auditors can monitor a companys actions and its financial statements.
o Risk assessment
Each company must evaluate its own risks, based upon its particular line of
business.
o Control procedures
Specific procedures are needed for a good system of internal control.
Separation of duties is essential for safeguarding assets. The person who has custody of
an asset should not also account for the asset. With both duties, the person can steal the
asset and hide the theft by making a false entry in the accounting records.
Identify the other control procedures usually found in a companys system of internal
control besides separation of duties, and tell why each is important.
o Comparison + compliance monitoring
Allows for cross-checking by other people and departments.
o Smart hiring practices
Every important duty must be staffed by a competent and honest person.
o Adequate records
Allows the company to provide an audit trail later for internal or external
auditors.
o Limited access
Only authorized individuals are allowed access to the assets and records of
the company.
o Proper approvals
No transaction should be processed without managements general or
specific approval.
Evaluate the internal controls in each situation as strong or weak, and give the reason for
your answer.

Gerald Munn Construction has strong internal controls. There is a good separation of
duties. Supervisors request the equipment, and the home office purchases the
equipment.
o Redstone, Inc., has weak internal controls. There is not a good separation of duties.
Supervisors request the equipment and purchase the equipment, with little
oversight.
o Clifton Auto Parts has weak internal controls. There is not a good separation of
duties. The same person receives cash, records the cash, and deposits the cash.
o Eagle Dermatology Clinic has strong internal controls. There is a good separation of
duties. Different people receive cash, record the cash, and deposit the cash.
Cardinal Company requires that all documents supporting a check be canceled by
punching a hole through the packet. Why is this practice required? What might happen if it
were not?
o Punching a hole through supporting documents reduces the opportunity for fraud.
Without this control procedure, a dishonest employee could resubmit the supporting
documents for payment a second time. Canceling the documents makes it difficult
to get approval for a duplicate payment.
Gordon Young sells memberships to the Denver Symphony Association in Denver,
Colorado. The symphonys procedure requires Young to write a patron receipt for all
memberships sold. The receipt forms are renumbered. Young is having personal financial
problems, and he stole $600 received from a customer. To hide his theft, Young destroyed
the company copy of the receipt that he gave the patron. What will alert manager Sabrina
Sims that something is wrong?
o Sims will notice a gap in the sequence of sales receipts for the receipt that Young
destroyed. This knowledge will lead Sims to investigate what happened to the
missing receipt and what happened to the related cash.
The three basic controls over cash that payment by check carries are (1) Each check
provides a record of the payment (source document) (2) Checks must be signed by an
authorized official and (3) Before signing the check, the official should study the evidence
supporting the payment.
The cash account of Vincente Corp. reported a balance of $3,640 at August 31. Included
were outstanding checks totaling $800 and an August 31 deposit of $300 that did not
appear on the bank statement. The bank stamen, which came from Tri State Bank, listed
an August 31 balance of $4,775. Included in the bank balance was an August 30 collection
of $685 on account from a customer who pays the bank directly. The bank statement also
shows a $15 service charge, $20 of interest revenue that Vincente earned on its bank
balance, and an NSF check for $55. Prepare a bank reconciliation to determine how much
cash Vicente actually has at August 31.
o

(Use Bank Reconciliation above) Make the companys journal entries for transaction that
arise from bank reconciliation. Date each transaction August 31, 2014, and include an
explanation with each entry.
Aug 31
Cash
685
A/R
685
Collection on account
Aug 31
Cash
20
Interest Revenue 20
Interest earned on bank balance.
Aug 31
Miscellaneous Expense
15
Cash
15
Bank service charge.
Aug 31
A/R
55
Cash
55
NSF check.
Prepare the bank section of the bank reconciliation, then the book section of the bank
reconciliation.

Hangin Out Night Club maintains an imprest petty cash fund of $250, which is under the
control of Sandra Morgan. At August 31, the fund holds $24 cash and petty cash tickets for
office supplies $215, and delivery expense $25.
o Explain how an imprest petty cash system works.
An imperest petty cash system maintains the Petty Cash account at the
designated balance all times. The account balance equals the sum of (a) cash
still in the fund plus (b) petty cash tickets for payments that have been made
from the fund.
o Journalize the establishment of the petty cash fund on August 1 and the
replenishment of the fund on August 31.
Aug 1 Petty Cash
250
Cash
250
Aug 31
Office Supplies
215
Delivery Expense 15
Cash
226
Cash short and over
14
o Prepare a T-account for Petty cash, and post to the account. What is the Petty cashs
balance at all times?

F5 Intro Assignments
Start with the beginning balances for these T-accounts: A/R, $303,000, Allowance for
Uncollectible Accounts, $26,000. Post the following 2014 transactions to the T-accounts:
o Service Revenue of $1,978,000, all on account.
o Collections of accounts, $2,010,000.
o Write-offs of uncollectible accounts, $29,000.
o Uncollectible-account expense (allowance method), $35,000. What are the ending
balances of A/R and Allowance for Uncollectible Accounts?

Record the foregoing transactions in the journal of Denver Interiors.

o Jul 2 Sold merchandise on account to Kara Elsworth, $450, terms 2/10, n/30.
o Jul 10 Sold merchandise on account to Sedalia Bradley, $2,500, terms 2/10, n/30.
o Jul 11 Collected payment from Kara Elsworth for the Jul 2 sale.
o Jul 15 Bradly returned $350 of the merchandise purchased on Jul 10.
o Jul 19 Collected payment from Sedalia Bradley for the balance of the Jul 10 sale.
Jul 2 A/R
450
Sales Revenue
450
Jul 10 A/R
2,500
Sales Revenue
2,500
Jul 11 Cash
441
Sales Discounts
9
A/R
450
Jul 15 Sales Returns and Allowances 350

A/R

Jul 19 Cash
2,107
Sales Discounts
43
A/R
2,150
o Prepare a computation of net sales for the month of July.
Sales Revenue
$2,950
Less: Sales Returns and Allowances
(350)
Less: Sales Discounts
(52)
Net Sales Revenue
$2,548
On November 30, Windsor Party Planners had a $43,000 balance in Accounts Receivable
and a $3,700 credit balance in Allowance for Uncontrollable Accounts. During December,
Windsor Party Planners made credit sales of $195,000. December collections on account
were $164,000, and write-offs of uncollectible receivables totaled $2,820. Uncollectibleaccount expense is estimated as 1% of credit sales.
o Journalize sales, collections, write-offs of uncollectibles. And uncollectible-account
expense by the allowance method during December.
(a) A/R
195,000
Sales Revenue
195,000
(b) Cash
164,000
A/R
164,000
(c) Allowance for Uncollectible Accounts
2,820
A/R
2,820
(d) Uncollectible-Account Expense
1,950
Allowance for Uncollectible Accounts 1,950
o Show the ending balances in A/R, Allowance for Uncollectible Accounts, and Net A/R
at December 31. How much does the store expect to collect?

350

Show how Windsor Party Planners will report accounts receivable and net sales on
its December 31 balance sheet and income statement for the month ended
December 31.

At December 31, 2014, before any year-end adjustments, the A/R balance of Wynn
Electronics is $360,000. The Allowance for Doubtful Accounts has a $22,500 credit
balance. Wynn Electronics prepares the following aging schedule for A/R:

Based on the aging of A/R, is the unadjusted balance of the allowance account
adequate? Too high? Too low?

Before we can assess whether the current balance of the allowance account
is adequate, we first have to calculate a revised allowance for doubtful
accounts amount.
Allowance for Doubtful Accounts
Credit balance needed
1-30
$700
31-60
$2,000
61-90
$6,400
Over 90
$20,000
Subtotal
$29,100
Less: Unadjusted Bal.
($22,500)
Adjusting entry amount $6,600
The credit balance at December 31 in Allowance for Doubtful Accounts should
be $29,100. The current balance is $22,500. Thus, the current balance of the
allowance account is too low.
Make the entry required by the aging schedule. Prepare a T-account for the
allowance.
First, prepare the journal entry using the adjusting entry amount we
calculated in the first step.
Dec 31
Doubtful-Account Expense
6,600
Allowance for Doubtful Accounts 6,600
Now, prepare the T-account for the Allowance for Doubtful Accounts.

Show how Wynn Electronics will report A/R on its December 31 balance sheet.

Record the preceding note receivable transactions in the journal of Harland Services. How
much interest revenue did Harland earn this year? Use a 365-day year for interest
computations, and round interest amounts to the nearest dollar. Harland Services has
October 31 fiscal year-end.
o Aug 1 Loaned $5,000 cash to Jill Waterman on a one-year, 7% note.
o Oct 6 Preformed service for King Properties, receiving a 90-day, 6% note for
$12,000.
o Received a $2,000, six-month, 5% note on account from Vernon, Inc.
o Accrued interest revenue for the year.
Aug 1 Note Receivable Jill Waterman 5,000
Cash
5,000
Oct 6 Note Receivable King Properties
12,000
Service Revenue
12,000
Oct 16
Note Receivable Vernon
2,000
A/R Vernon
2,000
Oct 31
Interest Receivable
140
Interest Revenue
140
Sutterfield, Inc., reported the following items at December 31, 2014 and 2013:

Compute Sutterfields (a) quick (acid-test) ratio and (b) days sale in receivables for
2014. Evaluate each ratio value as strong or weak. Sutterfield sells on terms of net
30 days.

Recommend two ways for Sutterfield to speed up its cash flow from receivables.
Sutterfield could speed up cash flows from receivables by offering discounts
for early payments or increasing penalties for late payments.
F7 Intro Assignments
Belvidere Self Storage purchased land, paying $150,000 cash as a down payment and
signing a $190,000 note payable for the balance. Belvidere also had to pay delinquent
property tax of $3,500, title insurance costing $4,500, and $8,000 to level the land and
remove an unwanted building. The company paid $57,000 to add soil for the foundation
and then constructed an office building at a cost of $600,000. It also paid $49,000 for a
fence around the property, $16,000 for the company sign near the property entrance, and
$3,000 for lighting of the grounds.
o What is the capitalized cost of each of Belvideres land, land improvements, and
building?
The cost of the land is $356,000
The cost of the land improvements is $68,000
The cost of the building is $657,000
Graves Automotive pays $320,000 for a group purchase of land, building, and equipment.
At the time of acquisition, the land has a current market value of $112,000, the buildings
current market value is $227,500, and the equipments current market value is $10,500.
Journalize the lump-sum purchase of the three assets for a total cost of $320,000. The
business signs a note payable for this amount.
Land
102,400
Equipment 9,600
Building
208,000
Not Payable 320,000
Identify each of the following statements as either capital expenditure (C), expense on the
income statement (E), or neither (N):
o

On October 1, 2014, Freedom Communications purchased a new piece of equipment that

cost $35,000. The estimated useful life is five years and estimated residual value is
$8,000. What is the depreciation expense for 2014 if Freedom uses the straight-line
method?
o $1,350
Assume Freedom Communications purchase a new piece of equipment on January 1, 2014
that cost $35,000. The estimated useful life is five years and estimated residual value is
$8,000. If Freedom uses the straight-line method for depreciation, what is the assets book
value at the end of 2015?
o $24,200
During 2014, Lawsons Book Store paid $273,000 for land and built a store in Georgetown.
Prior to construction, the city of Georgetown charged Lawsons $1,300 for a building
permit, which Lawsons paid. Lawsons also paid $15,300 for architects fees. The
construction cost of $745,000 was financed by a long-term note payable, with interest cost
of $36,200 paid at completion of the project. The building was completed June 30, 2014.
Lawsons depreciates the building by the straight-line method over 35 years, with
estimated residual value of $332,300.
o Journalize transactions for the following (a) purchase the land (b) all the costs
chargeable to the building in a single entry, and (c) depreciation on the building for
2014
(a) Land
273,000
Cash
273,000
(b) Building
797,800
Cash
52,800
Note Payable
745,000
(c) Depreciation Expense 6,650
Accumulated Depreciation
6,650
o Report Lawsons Book Stores plant assets on the companys balance sheet at
December 31, 2014.

What will Lawsonss income statement for the year ended December 31, 2014,
report these facts?

Assume that at the beginning of 2013, DHL, a FedEx competitor, purchased a used Jumbo
747 aircraft at a cost of $52,400,000. DHL expects the plane to remain useful for five
years (7.3 million miles) and to have a residual value of $6,400,000. DHL expects to fly the

plane 835,000 miles the first year, 1,650,000 miles each year during the second, third,
and fourth years, and 1,515,000 miles the last year.

Daves Pizza bought a used Toyota delivery van on January 2, 2014, for $28,600. The van
was expected to remain in service for four years (154,000 miles). At the end of its useful
life, Daves officials estimated that the vans residual value would be $2,500. The van
traveled 63,500 miles the first year, 51,000 miles the second year, 29,500 miles the third
year, and 10,000 miles in the fourth year.
o Prepare a schedule of depreciation expense per year for the van under the three
depreciation methods.
o Which method best tracks the wear and tear on the van?

Which method would Daves Prefer to use for income tax purposes? Explain in detail
why Daves prefers this method.
For income tax purpose, Daves would prefer the double-declining-balance
method because it provides the most depreciation, and thus, the largest tax
deductions in the early life of the asset.
On January 1, 2013, Regal Manufacturing purchased a machine for $850,000. Regal
Manufacturing expects the machine to remain useful for eight years and to have a residual
value of $40,000. Regal Manufacturing uses the straight-line method to depreciate its
machinery. Regal Manufacturing used the machine for five years and sold it on January 1,
2018, for $325,000.
o The accumulated depreciation at January 1, 2018 is $506,250
o Record the sale of the machine on January 1, 2018.
Jan 1 Cash
325,000
Accumulated Depreciation
506,250
Loss on Sale of Machinery 18,750
Machinery
850,000
TexAm Petroleum, the giant oil company, holds reserves of oil and gas assets. At the end
of 2014, assume the cost of TexAm Petroleums oil reserves totaled $204 billion,
representing 12 billion barrels of oil in the ground.
o Units-of-production is similar to the depletion method that TexAm Petroleum and
other oil companies use to compute their annual depletion expense for the oil
removed from the ground.
o Suppose the company removed 800 million barrels of oil during 2015. Record this
event.
o

Oil Inventory
13.6
Oil Reserves
13.6
o Assume that, of the amount removed in (2), the company sold 300 million barrels.
Make the cost of sales entry.
Cost of Oil Sold
5.1
Oil Inventory
5.1
Denver Mines paid $625,000 for the right to extract ore from a 250,000-ton mineral
deposit. In addition to the purchase price, Denver Mines also paid a $810 filing fee, a
$2,000 license fee to the state of Colorado, and $55,390 for a geological survey of the
property. Because the company purchased the rights to the minerals only, it expects the
asset to have zero residual value when fully depleted. During the first year of production,
Denver Mines removed 48,000 tons of ore, of which it sold 44,000 tons.
o Make journal entries to record (a) purchase of the mineral rights (b) payment fees
and other costs (c) depletion for first-year production, and (d) sales of ore. Round
depletion per unit to the closest cent.
(a) Mineral Asset
625,000
Cash
625,000
(b) Mineral Asset
58,200
Cash
58,200
(c) Mineral Asset Inventory
131,040
Mineral Asset
131,040
(d) Cost of Mineral Asset Sold
120,120
Mineral Asset Inventory
120,120
Handy Snacks, Inc., dominates the snack-food industry with its Salty Chip brand. Assume
that, Hand Snacks, Inc., purchased Super Snacks, Inc., for $5.2 million cash. The market
value of Super Snacks assets is $9 million, and Super Snacks has liabilities with a market
value for $7.1 million.
o Compute the cost of the goodwill purchased by Handy Snacks.

Explain how Handy Snacks will account for goodwill in future years.
In future years, Handy Snacks, Inc., will determine whether the goodwill that
Handy Snacks purchased has been impaired in value. If the goodwills value
has not been impaired, there is nothing to record. If the goodwills value has
been impaired, the company will record a loss and will write down the book
value of goodwill.
Assume Hughes Co. paid $30 million to purchase BaySide.com. Assume further that
BaySide had the following summarized data at the time of the Hughes Co. acquisition
(amounts in millions)
BaySides long-term assets had a current market value of only $31 million, and the
liabilities have a market value of $35 million.
o

In 2014, FPT, Inc., reported $200 million in sales, $15 million in net income, and average
total assets of $83 million. What is FPTs return on assets in 2014?
o Begin by identifying the formula to calculate return on assets.
Net income / Average total assets = Return on assets (ROA)
o What is FPTs return on assets in 2014?
FPTs return on assets in 2014 is 18%
Moore Optical, Inc., provides a full line of designer eyewear to optical dispensaries. Moore
reported the following information for 2014 and 2013:
2014
2013
Sales Revenue
500,000
450,000
Net Income
37,500
33,600
Average total assets
250,000
240,000
o Compute return on assets (ROA) for 2014 and 2013. Using the DuPont model,
identify the components and state whether each improved or worsened from 2013
to 2014.