MBADM 811 Discussion Group 5: Whole course

Lesson 1 Discussion: Accounting – MBADM 811 Discussion Group 5

From Section Merge: MBADM 811 FA18 Merged Course (Sections 001, 002, 003)

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“An accountant is someone who solves a problem you didn’t know you had in a way you don’t understand.”  

Is this your view of accountants, or of accounting? In this discussion, express your thoughts and feelings about accounting. What do you hope, dream, or dread about studying accounting? What is your prior experience with accounting – either studying it or having to deal with it on the job? Feel free to be creative: Share an interesting story, write a poem, upload a picture….  And also please introduce yourself, tell us about your professional position, and why you are part of this program – all of that good icebreaker stuff. Then read what other people wrote, and respond to at least one classmate.

Please review the Discussion Participation expectations for grading information.

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Lesson 2 Exercise 2: Income Statement Transactions

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Lesson 2 Exercise 3: Debits and Credits

 

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Lesson 2 Exercise 4: Journal Entries

 

Lesson 1 Exercise 3: Balance Sheet Items

 

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Lesson 1 Exercise 4: Retained Earnings

 

Lesson 1 Exercise 1: Financial Statement Users

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Lesson 2 Discussion: Ethics and Integrity – MBADM 811 Discussion Group 5

From Section Merge: MBADM 811 FA18 Merged Course (Sections 001, 002, 003)

8 unread replies. 31 replies.

The Sarbanes-Oxley Act of 2002 was passed by Congress following a series of serious accounting scandals that made corporate ethics and integrity a prominent public concern. Among its provisions is Section 302, which requires the CEO, CFO, and/or other top managers to review the company’s financial statements and certify that they are fairly stated (not misleading), and to evaluate the corporate controls and procedures in place to prevent fraud and error in financial records. This was Congress’s response to fraudulent financial statement communications and an attempt to protect the public from being misled in the future. But as we all know, ethics and integrity encompass many areas, not just financial record keeping.

The purpose of this discussion is to explore corporate ethics and integrity. You are free to bring up any thoughts you have on the subject, and the more diverse, the better. What comes to mind when you hear the words corporate ethics and integrity? What are your experiences with ethics and/or integrity in the workplace? How can ethics/integrity be achieved? These questions are posed to get your thinking started; they don’t have to be answered directly.

Please also respond to at least one classmate’s post.

Please review the Discussion Participation expectations for grading information.

 

In my company, and in the engineering industry in general, ethics and integrity are of the utmost importance. To ensure the health and safety of all project stakeholders, including employees, clients, and the general public, engineers must hold paramount the health, safety, and welfare of the public and only perform services in the area of their competencies. I also think of ethics when it comes to acting in the best interest of our clients and making thorough conflict of interest reviews prior to accepting work on contracts. We are often working on highly sensitive environmental contamination issues on large Superfund sites that could have, or create, potential conflicts of interest with other clients or sites that we have in the vicinity.

In an Accounting and Finance frame of reference, ethics and integrity brings to mind large scandals, such as Enron and the more recent Wells Fargo account fraud scandal, and just how many people are affected when there are issues of unethical and illegal behavior within corporations.

It also brings to mind the concept of fiduciary responsibility, and how investment advisors registered with the SEC or a state securities regulator are fiduciaries, (i.e. required to act in the best interest of their clients), while other types of investment advisors are only required to act in a “suitable” manner. I recently listened to a presentation on this concept and it was very interesting to hear, as well as learn that many people don’t even know or understand which type of advisor they have themselves!

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As a digital marketing manager in the hospitality industry, which is primarily service driven, a positive individual and organizational reputation are essential in maintaining client partnerships. Much of our services rendered are through monthly cost retainers wherein completed client work is debited accordingly. In a way, this is similar to accountants who bill by the hour. It is important that as marketing managers, we maintain integrity in calculating cost hours for strategic work completed. While it could be “easy” to increase margins by inflating cost hours, it is unethical based off of not only contractual agreements but also lacks integrity, jeopardizing client relationships should the misconduct ever see the light.

In looking internally, the tracking of client hours is a measure of the profitability of a partnership and the amount of work an individual is completing. If there is misrepresentation in these numbers, leadership may deem a client unprofitable – terminating the partnership – when in fact it is the result of unethical behaviors. Similarly, I am of the perspective that “cheating the system” will always come to light in it’s own way. Whether it be leaders determining an individual is inefficient (as they are inflating hours) or the general loss of quality partnerships in an ongoing pattern.

The hospitality industry is comparably small and often times it is easy to cross paths with a partner or client contact time and time again, by maintaining integrity in how a business measures its services it fosters a long-term partnership of trust. I find that trust is hard to rebuild and while employees may come and go, tarnishing the reputation of a brand, whether through decisions at an organizational level or individual level, will have lasting impacts on those wronged. I think it is also important to acknowledge that unethical behavior can occur at any level of an organization, thus each individual has a responsibility in maintaining ethical conduct and behaviors.

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In such a large corporation such as Lockheed Martin, ethics and integrity hold as major principals which employees are expected to carry out each and every day. Our value statement – Do What’s Right, Respect Others, and Perform with Excellence, are the key components that have contributed to the success of the company.

No matter what area of the business, I have always felt supported to voice my values and speak up in a professional and safe environment. I am lucky to work in an environment where I do not have to question the motives or actions of my peers. In today’s evolving environment, it is crucial for organizations to openly convey their ethical policies and effectively communicate them to their employees. One way in which my corporation educates their employees on ethics & integrity is by hosting an annual training session where our immediate teams are asked to watch videos and discuss the situation in an interactive setting. The videos are based on real-life events that have previosuly occurred in my company which makes this training truly valuable. I have learned that sometimes ethics can conflict with priorities but it is important to take a step back and understand our corporate policies.

 

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Accrual vs. Cash

 

Team Assignment 1 – Accrual Accounting vs. Cash Flows

 

Mountain View Apartments (MVA), Inc.’s records show the following information as of December 31, the end of the current year:

Rent

  1. MVA collected $500,000 rent in cash from tenants during the current year for occupancy during the current year.
  2. $10,000 of tenants’ current-year December rent will be collected in January of next year.
  3. Some tenants prepaid their January rent in December of the current year, in the amount of $14,000.

Salaries

  1. In January of the current year, MVA paid employees $6,000 for work done in the prior year.
  2. During the current year, MVA paid employees $70,000 for work done in the current year.
  3. At the end of the current year, MVA owed employees $3,000 for work performed in December that will be paid in January of next year.

Supplies

  1. MVA keeps certain maintenance supplies on hand. The amount of supplies on hand on January 1 of the current year was $7,000, and an additional $8,000 of supplies were purchased during the current year.
  2. At the end of the current year, $2,000 of supplies remained on hand.

In the table below, enter the amounts for the ending balances (December 31, current year) of each account, the revenues and expenses to be reported on the current year income statement, the assets and liabilities to be reported on the current year balance sheet, and the amounts to be reported as cash flows for the current year. Assume that appropriate end-of-year adjusting journal entries have been correctly recorded in the books. Show cash inflows as positive amounts and cash outflows as negative amounts. Enter n/a for areas where an amount is not applicable.

 

 

Account

 

December 31 Balance

Amount Reported on Income StatementAmount Reported on Balance Sheet  

Amounts Reported on Cash Flow Statement

Rent Receivable10000n/a10000 Cash received from rents:  514000
Maintenance Supplies2000n/a2000  

Cash paid for salaries:  -76000

Unearned Rent Revenue14000n/a14000  

Cash paid for supplies:  -8000

Salaries Payable3000n/a3000  
Rent Revenue510000510000n/a  
Salaries Expense7300073000n/a  
Maintenance Supplies Expense 1300013000n/a  
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Instructions

Click the button to begin the exam and start the timer. The time limit is 2 hours. While working on the exam, you may go back to previous questions and change your answers. Once you submit the exam, you cannot re-open it to make changes.

This is a closed-book, closed-notes, no-collaboration exam. Remember your academic integrity pledge! You are on your honor to ensure your exam results reflect your own knowledge. Do not share or ask for any information about the exam questions once the exam opens. Items you are allowed to use are a calculator and plain scratch paper. Items you are not allowed to use are cell phones, calculators that store information, the internet, books, and notes.

Read each question carefully, and choose the best answer.

This quiz was locked 16 Sep 2018 at 23:59.

Attempt history

AttemptTimeScore
LATEST Attempt 1 37 minutes29 out of 30
Correct answers are no longer available.
Score for this quiz: 29 out of 30
Submitted 10 Sep 2018 at 22:19
This attempt took 37 minutes.
Question 1

1 / 1 pts
Which of the following statements is correct?

Retained earnings includes common stock.

A corporation’s net income does not necessarily equal its net cash flow from operations.

Assets on the balance sheet include retained earnings.

The accounting equation states that assets equal liabilities.
Question 2

1 / 1 pts
What are the categories of cash flows that appear on a statement of cash flows?

Cash flows from operating, production, and internal activities

Cash flows from investing, financing, and service activities

Cash flows from financing, production, and growth activities

Cash flows from operating, investing, and financing activities
Question 3

1 / 1 pts
When a company borrows $20,000 from a local bank, which of the following is true?

Assets decrease $20,000.

Stockholders’ equity increases $20,000.

Liabilities increase $20,000.

Net income increases $20,000.
Question 4

1 / 1 pts

Sparty Corporation has provided the following information for its most recent year of operations:

  • Revenues earned were $97,000, of which $9,000 was uncollected at the end of the year.
  • Operating expenses incurred were $39,000, of which $7,000 was unpaid at the end of the year.
  • Dividends declared were $11,000, of which $3,000 were unpaid at the end of the year.
  • Income tax expense was $17,400.

 

What is the amount of net income reported on Sparty’s income statement?

$29,600

$40,600

$39,300

$32,900
Question 5

1 / 1 pts
Which of the following liability accounts does not usually require a future cash payment?

Unearned revenues

Taxes payable

Accounts payable

Notes payable
Question 6

1 / 1 pts

A company’s January 1, 2016 balance sheet reported total assets of $150,000 and total liabilities of $60,000. During January 2016, the company completed the following transactions:

  • Paid a note payable using $10,000 cash (no interest was paid)
  • Collected a $9,000 accounts receivable
  • Paid a $5,000 accounts payable
  • Purchased a truck for $5,000 cash and by signing a $20,000 note payable from a bank.

The company’s January 31, 2016 balance sheet would report which of the following?

Assets = $155,000; Liabilities = $65,000; Stockholders’ Equity = $90,000

Assets = $150,000; Liabilities = $60,000; Stockholders’ Equity = $90,000

Assets = $170,000; Liabilities = $100,000; Stockholders’ Equity = $70,000

Assets = $160,000; Liabilities = $75,000; Stockholders’ Equity = $85,000
Question 7

1 / 1 pts
Which of the following transactions will cause both the left and right side of the accounting equation to decrease?

Borrowing money from a bank

Collecting cash from a customer who owed the company money

Purchasing equipment using cash

Paying a supplier for inventory the company previously purchased on account
Question 8

1 / 1 pts
A company recorded an adjusting journal entry with a debit to Depreciation Expense and a credit to Accumulated Depreciation. Which of the following correctly describes an effect of this adjusting journal entry?

Total assets decrease.

Stockholders’ equity is not affected.

Net income increases.

Liabilities increase.
Question 9

1 / 1 pts
Which of the following statements is incorrect?

Liability accounts are decreased by credits.

Asset accounts normally have debit balances.

Total stockholders’ equity is increased by credits.

Asset accounts are increased by debits.
Question 10

1 / 1 pts

Madrid Company has provided the following data (ignore income taxes):

  • 2016 revenues totaled $77,500.
  • 2016 net income was $33,900.
  • Dividends declared and paid during 2016 totaled $5,700.
  • Total assets at December 31, 2016 were $217,000.
  • Total stockholders’ equity at December 31, 2016 was $123,000.
  • Retained earnings at December 31, 2016 was $83,000.

Which of the following is correct?

Liabilities at December 31, 2016 totaled $11,000.

2016 expenses totaled $37,900.

Common stock at December 31, 2016 was $206,000.

Retained earnings increased $28,200 during 2016.
Question 11

1 / 1 pts
Which of the following is included as a current asset on a classified balance sheet?

Vehicles

Land

Long-term investments

Inventory
Question 12

1 / 1 pts
A business entity pays cash for advertising to be used next year. Which of the following describes the correct journal entry for the transaction?

Debit cash, Credit prepaid advertising expense

Debit cash, Credit advertising expense

Debit prepaid advertising expense, Credit cash

Debit advertising expense, Credit cash
Question 13

1 / 1 pts
A landlord collected $5,000 cash from a tenant for December 2016’s rent, but the tenant’s actual rent for December is $8,000. Which of the following is true with respect to the landlord’s 2016 financial statements, using generally accepted accounting principles?

$8,000 would be reported on the statement of cash flows.

$5,000 would appear on the balance sheet as prepaid rent.

$8,000 would appear on the balance sheet as rent receivable.

$8,000 would appear on the income statement as rent revenue.
IncorrectQuestion 14

0 / 1 pts
Toby Toy Store has noticed the following items that need to be considered for its income statement for the year ended December 31, 2016:

• Commissions of $3,000 for salespeople who made sales in December will be paid January 3, 2017.
• The phone bill of $400 for December was received and will be paid January 20, 2017.
• The store rent of $2,000 for January, 2017 was paid on December 28, 2016.
• At the beginning of November, Toby paid $1,500 for advertising in a monthly magazine that is distributed in November and December of 2016, and January of 2017.

What is the proper amount of expenses to be included in the income statement for the year ended December 31, 2016?

$5,900

$6,400

$4,400

$6,900
Question 15

1 / 1 pts

Which of the following accounts normally have a credit balance?

Unearned revenue, Prepaid rent, and Sales revenue

Sales revenue, Expenses, and Retained earnings

Accounts payable, Retained earnings, and Sales revenue

Sales revenue, Cash, and Unearned revenue
Question 16

1 / 1 pts
A corporation has $80,000 in total assets, $36,000 in total liabilities, and a $12,000 credit balance in retained earnings. What is the balance in the contributed capital accounts?

$48,000

$44,000

$56,000

$32,000
Question 17

1 / 1 pts
What is the effect on the financial statements when a company fails to adjust the prepaid insurance expense account at year-end for insurance coverage that has been used?

Net income is overstated and stockholders’ equity is understated

Net income is overstated and assets are overstated

Expenses are understated and net income is understated

Expenses are understated and stockholders’ equity is understated
Question 18

1 / 1 pts
Which of the following describes the transaction resulting in a journal entry with a debit to Wages Payable and a credit to Cash?

Wages expense has been incurred but is unpaid.

Cash was used to prepay employee wages.

Cash was used to pay wages that were not previously recorded as an expense.

Cash was used to pay wages that were previously recorded as an expense.
Question 19

1 / 1 pts
Which of the following is a false statement about the unadjusted trial balance?

It provides data in a convenient form for preparing the adjusting entries and financial statements.

It is not a financial statement for external reporting purposes.

It provides a check of the equality of the debits and credits of the ledger accounts after transactions have been journalized and posted.

It provides a listing of balance sheet accounts only.
Question 20

1 / 1 pts
Which is the correct order of the steps in the accounting cycle?

Prepare financial statements; journalize and post adjusting entries; journalize and post the closing entries; prepare a post-closing trial balance

Prepare an unadjusted trial balance; journalize and post adjusting entries; prepare financial statements; journalize and post the closing entries

Journalize and post adjusting entries; journalize and post the closing entries; prepare financial statements; prepare an adjusted trial balance

Prepare an unadjusted trial balance; journalize and post adjusting entries; journalize and post the closing entries; prepare financial statements
Question 21

1 / 1 pts
On October 1, 2016, Adams Company paid $4,800 for a two-year insurance policy with the insurance coverage beginning on that date. As of December 31, 2016, which of the following account balances are correct after adjusting entries have been made?

Prepaid insurance $0, and Insurance expense $4,800

Prepaid insurance $4,800, and Insurance expense $0

Prepaid insurance $2,400, and Insurance expense $2,400

Prepaid insurance $4,200, and Insurance expense $600
Question 22

1 / 1 pts
A company recorded an adjusting journal entry with a debit to Rent Expense and a credit to Prepaid Rent. Which of the following is not an effect of this adjusting entry?

The entry increases expenses and decreases current assets.

The entry decreases net income and decreases assets.

The entry increases expenses and decreases stockholders’ equity.

The entry decreases net income and decreases liabilities.
Question 23

1 / 1 pts
In the FASB’s conceptual framework, which of the following is not one of the characteristics that describes useful accounting information?

Relevance

Faithful representation

Complexity

Timeliness
Question 24

1 / 1 pts
On January 1, 2016, the general ledger of Global Corporation included supplies of $1,000. During 2016, $5,000 of supplies were purchased. A physical count at December 31, 2016 determined that the remaining amount of supplies on hand was $1,200. How much is Supplies Expense for the year 2016?

$6,000

$1,000

$5,200

$4,800
Question 25

1 / 1 pts
What is the effect on the financial statements when a company fails to accrue wages expense at year-end?

Net income is overstated and liabilities are properly reported.

Expenses and liabilities are both overstated.

Expenses are understated and stockholders’ equity is understated.

Net income is overstated and liabilities are understated.
Question 26

1 / 1 pts

On December 31, 2016, Krug Company prepared adjusting entries that included the following items:

  • Depreciation expense: $31,000
  • Accrued sales revenue: $29,000
  • Accrued expenses: $12,000
  • Used insurance: $9,000; the insurance was initially recorded as prepaid
  • Rent revenue earned: $7,000; the rent was initially prepaid by the tenant and credited to unearned rent revenue

If Krug Company reported pretax income of $120,000 prior to the adjusting entries, how much is Krug’s pretax income after the adjusting entries?

$113,000

$104,000

$128,000

$106,000
Question 27

1 / 1 pts
Assume Idaho Company recorded an adjusting journal entry by debiting Insurance Expense $2,000 and crediting Prepaid Insurance $2,000. If the beginning balance in Prepaid Insurance was $500, and $2,500 was paid for an insurance premium during the year, what is the ending balance in the Prepaid Insurance account after the adjusting entry?

$1,200

$1,000

$700

$2,200
Question 28

1 / 1 pts
A calendar-year reporting company preparing its annual financial statements should use the phrase “At December 31, 2016” in the heading of which of the following?

On the income statement only

On the income statement and balance sheet, but not the statement of cash flows

On the stockholders’ equity statement only

On the balance sheet only
Question 29

1 / 1 pts
Which of the following items is reported as an expense on the income statement?

Dividends paid

Accounts payable

Cost of goods sold

Prepaid insurance
Question 30

1 / 1 pts
A trial balance prepared after the closing entries have been posted would show a zero balance in which of the following accounts?

Accumulated depreciation

Accounts receivable

Income tax expense

Supplies
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Lesson 5 Discussion: Contingencies – MBADM 811 Discussion Group 5
From Section Merge: MBADM 811 FA18 Merged Course (Sections 001, 002, 003)
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As mentioned in a previous lesson, the notes to the financial statements expand on balance sheet or income statement information and reveal much more detail. For this discussion, read “Note N, Contingent Obligations and Contingencies,” in TJX Companies’ note disclosures:

TJX Companies Notes to the Financial Statements (Links to an external site.)

Please give your opinion about whether this note provides useful information to users of the financial statements. Please make substantive comments about the type and amount of information provided, and whether it improves your understanding of TJX’s financial position. Also, respond to one or more of your classmates by adding a related thought or by agreeing or disagreeing with their assessment. Provide reasoning to support your position.

Please review the Discussion Participation expectations for grading information.

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The details within Note N of TJX Companies’ note disclosures outlines useful information to users of the financial statements. It provides insight to contingent obligations the company has related to leases and assigned or sublet properties that a general consumer would not have been aware of as it is unrelated to general operating functions. The note conveys the extent of involvement in each case and the impact on the organizations financial condition, if it can be estimated. Notably, the approximation of $42.6 million in undiscounted obligations. This piece of data is important as it may affect the evaluation of TJX Companies’ investment risk. Furthermore, the contingencies section highlighting certain legal proceedings, lawsuits, disputes and claims, notably surrounding compensation, does have the potential to draw inferences surrounding financial statement elements such as Wages Payable, and Wages Expenses. While these items are pending, if TJX was found liable of these practices mentioned, this has an impact on Income Statement and Balance Sheet items for analysis.

 

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I believe “Note N, Contingent Obligations and Contingencies” is useful due to the fact that the likelihood of loss was reasonably possible or probable in which TJX was required to record these instances in the footnotes. Although contingency dollar amounts could not be estimated, they made sure to disclose the known information in the notes for financial users. This information is useful to these users in order to assess the company’s position in relation to debt, credit, and ability to make payments on liabilities.

The first paragraph states that TJX does not have sufficient information on leases to estimate contingent obligations. It also confirms that the likelihood for future liability to TJX is remote. Because the chance of future event occurrence is slight, no disclosure is required by TJX, however they chose to do so anyway. This could have been left out of the footnote.

At the bottom of the third paragraph, TJX states that they do not have any contingent obligation amounts in regards to breach of contract. This may be useful for financial users assessing risks in regards to future investments.

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As I read through “Note N: Contingent Obligations and Contingencies”, I developed a couple of opinions on the usefulness of the information. I think that the information is presented in the interest of complete transparency about any possible liabilities that TJX could be exposed to, and this is indeed helpful when analyzing the true picture of the TJX’s financial condition. The disclosure of the contingencies also limits TJX’s exposure to any legal issues that may arise from any perceived non-disclosure of pertinent information on the financial statements. However, I think that is the extent of usefulness that the information in the note provides.

Although there are multiple leases that TJX could potentially be responsible for in the event of sub-lessee default, they state they are unable to estimate the extent of the potential liability. They go on to state that the potential for liability is remote, but nevertheless the potential liability exists and the amount could be significant. Although TJX downplay’s the possibility of contingent liability for these sub-leases, the potential amounts involved make it necessary to consider the potential liability when assessing TJX’s financial health.

 

Lesson 7 Discussion: Noncurrent Assets Disclosures – MBADM 811 Discussion Group 5
From Section Merge: MBADM 811 FA18 Merged Course (Sections 001, 002, 003)
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On the balance sheet, the information that management communicates about noncurrent assets is limited to a few lines of numbers, showing a high-level summary of the value of these accounts. Additional information about specific noncurrent assets and related items such as depreciation can be found dispersed throughout the note disclosures. Look at the note disclosures for TJX Companies:

TJX Companies Notes to the Financial Statements (Links to an external site.)

As you peruse the notes, look for additional insight concerning noncurrent assets. In your discussion post, share what you’ve found and how it helped you better understand TJX’s financial information – or whether it raised more questions in your mind. Please add any insights from your own experience with long-term assets, and reply to at least one classmate’s post. Try to keep the discussion related to noncurrent assets, but if other people’s posts have already covered the interesting points, feel free to discuss the disclosures for other topics.

Please review the Discussion Participation expectations for grading information.

 

I reviewed the TJX Companies notes to the Financial Statements, and looked to see if the notes contained information about three key areas:

1. What method they used to calculate depreciation (since the method chosen can show significant differences in the overall long-lived asset picture)

2. When (if any) Goodwill was impacted (since this is vital information to the overall long-term asset picture as well)

3. Whether enough information was given to form an accurate picture of the status of the company’s long term assets as it pertains to possible investment in the company.

 

The notes did clearly state that the straight line method of depreciation and amortization was used, so that tells me that the assets are depreciated evenly over a period of time (years), and that I can easily determine the years of useful life remaining for these assets. The notes had a separate section dedicated just to Goodwill and Tradenames, which answered the question about what assets were subject to Goodwill and when those assets were or are going to be affected. Finally, I feel that overall, the notes did give a lot of pertinent information that would be helpful when evaluating the financial health of the company, including specific information about the company’s long-term assets, such as current and future values.

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I found the additional notes to be insightful, and they did help me to better understand TJX’s financial picture. The first piece of insight I noticed concerning noncurrent assets is the not regarding “Depreciation and Amortization.” This note gives important information for the various types of noncurrent assets (buildings; leasehold costs and improvements; and furniture, fixtures and equipment) regarding the depreciation/amortization method used and the length of the useful life used in the respective calculations. This is important information for stakeholders viewing the financial statements in understanding the value of these assets. The note then continues to provide specific figures for depreciation and amortization expense for the fiscal years of 2014 through 2016. Another important note related to noncurrent assets was the note concerning “Long-Lived Assets.” This note breaks out the value of TJX’s carrying value by geographic location and provides a much greater level of financial detail than is presented on the balance sheet. The “Goodwill and Tradenames” note also provides the financial statement user with a breakdown of the goodwill amounts for TJX and its acquisitions over the years. The “Impairment of Long-Lived Assets, Goodwill, and Tradenames” note that follows this basically states that they continually evaluate for impairment at a minimum of once a year. It was also useful to know that they have had no impairments to their Goodwill over the last three fiscal years.

 

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Team Assignment #2 – Inventory Methods

 

Change from FIFO to LIFO  

In its 2008 financial statements, Seneca Foods Corporation reported a change in its inventory method from first-in, first-out (FIFO) to last-in, first-out (LIFO). This change had a profound effect on Seneca’s earnings for the year ended March 31, 2008, as shown in its income statements:

Note the decrease in net earnings from 2007 to 2008.

Public companies usually publish a press release to announce quarterly and annual net earnings, highlighting and/or explaining the results of operations. Seneca’s 2008 press release said, in part:

The current year’s net earnings were $8,019,000, compared with $32,067,000 last year. These results reflect the Company’s decision to implement the LIFO (last-in, first-out) inventory valuation method effective December 30 (beginning of fourth quarter). The effect of this change was to reduce annual pretax earnings by $28,165,000 and net earnings by $18,307,000 below that which would have been reported using the Company’s previous inventory method. The Company believes that in this period of significant inflation, the use of the LIFO method better matches current costs with current revenues. This change also results in cash savings of $9,858,000 by reducing the Company’s income taxes, based on statutory rates. If the Company had remained on the FIFO (first-in, first-out) inventory valuation method, the pretax results, less non-operating gains and losses, would have been an all-time record of $42,644,000, up from $40,009,000 in the prior year.

Review what you have learned about the effects of LIFO and FIFO on net income, and use the above information to answer the following questions. Please answer in complete sentences and show your calculations for numerical answers.

  1. Seneca’s reasoning for making the change to LIFO is that it matches current costs with current revenues. Explain what is meant by this statement.

LIFO means using the newest inventory costs as the cost of product sold expense.  In an inflationary environment the cost of product sold expense is higher using LIFO.  By using this method, there is less pretax income reported.  Whether or not revenue is comparably inflated, the net income decreases with higher expenses.  With inflation, LIFO creates higher expenses than FIFO.

 

  1. Seneca states that pretax earnings were reduced by $28,165,000 using LIFO compared to FIFO. Which line item in the income statement contains the $28,165,000 difference? Which balance sheet account was also affected by the same amount? Explain the relationship between these two accounts.

Cost of product sold contains the $28,165,000 difference on the income statement.  Inventory was affected on the balance sheet. Cost of product sold is related to inventory because the value of the inventory is evaluated by the same method, FIFO or LIFO, as the cost of product sold.

  1. Explain why a period of significant inflation results in tax savings upon switching from FIFO to LIFO.

Inflation means that LIFO inventory expenses are higher than FIFO inventory expenses because the most recently purchased inventory is the most expensive.  This decreases operating income.  Taxes are levied on earnings before income taxes.  When operating income is lower, less taxes are due, resulting in tax savings.  Regardless of the revenue, FIFO would show higher profit.

  1. Seneca’s press release claims a cash savings of $9,858,000 on income taxes based on statutory rates. Show how this amount was calculated, assuming the applicable corporate tax rate in 2008 was 35%.

Pretaxed earnings reduction x tax rate = cash savings from tax savings

$28,165,000 x 0.35 = $9,857,750

This statement rounds numbers to the nearest thousand, which is why $9,857,750 became $9,858,000.

  1. If you were shareholders of Seneca Foods in 2008, how would you react to the decrease in net income from the prior year, and to Seneca’s explanation?

As shareholders, we accept Seneca’s explanation given the tax savings but would have further inquiries.  How long do they see the inflationary period lasting?  Will they plan to continue using LIFO for future statements?  At higher cost of goods sold, the companies’ liabilities can increase.

  1. We can assume that Seneca’s top management gave careful thought and consideration to the change from FIFO to LIFO. Do you think their decision was based primarily on matching current costs with current revenues, or on achieving tax savings? Why?

We think it was primarily based on achieving tax savings because the most immediate result of changing to LIFO is the income tax savings.  It is also because they changed to this accounting method in the last quarter, closest to when the financial statements are being prepared, that income tax savings may have been top management’s focus.

  1. Under international accounting standards (IFRS), the LIFO method is not permitted. Why do you think this is true? How would domestic companies react if U.S. accounting standards were changed to conform to IFRS standards regarding inventory cost methods?

LIFO creates distortions in a company’s performance and gives them the ability to dodge income taxes. Most governments probably view it in their best interest to not allow it because they want more income tax money during periods of inflation.  Given that the IFRS is an international organization, they would want to remove potentially exploitative methodologies.  For example, with LIFO, there is the chance for LIFO liquidations.  Also, preventing LIFO should lead to companies using similar methods of income evaluation, for example FIFO or averaging, and thus make their financial statements more comparable.  Even in the US, companies using LIFO are required to put a statement in their notes about their FIFO inventories, if they are significantly different than LIFO.

American companies probably would not react well to additional government regulation. Companies using LIFO would look for other areas to offset the loss in savings.  Companies currently not using LIFO would be mostly unaffected.

 

Exam 2

Instructions

Click the button to begin the exam and start the timer. The time limit is 2 hours. While working on the exam, you may go back to previous questions and change your answers. Once you submit the exam, you cannot re-open it to make changes.

For this exam, you may refer to your text book and notes, and you may use a calculator and plain scratch paper as needed. Use of the internet and collaboration with other people are NOT allowed. As always, remember your academic integrity pledge! You are on your honor to ensure your exam results reflect your own knowledge. Do not share or ask for any information about the exam questions once the exam opens.

Read each question carefully, and choose the best answer.

This quiz was locked 21 Oct 2018 at 23:59.

Attempt history

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LATEST Attempt 1 40 minutes28 out of 30

Correct answers are no longer available.

Score for this quiz: 28 out of 30

Submitted 17 Oct 2018 at 3:19

This attempt took 40 minutes.

 

Question 1

1 / 1 pts

A company reported the following information for its most recent year of operation: inventory purchases, $100,000; beginning inventory, $20,000; and cost of goods sold, $110,000. How much was the company’s ending inventory?

 

$10,000

 

$15,000

 

$20,000

 

$30,000

 

Question 2

1 / 1 pts

On January 1, 2016, Wasson Company purchased a delivery vehicle costing $40,000. The vehicle has an estimated 6-year life and a $4,000 residual value. Wasson uses the units-of-production depreciation method and estimates that the vehicle will be driven 100,000 miles over its 6-year life. What is the vehicle’s book value as of December 31, 2017, assuming the vehicle was driven 10,000 miles during 2016 and 18,000 miles during 2017?

 

$29,920

 

$28,800

 

$25,920

 

$24,800

 

Question 3

1 / 1 pts

Metro Music collected $8,000 in advance from customers for music lessons in the first quarter of the year. By the end of the quarter, $7,000 worth of the lessons had been provided. What journal entry would Metro record at the end of the quarter related to these music lessons?

 

Debit Cash $1,000; Credit Unearned Revenue $1,000

 

Debit Unearned Revenue $7,000; Credit Service Revenue $7,000

 

Debit Cash $7,000; Credit Service Revenue $7,000

 

Debit Unearned Revenue $1,000; Credit Service Revenue $1,000

 

Question 4

1 / 1 pts

Binz Company sells garbage bins and provides cleaning services to office clients. On June 1, Binz entered into a contract with a client that included delivery of 100 garbage bins and 5 years of cleaning services. The garbage bins were delivered to the client the same day. Which of the following is true?

 

Revenue for the garbage bins and the cleaning services must be recognized on June 1.

 

Revenue for the garbage bins is recognized on June 1, and revenue for the cleaning service is recognized over the 5 years as those services are performed.

 

Binz Company should not recognize any revenue until the end of year 5.

 

Revenue for the garbage bins is recognized on June 1, and no revenue will be recognized for the cleaning services until the end of year 5.

 

Question 5

1 / 1 pts

Phipps Company borrowed $25,000 cash on October 1, 2016, and signed a nine-month, 8% interest-bearing note payable. Interest is to be paid at maturity. Assume that no adjusting entries have been made for accrued interest during the year. What amount of accrued interest payable should be reported on the December 31, 2016 balance sheet?

 

$250

 

$300

 

$500

 

$750

 

Question 6

1 / 1 pts

RJ Corporation has provided the following information about one of its inventory items:

DateTransactionNumber of UnitsCost per Unit
1/1Beginning Inventory400$3,200
6/6Purchase800$3,600
9/10Purchase1,200$4,000
11/15Purchase800$4,200

During the year, RJ sold 3,000 units.

What was ending inventory using the average cost flow assumption under a periodic inventory system?

 

$840,000

 

$640,000

 

$880,000

 

$770,000

 

Question 7

1 / 1 pts

Which of the following describes an accrued liability?

 

It is an expense that has been incurred but not yet paid

 

It is an expense that has been both incurred and paid

 

It is a liability where the cash flow has taken place but the revenue has not yet been earned

 

It is an expense that has been prepaid but not yet consumed

 

Question 8

1 / 1 pts

Which of the following statements is correct when inventory unit costs are increasing?

 

LIFO will result in higher net income and lower inventory valuation than will FIFO

 

LIFO will result in lower net income and a higher inventory valuation than will FIFO

 

FIFO will result in lower net income and a lower inventory valuation than will LIFO

 

FIFO will result in higher net income and a higher inventory valuation than will LIFO

 

Question 9

1 / 1 pts

Young Company is involved in a lawsuit. When would the lawsuit be recorded as a liability on the balance sheet?

 

When the loss is probable, regardless of whether the loss can be reasonably estimated

 

When the loss is reasonably possible and the amount can be reasonably estimated

 

When the probability of loss is remote and the amount can be reasonably estimated

 

When the loss is probable and the amount can be reasonably estimated

 

Question 10

1 / 1 pts

Which of the following investment securities held by Zinger Inc. are not reported at fair value in its balance sheet?

 

Debt securities held as trading securities

 

Debt securities held as available for sale securities

 

Equity securities held as long-term investments

 

Debt securities held to maturity

 

Question 11

1 / 1 pts

Wilmington Company reported pretax income of $25,000 during 2016 and $30,000 during 2017. After the 2017 financial statements were prepared, it was discovered that the ending inventory for 2016 was understated by $2,000, and was not corrected. Ending inventory in 2017 was correct. Which of the following is one effect of the error?

 

Pretax income in 2017 was understated.

 

Pretax income in 2016 was understated.

 

Beginning inventory in 2017 was overstated.

 

COGS in 2016 was understated.

 

Question 12

1 / 1 pts

Dover Corporation has provided the following information for the year just ended:
•  Cash sales totaled $125,000
•  Credit sales totaled $279,000
•  Cash collections from customers for services that have not been provided yet totaled $38,000
•  There was an $11,000 gain from the sale of property and equipment
•  Interest income totaled $8,000

How much did net income increase due to these items?

 

$144,000

 

$450,000

 

$423,000

 

$412,000

 

Question 13

1 / 1 pts

Salvia Company recently purchased a truck. The price negotiated with the dealer was $40,000. Salvia also paid sales tax of $2,000 on the purchase, shipping and preparation costs of $3,000, and insurance for the first year of operation of $4,000. What amount should Salvia capitalize as the cost of the truck?

 

$42,000

 

$45,000

 

$40,000

 

$43,000

 

Question 14

1 / 1 pts

Phillips Corporation purchased 1,000,000 shares (10%) of MN Corporation’s common stock on June 30, 2017 for $42 per share. On December 20, 2017, MN paid a $4,000,000 cash dividend to its shareholders. On December 31, 2017, MN’s stock was trading at $45 per share.

What value will be reported on Phillips’ balance sheet at December 31, 2017 for the investment in MN?

 

$45,000,000

 

$46,800,000

 

$42,000,000

 

$47,200,000

 

Question 15

1 / 1 pts

Colby Corporation has provided the following information for the year just ended:

• Operating revenues from customers were $199,700.
• Operating expenses for the store were $111,000.
• Interest expense was $9,200.
• Gain from sale of plant and equipment was $3,300.
• Dividend payments to Colby’s stockholders were $7,700.
• Income tax expense was $36,000.
• Prepaid rent was $5,000.

What was Colby’s net income?

 

$39,100

 

$52,700

 

$48,300

 

$46,800

 

Question 16

1 / 1 pts

Which of the following would not be a component of the balance in the inventory account?

 

Costs to prepare the inventory for sale

 

Costs related to selling the inventory

 

Costs to inspect the inventory

 

Costs to ship the inventory from the manufacturer (freight-in)

 

Question 17

1 / 1 pts

Failure to make a necessary adjusting entry for accrued interest on a note payable would result in which of the following?

 

Net income would be overstated and assets would be understated

 

Net income and liabilities would both be understated

 

Liabilities and assets would both be understated

 

Net income would be overstated and liabilities would be understated

 

Question 18

1 / 1 pts

The following transactions occurred during July:
•  Received $900 cash for services that were provided to a customer July 2
•  Received a $2,200 cash contribution from the owner of the business on July 6
•  Received $750 from a customer July 11, in payment of his account receivable which arose from sales in June
•  Provided services to a customer on credit for $375 on July 15
•  Borrowed $6,000 from the bank by signing a promissory note on July 20
•  Received $1,250 cash from a customer on July 25 for services to be provided in August
What was the amount of revenue recognized in July on an accrual basis?

 

$ 1,275

 

$ 3,275

 

$ 900

 

$ 2,525

 

Question 19

1 / 1 pts

Carter Company sold an asset for $10,000 cash at the end of the eighth year of its estimated 10-year life. The original cost was $50,000 with an estimated residual value of $5,000. The asset was being depreciated using the straight-line method. What was the gain or loss on the disposal?

 

$5,500 gain

 

$4,000 loss

 

$10,000 gain

 

$1,000 loss

 

Question 20

1 / 1 pts

Earnings quality refers to:

 

The ability of reported earnings to predict a company’s future earnings

 

The ability of management to budget for expenditures in the following year

 

The ability of management to quickly collect cash from customers

 

The ability of management to sell its inventory for a profit

 

Question 21

1 / 1 pts

If a repair expense is incorrectly capitalized, instead of recorded as repairs and maintenance expense, which of the following statements is true?

 

The current year’s net income will be higher and future depreciation expense will be higher

 

The current year’s net income will be higher and future depreciation expense will be lower

 

The current year’s net income will be lower and future depreciation expense will be lower

 

The current year’s net income will be lower and future depreciation expense will be higher

 

Question 22

1 / 1 pts

Barrington Company must write down its inventory from its cost of $260,000 to its net realizable value of $248,000 at December 31, 2016. The write-down will result in which of the following in 2016?

 

Ending inventory will increase by $12,000

 

Liabilities will increase by $12,000

 

Cost of goods sold will decrease by $12,000

 

Gross profit will decrease by $12,000

 

IncorrectQuestion 23

0 / 1 pts

Hill Inc. purchased an asset on January 1 of the current year. Hill chose an accelerated depreciation method to depreciate the asset, instead of the straight-line method. Which of the following is correct?

 

The book value of the asset at the end of the current year will be higher than it would be under the straight-line method.

 

Net income will be higher in the current year under the accelerated method than under the straight-line method.

 

Depreciation expense will be higher in the current year under the accelerated method than under the straight-line method.

 

The balance in the accumulated depreciation account will be lower at the end of the current year than it would be under the straight-line method.

 

Question 24

1 / 1 pts

Gilman Company purchased 40% of the common stock of Burke Corporation on January 1, 2017, for $4,000,000. The records of Burke Corporation showed the following on December 31, 2017:
•  2017 net income: $575,000
•  Dividends declared and paid to shareholders during 2017: $30,000
•  Market price per share: $42

What is the value of the investment in Burke on Gilman Company’s December 31, 2017 balance sheet?

 

$3,800,000

 

$4,218,000

 

$4,124,000

 

$4,000,000

 

Question 25

1 / 1 pts

Which of the following describes a revenue or expense to be recognized in the current period’s income statement?

 

Cash collected from an account receivable

 

Wages owed to employees who worked during the period

 

Inventory purchased to sell to customers

 

Cash received from a client before the service is provided

 

Question 26

1 / 1 pts

In accounting for long-term assets, which of the following best describes the objective of depreciation?

 

To allocate the cost of a tangible asset to the periods in which its use contributes to earning revenue

 

To record the amount of deterioration of a tangible asset

 

To ensure the value of the asset on the balance sheet is the current market value

 

To ensure the asset is not used for more than its useful life

 

IncorrectQuestion 27

0 / 1 pts

When SB Corporation purchased Banner Corporation in the current year, SB recorded $1,500,000 of goodwill. How should SB account for the goodwill after the acquisition?

 

The goodwill should be amortized straight-line over its estimated useful life.

 

The goodwill should remain on SB’s books as a long-term asset, and should not be amortized because it has an indefinite life.

 

The value of the goodwill should be increased each year by the amount of net income earned by Banner.

 

The goodwill should be written down each year by the amount of net income earned by Banner.

 

Question 28

1 / 1 pts

Rosco Works, Inc. estimated that $5,000 of the $98,000 balance in accounts receivable would be uncollectible. The allowance for doubtful accounts (ADA) already had a $400 credit balance at year-end. What adjustment to ADA is needed to ensure that accounts receivable is presented at the appropriate value on the balance sheet?

 

$400 debit

 

$5,400 debit

 

$5,000 credit

 

$4,600 credit

 

Question 29

1 / 1 pts

On January 2, 2017, Dooley Corporation purchased 12% of Roller Corporation’s common stock for $50,000. On December 15, 2017, Roller paid a cash dividend of $10,000 to its shareholders. Roller’s net income for the year ended December 31, 2017 was $60,000. What journal entry will Dooley post to recognize revenue from Roller?

 

Debit Cash $8,400; Credit Investment Revenue $8,400

 

Debit Cash $1,200 and Investment in Roller $7,200; Credit Investment Revenue $8,400

 

Debit Cash $7,200; Credit Investment Revenue $7,200

 

Debit Cash $1,200; Credit Investment Revenue $1,200

 

Question 30

1 / 1 pts

Purdum Farms borrowed $10 million by signing a five-year note on December 31, 2016. Repayments of the principal are paid annually in installments of $2 million each. Purdum Farms made the first payment on December 31, 2017 and then prepared its 2017 year-end financial statements. What amount should be reported as current liabilities in connection with the note at December 31, 2017?

 

$10 million

 

$0

 

$8 million

 

$2 million

 

 

Lesson 9 Discussion: Nonfinancial Indicators – MBADM 811 Discussion Group 5

From Section Merge: MBADM 811 FA18 Merged Course (Sections 001, 002, 003)

20 unread replies. 37 replies.

So far in our study of the language of business, we have focused on the communication of financial information that pertains to nearly all corporations. But what about nonfinancial information? What else contributes to the success or failure of companies, that is not seen in the financial statements? In this discussion, describe one or two nonfinancial drivers of corporate success, or challenges that specific companies or industries must overcome to be successful. Add your thoughts about whether public companies should be required to share these nonfinancial indicators. Please also write a response to at least one other classmate’s post.

Please review the Discussion Participation expectations for grading information.

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A clear strategic vision is a very important element of a successful business. Short-term goals (1-3 years), combined with a long-term vision for the future, that is easily accessible to all managers and employees helps to drive the organization towards the vision of the company and gives the employees a basis to make decisions according to the company’s mission. Typically, the vision of a public company is clearly stated in the company’s annual report or Form 10-K, which is required by the SEC.

Another important nonfinancial element of successful companies is their culture. The company’s core mission and values, treatment of employees, and respect for the environment are all important indicators of the type of firm and the organization’s purpose and ethics. Often, this information is expressed, either directly or indirectly, on a company’s website, and the prominence of various elements can give the viewer a clue as to what is most important to the company. Also, many public companies provide a corporate social responsibility report, or a comparable document, that provides the companies stance, efforts, achievements, and future goals on a variety of social, corporate sustainability, community, and responsible business practices. While I don’t think companies should legally have to disclose their CSR practices, it is a best practice in business and most public corporations have come to realize that they have some responsibility to set ethical standards for its behavior beyond what is required by law.

 

An organization’s business strategy is crucial to influencing and generating success due to the required alignment with business objectives. Without a strategy that supports the vision, recognizing strengths and weaknesses, market competition, and resource allocation, the management of financial assets can be easily misaligned resulting in business failure. While most organizations publicly articulate the organizational vision and mission, the specific business strategy to achieve these goals tend to be exclusive to internal members. This information has merit in influencing the investment decisions of stakeholders, however due to the sensitivity of business strategy in maintaining or driving a competitive advantage for business sustainability, I do feel it is a matter of balancing the timing of sharing this type of information with the general public. If the information is publicly known too far in advance of implementation, while investors may appreciate the insight, competition has the potential to undercut the organization in the marketplace having negative implications.

 

 

An important nonfinancial success driver that I’ve been close to is innovation. My role as a research and development scientist has been in the front end innovation group. This group is responsible for devising and testing new innovative ways to improve our products. We’re not the biggest group in the company, but we have a diverse range of skills and experience that enable us to challenge each other and encourage outside-the-box thinking. I understand that not all companies can afford to support a group within R&D that doesn’t have an immediate return on investment to the company. My company has this liberty because we’re a multi-billion dollar consumer product company. However, a small company doesn’t need to support an entire innovation group to be innovative. It starts with the mindset of the individuals shaping the vision of the company. Quantifying innovation can be difficult, meaning a company needs to carefully detail how they’re resourcing their innovation plans. Investors are often excited to hear about a company’s innovation plans because it shows they’re thinking towards to future and have plans to grow. Simply, when a company grows, investors usually get a strong return on investment. The importance of innovation is highlighted when you look at the company’s that failed due to a lack of innovation and/or a more innovative alternative took over their market. The list is long and contains numerous large companies, Kodak, Polaroid, Blockbuster, Borders, etc… The fact is, if a company doesn’t innovate or plans for future growth, then they will become stagnant and more vulnerable to outside competition.

 

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Lesson 10 Discussion: Pension Plan Poll – MBADM 811 Discussion Group 5

From Section Merge: MBADM 811 FA18 Merged Course (Sections 001, 002, 003)

27 unread replies. 31 replies.

Who should have the primary responsibility for providing retirement income—employers or employees? You’ve learned the basics of accounting for retirement plans, and you know that companies are moving away from traditional pension plans and shifting the investment risk to employees by offering defined contribution plans. Is this a good idea for the economy? For society? For employees? For employers? In this discussion, please post your own opinion and the reason(s) behind it, and respond to someone else’s post by agreeing or disagreeing and expanding on their thoughts.

Please review the Discussion Participation expectations for grading information.

I think employers should have the primary responsibility. This is solely because I believe the employees aren’t responsible enough to plan for the future themselves(1) (2). I think the fact that companies are shifting the investment risk to employees is bad for all parties except for the company. My company, for example, did away with pension plans about 6 years, and if they had done it sooner, they would potentially have less problems than they do today (3). As far as why I believe it is worse for all other parties; Society and employees seems self-explanatory as I believe people will have inadequate savings to retire, thus lowering their quality of life and lowering the general utility of society. I think the economy will be worse because as people age they’ll not be able to put money into the economy like past generations causing it to stagnate.

 

(1) http://time.com/money/4258451/retirement-savings-survey/ (Links to an external site.)

(2) https://www.cnbc.com/2018/03/15/bankrate-65-percent-of-americans-save-little-or-nothing.html (Links to an external site.)

(3) https://money.cnn.com/2018/01/18/investing/ge-pension-immelt-breakup/index.html (Links to an external site.)

 

Employees should have the primary responsibility for providing and managing their retirement plans due to it’s direct relationship to the individual, not the organization. Employer assistance is beneficial however through options such as a defined contribution plan, reducing the full ownership planning required of the individual. Education surrounding retirement planning is of utmost importance in order for employee responsibility to be successful. With ROTH IRAs and 401Ks, individuals are empowered to manage their retirement. The reason I feel that employees should have the primary responsibility is due to the individuality of what desired retirement life will look like. Will it be lavish or conservative? It is the individual’s responsibility to plan and invest for retirement to achieve their preference and diversify their investments to support their plan.

Furthermore, I recognize that from a societal perspective, based on population volume and human behavior, individual ownership of savings for a seemingly far away period may result in many people undervaluing the savings needed, generating potential societal and economic impacts. This is where employer support is helpful, but I do think it is the ownership of the individual to plan for their own futures rather than the responsibility of an employer to do so.

I can certainly see rational arguments for employees and employers having the primary responsibility for providing retirement income. Based on my personal understanding of the subject, personal prefernces, and personal beliefs, I would say that employees should have the primary responsibility for retirement income. I believe in personal responsibility and self-determination. If an employee is industrious and makes the short-term sacrifices necessary for the retirement they want, then they should reap what they sow. If someone does not do these things and decides to spend their money and live a little more comfortably now, they should be prepared for the retirement that this behavior begets. Certainly, there are other factors to consider such as unpreventable or predictable life circumstances but in general, I think that people’s choices should determine their future. I think that defined contribution plans like a 401k allow for greater flexibility and freedom both in terms of career path and financial control. 401k plans can easily be rolled into new accounts when changing from one employer to another. They are also more scalable for companies to provide benefits to employees so that small and large companies can have these programs. These programs are also tied to the market and less to the company itself. If a company goes into bankruptcy and closes, what happens to the pension and all those relying on it for income? Though the stock market value may wax and wane, it has never completely failed. Crashes and recessions are inevitable but overall, the stock market is reliable (when investments are properly diversified). This method also gives employees the power to choose the investment path that is right for them instead of relying on another entity to manage the money and hope that they do well enough that at least he company can cover any shortfalls. For example, a person starting out in their career contributes and accepts more risk for potentially making more gains, they can do that. If another employee is nearing retirement age and decides that it would be better to safeguard the balance they already have, they can move funds into more conservative, less risky accounts. While most people (including myself) are not experts in this area, they can make these kind of decisions and choose the investment plans that work best for their situation and most investment companies offer guidance. Again, I can certainly see the benefits of the pension method of providing retirement income but I would personally favor the contribution plan and thing it’s merits are worth the shift in responsibility.

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Team Assignment #3 – Long-Term Debt

 

At the end of 2000, Nittany, Inc. issued zero-coupon bonds that mature in 2020. The face value of the bonds was $1.8 billion, and they sold for $968 million on the issue date. The effective market interest rate was 3.149% on that date. At the end of 2005, Nittany repurchased $257 million in face value of the notes for a purchase price of $127 million, resulting in a gain on the early extinguishment of debt.

Review what you have learned about bonds as well as the explanation of zero coupon bonds on p. 525 of your text, and answer the following questions, expressing all numbers in millions (for example, the face amount of the notes is $1,800). Please answer in complete sentences and show your calculations for numerical answers and journal entries.

  1. What journal entry did Nittany, Inc. enter to record the issuance of the bonds, assuming the issue date was 12/31/2000?

Cash                                                               968

Discount on Bonds Payable                       832

Bonds Payable                                                         1,800

  1. Prepare an amortization schedule for the bonds. Assume interest is calculated annually, and use the effective interest method.

Below is the amortization schedule for period 2000 – 2020.  The yearly amortization of bond discount equals the interest expense.  The ending price in each year represents the beginning price in addition to the interest expense.

PeriodBeginning PriceInterest ExpenseBond Discount Bal.Bonds  PayableEnding price
2000         968.00
2001968.00968*0.03149=30.48801.521,800.00998.48
2002998.48998.5*0.03149=31.44770.081,800.001,029.92
20031,029.921030*0.03149=32.43737.641,800.001,062.36
20041,062.361062*0.03149=33.45704.191,800.001,095.81
20051,095.811096*0.03149=34.51669.681,800.001,130.32
20061,130.321130*0.03149=35.59634.091,800.001,165.91
20071,165.911166*0.03149=36.71597.371,800.001,202.63
20081,202.631203*0.03149=37.87559.501,800.001,240.50
20091,240.501240*0.03149=39.06520.441,800.001,279.56
20101,279.561280*0.03149=40.29480.151,800.001,319.85
20111,319.851320*0.03149=41.56438.581,800.001,361.42
20121,361.421361*0.03149=42.87395.711,800.001,404.29
20131,404.291404*0.03149=44.22351.491,800.001,448.51
20141,448.511449*0.03149=45.61305.881,800.001,494.12
20151,494.121494*0.03149=47.05258.831,800.001,541.17
20161,541.171541*0.03149=48.53210.301,800.001,589.70
20171,589.701590*0.03149=50.06160.241,800.001,639.76
20181,639.761640*0.03149=51.64108.601,800.001,691.40
20191,691.401691*0.03149=53.2655.341,800.001,744.66
20201,744.6618001744.66=55.340.001,800.001,800.00
  1. What amount of interest expense for the bonds did Nittany report on its income statement in 2001?

Based on the amortization schedule, the amount of interest expense for 2001 is 30.48 million

  1. Interest expense is deductible on the corporate tax return. Assuming a corporate tax rate of 35% in 2001, how much did Nittany save in taxes by deducting the interest expense? What was the after-tax interest cost in 2001?

 

0.35 * 30.48 = 10.67

$10.67 million (rounded to the nearest ten thousandth) was saved in taxes by deducting the interest expense.

30.48 – 10.67 = 19.81

$19.81 million was the after-tax interest cost

 

  1. At the end of 2005, what was the book value of the bonds before the repurchase transaction? Show the two accounts and balances that are combined to determine the book value.

Bonds payable – Discount on Bonds = Book Value

1,800 – 669.68 = 1,130.32

The book value of the bonds was $1130.32 million from the amortization table.

  1. Prepare the journal entry to record the repurchase of some of the debt at the end of 2005. [Repurchasing some of the bonds before the maturity date is called “early extinguishment” of the debt. The company makes a payment to the bondholders, who relinquish the bonds and their right to collect the face value at maturity, and the debt is removed from the books. To record the early extinguishment, the company makes a journal entry to remove the appropriate book value and decrease cash by the amount paid to the bondholders. If those two amounts are not equal, a gain or loss is recorded to balance the journal entry. Look at your answer to #5, and note that a portion of each account related to this debt must be removed from the books. The journal entry is analogous to the entry you would use to remove a long-term asset from the books when it is sold.]

 

Bond payable recalled/Bond Payable * Discount on Bond Payable at time of Recall = Discount on Bond Payable Recalled

257/1800*669.68 = 95.62

Gain on Bond Call = Repurchased Face Value – (Discount on Bond Payable Recalled + Purchase Price)

Gain on Bond Call = 257 – (95.62 + 127) = 34.38

 

Debit     | Credit

Bonds Payable                                             257        |

Discount on Bond Payable                        |95.62

Gain on Bond Call                                        |34.38

Cash                                                               |127

  1. Why might company managers choose to issue zero-coupon bonds instead of interest-bearing bonds? Why might they decide to repurchase some of the bonds before the maturity date?

Issuing zero coupon bonds means the company doesn’t have to pay a set amount every period; instead they pay at maturity.   They might decide to repurchase the bond if current market interest rates are lower than when they were sold.  This allows the company to reissue the bonds at a lower interest rate and presents the opportunity for current gains.

 

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Lesson 13 Discussion: Importance of Cash Flows – MBADM 811 Discussion Group 5

From Section Merge: MBADM 811 FA18 Merged Course (Sections 001, 002, 003)

32 unread replies. 37 replies.

Accrual accounting is required under GAAP, and in this course you have learned to account for transactions on an accrual basis, as if cash flows are not that important. In reality, they are of great importance! You might have heard the phrase “cash is king”, which often refers to the fact that companies need positive cash flow from their operations in order to remain in business. Managers spend considerable time and effort creating a cash budget for future accounting periods, planning the timing of cash inflows and outflows so that cash is available when needed. In our personal lives too, we need to pay attention to our income and expenses on a cash basis. In this discussion, share at least one example or story that indicates the importance of cash flows, for companies or for individuals. Also comment on at least one classmate’s post.

Please review the Discussion Participation expectations for grading information

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A story that comes to mind that demonstrates the importance of both having cash on hand and accrual accounting is one about a wedding gift. A few years ago I gave a check as a wedding gift to a distant relative. For whatever reason, this couple did not cash my wedding gift check for almost 3 months. This demonstrated the importance of accrual accounting; specifically, the need to recognize the expense at the time I gave the check so I would account for the money not being available right away. It also demonstrates that it’s always good to have ample cash as a buffer in the checking account, above and beyond that required for the normal recurring expenses, to cover for instances like these where the amounts might be much less and it’s possible I wouldn’t even notice that they haven’t been cashed for some time.

Answer

As cash flow is a key indicator of a corporation’s financial health, it is important to ensure that there is a positive cash flow by taking in more cash than sending out. Positive cash flows result in having an ongoing ability to sustain a company’s operations while fostering long-term growth and profitability. An example of how strong cash flows can aid in a company’s future success is investing in research and development or new and innovative technologies. By utilizing cash in a proactive way, a company can mitigate risk associated in operating in a reactive manner to ensure continued success.

 

 

Lesson 14 Discussion: Financial Statement Analysis – MBADM 811 Discussion Group 5

From Section Merge: MBADM 811 FA18 Merged Course (Sections 001, 002, 003)

30 unread replies. 31 replies.

Throughout this course you have seen how reading and understanding a company’s financial statements, and analyzing ratios based on the reported numbers, can provide valuable information about the financial condition of the company. Lesson 14 discusses additional resources for analyzing a company and comparing its results with other companies or industries. For this discussion, please look at one of the resources mentioned in the lesson – either an online database or financial site mentioned in the Industry Information section, or an annual report or 10-K form for any company.

Find an interesting fact or comparison to discuss. You may browse until you find something interesting, or look up something specific about a particular company or industry. Discuss how the information you found enhances your understanding of the company or industry beyond the reported numbers in the financial statements. As always, please comment on at least one of your classmates’ posts.

Please review the Discussion Participation expectations for grading information.

 

An additional resource used to analyze a company’s financial position is the 10-K form. This form is a required report submitted on an annual basis to the SEC and outlines a corporations performance. Specifically, it includes information pertaining to the history, risks, legal disclosures, audited financial statements, and more in order to analyze their financial condition in an organized fashion. I found it very useful that this form is broken down into key sections in which it can be easier to compare against other corporations.

After reviewing Apple, Inc.’s 2017 10-K form, I learned a great deal about their financial position. Specifically, in Part II, Apple disclosed a presentation of financial data for the past five years. This made it very easy for me to compare their past financial results against their latest performance. It was interesting to see that Apple’s net sales and net income peaked in 2015 and slowly decreased in 2016 and 2017. The management discussion and analysis presented in this form provided an adequate overview of the companies financial and operational position. Overall, I believe this form provides an accurate depiction of the corporation for financial analysts on an annual basis.

https://www.sec.gov/Archives/edgar/data/320193/000032019317000070/a10-k20179302017.htm (Links to an external site.)

 

 

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The first company I worked for after I graduated with my B.S. degree was Cerner Corporation. Cerner produces software for hospitals, clinics and health systems that enables them to conduct healthcare more effectively through online and electronic means (Electronic Medical Records, etc.).

It was very interesting and eye opening to review Cerner’s 10-K form (annual report) for 2017, since I am very familiar with the history of the company, its founders and the competition it faces in the industry.

One thing that I found very interesting was how Cerner’s revenue was broken down by source for the years 2015-2017. Cerner categorized it’s revenue into two areas: Revenues by “solutions and services” and revenues by “segment: Domestic and Global”. The thing I found intriguing about these numbers was the consistency between the three years. The numbers for all revenue sources were either an identical percentage or nearly identical in every category from 2015, 2016 and 2017.

That tells me that Cerner’s business model and how it conducts its operations to generate revenue are remarkably consistent from year to year. It also shows that Cerner is concentrating on its core services and markets and isn’t expanding it’s reach into other areas of revenue generation within the market. If it were, then I would expect the percentages in one segment to decrease while another would increase, but they stay nearly the same from year to year.

Even the percentage of revenue from Domestic sources vs. Global sources remains nearly the same with little or no variation from year to year in each category. Therefore Cerner is also remaining static with respect to its global and domestic offerings, with its footprint also remaining static in those markets (no growth or decline).

Source: https://www.cerner.com/about/investor-relations/annual-reports

 

 

Lesson 15 Discussion: Learning Reflection – MBADM 811 Discussion Group 5

From Section Merge: MBADM 811 FA18 Merged Course (Sections 001, 002, 003)

11 unread replies. 27 replies.

We have covered a lot of financial accounting topics this semester! Please reflect on what you have learned and whether your impression of accounting has changed since your first discussion post at the beginning of the course. You might comment on something that surprised you; an example of how an accounting topic related to your job; your opinion on accounting methods or standards; changes you foresee due to automation or disruptive technologies; or anything else you would like to share. Please also read others’ comments, and respond to at least one classmate.

 

In taking this course while working in a corporate environment, I quickly learned the manner in which financial accounting provides strategic insight into business decisions and direction beyond traditional financial statements. From reading through my organizations 10-K form to learning about leases, I immediately identified workplace correlations that enhanced my investment in continuing to maintain awareness surrounding my organizations financial data. The 10-K form provided insight into leadership risk evaluation, which had direct insights to business direction. Furthermore, in learning about lease reporting in financial statements, I realized and understood the underlying cause of our IT departments’ recent urgency towards demanding the return of leased equipment, even shutting down devices for colleagues whom delayed returns. By leveraging the lessons learned throughout this course, I will be able to further my workplace contributions due to my recognition of the interrelationships present between leadership decision-making, sustainability, and organization finances.

 

 

Looking back at my first discussion board post, I have really come a long way! Starting with a very limited knowledge of accounting based largely on what I learned in a course in high school, I feel like I now have an excellent, well-rounded view of accounting. While my involvement in accounting work is limited due to my role in marketing and business development, I had an experience recently where I was able to complete a task that normally I would have had to reach out to someone else for. In responding to a large proposal, the client was requesting a table of financial information to be completed. The specific information requested was coming from a variety of places on the income statement, balance sheet, and disclosure notes, and of course the table didn’t identify this. Before taking this course, I would have promptly sent this off to someone in our finance department and then waited several days before I got anything back – but now, I was able to grab our firm’s audited financial statements and take care of it myself. It feels good to be able to look over our financial statement documents and be able to understand, interpret, and derive meaning from them, versus just looking at them like they are a foreign language.

 

 

 

Deanna, I have had similar experiences at work where I have been able to take lessons learned and apply it in the workplace. For example, as a buyer in our Supply Chain Management organization, I often am asked to review the performance based payments that are made to our supply base. This task can be very tedious as we must verify that the supplier completed the task adequately as outlined in our contracts. One step of the process is to send the payments to our accounts payable team for verification. With a better understanding of cashflows, it has made this task much easier for me to accomplish. I am excited to apply accounting principles in my role so early on in the OMBA program and believe the financial accounting concepts will help me along my professional career.

 

 

Reflecting on my first discussion post, it is surprising to see how much my view on accounting has changed since taking my very first accounting course in my undergraduate program. As a young freshman back in 2012, it was difficult for me to understand the accounting principles and grasp how it relates in the workplace. This semester I have learned the importance of the lessons learned and can truly understand how they correlate to my professional career. One of the biggest takeaways I took from this course includes the information that can be obtained from financial statements. From a managerial standpoint, business leaders can learn where their risks rely and where they can improve in order to effectively manage their business. For investors, they can understand the financial state of an organization at which their investments reside. With a better understanding of financial accounting, I believe I am more equipped to enhance my career.

 

 

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Instructions

Click the button to begin the exam and start the timer. The time limit is 2 hours. While working on the exam, you may go back to previous questions and change your answers. Once you submit the exam, you cannot re-open it to make changes.

For this exam, you may refer to your text book and notes, and you may use a calculator and plain scratch paper as needed. Use of the internet and collaboration with other people are NOT allowed. As always, remember your academic integrity pledge! You are on your honor to ensure your exam results reflect your own knowledge. Do not share or ask for any information about the exam questions once the exam opens.

Read each question carefully, and choose the best answer.

This quiz was locked 11 Dec 2018 at 23:59.

Attempt history

AttemptTimeScore
LATEST Attempt 1 64 minutes22 out of 30
Correct answers are no longer available.
Score for this quiz: 22 out of 30
Submitted 7 Dec 2018 at 23:11
This attempt took 64 minutes.

Question 1

1 / 1 pts

Metals, Inc. purchased a rust-inhibiting machine from the manufacturer by agreeing to pay $10,000 every three months during the next two years beginning three months after the purchase date. The market interest rate for this type of arrangement is 8%. Under GAAP, Metals will record this liability as the present value of all the cash flows in the arrangement, discounted at the effective market interest rate.

Additional information:

 PV of $1 PVA of $1
 n / i
2%8% 2%8%
2.96117.85734 1.941561.78326
8.85349.54027 7.325485.74664

What value should Metals, Inc. record for the liability (and the machine) on the purchase date? (Round to nearest dollar.)

$73,255

$68,279

$80,000

$57,466

IncorrectQuestion 2

0 / 1 pts
Which of the following is not one of the criteria for classifying a lease as a finance lease under the new lease accounting standard?

The agreement specifies that ownership of the asset transfers to the lessee.

The agreement contains an option to purchase the underlying asset that the lessee is reasonably certain to exercise.

The lease term is at least half of the economic life of the leased asset.

The leased asset is specialized, and has no alternative use to the lessor at the end of the lease.

Question 3

1 / 1 pts

Watson Company has provided the following data about its common stock:

  • Par value is $1 per share
  • 10,000,000 shares are authorized
  • 4,300,000 shares are outstanding
  • 4,700,000 shares are issued

How many shares of treasury stock are there?

0

400,000

5,300,000

5,700,000

IncorrectQuestion 4

0 / 1 pts

For its first year of operations, Oakwood Corporation had pretax accounting income of $490,000 and taxable income of $410,000. The book-tax difference was due to depreciation expense that was $80,000 higher on the tax return than on the books. Oakwood’s tax rate is 40% for the current and future years. What should Oakwood report as its deferred tax asset (DTA) or deferred tax liability (DTL) as of the end of its first year of operations?

 

$80,000 DTA

$80,000 DTL

$32,000 DTA

$32,000 DTL

Question 5

1 / 1 pts
Which of the following statements about cash flows is not correct?

Cash flow from financing activities increases when treasury shares are resold.

Cash dividends decrease cash flow from financing activities.

Cash flow from investing activities decreases when treasury shares are purchased.

Cash flow from investing activities decreases when equipment is purchased.

Question 6

1 / 1 pts
Alden Trucking Company purchased some trucks from Kenworthy Co. by issuing an installment note for $37,908,000 on January 1, 2016. The note agreement requires Alden to pay $10 million annually, starting on December 31, 2016 and continuing for a total of four more years (final payment December 31, 2020). Kenworthy charges the market interest rate of 10%. After the first payment was made on December 31, 2016, what was the installment note liability for the trucks on Alden’s books? (Round to the nearest dollar).

$32,908,000

$31,698,800

$40,000,000

$27,908,000

IncorrectQuestion 7

0 / 1 pts
The FASB decided to issue the new lease accounting standard because:

The old standard (still in effect) allowed companies to use long-term operating leases to finance assets without showing a liability on the balance sheet.

The old standard (still in effect) was too complex and needed to be simplified.

The FASB wanted to encourage companies to borrow money to purchase assets rather than lease them.

The old standard (still in effect) made no distinction between short term and long term leases.

Question 8

1 / 1 pts

During 2017, Thomas Corporation repurchased some shares of its own common stock. What effect did this transaction have on 2017 stockholders’ equity and earnings per share, respectively?

 

Decrease in Stockholders’ Equity, No effect on Earnings per Share

Increase in Stockholders’ Equity, No effect on Earnings per Share

Decrease in Stockholders’ Equity, Decrease in Earnings per Share

Decrease in Stockholders’ Equity, Increase in Earnings per Share

IncorrectQuestion 9

0 / 1 pts

On January 1, Rom Corporation issued bonds with a face value of $800,000 and a stated interest rate of 8%. Rom will pay the bondholders $32,000 in interest every six months, and repay the face value at the end of four years. The market rate of interest on the date of issue was 6%.

Additional information:

 

 PV of $1 PVA of $1
n / i3%4%6%8% 3%4%6%8%
2.94260.92456.89000.85734 1.913471.886091.833391.78326
4.88849.85480.79209.73503 3.717103.629903.465113.31213
8.78941.73069.62741.54027 7.019696.732746.209795.74664

 

What was the market price of the bonds on the date of issue, January 1? (Round to nearest dollar.)

$829,739

$856,158

$744,556

$800,000

Question 10

1 / 1 pts
Which of the following is true about accounting for leases under the new lease accounting standard?

The new standard recognizes only one type of lease, called a finance lease.

Under the new standard, only finance leases are recorded as a liability, along with a corresponding right-of-use asset.

Under the new standard, only operating leases are recorded as a liability, along with a corresponding right-of-use asset.

Under the new standard, both finance leases and operating leases are recorded as a liability, along with a corresponding right-of-use asset.

Question 11

1 / 1 pts

On February 1, 2016, Cue Company acquired 1,000 shares of its $1 par value stock for $47 per share and held these shares in the treasury. On April 10, 2017, Cue resold all of the treasury shares for $50 per share. Which of the following entries would have been recorded when Cue Company resold the shares of treasury stock?

A.

Cash 50,000 
 Treasury stock 47,000
 APIC – TS 3,000

 

B.

Cash 50,000 
 Treasury stock 47,000
 Retained earnings 3,000

 

C.

Cash 3,000 
Treasury stock 47,000 
 Common stock 1,000
 APIC 49,000

 

D.

Cash 50,000 
 Treasury stock 47,000
 Gain on sale of treasury stock               3,000

 

A

B

C

D

Question 12

1 / 1 pts

Pennant Company had the following account balances at the end of 2016:

Income tax payable $35,000
Other current liabilities $7,000
Income tax expense (provision for income taxes) $40,000
Pretax accounting income $100,000

 

What was Pennant’s net income for 2016?

$53,000

$60,000

$67,000

$65,000

Question 13

1 / 1 pts
A company reported total stockholders’ equity of $170,000 on its balance sheet dated December 31, 2017. During the year ended December 31, 2018, the company issued additional common stock for $40,000, reported net income of $20,000, and declared and paid a cash dividend of $4,000. What is total stockholders’ equity as of December 31, 2018?

$234,000

$210,000

$226,000

$230,000

Question 14

1 / 1 pts
Which of the following would not be a cash flow from investing activities?

Purchase of long-term investments

Sale of a patent

Collection of principal on a long-term note receivable

Collection of interest revenue on a long-term note receivable

Question 15

1 / 1 pts
Which of the following statements about corporate bonds is not correct?

The effective market rate of interest is used to calculate the cash interest payments.

The bond principal is the amount due at the maturity date of the bond.

The stated rate of interest is used to calculate the cash interest payments.

The bond principal is used to calculate the cash interest payments.

Question 16

1 / 1 pts
Franklin, Inc. leased equipment from Juniper Co. on December 31, 2018. The lease meets the criteria of a finance lease under the new lease accounting standard. The lease requires annual payments of $150,000 due on December 31 of each year, beginning December 31, 2018 (at inception). The present value of the lease payments is $1,020,000, and the outstanding balance was $870,000 after the first payment on December 31, 2018. The interest rate implicit in the lease is 8%. How much interest expense will Franklin record for the year ended December 31, 2019? (Round to the nearest dollar.)

$81,600

$76,600

$69,600

$57,600

Question 17

1 / 1 pts

A company reported the following asset and liability balances at the end of 2016 and 2017:
2016                          2017

Total assets                             $6,800,000             $7,600,000

Total liabilities                         $3,200,000             $3,600,000

During 2017, cash dividends of $50,000 were declared and paid, and common stock was issued for $100,000. What was the amount of net income for 2017?

$400,000

$480,000

$350,000

$300,000

Question 18

1 / 1 pts
Cartwell Corp. had $90 million in pretax accounting income this year. This included estimated warranty expense of $8 million, which is not deductible for tax purposes. Instead, Cartwell may deduct $3 million of actual warranty costs on its tax return. There were no other temporary or permanent book-tax differences. What is Cartwell’s taxable income for the year?

$85 million

$95 million

$79 million

$101 million

Question 19

1 / 1 pts
Which of the following would be subtracted from net income when determining cash flows from operating activities by the indirect method?

A decrease in utilities payable

Amortization expense

A decrease in prepaid rent

A loss on the sale of a depreciable asset

Question 20

1 / 1 pts
Skylar Company issued $50,000,000 of its 10% bonds at par on January 1, 2017. On December 31, 2017, the bonds were trading on the bond exchange at 102 (102% of face value). What happened to the market rate of interest between the issue date and the end of the year?

The market rate increased.

The market rate decreased.

The market rate stayed the same.

The change in the market rate cannot be determined.

Question 21

1 / 1 pts
On January 1, 2018, M Company granted 90,000 stock options to certain executives. The options may be exercised on or after December 31, 2020, and expire on January 1, 2024. Each option can be exercised to acquire one share of $1 par common stock for $12. The fair value of the options was estimated to be $5 per option on the grant date. What amount should M recognize as compensation expense for 2018?

$30,000

$60,000

$210,000

$150,000

IncorrectQuestion 22

0 / 1 pts
Which of the following is true of defined benefit (DB) pension plans?

The investment risk in a DB plan is borne by the employee.

Accounting for DB plans is simple and does not involve balance sheet accounts.

The investment risk in a DB plan is borne by the employer.

Payments to retirees depend on each individual’s account balance.

Question 23

1 / 1 pts

Rice Company has provided the following relevant information pertaining to its most recent year of operations:

  • Net income, $100,000
  • Depreciation expense was $15,000
  • Accounts receivable increased $9,000
  • Prepaid insurance decreased $3,000
  • Wages payable decreased $7,000

Using the indirect method, how much was Rice’s net cash provided by operating activities?

$72,000

$102,000

$96,000

$120,000

Question 24

1 / 1 pts
Star Company issued bonds at par this year. When Star made the first cash interest payment to bondholders, the journal entry was correctly recorded as a debit to interest expense and a credit to cash. What are the financial statement effects of this journal entry?

Expenses increase and assets decrease

Expenses increase and liabilities increase

Liabilities decrease and stockholders’ equity decreases

Assets decrease and liabilities decrease

IncorrectQuestion 25

0 / 1 pts
On January 1, 2018, Albacore Company had 300,000 shares of its common stock issued and outstanding. On October 1, 2018, Albacore repurchased 12,000 of its common shares as treasury shares. When calculating basic earnings per share (EPS) for 2018, what is the appropriate number of shares for Albacore to use in the denominator of EPS?

288,000

216,000

312,000

297,000

Question 26

1 / 1 pts
The valuation allowance account that is used in conjunction with deferred tax assets is a (an):

Liability

Component of shareholders’ equity

Contra asset

Asset

Question 27

1 / 1 pts
In the current year, Roberts Company sold equipment for $250,000, purchased a building for $6,500,000, and sold short-term investments for $280,000. Roberts also repaid principal on a note payable for $2,300,000 plus $230,000 of interest. The company paid cash dividends of $20,000 near the end of the year. What was Roberts’ net cash flow from investing activities?

$6,250,000 outflow

$8,320,000 outflow

$8,270,000 outflow

$5,970,000 outflow

IncorrectQuestion 28

0 / 1 pts
When accounting for a defined contribution (DC) pension plan, the pension expense each year is:

Equal to the amount paid out to retirees

Based on an amount provided by an actuary

Equal to the employer’s annual contribution to the employees’ retirement accounts

Based on the earnings of the plan assets

IncorrectQuestion 29

0 / 1 pts
Why are companies required to report diluted earnings per share (EPS) along with basic EPS?

To show shareholders the potential reduction in EPS if new shares were issued in a public offering of new shares

To show shareholders the potential reduction in EPS if potential shares were issued due to the exercise of stock options or the conversion of bonds or preferred stock

To show shareholders EPS before and after the purchase of treasury shares

To show shareholders EPS at the beginning and end of the year

Question 30

1 / 1 pts

On December 31, 2017, Reagan Inc. signed an agreement with Silver Leasing Co. to lease some equipment that has a seven-year useful life. The lease payments are made by Reagan annually, beginning at the signing date. Title does not transfer to the lessee, and the equipment will be returned to the lessor on December 31, 2023.

Reagan’s lease amortization schedule is shown below:

Dec. 31 

Payments

 

Interest

Decrease in

Balance

Outstanding

Balance

 
2017         $519,115 
2017$90,000    $90,000  429,115 
2018$90,000 $17,165  72,835  356,280 
2019$90,000  14,251  75,749  280,531 
2020$90,000  11,221  78,779  201,752 
2021$90,000  8,070  81,930  119,822 
2022$90,000  4,793  85,207  34,615 
2023$36,000  1,385  34,615  0 

What is the balance of the lease liability on Reagan’s December 31, 2019, balance sheet after the third lease payment is made?

$280,531

$190,531

$266,280

$356,280
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