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ACCT 504 Case Study 1 (Gordon Construction)

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Case Study 1 (Part A)Analyze the impact of business
transactions on accounts; record (journalize and post)
transactions in the books; construct and use a trial
balance) During the first month of operation of Gordon
Construction, Inc., completed the following
transactions:June2Gordon received $55,000 cash and
issued common stock to the stockholders. Capstone
Discussion Question: Post your response to the
following:
Think back over what you have studied and
learned in this course. Do you have a new perception of
or appreciation for the field of accounting and how it
contributes to business? Explain.
To be perfectly honest with you I truly had no clue what
accounting did for a company and how important it
was. I always thought that accounting only dealt with
payroll. In fact accounting does much more that just
payroll and monitor company supplies (coffee, paper,
pens & pencils). The accounting sets budgets for the
entire company, monitors outflow and inflow of profits,
plans budgets for each department, and much more.
When I first begun this class I was really nervous, I truly
thought that I was going to have a hard time
understanding the accounting but I happy to say that I
was wrong. I understood every part of this course.
On a personal note I would like to thank you Jess. If it
wasn't for your pep talk I probably would had gave
up. You are truly a great instructor. I wish you all the
best! God Bless

Another response
Accounting has taken a whole new meaning to me in
my vocabulary. Prior to this course, I just took
accounting as a calculator and crunching numbers. I
now have a new respect for accounting and all the
aspects that are involved. I never once took into
consideration profit, sales, revenue, and balance
sheets also being included with accounting. There is so
much more involved with accounting, and had I not
taken this course I would have never known.
Accounting is a very important part of running a
business. I feel that it is imperative to all people
thinking of opening a business should take some type
of accounting class to become more aware of how to
run the accounting part of a business.
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ACCT 504 Case Study 2 (Williams Oil)

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Case study (Learning Objectives 2, 4: Explain the
components of internal control; evaluate internal
controls) Each of the following situations reveals an
internal control weakness: Situation a. In evaluating the
internal control over inventory for the Williams Oil
Services Company

Business Plan

By

Kamilah T. Crooms
The name of my business is called DestinyWear.
DestinyWear is a urban fashion clothing company for
woman, men and youth. DestinyWear specializes in
making clothing for every occasion. My name is
Kamilah Crooms and I am the owner and CEO of
DestinyWear.My goal is to ensure that my company will
be succesfull in all areas and in each department. In
order for me to make sure that the company was going
to begin in the right direction I had to priortize what
was most important in establishing my business plan.
The main priority is that I had to first choose the
appropriate business structure, a high demanding
product, and most of all an outstanding accounting
team.
Business Structure
Upon establishing DestinyWear I had to decide which
business struture that I felt was best for me to pursue. I
decided that as a Entreprenuer the best choice for me
abd the direction of the company would be for me to be
sole proprietorship. Sole proprietorship allowed me to
be the sole owner of DestinyWear. The first and most
important reason that I wanted sole proprietorship is
because it is much easier to start a business as sole
proprietorships. Sole proprietorship takes all the profit
that and doesn't have to split it between any other
owners or corporations. I also want the power to make
and change decisions along the way without having to
first consult anyone else.

DestinyWear Products
DestinyWear products will range from jeans, shirts,
accessories and shoes. The company will first start off
with its most profitable product and that will be the
DestinyWear designer jeans line. The jeans line has
over twenty different jeans designs

from straight leg, baggy, cargo, overalls, shorts and


much more. The jeans line will provide services within
the United States and Canada and will eventually
service International customers. The DestinyWear jeans
line will have its own building. In this building the
bottom floor will consist of the factory and the top floor
will have the different departments such as
management, marketing and most importantly the
accounting department.

DestinyWear Accounting Department


The accounting plays a major role in establishing my
company DestinyWear. The accounting department
does more than managing and reporting the companys
financial documents it is the greatest tool in
establishing my business. The key to a powerful
accounting department here at DestinyWear is
applying the principles of internal control. These
principles consist of establishment of responsibilities,
segregation of responsibilities, documentation
procedures, Physical, mechanical, and electronic
controls, Independent internal verification and other
controls such as Bonding of employees. In order to
ensure that this business plan works DestinyWear has
to hire nothing but the best qualified employees.

DestinyWear Accounting Staf


DestinyWear accounting team of fine employees
will all be hired through the company. There are
several requirements that have to be met in order for
myself as the owner and Human Resource department
to even consider the applicant for accounting. We
looked for characteristics, education and work history
experience. The first and far most important qualifying
requirements are education. The applicant has to have
a Bachelor BA/BS in accounting degree a plus if he or
she has a masters.
The second requirement is experience. The applicant
must have the minimum of five years of experience
working in accounting. He or She must have knowledge
and employment experience of working with financial
statements, cash management and internal control.
Employees must be experienced in Invest idle cash,
planning the timing of major expenditures, delay
payment of liabilities keeping inventory levels low, and
increasing the speed of collection on receivables. In the
category of experience we had to hire applicants
according to the position that had to be filled in
accounting. For example, if a position in accounting
such as management or supervisory needed to be
filled, then we would look for years of experience in
management or supervisory positions. I personally
prefer that every employee have some type of
management experience.
Last but not least, the employees characteristics. It is a
must that every accounting staff member has and
applies professionalism, great ethic and moral skills,
accuracy, and most importantly punctuality, and
reaching company deadlines. These characteristics are
very important to have at DestinyWear.
DestinyWear Accounting Management Team
The DestinyWear accounting management team
will be reporting to me and to the other head staff each
week to report updates and any new changes. The
management team is responsible to have all the
different types of budgeting reports that includes Sales,
Labor, etc. Management must follow the responsibility
reporting system for each department. The managers
will use the companys financial information to predict
outcomes of the business. I require a report from each
responsibility center, cost center, profit center and
investment center to be reported each month.
Management is responsible to ensure that the company
does not over or under budget and if any changes it
must be reported immediately.
Conclusion
DestinyWear will be a very successful team not
only because of the products that we produce but
because of having a great accounting team. With the
help of accounting team I DestinyWear products will be
in every wardrobe in America.
REFERENCES
//http:yourdictionary.com /CVP.org Retrieved
3/20/2010
Thomas, Y. 2005-08-27 Accounting 101 pg. 52
Statements. March 19, 2010
Drucker, P. Managing in the next society 2002.
retrieved march 19,2010
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ACCT 504 Case Study 3 (Wang Appliance Store)

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Construct and use a cash budget) Nathan Farmer, chief
financial officer of Wang Appliance Store, is responsible
for the company?s budgeting process. Farmer?s staff is
preparing the Wang cash budget for 2014. A key input
to the budgeting process is last year?s statement of
cash flows, which follows (amounts in thousands):
Wang Appliance Store
Statement of Cash
Costco Wholesale Corporation
If we look at the financial statements of the company
we can find that the company is financially strong. Its
strength are:
1. It has enough amount of current asset to repay its
current liability. The current ratio of the company
8.18 indicates that the company has $8.18 liquid
asset to repay its $1 of current liability.
2. The operating cost of the company is increasing
because the company is able to reduce its
expenses.
3. Cash from operating activity has increased for the
company.
Apart from this strength the company also has some
weakness in its financial statement:
(i) Increasing inventory indicates that the company
inventory conversion period is increasing.
(ii) The cash from investing activity shows that the
company cash outflow is more in the short term
investment i.e. in non operating activity.
(iii) The overall has for the year 2008 has declined
for the company.
Net Income:
If we look at the trend in net income of the company
we can find that the company net income looks
fluctuating but it has improved it net income in 2008 as
compared to 2007.
Debt ratio as a percentage of total assets:

If we look at the debt ratio as percent of total asset we


can find that the debt ratio is declining in 2008 as
compared to 2007 i.e. the company is increasing equity
to finance debt.
Debt as a percentage of total equity:
As we can see that the debt as percent of total equity
is declining in 2008 as compared to 2007 i.e. the
company is increasing equity in its capital structure.
As we can see that there is nothing negative in 2008
for the company and this is the reason it has positive
trend as compared to 2007. Hence there is no need to
correct anything for the company.
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ACCT 504 Course Project Analysis of Nike, Inc. and Under


Armour, Inc.

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Course Project: A Financial Statement Analysis A
Comparative Analysis of Nike, Inc. and Under Armour,
Inc. Below is the link for the financial statements for
Nike, Inc. for the fiscal year ending 2014. First, select
2014using the drop-down arrow labeled Year, and then
select Annual Filings using the drop-down arrow labeled
All. You should select the 10k dated 7/15/2014,and
choose to download in PDF, Word, or Excel format.
Week 1 DQ 1
Due Tuesday, Day 2

Go to the U.S. Securities and Exchange Commissions


Web site at http://www.sec.gov and the Financial
Accounting Standards Boards Web site
athttp://www.fasb.org. Identify the mission and main
activities of each organization. Then, analyze the
similarities and differences between the roles of each
entity. Which entity has more influence over financial
statement reporting? Explain your answer.
According to the SEC website their mission is to protect
investors, maintain fair, orderly, and efficient markets,
and facilitate capital formation. The SEC also requires
public companies to disclose meaningful financial and
other information to the public. This provides a
common pool of knowledge for all investors to use to
judge for themselves whether to buy, sell, or hold a
particular security. The SEC is concerned primarily with
promoting the disclosure of important market-related
information, maintaining fair dealing, and protecting
against fraud.
According to the FASB website the mission of the FASB
is to establish and improve standards of financial
accounting and reporting that foster financial reporting
by nongovernmental entities that provides decision-
useful information to investors and other users of
financial reports. Since 1973, the Financial Accounting
Standards Board (FASB) has been the designated
organization in the private sector for establishing
standards of financial accounting that govern the
preparation of financial reports by nongovernmental
entities

The major difference in the SEC and the FASB is that


the SEC deals with reporting of financial statements for
all industries while the FASB deals mainly with the
private nongovernmental entities. Both are concerned
with the fairness of financial reports and work in the
interest of the public. I believe that the SEC has more
influence over financial statement reporting because
they can bring civil action against companies and
individuals for violations of securities laws. Although
according to the FASB website, the Commissions
policy has been to rely on the private sector for this
function to the extent that the private sector
demonstrates ability to fulfill the responsibility in the
public interest.

Response 2
Go to the U.S. Securities and Exchange Commissions
Web site at http://www.sec.gov and the Financial
Accounting Standards Boards Web site
athttp://www.fasb.org. Identify the mission and main
activities of each organization. Then, analyze the
similarities and differences between the roles of each
entity. Which entity has more influence over financial
statement reporting? Explain your answer.
U.S. Securities and Exchange Commission (SEC)
According to the SECs website The mission of the
U.S. Securities and Exchange Commission is to protect
investors, maintain fair, orderly, and efficient markets,
and facilitate capital formation(U.S. Securities and
Exchange Commission, 2010, Para. 1).
The main activities of the SEC are to interpret
federal securities laws; issue new rules and amend
existing rules; oversee the inspection of securities
firms, brokers, investment advisers, and ratings
agencies; oversee private regulatory organizations in
the securities, accounting, and auditing fields; and
coordinate U.S. securities regulation with federal, state,
and foreign authorities. (U.S. Securities and Exchange
Commission, 2010)
Financial Accounting Standards Board (FASB)
According to the FASBs website The mission of the
FASB is to establish and improve standards of financial
accounting and reporting that foster financial reporting
by nongovernmental entities that provides decision-
useful information to investors and other users of
financial reports. That mission is accomplished through
a comprehensive and independent process that
encourages broad participation, objectively considers
all stakeholder views, and is subject to oversight by the
Financial Accounting Foundations Board of Trustees
(Financial Accounting Standards Board, n.d., Para. 3).
The main activities of the FASB are to identify
financial reporting issues based on
requests/recommendations from stakeholders or
through other means. The FASB Chairman decides
whether to add a project to the technical agenda, after
consultation with FASB Members and others as
appropriate, and subject to oversight by the
Foundation's Board of Trustees. The Board deliberates
at one or more public meetings the various reporting
issues identified and analyzed by the staff. The Board
issues an Exposure Draft to solicit broad stakeholder
input. (In some projects, the Board may issue a
Discussion Paper to obtain input in the early stages of a
project) The Board holds a public roundtable meeting
on the Exposure Draft, if necessary. The staff analyzes
comment letters, public roundtable discussion, and any
other information obtained through due process
activities. The Board redeliberates the proposed
provisions, carefully considering the stakeholder input
received, at one or more public meetings. The Board
issues an Accounting Standards Update describing
amendments to the Accounting Standards Codification
(Financial Accounting Standards Board, n.d.).
Both the SEC and the FASB have the same goals of
fairness, accuracy, and understandability of financial
accounting and reporting. Both agenecys accomplish
these goals in the best interest of the overall public.
The differences between the SEC and the FASB is that
the FASB regulates financial reporting in the private
sector of businesses (but are subject to the rules and
regulations of the SEC) and the SEC deals with
regulating the financial reporting of publicly held
corporations.
I believe that the SEC has the greatest influence over
financial statements reporting because they have the
final approval on all changes of the rules and
regulations. The Sec can also bring civil or
administrative enforcement actions against individuals
and companies in violation of the securities laws.

References
Financial Accounting Standards Board. (n.d.). Facts
about FASB. Retrieved July 15, 2010, from Financial
Accounting Standards
Board:http://www.fasb.org/facts/index.shtml#mission
U.S. Securities and Exchange Commission. (2010, May
3). The Investors Advocate: How the SEC Protects
Investors, Maintains Market Integrity, and Facilitates
Capital Formation. Retrieved July 15, 2010, from U.S.
Securities and Exchange
Commission: http://www.sec.gov/about/whatwedo.shtml
Week 1 DQ 2
Due Thursday, Day 4
Search the Internet or the Online Library for
information about the Sarbanes-Oxley Act. A useful
guide to some of these provisions is located
at http://www.soxlaw.com. Summarize at least two
provisions of the law, and discuss your interpretation of
these provisions with your classmates. Do you think
this law will make financial statements more reliable?
Also, discuss how Sarbanes-Oxley establishes
boundaries to ensure ethical practices. What does the
law allow or prohibit, and why?

The Sarbanes-Oxley act has many provisions to give


companies guidelines for responsible, and ethical
financial reporting. One of those provisions is listed in
Section 302 of the act. The provision is that periodic
statutory financial reports be certified that signing
officers have reviewed the reports, the report does not
contain any untrue, or misleading information. The
financial statements fairly present the financial
condition. The signing officers are responsible for
internal controls. A list of all deficiencies in internal
controls, and a list of fraud involving employees, and
anything that could negatively affect the internal
controls.
Another provision pertains to the "management
assessment of internal controls". This provision
ensures that information is published in annual reports
regarding the adequacy of internal controls, structure
and procedures.
The Sarbanes-Oxley act is designed to help companies
promote ethical accounting procedures. The act gives
guidelines as to how financial statements are
reported. The act requires verification that officers
within the company have checked the information in
the reports for accuracy and true. The act also
requires that the companies have internal controls in
place to ensure ethical reporting practices. The main
thing that the Sarbanes-Oxley promotes is
transparency in reporting.

Response 2
Section 802 of the Sarbanes-Oxley Law defines the
penalties that may be assessed against individuals who
failed to comply with the Act. An individual could be
subject to 20 years in jail for altering, destroying,
mutilating, concealing, falsifying records, documents or
tangible objects. Guilt is define by the intent to impede
a legal investigation. This part of the law gets to the
heart of how Arthur Anderson reacted by destroying
documents important to Worldcom. The law further
defines that any accountant who knowingly violates
their ethics by wilfully violates the requirements of
maintenance of all audit or review papers. These
papers are subject to review up to five years.

The second Section that I reviewed was the Section


302. This actually is my favorite part of the law
because it directly holds the officers and directors
accountable for the accuracy of reporting in their
financial statements. It defines that the management
must review and understand the financial statements
and sign that they are true and accurate. It also holds
the management accountable for the internal controls,
requiring any deficiencies to be reported. In the past
directors of companies relied heavily on the internal
officers, management, to report the company
performance without questioning the accuracy or
taking their role on oversight committees seriously.
They could hide behind a veil of trust of the key
leaders. This Section clearly puts the responsibility for
the Board to remain independent of the executives and
function more effectively on the respective oversight
committees they serve. The example I would share is
what happened in WorldCom. The company leaders
shared what they wanted to with the Board, who
trusted implicitly the top leaders. Had they questioned
their legal representation or auditors, they potentially
could have uncovered the fraud that was committed by
the creation of shell companies, with WorldCom
employees as stockholders.
I would love to think this law would protect the
investing community. Financial reporting has improved
to some extent. Unfortunately the scams still
continue. Example would be Barney Madoff or what
happened in the financial mortgage industry. These
unethical practices were conducted after Sarbanes
Oxley was implemented. Madoff was able to provide
false financial information to investors. Financial
industry was allowed to get to aggressive in
underwriting and product suite. Fines and penalties
are deterrents. Ethics still must be inherent in an
individual and company. Laws and requirements are a
guide. There will never be enough auditors, inspectors
or oversight boards to catch all of the fraud in the
corporate community.

The law prohibits falsifying information, failing to notify


of material changes, and destruction of records.
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ACCT 504 Course Project Oracle and Microsoft Corporation


(Devry)

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Course Project

Financial Statement Analysis Project -- A Comparative Analysis of


Oracle Corporation and Microsoft Corporation

Here is the link for the financial statements for Oracle Corporation
for the fiscal year ending 2007. First, select 2007 using the drop-
down arrow labeled for Year on the right-hand side of the page, and
then select Annual Reports using the drop-down arrow labeled Filing
Type on the left-hand side of the page.

You should select the 10k dated 6/29/2007 and choose to download in
PDF, Word, or Excel format. Lucent Technologies

Axia College of University of Phoenix


Lucent Technologies is a company based on networking for service
providers, government, and enterprises worldwide (Lucent
Technologies, n.d., Para 1). The products and services they work with
are separated into three categories; service and maintenance,
wireless mobility networking, and wire line networking. Lucent
Technologies is backed by Bell Labs, which does research and
development in networking technologies.
During the years of 2001 to 2003 this company has experienced a
decrease in demand because of other companies loss or capital used
toward spending. This is mainly due to a downturn in the economy. As
an investor this information is necessary to know because it explains
the decrease or increase in sections of the balance sheet. In order to
compare the growth or decline of the companys profit, an investor
must change a balance sheet into a common-size balance sheet. First
when looking at the balance sheet an investor will see that the amount
of paid in capital has increased from the year of 2003 to 2004, the
assets have increased, but the liabilities have decreased. When
running a debt/asset ratio it is noticed that this ratio drops from 1.2 in
2003 to 1.0 in 2004. This shows the companys risk is low when
concerning financial leverage, usually when the debt ratio is less than
one percent it is financed mainly by company equity, so this company
is close to being debt free from creditors.
After changing the balance sheet to a common-size balance sheet
there are several factors an investor will look at. The current assets
have dropped to .48 from .49 in 2004. This does not show harm to the
company because only the accounts receivable dropped while the rest
of the current assets increased. This means the company is not in as
much danger of default on money owed to it. It does have a rise in
marketable securities. The one concern in the assets is the increase of
prepaid cost of pensions and goodwill. Goodwill can be used for tax
breaks but prepaid pensions cannot benefit the company.
When looking at the liabilities section an investor will see a drop in
pension and liabilities and an increase in long term debt, both of
these could be affected because of the drop in the economy. Long term
liabilities are often increased to help a company control interest rate
increases so as an investor cutting back on pension liabilities cuts
back cost to the company and watching interest rate increase show
the company is concerned with its earning and investors. This would
be encouraging or an investor. The stockholders deficit shows a drop
in accumulated deficits from -1.43 to -1.22 and total deficits of -.26 to
-.08. This shows the company is working to control any money loss
and turning it to the companys advantage. Overall it shows the
company is still earning a profit although small. With an increase of
assets and a drop in liabilities the company is showing it is working
in a low risk capital.
After reviewing this information, a creditor or investor must be able
to compare this company to the industry totals. By comparing how
this company compares to other companies similar to it, a person can
see if it is competitive and worth taking a risk. Running ratios will
also show if the company is capable of paying off any debts it has or
if it can acquire the needed cash in case of emergencies. Overall as
an investor, I would say this company would be worth investing in.

Reference
Axia College. (2007). Understanding Financial Statements. Retrieved
May 10, 2010 from Axia College, Week 2 Assignment, ACC/230.
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ACCT 504 Entire Course (Devry)

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ACCT 504 Week 1-7 All Discussion Questions

ACCT 504 Week 3 Case Study 1 Flower Landscaping Corporation


ACCT 504 Week 4 Midterm Exam Set 1

Differentiating Depreciation Methods

There is one main difference between straight line depreciation and


accelerated depreciation. Straight line is decided by taking the cost of
the assets, figuring out the salvage cost when the use of the asset is
finished and how many years of use the asset has. A person then takes
the cost minus salvage and divides the remainder by the number of
years of use. This amount is the depreciation expense subtracted each
year from the cost. The accelerated depreciation does not have the
same amount of deprecation subtracted each year. It does have the
cost minus salvage value to figure out the amount to use but is then
divided out differently. A person takes the sum of the years of a
products useful life, such as three years is 3 + 2 + 1 = 6, then a
person would divide the depreciation amount by 3/6 the first year, 2/6
the second and finally 1/6 for the final year. So the amount of
depreciation expense is larger to smaller with accelerated and equal
amounts for straight line.
The advantages of straight line method are it is easier and faster to
figure. The advantage of accelerated method is it is more accurate
when figuring depreciation expense. The accelerated method has an
advantage and disadvantage concerning taxes. A company can use
the accelerated method to take advantage of bigger tax breaks at the
beginning of an assets life, but since this amount drops during the
lifespan if the company needs added tax breaks it will not receive
them from these assets in the future. With the straight line method the
amount of tax breaks are even through the life of the product. Most
companies choose this form of depreciation for reporting purpose on
taxes but will use the accelerated method to figure taxable income.
As mentioned before the advantage of straight line depreciation is it is
easier to figure and uses the same total each year for deduction of
depreciation expense but the disadvantage is that if use for taxable
income and reporting a company does not get a bigger tax break at
the beginning of the assets life when they have just put out the cost for
the item and may need a bigger tax break.
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ACCT 504 Final Exam (3 different finals) (Devry)

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1. (TCO A) Which one of the following is an advantage of
corporations relative to partnerships and sole proprietorships?
(Points : 5)

Preparing an Income Statement


The companies net income is profitable when the sales exceed the
cost of goods sold. In this, the gross profit is $761k. This is beneficial
to the company. Though we took the cost of goods away from the net
sales there are still other areas which need to take a piece of the pie.
For this company, once the SG&A and depreciation are taken out, the
company still contains a profit of $290k. But the buck does not stop
there. Once the interest income and interest expense are adjusted the
balance before earnings and taxes is $290k. After taxes are taken out,
the company is left with a net profit of $174k.

In this case I think the company has achieved success with a net profit
of $174k. If the company were unable to be profitable, the company
would eventually go out of business. We would be able to tell if the
company was not profitable by looking at each section individually.
The cost of goods sold is what stands out for me. If we pay more to
make the product then we are actually selling it for, there is no profit
to be made. So, I think it should all start there.

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ACCT 504 Midterm Exam (4 Sets, 2017)

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This Tutorial contains 4 Set of Midterm Exam 1.
Question : (TCOs A and E) Your friend, Ellen, has hired
you to evaluate the following internal control
procedures. Explain to your friend whether each of the
numbered items below is an internal control strength or
weakness. Week 3 DQ 1
Due Tuesday, Day 2

Post your answer to Problem 3.5 on p. 109 (Ch. 3). How


might the information contained within the stockholder
equity statement be used for management and
investor decision-making? Provide specific examples of
situations in which the stockholder equity information
might be used.
The statement of stockholders equity provides the
changes in the equity accounts during the accounting
period more in depth than the balance sheet. The
information found on the statement of stockholders
equity includes retained earnings, common and
preferred stock, and additional paid in capital.
Management uses the statement of stockholders
equity to ensure they are reaching their goal of
maximizing shareholder's equity. The use of market
ratios help with the analysis of the statement of
stockholders equity, such as earnings per share, price-
to-earnings, dividend payout, and dividend yield. These
ratios will help both management and investors in
analyzing the company. For example, if I were looking
to invest in a companys stocks I would utilize all of the
financial ratios, as well as the market ratios. The
earnings per share ratio is calculated before the price
to earnings ratio, P/E, because the earnings per share
ratio is used in the second. If a company pays
dividends, the dividend payout ratio will come in handy.
It tells us The percentage of earnings paid to
shareholders in dividends (Investopedia, 2010, p. 1).
References
Investopedia. (2010). Dividend Payout Ratio. Retrieved
August 3, 2010, from
Investopedia:http://www.investopedia.com/terms/d/dividendpayout
ratio.asp

Response 2
Explain what can be found on a statement of
stockholders equity.

The major elements of stockholders' equity include


capital stock, paid-in capital, retained earnings,
treasury stock, unrealized loss on long-term
investments, and foreign currency translation gains
and losses.

How might the information contained within the


stockholder equity statement be used for
management and investor decision-making?
Provide specific examples of situations in which
the stockholder equity information might be
used.

Management may look at the stockholders equity


statement retained earnings section to determine if
company should borrow money for capital investments
or finance it through various forms of equity. It may
also be used by the stockholder to evaluate the
compensation paid to the company officers. Investors
may also look at the statement for cumulative net
unrealized gains and losses before purchasing stock in
the company. Investors are also interested in the paid
in capital because they can compare it to the additional
paid in capital and the difference between the two
values will equal the premium paid by investors over and
above the par value of the shares.
DQ 2
Week 3 DQ 2
Due Thursday, Day 4

Provide an example from the text or the Internet that


demonstrates a situation in which a companys net
profits appeared good in the statements, but the gross
or operating profits presented a different picture.
Discuss how this might have occurred. Respond to the
following question, addressed in Problem 3.6 on p.
109 (Ch. 3): Why is the bottom-line figure, net income,
not necessarily a good indicator of a firms financial
success? Look for indicators like liquidity or solvency
to answer this discussion question.

An example that demonstrates the situation is Enron.


Enrons financial statements did not show all the
expenses and costs. Instead of showing them on the
income statement they made entries so the cost and
expenses would post in the balance sheet. The same
was done with the revenues. This way it would be less
expenses and the net profit appeared good. Many
debts and losses were not reported in the financial
statements. From the third quarter of 2000 through the
third quarter of 2001, the directors fraudulently used
reserve accounts within Enron Wholesale to mask the
extent and volatility of its windfall trading profits,
particularly its profits from theCalifornia energy
markets; avoid reporting large losses in other areas of
its business; and preserve the earnings for use in later
quarters. By early 2001, Enron Wholesale's undisclosed
reserve accounts contained over $1 billion in earnings.
The head of the company improperly used hundreds of
millions of dollars of these reserves to ensure that
analysts' expectations were met. In addition, Skilling
and others improperly used the reserves to conceal
hundreds of millions of dollars in losses within Enron's
EES business unit from the investing public.This would
show the creditors that Enron was making profits and
its position was solid.
The net income is not necessarily a good indicator of a
firms financial success because the income statement
only shows the profit or loss at a period of time and
does not show the whole picture of the company. The
Balance Sheet, Statement of cash flow, Statement of
shareholders equity and the Income Statement all
together give the real picture of the business. Each one
of them shows different aspects of the business. These
statements show where the income is actually coming
from; is it from sales or from loans the company is
borrowing? If the company is selling a building or any
other asset but that does not mean that it is selling
more products and making profit. Looking at the
Income Statements the company might be making
profit but at the same time it is extremely leveraged.
Response 2
A companys net income is not the whole picture, just
part of it. There are lots of things that contribute to the
net income that may not be significative to the
companys success. If the value of a dollar has a
sudden change that can affect the bottom line if the
company happens to hold the medium of exchange
that can benefit by the change that might occur. The
company can falsely inflate the bottom line. A
companys net income is coupled with liabilities, cash
flow, and selects financial ratios. Looking at it this way
is a much better way of seeing what the companys
success is like. A company can change up many things
to make it look like their income is better. These things
that can be changed are single sales events, cash
infusion, or false financial statements. Some things like
debt that a company has, the companys cash on hand,
their capital assets conditions, or even their sales
trends. To figure the success of the company, you must
look at the whole picture. One thing cannot tell you all
the facts of the companys affairs. You cannot tell the
net income of the company just from the bottom line.
Look at all the financial records.
Response 3
Provide an example from the text or the Internet that
demonstrates a situation in which a companys net
profits appeared good in the statements, but the gross
or operating profits presented a different picture.
Discuss how this might have occurred. Respond to the
following question, addressed in Problem 3.6 on p.
109 (Ch. 3): Why is the bottom-line figure, net income,
not necessarily a good indicator of a firms financial
success? Look for indicators like liquidity or solvency
to answer this discussion question.
Net income is not necessarily a good indicator of a
firms financial success because they have ways to
manipulate it by increasing their revenues or hiding
some of their expenses. For investors trying to decide
where to invest their money, they need to look more
into assessing how the company came up with the
numbers they presented.

An example of this situation is when Laribee Wire


Manufacturing Co. exaggerated in recording their
inventory value which allowed them in acquiring loans
from six banks totaling to about $130 million using it as
collateral. At the same time, they reported $3 million in
net income for the period, but in actuality they lost
$6.5 million.

This company showed a higher net income by reporting


fake inventory in which its value was overstated and
transferred over to their income statement. When the
banks assessed their financial statements, it was
enough to sway them into lending the loans they
needed.
Reference:

Investopedia. (2010). Spotting Creative Accounting On


The Balance Sheet. Retrieved
fromhttp://www.investopedia.com/search/searchresults.aspx?
q=Spotting+Creative+Accounting+On+The+Balance+Sheet&submi
t=Search

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ACCT 504 Week 1-7 All Discussion Questions (Devry)

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Week 1DQ 1 - Financial Reporting Environment and GAAP

Week 1DQ 2 - Details of Financial Statements and Ratios

Week 2DQ 1 - Accounting EquationAccounting Cycle

Week 2DQ 2 - Accrual Accounting and Adjusting Entries

STOCK DIVIDEND

Stock Split
University of Phoenix

Stock Dividend

In the present time, the stock dividend has become important concept.
When dividend is given in form of stock, it is called stock dividend. In
this form of dividend, the cash does not use. It is important, when the
corporation declares stock dividend, the market value of the share
decreases because the number of stock increases. The many
companies prefer stock dividend due to the tax benefit. If the
individual gets stock dividend, he does not pay any tax on stock
dividend. Thus the stock dividend reduces tax burden. On the other
hand, the ownership of investors also spurs up in the company
because the number of holding share increases. There is also
disadvantage of stock dividend. The market value of the share
decreases, so the market value of holding also decreases (Kennon,
2009).

The ABC Company is leading company in its industry. The number of


outstanding share of the company is one million. On the other hand,
the number of investors is five millions. The value of market
capitalization is $100 million. The management declares 20% stock
dividend. Thus the 200000 shares will be distributed as a stock
dividend. The number of outstanding share will be increased by
200000 and the new total number of outstanding stock will be 1.2
million. On the other hand, the new value per share in the market will
be $83.33 (100 million/1.2 million). This example is taken from below
mentioned link:

Stock Split

The stock split is also an important concept. When the management


wants to increases number of shares, the management follows this
method. In this method, the face value of the share is split and number
of share gets increased. Due to increment in number of outstanding
share, the market value of per share also gets affected but the total
market capitalization of the company does not affect. Both stock split
and stock dividend increase number of outstanding shares but both
are different due to the accounting treatment. In the stock split, the
investors do not get any real benefit. It is also known as non-cash
distribution of dividend. The motto behind stock split is to increase
trading of the shares in the market (Baker, 2009)

For example, the face value of per share is $100 and the total
outstanding shares are 100 million. If the management of the
company announces stock split in ratio of 1:2, the total outstanding
shares will be increased by 100 million, thus the new total number of
the share will be 200 million. On the other hand, the face value of the
share will reduce by 50%. So the new face value of the share will be
$50. Due to effect of stock split, the holding share of the investor will
also increase in the prorate basis. If the investor has 10 shares, now
he will have 20 shares. It is important thing that the total issued
capital will not be changed. The illustration of stock split has been
got from following link:

Reverse Stock Split

The reverse stock split is just opposite of stock split. In this process,
the management reduces the number of outstanding shares. The
company increase face value of the share. In this method corporation
decides a ratio such as 2:1. Thus the company accumulates two
shares in one share. In this method, the total market value of company
does not change. Due to reverse stock split, the earning per share and
face value of per share rises. Thus the reverse stock split provides just
opposite result from stock split. It is important question, why company
selects this method. When the management seems that the face value
of the share is less as compared to competitors then the company goes
for this method to make its share value to equal to competitors
shares face value. It is also a sound strategy to increase treading of
shares. If the face value of share is too cheap in comparison to
competitors, the investors will be discouraged for investment. For
increasing the confidence of investors, the management uses this
method (Mladjenovic, 2009).

For example, an investor holds 100 shares of XYZ Company and the
face value per share is $50. If the management go for reverse stock
split option and declares one share for 10 shares then the holding of
the individual will reduce 9 shares for every 10 shares. Thus the new
holding of the investor will be 10 (100/10) shares but the face value
per share will be $500. It is also important that the total market
capitalization will remain as same as before reverse split. The
example of the reverse split is take form below mentioned link:
http://www.sec.gov/answers/reversesplit.htm.
References
Baker, H. K. (2009). Dividends and Dividend Policy. John Wiley and
Sons.
Kennon, J. (2009). All About Dividends. Retrieved May 31, 2010,
from
http://beginnersinvest.about.com/od/dividendsdrips1/a/aa040904_2.h
tm
Mladjenovic, P. (2009). Stock Investing for Dummies. Dummies.

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ACCT 504 Week 2 Homework (E2-17A, E2-18A, E3-22A,


E3-23A)

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This Tutorial contains Excel Files which can be used to
solve for any values (your Question may have different
company name or values, but that can be solved using
Excel file) E2-17A Dr Anna Grayson opened a medical
practice specializing in physical therapy. During the
first month of operation (May), the business, titled.
Anna Grayson, Professional Corporation (P.C.),
experienced the following events
Analyzing an Income Statement

The net income of Kodak has decreased a bit; it


appears that the company is more profitable. By
conducting a side by side analysis from 2004 to 2003
the company has increased in current assets and
decreased in total assets. It appears that the company
went down in property, plant and equipment net as well
as discontinued operations. So, despite the decrease in
total assets it looks like the company has made a good
decision.

The company has also decreased its total liabilities by


about 4%. I believe this to be good because the short
term borrowings and long term debt has decreased. To
me, this means that the company is tightening their
belt and paying off old debt.

Total shareholders equity has down a little bit in


dollars, but on the percentage level the companys
percentage has gone up. I believe this is because the
company issued $104k more shares in 2004 than in
2003. The company has the same amount of shares
outstanding in 2004 that it did in 2003 as well.
Retained earnings on the stock have gone up in 2004
as well. I believe this is contributed by the more shares
that have been issued.
I believe the profitability of the company is under good
standings. They appear to be making the necessary
adjustments in the company to stay with in a profitable
income.

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ACCT 504 Week 3 Case Study 1 (Melvin Plumbing


Corporation) **New**

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MAKE SURE TO COMPLETE ALL REQUIREMENTS WHICH
ARE LISTED BELOW. There are 10 sheets in the
Workbook, including this one. All of the information
that you need for the project is located in this
Workbook. Requirement #1: During its first month of
operation, the Melvin Plumbing Corporation, which
specializes in residential plumbing, completed the
following transactions. Cash Flow Statement Analysis

Cash Flow Statement Analysis


The cash flow statement is important financial
statement of the corporation. The cash flow statement
states from where cash has come and where cash has
been gone. Thus the cash flow statement makes a
relationship between beginning balance and ending
balance of cash. The cash flow statement is prepaid on
the basis of income statement and balance sheet of the
company. The Little Bit Incs beginning cash balance
including marketable securities was $24000. On the
other hand, the ending cash balance including
marketable securities of the company was $40000
(Weygandt, Kimmel & Kieso, 2009).
The net income of the company was $5500 during
2009. The company generated cash inflow from
operating activity is less as compared cash out flow
from operating activities. The company generated
$9000 negative cash balance in operating activity
section of the cash flow statement. On the other hand,
in the investment section, the firm has also negative
cash balance. The firm has $7000 negative balance in
investment section of the cash flow statement. The
Little Bit Inc made investment during the year instead
of selling of assets. Last section of the cash flow
statement is financing activity section. In which, all
finance related activities come. The corporation sold
some shares and borrowed some money from outside
lenders therefore the company has positive case
balance by $32000 in financing activity section.
Reference
Weygandt, J.J.,Kimmel, P.D. & Kieso, D.E. (2009).
Managerial Accounting: Tools for Business Decision
Making. John Wiley and Sons.
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ACCT 504 Week 3 Case Study 1 Flower Landscaping


Corporation (Devry)

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The Entire Case Study is due Sunday at Midnight Mountain time at
the end of Week 3.
This Case Study is worth 100 points or 10% of your final course
grade.
Week 5 DQ 1
Due Tuesday, Day 2

In what ways does the statement of cash flows relate to the balance
sheet and income statement?

It is important to understand what we are doing with the numbers and


the results these numbers give us because the result is the information
that will be available to us from financial statements. Although some
want to see the income statement and ignore the other statements we
need to use them together to see the total picture of what is happening
to our business. The relationship between the numbers on the
financial statements shows us everything we need to know about the
business.

The income statement shows income and expenses for a period of


time and if we are making or loosing money. The balance sheet
compares the assets to liabilities and shows how much money the
business would have if everything is sold today.

The statement of cash flow might be the most critical statement


because there is plenty of information we can gain form it. This
statement relates with the income statement on operating activities to
see if they are generating cash or not. It is related to the balance
sheet on how much cash is used in investing activities. In relationship
with the balance sheet the cash flow statement shows what cash is
provided or used by financing activities. It will tell us how much debt
has been paid and will indicated if we are using more debt or have
paid down the credit line.

When the business makes a sale or receives payment for a sale on


credit that is an inflow. A sale shows up as income on the profit and
loss statement and as an inflow on the cash flow statement. It also
shows up either as cash or accounts receivable on the balance sheet.
Also, how quickly we can collect on accounts receivable will play a
big role in the cash flow. When the business spends money, it shows
up as an expense in the profit and loss statement and as an outflow on
the cash flow statement. It also shows up on the balance sheet as a
decrease in cash, or an increase or decrease in liabilities, depending
on what the expense represents.

Response 2
In what ways does the statement of cash flows relate to the
balance sheet and income statement?
The cash flow statement relates to the income statement and balance
sheet. The net income from the income statement is listed on the
statement of cash flows. Operating activities are analyzed on the
statement of cash flows; this section of the statement reconciles the
net income to the actual cash the company received from or used
during operations. The second section of the statement of cash Flows
is the cash flow from investing activities which include purchase or
sale of assets. The last section in the Statement of Cash Flows is the
cash flows from financing activities that includes raising cash by
selling stocks/bonds or borrowing from backs; or cash out flows from
paying back loans. The balance sheet shows the different account
balances at the end of the accounting period. The statement of cash
flows reflects changes in the accounts listed on the balance sheet
between accounting periods. The net cash from operating, financing,
and investing activities are added up to calculate the net change in
cash.

Week 5 DQ 2
Due Thursday, Day 4

Discuss how the statement of cash flows is utilized by investors. If you


were an investor reviewing a statement of cash flows, what section
might interest you most? Why? Discuss the circumstances in which
other sections of the statement might be important to an investor.

Prior to making an investment in a company, one would want to


understand the decisions the owners are making to fund the
operations of the company daily. Maintaining sufficient cash to
acquire new product, pay overhead, and satisfy generated sales would
be the predominant need of the company. Second need would be for
the company to have sufficient cash to remain competitive. This may
require cash to invest in research and development, increase
inventory as new product introduction, improve efficiency in plant
and equipment, or cash to satisfy prior borrowing obligations. By
reviewing the statement of cash flow, the investor can determine if the
company is generating sufficient cash internally to fund operations or
are they requiring outside injection of cash to finance the short fall in
cash needed to operate the company. Last, the investor can review
the statement of cash flow to better understand the leverage of the
company and the requirement for repayment of debt, or dividends to
reward prior investments.

Response 2
Discuss how the statement of cash flows is utilized by investors. If you
were an investor reviewing a statement of cash flows, what section
might interest you most? Why? Discuss the circumstances in which
other sections of the statement might be important to an investor.

The statement of cash flow is utilized by investors because it has all


information integrated from the balance sheet and the income
statement. The statement of cash flow is used by an investor to see if
the operating activities are greater than the net income to have
earnings that are called high quality. If operating activities are
less, then a red flag will be raised as to why the net income is not
becoming cash. Another reason would be investors believe cash is the
best. The statement shows all cash coming and going from the
business. If the company generates additional cash than what is being
used, then the company can reduce their debt, acquire another
business, or buy some of the stock back. The last reason why would be
that financial models are based upon the statement of cash flow.
If I was an investor reviewing a statement of cash flows the section
that might interest me the most would be the operating activities. I
would like to know how the company was doing and what areas need
to be improved to have more cash generated in the business. All the
sections are important to an investor so they can see the complete big
picture of their investment.

----------------------------------------------
ACCT 504 Week 3 Quiz

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Q -1 Other comprehensive income A. includes
extraordinary gains and losses. B. affects earnings per
share. C. includes unrealized gains and losses on
available-for-sale investments. D. has no effect on
income tax. Q-2 Use the following data of
TortoiseTortoise Sales, Inc.: Unit Total Units Units Cost
Cost Sold Beginning inventory 16 $3 $48 Purchase on
Apr 25 25 6 150 Purchase on Nov 16 11 8 88 Sales 40 ?

Candela Corporation
Axia College of University of Phoenix

Candela Corporation
Candela Corporation and Subsidiaries have been
working for over 34 years developing and
commercialize aesthetic laser systems that allow
physicians and personal care providers to treat a
variety of cosmetic and medical conditions such as
removal of spider veins, scars, stretch marks, warts, as
well as hair removal and age spots, freckles and
tattoos. Other skin treatments such as psoriasis and
acne and acne scars are also treated. (Axia
College, 2007)
Going from top to bottom on The Candela
Corporation and Subsidiaries Consolidated Statement
of Cash Flows; for the operating activities, 2002 shows
an alarming loss in the net income while 2003 and
2004 for the company are showing a significant and
steady climb in the net income. In 2004 there was a
new category added called Provision for the disposal of
discontinued operations and the category has caused
an increased the account for 2004. Loss from
discontinued operations grew from 2002 to 2003 but
had a significant decline for 2004. Depreciation has
increased over the last 3 years as well. Provision for
bad debts increased significantly too, but an increase
in bad dept is expected as revenue increases. The
provision for deferred taxes shows the company went
from a loss in 2002 and 2003 to show there was no tax
loss in 2004. The tax benefit from exercised stock
options has practically doubled sense 2003. The
changes in assets and liabilities for the last 3 years
have been up and down. Receivables have increased,
notes receivable decreased, and inventories have
increased. Other current assets, other assets have also
increased. Accounts payable has made a significant
decrease in the last 3 years as well as accrued payroll
expenses. The accrued payroll decreasing could mean
that the amount of employees over the years has
decreased as well. The accrued warranty costs have
increased as well; this could mean that the company
renewed equipment warranties. The net cash provided
by operating activities looks to have gone from a loss in
2002 to a large profit in 2003 and then a decrease, yet
still a profit for 2004. It appears on the operations level
that management needs to do more to regulate the
companys finances so there is not an up and down
variance each year.
The cash flow from investing activities shows me
that in the last three years they had large amount of
investments in 2002 and 2003 but now they are letting
them decrease.
The cash flow from financing activities states that
the proceeds from issuance of common stock have
increased significantly from 2002 to 2003 and rose a
little more in 2004. The repurchases of stock has not
happened sense 2002 and the principle payment of
long-term debt grew in 2003 from 2002 and shows no
activity for 2004. Same goes for the net borrowing on
line of credit; it appears that Candela Corporation is
current on payments to line of credit. So, the net cash
from financial activities looks great for 2004. The cash
and cash equivalents for each year have increased
steadily.
After reviewing the consolidated statement of cash
flows for Candela Corporation, I believe the company is
making a profit, but perhaps need some control over
their operating activities.
Reference

Axia College. (2007). Statement of Cash Flows.


Retrieved June 14, 2010 from Axia
College, Week Six, ACC 230.

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ACCT 504 Week 4 Quiz


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Q -1 Anderson Company had the following information
in 20142014. Accounts receivable 12/31/14. . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . $14,000 Allowance for
uncollectible account 12/31/14 (before adjustment). . . .
. . . 850 Credit sales during
2014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36,000

Analyzing Statements of Cash Flows

4.8. Research Problem


Choose five companies from different industries and
locate their statements of cash flows
for the most recent year.
(a) Create a table to compare the dollars provided or
used by operating, investing, and financing activities,
as well as the overall increase or decrease in cash.
(b) Create a second table for each company comparing
this same information for each of the three years
presented in that companys statement of cash flows.
Include an additional column that looks at the
combined cash flows for all three years.
(c) Write a short analysis of the information gathered.
Your discussion should address, among other things,
whether cash flow from operating activities is large
enough to cover investing and financing activities, and
if not, how the company is financing its activities.
Discuss differences and similarities between the
companies you have chosen.

(a) Create a table to compare the dollars provided or


used by operating, investing, and financing activities,
as well as the overall increase or decrease in cash.

STATEMENT OF CASH FLOW ANALYSIS

HARELY
STARBU DAVIDSO
CKS N RITE AID
2008 2008 2008

NET INCOME /
STARTING $ $ $
LINE 315.5 - (1,079.0)
OPERATING $ $ $
ACTIVITIES 1,258.7 (684.7) 79.4
$
INVESTING (1,086. $ $
ACTIVITES 6) (393.3) (2,933.7)
FINANCING $ $ $
ACTIVITIES (184.5) 1,293.4 2,904.0
$ $ $
CASH (11.5) 190.7 49.9

(b) Create a second table for each company comparing


this same information for each of the three years
presented in that companys statement of cash flows.
Include an additional column that looks at the
combined cash flows for all three years.
STARBUCKS

2008 2007 2006

Net Income/Starting 315. 672.6 564.


Line 5 4 26
Cash from Operating 1258 1331. 1131
Activities .70 22 .63
- - -
Cash from Investing 1086 1201. 841.
Activities .60 95 04
- - -
Cash from Financing 184. 171.8 155.
Activities 50 9 33
-
11.5 - 138.
Net Change in Cash 0 31.35 80
Net Cash - Beginning 281. 312.6 173.
Balance 30 1 81
Net Cash - Ending 269. 281.2 312.
Balance 80 6 61

HARLEY
DAVIDSON

2008 2007 2006

Net
Income/Starti 933. 1043
ng Line 0 84 .15
Cash from -
Operating 684. 798. 761.
Activities 65 15 78
Cash from - -
Investing 393. 391. 35.2
Activities 25 21 6
Cash from - -
Financing 1293 1037 637.
Activities .39 .80 02
Net Change in 190. 164. 97.4
Cash 70 46 2
Net Cash -
Beginning 402. 238. 140.
Balance 85 40 98
Net Cash -
Ending 593. 402. 238.
Balance 56 85 4

RITE AID

200 200
8 7 2006

Net -
Income/Startin 107 26. 1273
g Line 8.99 83 .01
Cash from
Operating 79.3 309 417.
Activities 7 .15 17
Cash from - - -
Investing 293 312 231.
Activities 3.74 .78 08
Cash from -
Financing 290 33. 272.
Activities 3.99 72 84
Net Change in 49.6 30. -
Cash 1 08 86.7
5
Net Cash -
Beginning 106. 76. 162.
Balance 15 07 82
Net Cash - 155. 106 76.0
Ending Balance 76 .15 7

(c) Write a short analysis


of the information
gathered. Your discussion
should address, among
other things, whether
cash flow from operating
activities is large enough
to cover investing and
financing activities, and if
not, how the company is
financing its activities.
Discuss differences and
similarities between the
companies you have
chosen.

Starbucks operating cash flow has gone up in 2007 and decrea


looks a on the down side but previously was doing well. The ne
previous year. This could mean that this year there can be a g

Harley Davidson's operating cash flow has significantly decreas


cycle from 2006. The decrease in cash from operating activitie
income. With the economy the way it is and not many people
income is decreasing. With a bounced back economy in the co

Rite Aid's operating cash flow has taken a significant decrease


from investing and cash from financing, the net change in cash
gain in cash could be from the ever growing needs in medical s
company.

----------------------------------------------

ACCT 504 Week 5 Case Study 2 Internal Control - LJB


Company (Devry)
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Case Study 2 - Internal Control- Due by Sunday of week 5

LJB Company, a local distributor, has asked your accounting firm to


evaluate their system of internal controls because they are planning
to go public in the future. Findwhat.com Case - CheckPoint

ACC 230

Findwhat.com has recorded the 135 percent increase in the revenue


which is mainly due to the business acquired of Espotting during the
year. The different accounting policies are present for the acquiring
firm and the acquired firm. The company has recorded certain
premature revenues for the amount which advertisers had made only
the advance deposit. As result, the company is recognizing the vendor
financing as revenue. In some places, the gross revenue has been
recognized while in another, the net revenue has been recognized. The
network click revenue is recognized at gross level while the private
level revenue is taken at net level. Some of the revenue expenditures
have been recognized as the capital expenditures.

Revenue for set up network fee is treated as deferred revenue and is


recognized over a period of time. The company is very inconsistent
with regards to its accounting policies in terms of recognition of
revenue. The provision and treatment of amount for doubtful debt is
also not satisfactory. When a customer clicks on a sponsored
advertisement, the whole of the revenue due to him is recognized. The
company is having a very high amount of doubtful debt balance at the
end of the year ending December 31, 2004.

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ACCT 504 Week 5 Course Project Draft Spreadsheet (Devry)

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ACCT 504 Week 5 Course Project Draft Spreadsheet (Devry)

Week 7 DQ 1
Due Tuesday, Day 2
Post your answer to Study Question 5.2 on p. 180 (Ch. 5). As you
read your classmates responses, consider the following scenario: If
you compared two different companies that utilized two different
valuation methods, how might the quality of the results differ? Also,
comment on the difficulty of making comparisons between two firms
that use different valuation methods.

Understanding the different inventory methods is crucial. First


the person that establishes the inventory needs to determine which
method to use. LIFO, or FIFO. LIFO means Last in First Out. This
means that when a purchase is made, and sales are recorded the
newest product is used first. So if I bought 10 combs at $2 on
December 1st, and then I buy 5 combs at $2.50 on December
10th. When sales are made I am going to record sales using the $2.50
until I sell through the 5 combs that were purchased on the 10th, and
then the cost will go to the previous purchase price of $2 until those
10 combs are sold through. FIFO is just the opposite. Meaning that
goods are used in the order that they are received. The first items
ordered, are the first items sold. Either method will pass an audit. It
is important to note though that managers can't switch back and forth
between the two methods. Profit will vary depending on which
method is being used. Say you sold only 6 combs at $3 each. Using
the LIFO method this would equal $3.50 profit. If you used the FIFO
method, this would result in a $6.00 profit.

Response 2
Post your answer to Study Question 5.2 on p. 180 (Ch. 5). As you
read your classmates responses, consider the following scenario: If
you compared two different companies that utilized two different
valuation methods, how might the quality of the results differ? Also,
comment on the difficulty of making comparisons between two firms
that use different valuation methods.
It is very important to understand which inventory valuation method
is being used to determine the profit numbers quality. The balance
sheet, statement of cash flow and income statement can be directly
impacted by the valuation method that used to determine the costs of
inventory. The three methods that are used are FIFO, LIFO and
Average Cost. The valuation ratios can be dramatically affected
depending on the inventory valuation that is being used over a long-
term period; especially because prices are likely to rise. When using
FIFO you can increase net income, but then at the same time raise
the amount taxes that business is obligated to pay. When using LIFO
the inventory can be obsolete because they are old this will result in
lower net revenue because the products pricing is higher. The Average
Cost results usually fall between LIFO and FIFO. The bottom line
can be affected mainly by the inventory analysis and the ratio results
that are formed from that analysis. It is easier to compare companies
that are in the same line of business, so I believe that quality of results
would differ tremendously if different valuation methods were used.
If you use LIFO that company may seem unattractive but they are
performing well, as for FIFO it may look good as for profit, but may
not be performing well.

DQ 2
Week 7 DQ 2
Due Thursday, Day 4
Post your answer to Study Question 5.6 on p. 180 (Ch. 5). Discuss
the consequences of poor quality reporting. What has the U.S.
government done to improve the quality of reporting after recent
financial scandals such as Enron?

I think that the significance is that the analysts only see this one
HUGE transaction. The events that actually led up to this large
transaction actually took place over a 2 year period. These items
should have been written off as they occurred. Wall Street would not
have known that the executives refused to write off these accounts
when they should have. Wall Street only see's the one large
transaction. If the company would have been more honest in their
reporting they would have seen (more than likely) that there were
many accounts over a two year period that should have been written
off at different periods. So the analysts would not have seen a pattern
of recurring write-offs. If the analysts only see the one transaction
they are less likely to be able to paint an accurate picture of the
financial standing of the business for investors, or potential
investors. If the investors could see that there were many accounts
that had to be written off maybe their investing decisions would have
been different. The regulation of the accounting field has grown by
leaps and bounds since the Enron scandal. The government has
implemented several agencies and regulations to ensure honesty in
accounting practices. SOX is one example of an agency that has been
put into place to ensure honesty in accounting. SOX implements
things like internal controls, and accountability for CEO's and
CFO's.

Response 2
I believe the impact and importance of this write-off event is a very
big matter. It is obvious how they handled it that it was a scandal
from the start. I think that everyone involved had a big role in how
things played out. To me I think of the investors as a really big hit to
this but also feel that audit committees have to be held responsible as
well. It has been shown over many examples that adit oversights are
happening to financial reporting. Although I do feel they are getting
better and tighter due to conforming tightly with the GAAP requests.
I feel over time the accounts receivable should have been written off
in smaller increments and not all taken by $405 million at once.
Maybe that isn't correct but it would have been easier I would think to
take the receivables over time.

Response 3
Wall Street should have read the footnotes and seen that the write off
was for accounts receivables and should have been reported in the
allowance for doubtful accounts. Every company that allow sales on
credit face doubtful accounts; therefore, the write off may reoccur.
The significance of this transaction is that WorldCom want to cover
up the $405 million dollars that it was unable to collect from its
customers, but WorldCom wrote off a large sum of money rather
recording the write-off as needed and the analyst over looked it.
Depending on how the company policy is for writing off accounts,
from 1998 to the 3rd quarter in 2000 is 11 quarters. If the company
wrote off bad accounts quarterly it should have wrote off
36,818,181.82 per quarter. Investors would not want to continue to
invest into a company that has poor collection skills, or poor
management. Unusual items are simply for those items that are not
recurring operating expenses. Bad debts do not fall under this
category. Since the Enron and WorldCom scandals many rules and
regulations have been put in place by the government such as SOX.
More people are being held accountable for their actions and
consequences follow poor quality reporting such as fudging the
books.
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ACCT 504 Week 5 Homework (E7-15A, E7-19A, E8-20A,


E9-23A, E9-29A)
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The units-of-production method tracks the wear and
tear on the van most closely. Requirement 3. Which
method would Tasteful's prefer to use for income tax
purposes

Presenting to Stakeholders
Axia College of University of Phoenix
Presenting to Stakeholders
Financial statements provide insight into the
companys current status and lead to the development
of policies and strategies for the future (Axia, 2007).
Financial statements and notes to the financial
statements should be used to analyze the company.
For instance, what do the financial statements reveal
about why the company has requested a loan or
purchased items on credit? What is the firms capital
structure and what does the firm have outstanding?
How well can the company pay back debt? What
recourses are used to pay debt? What is the companys
performance record and are there any future
expansions? What are the expected returns and how
successful is the company compared to industry
averages? Which areas of operations contributed to the
companys success, and what are the strengths and
weaknesses of the company? What changes can be
made to improve the future performance of the
company?
Key financial ratios will assist in determining the
information requested. Liquid ratios measure a firms
ability to meet cash needs as they arise. The current
ratio is a good tool to use because it measures the
ability the firm has to pay debts when due. The current
ratio for REC is at 2.4 times for 2007, although it is
down from 2006 the company is still able to pay
current debt when due. Cash flow ratio considers cash
flow from operating activities has increased from 2006,
and this indicates an improvement in short-run
solvency. Average collection period has gone down 5
days within the last year. The cash conversion cycle
gives in-site on why the cash flow has improved or
decreased, in this case the conversion period for REC
has improved by 26 days.

Activity ratios measure the liquidity of specific assets


and the efficiency of managing assets. Accounts
payable turnover is up seven times from the prior year
and inventory turnover is also up .25 from last year.
Accounts payable turnover is down 9.05 from 12.10 in
2006. This means that the company is taking longer to
repay payables. The fixed asset turnover and total
asset turnover ratios are used to assess managements
skills in generating sales from investments in assets.
The fixed asset turnover has dropped slightly, but the
total asset turnover has risen slightly. The increase in
total asset turnover comes from improvements in
inventory and accounts receivable turnover.
Leverage ratios measure the extent of a firms
financings with debt relative to equity and its ability to
cover interest and other fixed charges (Axia, 2007).
Debt ratio, long-term debt to total capitalization and
dept to equity have all raised slightly implying a slightly
riskier capital structure. The times interest earned and
the cash interest coverage have increased since 2006.
The interest payments can be covered 7.4 times this
year. The cash interest has improved due to the
operating profits and cash from operations. The fixed
coverage ratio is also important in cases where
companies use operating leases. In this case, the fixed
charges have increased slightly.
Profitability ratios are used to measure the overall
performance of a firm and its efficiency in managing
assets, liabilities, and equity. The ratios used are the
gross profit margin, operating profit margin and net
profit margin. All of which have improved for REC. As
well as the cash flow margin, return on total assets,
return on equity and cash return on assets. Over all the
company seems to be in well financial standings and
looking toward a profitable year.
Reference
Axia College. (2007). The Analysis of Financial
Statements. Retrieved June 28, 2010,
from Axia College, Week Eight, ACC 230.

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ACCT 504 Week 6 Case Study 3 - Cash Budgeting - LBJ


Company (Devry)

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ACCT504 Case Study 3 on Cash Budgeting
The cash budget was covered during Week 4 when we covered TCO D
and you read Chapter 7. There is also a practice case study to work
on. Your Professor will provide the solution to the practice case study
at the end of Week Analysis of Scenarios:

Debt Scenario would increase the debt ratios from to 50%. Equity
Scenario would reduce the debt ratio to 40%. With Debt option,
earnings per share would be higher. Interest declines to 2.86 times
with the Debt option while times interest earned increases to 3.75
times with the Equity option. Either option exhibits a good use of
financial leverage because for both, the financial leverage index
being greater than 1. However, it is higher using the Debt option.

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ACCT 504 Week 6 Homework (E10-19A, E10-25A, E12-


16A, E12-20A)

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This Tutorial contains Excel Files which can be used to
solve for any values (your Question may have different
company name or values, but that can be solved using
Excel file) E10-19A Army Navy Sporting Goods is
authorized to issue 10,000 shares of common stock. During
a two-month period,

Interpreting Financial Ratios

Luna Lighting, a retail firm, has experienced modest sales


growth over the past three years
but has had difficulty translating the expansion of sales
into improved profitability. Using
three years financial statements, you have developed the
following ratio calculations and
industry comparisons. Based on this information, suggest
possible reasons for Lunas profitability problems.

Industry

2009 2008 2007 2009


Current 2.3X 2.3X 2.2X
2.1X
Average collection period 45 days 46 days 47 days
50 days
Inventory turnover 8.3X 8.2X
8.1X 8.3X
Fixed asset turnover 2.7X 3.0X
3.3X 3.5X
Total asset turnover 1.1X 1.2X
1.3X 1.5X
Debt ratio 50% 50% 50%
54%
Times interest earned 8.1X 8.2X
8.1X 7.2X
Fixed charge coverage 4.0X 4.5X 5.5X
5.1X
Gross profit margin 43% 43% 43%
40%
Operating profit margin 6.3% 7.2%
8.0% 7.5%
Net profit margin 3.5% 4.0% 4.3%
4.2%
Return on assets 3.7% 5.0% 5.7%
6.4%
Return on equity 7.4% 9.9% 11.4%
11.8%
Based on this information, some possible reasons for
Lunas profitability problems are suggested as under:

a) Net Profit margin of the company has degraded and


this might be due to decrease in the net income of the
company due to increase in expenses. This needs to
be improved upon by cost control and cost reduction.
b) Return on equity of the company has degraded further
and this also indicates that there is a decrease in the
net income of the company due to increase in
expenses. This needs to be improved upon by cost
control and cost reduction.
c) Fixed charge coverage has fallen, which means that
the debt payment along with interest might have
increased and this will also lead to decrease in the net
income of the company and thus degrading the
profitability position of the company.
d) Operating profit margin has dropped even though
gross profit margin has remained constant. It means
that the operating expenses are higher and need to e
controlled to improve the profitability of the company.
e) The fixed assets turnover and the return on assets
have also degraded; this also indicates decrease in
the net income of the company.

----------------------------------------------

ACCT 504 Week 7 Course Project JCP Kohls (Devry)

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ACCT 504 Week 7 Course Project JCP Kohls (Devry)
Capstone Discussion Question
Due Tuesday, Day 2

What have you learned in this course about the process of analyzing
financial statements?

I have learned that there is a lot more to analyzing financial statements than I
thought. This class has made me question my decision to go into the accounting
field. I feel inadequate after taking this class. I am not an articulate, or
analytical person. I tend to get confused easily and do better at putting the
information together than I am at figuring out what it all means. This is my last
block of classes before my Bachelor program starts, and I don't know if I am
ready, or if I even want to continue. Analyzing financial statements takes a very
detail oriented mind, and one that is great at problem solving. It is critical to
understand the financial statements, and how they relate to one another. There
is a lot of information that is not as obvious as it would seem. Looking at the
bottom line will not give a good picture of how a company is doing financially. It
is important to know the how and why the bottom line looks the way that it
does.

Response 2

I have learned that it takes someone that has the patience, tenacity, and
motivation to truly analyze the statements. If you go about it not wanting to do
the work you wont give a good analysis. I found that you have to be willing to dig
deeper than most would to get a full picture of the company. I found that it is not
an easy task to complete. For me the process is a tedious one. I don't think I
would want to go into that type of accounting where I have to analyze the
statements of a company. I think for me I would be better in specialized
accounting like A/P or A/R. I am better at figuring out problems and figuring out
ways to make them better. I am better at specific tasks so for me I wouldn't want
to analyze the statements. I am glad to have learned how, because at some
point I am sure it will come in handy.

Response 3
All financial statements are essential documents because they tell what has
happened to a business over a period of time but most users of financial
statement are more concerned about what will happen in the future.
Stockholders and creditors are concerned with future earnings and dividends
and company's future ability to repay its debts. Management is concerned with
the company's ability to finance future expansion.
Working as a bookkeeper I do all the steps in monthly cycles consisting of
entering transactions into the journals, working with A/R, A/P, payroll and
preparing the reports, but I have not been able to analyze the reports the way I
learned in this class. I learned how important is to monitor and interpret the
results. I learned how to compare financial statements of a company with a
company from the same industry and point out the differences and similarities.
This class taught me the importance of analyzing the Income Statement, Balance
Sheet, Cash Flow Statement and Stockholders Equity each one individually. I
learned how essential is the quality reporting and how useful this quality is in
business decision making. I learned about key financial ratios: liquidity ratios,
activity ratios, leverage ratios, and profitability ratios. All these ratios are
valuable as analytical tools and will help me indicate the areas of strength and
weakness in a business. Even though I learned the information step by step in
this class I tent to go over every single chapter all over again to better absorb
the material. This class taught us the potential of some management
manipulations of financial statements, thus following the general accounting
rules, being honest, ethical and professional are the ways on leading to safe and
profitable decisions.