ACC 211

Description

QUESTION 1

The following condensed income statements of Jackson holding company are presented for the two years ended December 31, 2021 and 2020:

                                                            2021                     2020

Sales revenue                                $15,000,000          $9,600,000

Cost of Goods sold                       9,200,000              6,000,000

Gross profit                                   58,800,000            3,600,000

Operating expenses                       3,200,000              2,600,000

Operating income                         2,600,000              1,000,000

Gain on sale of division                600,000                    —     

3,200,000                1,000,000

Income tax expense                      800,000                    250,000

Net income                                    $2,400,000                $750,000

On October 15, 2021, Jackson entered into tentative agreement to sell the Assets of one of its divisions. The division qualifies as component of an entity as defined by GAAP. The division was sold on December 31, 2021 for $5,000,000. Book value of the division’s assets was $400,000. Division’s contributions to Jackson’s operating income before-tax for each ear was as follows.

2021       $400,000

2020       $300,000

Assume an income tax rate of 25%

Required:

1. Prepare revised income statements according to the Generally Accepted principal beginning with income from continuing operations before income taxes. ignore EPS disclosures.
2. Assume that by december 31, 2021 the Division had not yet been sold but was considered held for sale. The fair value of the Division’s assets on December 31, was $5,000,000. What would be the amount presented for discontinued operations?
3. Assume that by December 31, 2021, the Division had not yet been sold but was considered held for sale. The fair value of the Division’s assets on December 31, was $3,900,000. What would be the amount presented for discontinued operations?

Question 2

Interpreting unadjusted and adjusted trial balances.

 

A six-column table for Yan Consulting Company follows on next slide.

The first two columns contain the unadjusted trial balance for the company as of December 31, 2021, and the las two columns contain the adjusted trial balance as of the same date.

 

 Required

Analysis component

Section-1

Analyze the difference between the unadjusted and adjusted trial balances to determine the eight-adjustments that likely were made. Show the results of your analysis by inserting these adjustment amounts in the table’s two middle columns. Label each adjustment with a letter a through h and – provide a short description of each.

Section-2

Preparation component

Use the information in the adjusted trial balance to prepare Yan Consulting Company statement of retained earnings for the year ended December 31, 2021. Besides the expenses shown on the trial balance, Yan Consulting Company incurred additional direct costs of consultancy fees earned of 25%, restructuring costs of $21,000 and a loss of $1500 from selling office equipment with a book value of $10,000. Retained earnings at decemebr31,2020 was $76,200, and the current-year dividends were $20,000.

Use these additional economic data to prepare multiple-step income statement, and a classified balance sheet as of December 31, 2021.

Part-1 – question 2

	Unadjusted Trial Balance		Adjustments		Adjusted Trial Balance
Cash …….	$45,000				$45,000
Accounts Receivable	60,000				66,600
office supplies	40,000				17,000
prepaid insurance	8,200				3,600
Office equipment	120,000				12,0000
Accumulated depreciation office equip		$20,000				$30,000
Accounts payable		26,000				32,000
Interest payable		0				2,150
Salaries payable		0				16,000
Unearned consulting fees		40,000				27,800
Long-term notes payable		75,000				75,000
Common stock		4,000				4,000
Retained earnings		76,200				76,200
Dividends	20,000				20,000
Consulting fees earned		234,600				253,460
Depreciation expense office equip	0				10,000
Salaries expense	112,000				128,000
Interest expense	8,600				10,750
Insurance expense	0				4,600
Rent expense	20,000				20,000
Office supplies expense	0				23,000
Advertising expense	42,000				48,000
TOTALS	$475,800	$475,800			$516,610	$516,610

 

 

 

Yan Consulting Company
Account	Unadjusted trial Balance		Adjustments					Adjusted Trial Balance
Cash …….	$45,000							$45,000
Accounts Receivable	60,000			(a)	6,660			6,660
office supplies	40,000					(b)	23,000	17,000
prepaid insurance	8,200					(c)	4,600	3,600
Office equipment	120,000							120,000
Accumulated depreciation office equip		$20,000				(d)	10,000		$30,000
Accounts payable		26,000				(e)	6,000		32,000
Interest payable						(f)	2,150		2,150
Salaries payable						(g)	16,000		16,000
Unearned consulting fees		40,000		(h)	12,200				27,800
Long-term notes payable		75,000							75,0000
Common stock		4,000							4,000
Retained earnings		76,200							76,200
Dividends	20,000							20,000
Consulting fees earned		234,600				(a)	6,660		253,400
Depreciation expense office equip				(d)	10,000	(h)	12,200	10,000
Salaries expense	112,000			(g)	16,000			12,8000
Interest expense	8,600			(f)	2,150			10,750
Insurance expense				(c)	4,600			4,600
Rent expense	20,000							20,000
Office supplies expense				(b)	23,000			23,000
Advertising expense	42,000			(e)	6,000			48,000
TOTALS	$475,800	$475,800			$80,610		$80,610	$516,610	$516,610

 

Part-1 – question 3

Ethics Case analysis

Horizon Corporation manufactures personal computer. The company began operations in 2013and reported profits for the years 2013 through 2016.Due primarily to increased competition and price slashing in the industry, 2017’s income statement reported a loss of $20 million. Just before the end of the 2018 fiscal year, a memo from the company’s chief financial officer to Jim Fielding, the company controller, included the following comments: If we don’t do something about the amount of unsold computers already manufactured, our auditors will require us to write them off. The resulting loss for 2018 will cause a violation of our debt covenants and force the company into bankruptcy. I suggest that you ship half of inventory to J.B. Sale, lnc., in Oklahoma City. I know the company’s president and he will accept the merchandise and acknowledge the shipment as a purchase. We can record the sale in 2018 which will boost profits to an acceptable level. The J.B. Sales will simply return the merchandise in 2019 after the financial statements have issued.

Required

Using the established model for analyzing ethical cases, discuss the ethical dilemma faced by Jim Fielding.

Part -2-Question 1

Analyzing economic events (internal and external) and preparing financial statements

Maxwell Gear Corporation began operations in July 2021 and completed the following transactions during that first month of operations

 

July     1    common stock with par value of $1was invested in exchange for $180,000 to start the   company

2         The company rented office space and paid $700 cash for the July rent.

3         The company purchased roofing equipment for $15,000 by paying $6,000 cash and agreeing to pay short-term note for the $11,000 balance due in 120 days.

6       The company uses straight line depreciation for an office equipment purchased for $1600 cash.      The equipment is expected to last for 7 years and salvage value.

8 The company sold gears to customers and immediately collected $17,600 cash for the merchandise   delivered.

10   The company purchased $2,300 of office equipment on credit.

15      The company sold gears to customers on credit in the amount of $82,200.

17   The company purchased $3,100 of office supplies on credit.

23   The company paid $2,300 cash for the office equipment purchased on July 10.

25      The company billed a customer $5,000 for its financial services work completed; the balance is due in 30 days.

28    The company received $8,200 cash for the merchandise delivered on July 15.

30    The company paid an assistant’s salary of $11,560 cash for current month.

31   The company paid $12950 cash for this month’s utility bill.

31     The company paid $11800 cash in dividends to the shareholders.

31    After one month after operating, Maxwell decided to discontinue its financial services operations. The company incurs losses of $10,000 from this component that met GAAP definition of discontinued operation. Maxwell Gear Company’s tax rate is 20%.

 

 

Required

1. Post each journal entry to their respective general ledger account(0.5point)
2. Close each general ledger account and transfer their balances to Maxwell Gear Corporation’s unadjusted trial balance for (1 point).

• Prepare a single, continuous single-step statement of comprehensive income for 2021. The company’s effective tax rate on all items affecting comprehensive income is 20%. Each component of other comprehensive income should be displayed net of tax. Ignore EPS disclosures. (0.5 point)

2021. Prepare Maxwell gear corporation’s classified balance sheet, and the statement of retained earnings for the month of July-2021.(2.5 points)

 

 

 

Interive, Inc., is a leading retailer specializing in consumer electronics. A condensed income statement and balance sheet for the fiscal year ended February 1, are shown below

 

INTERIVE, INC.

INTERIVE, INC

Balance sheet

Income statement

Income statement

At February 28, year 1

For the year ended February 28, Year 1

For the Year Ended February 28, Year 1

INTERIVE, INC.

($ in million)

($ in million)

($ in million)

Assets

Revenues$45,600

Revenues

$45,600

Current assets

cost and expenses 43,139

cost and expenses

43,139

Cash and cash equivalents

$504

operating income 2,641

operating income

2,461

Short-term investments

17

investment loss,net* (180)

investment loss,net

*

-180

Accounts receivable, net

1,871

Income before income taxes 2,281

income before income taxes

2,281

Merchandise inventories

4,771

Income tax expense 670

income tax expense

670

other current assets

1,066

Netincome$1,611

Net income

$1,611

total current assets

8,229

Noncurrent assets

7,644

*Includes $92 of interest expense

Total assets

$15,878

Liabilities and shareholders’ equity

current liabilities

$4,988

other current liabilities

3,442

Total current liabilities

8,430

Long-term liabilities

2,741

total liabilities

11,171

Shareholders’ equity

4,702

Total liabilities and shareholders’ equity

$15,873

 

 

Liquidity and financing rations for the industry are as follows:

Industry average

Current ratio                        1.23

Acid-test ratio                     0.60

Debt to equity                     0.70

Times interest earned          5.66 times

 

 

Required

1. Determine the following for the interive, inc. for its fiscal year ended February, 1, year 1:
2. Current ratio (0.5 point)
3. Acid-test ratio (0.5 point)
4. Debt to equity ratio (0.5 point)
5. Times interest earned ratio (0.5 point)
6. Using the ratios from requirement 1, assess interive, Inc’s liquidity and solvency relative to its industry. (0.5 point)