Semester Focus: Expert Assistance with Accounting Assignment

Published: 11 months ago

Semester Focus: Expert Assistance with Accounting Assignment

1. Ex 9-5 Capital and revenue expenditures Jackie Fox owns and operates Platinum Transport Co....

Ex 9-5  Capital and revenue expendituresJackie Fox owns and operates Platinum Transport Co. During the past year, Jackie incurred the  following  costs  related  to  an  18-wheel  truck:

1.     Changed engine oil.

2.     Installed a television in the sleeping compartment of the truck.

3.     Installed a wind deflector on top of the cab to increase fuel mileage.

4.     Modified the factory-installed turbo charger with a special-order kit designed to add 50 more horsepower to the engine performance.

5.     Replaced a headlight that had burned out.

6.     Replaced a shock absorber that had worn out.

7.     Replaced fog and cab light bulbs.

8.     Replaced the hydraulic brake system that had begun to fail during his latest trip through the Rocky Mountains.

9.     Removed the old CB radio and replaced it with a newer model with a greater range.

10.    Replaced the old radar detector with a newer  model  that  is  fastened  to  the truck with a locking device that prevents its removal.

Classify each of the costs as a capital expenditure or a revenue  expenditure.

2. On July 1, 2008, Falk Company signed a contract to lease space in a building for 20 years. The...

On July 1, 2008, Falk Company signed a contract to lease space in a building for 20 years. The lease contract calls for annual (prepaid) rental payments of $90,000 on each July 1 throughout the life of the lease and for the lessee to pay for all additions and improvements to the leased property. On June 25, 2013, Falk decides to sublease the space to Ryan & Associates for the remaining 15 years of the lease"Ryan pays $240,000 to Falk for the right to sublease and it agrees to assume the obligation to pay the $90,000 annual rent to the building owner beginning July 1, 2013. After taking possession of the leased space, Ryan pays for improving the office portion of the leased space at a $140,000 cost. The improvements are paid for by Ryan on July 5, 2013, and are estimated to have a useful life equal to the 21 years remaining in the life of the building

Prepare Ryan's year-end adjusting entries required at December 31, 2013

a. To amortize the $240,000 cost of the sublease

i. Record the year-end adjusting entry for the amortization expense of the leasehold.

b. To amortize the office improvements

i. Record the year-end adjusting entry for the amortization expense of the leasehold improvements

c. To record rent expense

i. Record the year-end adjusting entry for the rent expense.

3. Neko Case decides to open a cleaning and laundry service near the local college campus that will ...

Neko Case decides to open a cleaning and laundry service near the local college campus that will operate as a corporation. Analyze the following transactions for the month of June in terms of their effect on the basic accounting equation. Record each transaction by increasing (+) or decreasing (–) the dollar amount of each item affected. Indicate the new balance of each item after a transaction is recorded. It is not necessary to identify the cause of changes in stockholders' equity

4. P3-27 Allison, CPA has completed the audit of the financial statements of Optima Corporation as of...

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



We have audited the balance sheet and statements of income and retained earnings of Optima Corporation as of December 31, 2009. We conducted our audit in accordance with generally accepted accounting standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of misstatement.

We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly the financial position of Optima Corporation as of December 31, 2009, and the results of its operations for the year then ended in conformity with generally accepted auditing standards, applied on a basis consistent with those of the preceding year.

Allison, CPA

(signed)



Other Information

-Optima is presenting comparative financial statements.

-Optima does not wish to present a statement of cash flows for either year.

-During 2009, Optima changed its method of accounting for long-term construction contracts and properly reflected the effect of the change in the current year's financial statements and restated the prior year's statements. Allison is satisfied with Optima's justification for making the change. The change is discussed in footnote 12.

- Allison was unable to perform normal accounts receivable confirmation procedures, but alternative procedures were used to satisfy Allison as to the existence of the receivables.

-Optima Corporation is the defendant in a litigation, the outcome of which is highly uncertain. If the case is settled in favor of the plaintiff, Optima will be required to pay a substantial amount of cash, which might require the sale of certain fixed assets. The litigation and the possible effects have been properly disclosed in footnote 11.

-Optima issued debentures on January 31, 2008, in the amount of $10 million. The funds obtained from the issuance were used to finance the expansion of plant facilities. The debenture agreement restricts the payment of future cash dividends to earnings after December 31, 2013. Optima declined to disclose this essential data in the footnotes to the financial statements.



Required:

a. Identify and explain any items included in "Other Information" that need not be part of the auditor's report.

b. Explain the deficiencies in Allison's report as drafted.

5. Is this a wise marketing decision?

Misu Sheet (Problem 8–25) wants to advertise the comforter as “percent markup on cost.” What is the equivalent rate of percent markup on cost compared to the 30% markup on selling price? Check your answer. Is this a wise marketing decision? Round to the nearest hundredth percent.

6. (Objective 10-5) The following is the description of sales and cash receipts for the Lady’s...

(Objective 10-5) The following is the description of sales and cash receipts for the Lady’s Fashion Fair, a retail store dealing in expensive women’s clothing. Sales are for cash or credit, using the store’s own billing rather than credit cards. Each salesclerk has her own sales book with prenumbered, three-copy, multicolored sales slips attached, but perforated. Only a central cash register is used. It is operated by the store supervisor, who has been employed for 10 years by Alice Olson, the store owner. The cash register is at the store entrance to control theft of clothes. Salesclerks prepare the sales invoices in triplicate. The original and the second copy are given to the cashier. The third copy is retained by the salesclerk in the sales book. When the sale is for cash, the customer pays the salesclerk, who marks all three copies “paid” and presents the money to the cashier with the invoice copies. All clothing is put into boxes or packages by the supervisor after comparing the clothing to the description on the invoice and the price on the sales tag. She also rechecks the clerk’s calculations. Any corrections are approved by the salesclerk. The clerk changes her sales book at that time. A credit sale is approved by the supervisor from an approved credit list after the salesclerk prepares the three-part invoice. Next, the supervisor enters the sale in her cash register as a credit or cash sale. The second copy of the invoice, which has been validated by the cash register, is given to the customer. At the end of the day, the supervisor recaps the sales and cash and compares the totals to the cash register tape. The supervisor deposits the cash at the end of each day in the bank’s deposit box. The cashier’s copies of the invoices are sent to the accounts receivable clerk along with a summary of the day’s receipts. The bank mails the deposit slip directly to the accounts receivable clerk. Each clerk summarizes her sales each day on a daily summary form, which is used in part to calculate employees’ sales commissions. Marge, the accountant, who is prohibited from handling cash, receives the supervisor’s summary and the clerk’s daily summary form. Daily, she puts all sales invoice information into the firm’s computer, which provides a complete printout of all input and summaries. The accounting summary includes sales by salesclerk, cash sales, credit sales, and total sales. Marge compares this output with the supervisor’s and salesclerks’ summaries and reconciles all differences. The computer updates accounts receivable, inventory, and general ledger master files. After the update procedure has been run on the computer, Marge’s assistant files all sales invoices by customer number. A list of the invoice numbers in numerical sequence is included in the sales printout. The mail is opened each morning by a secretary in the owner’s office. All correspon - dence and complaints are given to the owner. The secretary prepares a prelist of cash receipts. He totals the list, prepares a deposit slip, and deposits the cash daily. A copy of the prelist, the deposit slip, and all remittances returned with the cash receipts are given to Marge. She uses this list and the remittances to record cash receipts and update accounts receivable, again by computer. She reconciles the total receipts on the prelist to the deposit slip and to her printout. At the same time, she compares the deposit slip received from the bank for cash sales to the cash receipts journal. A weekly aged trial balance of accounts receivable is automatically generated by the computer. A separate listing of all unpaid bills over 60 days is also automatically prepared. These are given to Mrs. Olson, who acts as her own credit collector. She also approves all write-offs of uncollectible items and forwards the list to Marge, who writes them off. Each month Marge mails statements generated by the computer to customers. Complaints and disagreements from customers are directed to Mrs. Olson, who resolves them and informs Marge in writing of any write-downs or misstatements that require correction. The computer system also automatically totals the journals and posts the totals to the general ledger. A general ledger trial balance is printed out, from which Marge prepares financial statements. Marge also prepares a monthly bank reconciliation and reconciles the general ledger to the aged accounts receivable trial balance. Because of the importance of inventory control, Marge prints out the inventory perpetual totals monthly, on the last day of each month. Salesclerks count all inventory after store hours on the last day of each month for comparison with the perpetuals. An inventory shortages report is provided to Mrs. Olson. The perpetuals are adjusted by Marge after Mrs. Olson has approved the adjustments.

Required

a. For each sales transaction-related audit objective, identify one or more existing controls.

b. For each cash receipts transaction-related audit objective, identify one or more existing controls.

c. Identify deficiencies in internal control for sales and cash receipts.

(Objective 10-5)

ASSESS CONTROL RISK

The auditor obtains an understanding of the design and implementation of internal control to make a preliminary assessment of control risk as part of the auditor’s overall assessment of the risk of material misstatements. As described in Chapter 9, the auditor uses this preliminary assessment of control risk to plan the audit for each material class of transactions. However, in some instances the auditor may learn that the control deficiencies are significant such that the client’s financial statements may not be auditable. So, before making a preliminary assessment of control risk for each material class of transactions, the auditor must first decide whether the entity is auditable. Two primary factors determine auditability: the integrity of management and the ade - quacy of accounting records. The importance of management integrity was discussed in Chapter 8 under client acceptance and continuance. If management lacks integrity, most auditors will not accept the engagement. The accounting records are an important source of audit evidence for most audit objectives. If the accounting records are deficient, necessary audit evidence may not be available. For example, if the client has not kept duplicate sales invoices and vendors’ invoices, it is usually impractical to do an audit. In complex IT environments, much of the transaction information is available only in electronic form without generating a visible audit trail of documents and records. In that case, the company is usually still auditable; however, auditors must assess whether they have the necessary skills to gather evidence that is in electronic form and can assign personnel with adequate IT training and experience. After obtaining an understanding of internal control, the auditor makes a preliminary assessment of control risk as part of the auditor’s overall assessment of the risk of material misstatement. This assessment is a measure of the auditor’s expectation that internal controls will prevent material misstatements from occurring or detect and correct them if they have occurred. The starting point for most auditors is the assessment of entity-level controls. By nature, entity-level controls, such as many of the elements contained in the control environment, risk assessment, and monitoring components, have an overarching impact on most major types of transactions in each transaction cycle. For example, an inef - fective board of directors or management’s failure to have any process to identify, assess, or manage key risks, has the potential to undermine controls for most of the transaction-related audit objectives. Thus, auditors generally assess entity-level controls before assessing transaction specific controls. Once auditors determine that entity-level controls are designed and placed in operation, they next make a preliminary assessment for each transaction-related audit objective for each major type of transaction in each transaction cycle. For example, in the sales and collection cycle, the types of transactions usually involve sales, sales returns and allowances, cash receipts, and the provision for and write-off of uncollectible accounts. The auditor also makes the preliminary assessment for controls affecting audit objectives for balance sheet accounts and presentations and disclosures in each cycle.

Many auditors use a control risk matrix to assist in the control risk assessment process at the transaction level. The purpose is to provide a convenient way to organize assessing control risk for each audit objective. Figure 10-5 illustrates the use of a control risk matrix for sales transaction audit objectives of Hillsburg Hardware Co. While Figure 10-5 only illustrates the control risk matrix for transaction-related audit objectives, auditors use a similar control risk matrix format to assess control risk for balance-related and presentation and disclosure-related audit objectives. We now discuss the preparation of the matrix. Identify Audit Objectives The first step in the assessment is to identify the audit objectives for classes of transactions, account balances, and presentation and dis - closure to which the assessment applies. For example, this is done for classes of transactions by applying the specific transaction-related audit objectives introduced earlier, which were stated in general form, to each major type of transaction for the entity. For example, the auditor makes an assessment of the occurrence objective for sales and a separate assessment of the completeness objective. Transaction-related audit objectives are shown for sales transactions for Hillsburg Hardware at the top of Figure 10-5. Identify Existing Controls Next, the auditor uses the information discussed in the previous section on obtaining and documenting an understanding of internal control to identify the controls that contribute to accomplishing transaction-related audit objectives. One way for the auditor to do this is to identify controls to satisfy each objective. For example, the auditor can use knowledge of the client’s system to identify controls that are likely to prevent errors or fraud in the occurrence transaction-related audit objective. The same thing can be done for all other objectives. It is also helpful for the auditor to use the five control activities (separation of duties, proper authorization, adequate documents and records, physical control over assets and records, and independent checks on performance) as reminders of controls. For example: Is there adequate separation of duties and how is it achieved? Are transactions properly authorized? Are prenumbered documents properly accounted for? Are key master files properly restricted from unauthorized access? The auditor should identify and include only those controls that are expected to have the greatest effect on meeting the transaction-related audit objectives. These are often called key controls. The reason for including only key controls is that they will be sufficient to achieve the transaction-related audit objectives and also provide audit efficiency. Examples of key controls for Hillsburg Hardware are shown in Figure 10-5. Associate Controls with Related Audit Objectives Each control satisfies one or more related audit objectives. This can be seen in Figure 10-5 for transaction-related audit objectives. The body of the matrix is used to show how each control contributes to the accomplishment of one or more transaction-related audit objectives. In this illustration, a C was entered in each cell where a control partially or fully satisfied an objective. A similar control risk matrix would be completed for balance-related and presentation and disclosure-related audit objectives. For example, the mailing of state ments to customers satisfies three objectives in the audit of Hillsburg Hardware, which is indicated by the placement of each C on the row in Figure 10-5 describing that control. Identify and Evaluate Control Deficiencies, Significant Deficiencies, and Material Weaknesses Auditors must evaluate whether key controls are absent in the design of internal control over financial reporting as a part of evaluating control risk and the likelihood of financial statement misstatements. Auditing standards define three levels of the absence of internal controls:

1. Control deficiency. A control deficiency exists if the design or operation of controls does not permit company personnel to prevent or detect misstate - ments on a timely basis in the normal course of performing their assigned

7. criticism of traditional management accounting practice...

disadvantages, limitation, scope, cons of traditional management accounting practice

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UNIVERSITI TUNKU ABDUL RAHMAN FACULTY OF BUSINESS AND FINANCE BACHELOR OF COMMERCE (Hons) ACCOUNTING (May 2012) Subject: Performance Management UBAM2023/4 Coursework - Group Assignment Date: 28 May 2012 Lead Lecturer: Chong Zhemin Introduction: The growing importance of cost management is significantly changing the practice of management accounting and that the challenge for management accountants lies in choosing their future role. Those who do not develop the right skill set will either have to develop expertise to allow them to transfer to functional areas of the firm or risk finding themselves at a career dead-end. As competition becomes more intense, firms are forced to learn to be more proactive in the way they manage costs. With the emergence of the lean enterprise and global competition, firms face ever-increasing levels of competition. For many of these firms, survival is dependent upon their abilities to develop sophisticated cost management systems that create intense pressures across the entire value chain to reduce costs. The main purpose of this assignment is to encourage and facilitate students to explore and gain a better understanding on the weaknesses of the Traditional Management Accounting Practice and the needs to change to Modern Management Accounting Practice. Students are required to write a report on “The Importance of Modern Management Accounting Practice.” The Assignment: You are required to: A. Form a group Group size: between 5 to 6 students. This is a group assignment. You are required to work together as a group to complete the assignment. 3. Each group is expected to submit ONE completed assignment as a group, NOT on an individual basis. B. Your assignment should discuss on the following issues: Highlight the criticism of Traditional Management Accounting Practice. Introduce and evaluate the mechanism of Modern Management Accounting Practice (Choose any 4) :- ERP...

8. The classification of a lease is normally carried out

The classification of a lease is normally carried out

(a) At the end of the lease term.

(b) After a “cooling off” period of one year.

(c) At the inception of the lease.

(d) When the entity deems it to be necessary.