Winter Semester Support: Achieve Success in Accounting

Published: 11 months ago

Winter Semester Support: Achieve Success in Accounting

7. On July 1, 2017, Ticino AG invested CHF736,000 in a mine estimated to have 800,000 tons of ore of...

On July 1, 2017, Ticino AG invested CHF736,000 in a mine estimated to have 800,000 tons of ore of uniform grade. During the last 6 months of 2017, 124,000 tons of ore were mined. Instructions (a) Prepare the journal entry to record depletion. (b) Assume that the 124,000 tons of ore were mined, but only 90,000 units were sold. How are the costs applicable to the 34,000 unsold units reported?

8. 71. Which of the following is not a basic assumption underlying the financial accounting structure?.

71.              Which of the following is not a basic assumption underlying the financial accounting structure?

a.Economic entity assumption.

b.Going concern assumption.

c.Periodicity assumption.

d.Historical cost assumption.

72.              Which basic assumption is illustrated when a firm reports financial results on an annual basis?

a.Economic entity assumption.

b.Going concern assumption.

c.Periodicity assumption.

d.Monetary unit assumption.

73.              Which basic assumption may not be followed when a firm in bankruptcy reports financial results?

a.Economic entity assumption.

b.Going concern assumption.

c.Periodicity assumption.

d.Monetary unit assumption.

74.              Which accounting assumption or principle is being violated if a company provides financial reports in connection with a new product introduction?

a.Economic entity.

b.Periodicity.

c.Revenue recognition.

d.Full disclosure.

S75.Which of the following basic accounting assumptions is threatened by the existence of severe inflation in the economy?

a.Monetary unit assumption.

b.Periodicity assumption.

c.Going-concern assumption.

d.Economic entity assumption.

S76.During the lifetime of an entity accountants produce financial statements at artificial points in time in accordance with the concept of

ObjectivityPeriodicity

a.NoNo

b.YesNo

c.NoYes

d.YesYes

77.              Under current GAAP, inflation is ignored in accounting due to the

a.economic entity assumption.

b.going concern assumption.

c.monetary unit assumption.

d.periodicity assumption.

78.              The economic entity assumption

a.is inapplicable to unincorporated businesses.

b.recognizes the legal aspects of business organizations.

c.requires periodic income measurement.

d.is applicable to all forms of business organizations.

79.              Preparation of consolidated financial statements when a parent-subsidiary relationship exists is an example of the

a.economic entity assumption.

b.relevance characteristic.

c.comparability characteristic.

d.neutrality characteristic.

80.              During the lifetime of an entity, accountants produce financial statements at arbitrary points in time in accordance with which basic accounting concept?

a.Cost/benefit constraint

b.Periodicity assumption

c.Conservatism constraint

d.Matching principle

9. Which of the following costs of conversion cannot be included in cost of inventory? (a) Cost of...

Which of the following costs of conversion cannot be included in cost of inventory?

 

(a) Cost of direct labor.

(b) Factory rent and utilities.

(c) Salaries of sales staff (sales department shares the building with factory supervisor).

(d) Factory overheads based on normal capacity.

10. identify when the Record of Employment (ROE) must be completed...

Upon completion of this chapter, you should be able to: 1. identify when the Record of Employment (ROE) must be completed 2. complete the blocks on the Record of Employment Communication Objective: Upon completion of this chapter, you should be able to explain to employees how the insurable earnings in Block 15B are calculated and why they do not equal gross earnings on th Chapter 7 Record of Employment © The Canadian Payroll Association – Payroll Fundamentals 1 7-2 Chapter Contents Introduction ........................................................................................................................ 7-4 Issuance Rules .................................................................................................................... 7-6 Content Review .............................................................................................................. 7-9 Review Questions ........................................................................................................ 7-10 Record of Employment Completion ................................................................................ 7-11 Content Review ............................................................................................................ 7-54 Review Questions ........................................................................................................ 7-55 Chapter Review Questions and Answers ......................................................................... 7-61 Chapter 7

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Chapter Record of Employment Learning Objectives: Upon completion of this chapter, you should be able to: 1. identify when the Record of Employment (ROE) must be completed 2. complete the blocks on the Record of Employment Communication Objective: Upon completion of this chapter, you should be able to explain to employees how the insurable earnings in Block 15B are calculated and why they do not equal gross earnings on their pay statement. © The Canadian Payroll Association – Payroll Fundamentals 1 7-1 Vs 11.0Chapter 7 Record of Employment Chapter Contents Introduction ........................................................................................................................ 7-4 Issuance Rules .................................................................................................................... 7-6 Content Review .............................................................................................................. 7-9 Review Questions ........................................................................................................ 7-10 Record of Employment Completion ................................................................................ 7-11 Content Review ............................................................................................................ 7-54 Review Questions ........................................................................................................ 7-55 Chapter Review Questions and Answers ......................................................................... 7-61 © The Canadian Payroll Association – Payroll Fundamentals 1 7-2Chapter 7 Record of Employment © The Canadian Payroll Association – Payroll Fundamentals 1 7-3

11. At April 30, the bank reconciliation of Silvestre Company shows

At April 30, the bank reconciliation of Silvestre Company shows three outstanding checks: No. 254 $650, No. 255 $ 700, and No. 257 $410. The May bank statement and the May cash payments journal are given here.

.





Instructions

Using step 2 in the reconciliation procedure (see page 354), list the outstanding checks at May31

12. On June 30, 2013, Wisconsin, Inc., issued $300,000 in debt and 15,000 new shares of its $10 par

On June 30, 2013, Wisconsin, Inc., issued $300,000 in debt and 15,000 new shares of its $10 par value stock to Badger Company owners in exchange for all of the outstanding shares of that company. Wisconsin shares had a fair value of $40 per share. Prior to the combination, the financial statements for Wisconsin and Badger for the six-month period ending June 30, 2013, were as follows:

Wisconsin also paid $30,000 to a broker for arranging the transaction. In addition, Wis- consin paid $40,000 in stock issuance costs. Badger’s equipment was actually worth $700,000, but its patented technology was valued at only $280,000.

What are the consolidated balances for the following accounts?

a. Net income.

b. Retained earnings, 1/1/13.

c. Patented technology.

d. Goodwill.

e. Liabilities.

f. Common stock.

g. Additional paid-in capital.

13. CASE 4.1 Enron Corporation and Andersen, LLPAnalyzing the Fall of Two GiantsMARK S. BEASLEY •...

CASE 4.1 Enron Corporation and Andersen, LLPAnalyzing the Fall of Two GiantsMARK S. BEASLEY • FRANK A. BUCKLESS • STEVEN M. GLOVER • DOUGLAS F. PRAWITT

LEARNING OBJECTIVES

After completing and discussing this case you should be able to

[1] Understand the events leading to Enron’s bankruptcy and Andersen’s downfall[2] Appreciate the importance of understanding an audit client’s core business strategies[3] Recognize potential conflicts arising from auditor relationships with their clients[4] Understand how accounting standards may have contributed to the Enron debacle and describe how some in the accounting profession are seeking to change the fundamental nature of those standards[5] Understand the difference between “rule-based” and “principle-based” accounting standards to better appreciate some of the issues involved in the movement toward international financial reporting standards (IFRS).[6] Consider challenges facing the accounting profession and evaluate alternative courses of action for overcoming these obstaclesINTRODUCTION

Enron Corporation entered 2001 as the seventh largest public company in the United States, only to later exit the year as the largest company to ever declare bankruptcy in U.S. history. Investors who lost millions and lawmakers seeking to prevent similar reoccurrences were shocked by these unbelievable events. The following testimony of Rep. Richard H. Baker, chair of the House Capital Markets Subcommittee, exemplified these feelings:

We are here today to examine and begin the process of understanding the most stunning business reversal in recent history. One moment an international corporation with a diversified portfolio enjoying an incredible run-up of stock prices, the darling of financial press and analysts, which, by the way, contributed to the view that Enron had indeed become the new model for business of the future, indeed, a new paradigm. One edition of Fortune magazine called it the best place in America for an employee to work. Analysts gave increasingly creative praise, while stock prices soared.... Now in retrospect, it is clear, at least to me, that while Enron executives were having fun, it actually became a very large hedge fund, which just happened to own a power company. While that in itself does not warrant criticism, it was the extraordinary risk-taking by powerful executives which rarely added value but simply accelerated the cash burn-off rate. Executives having Enron fun are apparently very costly and, all the while, they were aggressive in the exercise of their own [Enron] stock options, flipping acquisitions for quick sale. One executive sold a total of $353 million in the 3-year period preceding the failure. What did he know? When did he know it? And why didn’t we?1

1 Rep. Richard H. Baker (R-LA), December 12, 2001 Hearing of the Capital Markets, Insurance, and Government sponsored enterprises subcommittee and oversight and investigations subcommittee of the House Financial Services Committee, “The Enron Collapse: Impact on Investors and Financial Markets.”The case was prepared by Mark S. Beasley, Ph.D. and Frank A. Buckless, Ph.D. of North Carolina State University and Steven M. Glover, Ph.D. and Douglas F. Prawitt, Ph.D. of Brigham Young University, as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of an administrative situation.

Although company executives were involved in questionable business practices and even fraud, Enron’s failure was ultimately due to a collapse of investor, customer, and trading partner confidence. In the boom years of the late 1990’s, Enron entered into a number of aggressive transactions involving “special purpose entities” (SPEs) for which the underlying accounting was questionable or fraudulent. Some of these transactions essentially involved Enron receiving borrowed funds without recording liabilities on the company’s balance sheet. Instead, the inflow of funds was made to look like it came from the sale of assets. The “loans” were guaranteed with Enron stock, trading at over $100 per share at the time. The company found itself in real trouble when, simultaneously, the business deals underlying these transactions went sour and Enron’s stock price plummeted. Debt holders began to call the loans due to Enron’s diminished stock price, and the company found its accounting positions increasingly problematic to maintain.

The August 2001 resignation of Enron’s chief executive officer (CEO), Jeffrey Skilling, only six months after beginning his “dream job” further fueled Wall Street skepticism and scrutiny over company operations. Shortly thereafter, The Wall Street Journal’s “Heard on the Street” column of August 28, 2001 drew further attention to the company, igniting a public firestorm of controversy that quickly undermined the company’s reputation. The subsequent loss of confidence by trading partners and customers quickly dried up Enron’s trading volume, and the company found itself facing a liquidity crisis by late 2001.

Skilling summed it up this way when he testified before the House Energy Commerce Committee on February 7, 2002:

It is my belief that Enron’s failure was due to a classic ‘run on the bank:’ a liquidity crisis spurred by a lack of confidence in the company. At the time of Enron’s collapse, the company was solvent and highly profitable - but, apparently, not liquid enough. That is my view of the principal cause of its failure.2

Public disclosure of diminishing liquidity and questionable management decisions and practices destroyed the trust Enron had established within the business community. This caused hundreds of trading partners, clients, and suppliers to suspend doing business with the company—ultimately leading to its downfall.

Enron’s collapse, along with events related to the audits of Enron’s financial statements, caused a similar loss of reputation, trust, and confidence in Big-5 accounting firm, Andersen, LLP. Enron’s collapse and the associated revelations of alleged aggressive and inappropriate accounting practices caused major damage for this previously acclaimed firm. News about charges of inappropriate destruction of documents at the Andersen office in Houston, which housed the Enron audit, and the subsequent unprecedented federal indictment was the kiss of death. Andersen’s clients quickly lost confidence in the firm, and by June 2002, more than 400 of its largest clients had fired the firm as their auditor, leading to the sale or desertion of various pieces of Andersen’s U.S. and international practices. On June 15th, a federal jury in Houston convicted Andersen on one felony count of obstructing the SEC’s investigation into Enron’s collapse. Although the Supreme Court later overturned the decision in May 2005, the reversal came nearly three years after Andersen was essentially dead. Soon after the June 15, 2002 verdict, Andersen announced it would cease auditing publicly owned clients by August 31. Thus, like Enron, in an astonishingly short period of time Andersen went from being one of the world’s largest and most respected business organizations into oblivion.

Because of the Congressional hearings and intense media coverage, along with the tremendous impact the company’s collapse had on the corporate community and on the accounting profession, the name “Enron” will reverberate for decades to come. Here is a brief analysis of the fall of these two giants.

2 Skilling, Jeffrey, “Prepared Witness Testimony: Skilling, Jeffrey, K.” House Energy Subcommittee. See the following website: http://energycommerce.house.gov/107/hearings/02072002Hearing485/Skilling797.htmENRON IN THE BEGINNING