Financial Accounting

SHORT ANSWERS
1-
(TCO 3) Explain why Adjusting Entries are required at the end of each accounting period (15 points) and provide an example of a required journal entry for either the consumption of supplies or insurance (10 points). (Points : 25)

2. RspGF=”font-family:’Verdana’;font-size:10pt;” (TCO 2) If the two columns of a trial balance are equal, does it mean that there are no errors in the accounting records? Explain. (15 points) If the totals of the trial balance columns do not equal, what are some corrective actions that might be taken to find the error? (10 points) (Points : 25)

3. RspGF=”font-family:’Verdana’;font-size:10pt;” (TCO 5) Discuss the various components of Internal Control (10 points). (2) Explain management’s role in establishing a good internal control environment (10 points). (3) What role does internal auditors and external auditors have in the internal control process? (5 points) (Points : 25)

4. RspGF=”font-family:’Verdana’;font-size:10pt;”(TCO 4) Inventory valuation methods determine the cost of goods sold and the inventory balance. (1) Explain how the Average Cost method is applied (15 points) and (2) provide an example of the application of this method. (10 points) (Points : 25)

5. RspGF=”font-family:’Verdana’;font-size:10pt;”(TCO 1) To evaluate the financial operation and health of a business ratio analysis is used. (1) Provide the formula for the Debt Ratio and explain how it is computed (10 points) and (2) provide an example of how this ratio can be used in decision-making in business. (15 points) (Points : 25)

ESSAY QUESTIONS

1. RspGF=”font-family:’Verdana’;font-size:10pt;”(TCO 6) BagODonuts Company bought a used delivery truck on January 1, 2010, for $19,200. The van was expected to remain in service 4 years (30,000 miles). BagODonuts’ accountant estimated that the truck’s residual value would be $2,400 at the end of its useful life. The truck traveled 8,000 miles the first year, 8,500 miles the second year, 5,500 miles the third year, and 8,000 miles in the fourth year.
1. Calculate depreciation expense for the truck for each year (2010-2013) using the:
a. Straight-line method.
b. Double-declining balance method.
c. Units of Production method.
(For units-of-production and double-declining balance, round to the nearest two decimals after each step of the calculation.)
2. Which method best tracks the wear and tear on the van?
3. Which method would BagODonuts prefer to use for income tax purposes? Explain in detail why BagODonuts prefers this method. (Points : 25)

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2. (TCO 7) ABC Inc. was incorporated on 1/15/12. Their corporate charter authorized the following capital stock:
Preferred Stock: 7%, par value $100 per share, 100,000 shares.
Common Stock: $1 par value, 500,000 shares.

The following transactions occurred during the year:

1/19/12 – Issued 100,000 shares of common stock for $17 cash per share.
1/31/12 – Issued 3,000 shares of preferred stock for $115 cash per share.
11/1/12 – Repurchased 30,000 shares of common stock for $22 cash per share.
12/1/12 – Declared and paid a total dividend of $95,000.

Required:
1. Prepare the journal entry for each transaction listed above.
2. In your own words, explain the main differences between common and preferred stock.
(Points : 25)

3. (TCO 5) Internal Control Procedures are in place to protect the assets of every business as mentioned in the textbook and our discussions. Of the seven internal control procedures, list five of these controls and describe how each procedure is implemented. (5 points each with 2 points for listing and 3 points for a description) (Points : 25)

4. (TCO 2) Below are the accounts of Super Pool Service, Inc. The accounts have normal balances on June 30, 2012. The accounts are listed in no particular order.
Account                              Balance
Common stock                    $5,100
Accounts payable                $4,400
Service revenue                   $17,100
Land                                  $28,800
Note payable                       $9,500
Cash                                  $5,200
Dividends                            $6,100
Utilities expense                  $2,100
Accounts receivable             $10,600
Delivery expense                 $700
Retained earnings                $25,600
Salary expense                    $8,200
Prepare the company’s trial balance as of June 30, 2012, listing accounts in proper sequence, as illustrated in the chapter. For example, Accounts Receivable comes before Land. List the expense with the largest balance first, the expense with the next largest balance second, and so on.
(Points : 25)