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Date: October 9, 2013
Subject: Notes receivable from related parties
While testing accounts receivable, it has come to my attention that there are some issues regarding notes receivable owed by family members of Mr. Sigar. Because these notes were issued to individuals directly related to Mr. Sigar, there are some additional considerations that must be taken into account when recording and classifying these notes.
According to FASB accounting standards codification 850-10-50-2, notes or accounts receivable from officers, employees or affiliated entities must be shown separately and not included under a general heading such as notes receivable or
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YOUR NEXT QUIZ (ON TUE) WILL BE OVER ACCOUNTS AND NOTES RECEIVABLE AND FIXED ASSETS
FOR ACCOUNTS RECEIVABLE:
HOW TO CALCULATE AND RECORD BAD DEBTS FROM AN AGING SCHEDULE
JOURNAL ENTRY TO FACTOR AN ACCOUNT RECEIVABLE
WRITEOFF OF A BAD DEBT
FOR NOTES RECEIVABLE
KNOW HOW THEY DIFFER FROM ACCOUNTS RECEIVABLE
KNOW THAT STRAIGHT LINE, DECLINING BALANCE, MACRS AND UNITS OF ACTIVITY ARE ALL DEPRECIATION METHODS
KNOW HOW TO CALCULATE STRAIGHT LINE AND DOUBLE DECLINING BALANCE DEPRECIATION FOR THE FIRST TWO YEARS OF AN ASSET’S LIFE
KNOW WHAT BOOK VALUE AND SALVAGE VALLUE MEAN
KNOW HOW TO RECORD SALE AND DISPOSAL OF FIXED ASSETS
Practice questions for bonus quiz two. The
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data relate to Preston Company as of December 31, 20XX:
Building $40,000 Accounts receivable $24,000
Cash 21,000 Loan payable 30,000
J. Preston, Capital 65,000 Land 21,000
Accounts payable ?
**Prepare a balance sheet as of December 31, 20XX. (See Exhibit 1.1 and 1.4)
Preston Company | |
Balance Sheet | |
December 31, 20XX | |
| | |
Assets | | Liabilities |
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responsible officer? No available information
11. Are shipped quantities compared to invoice quantities? Yes. Shipping department clerk
12. Are sales invoices checked for error in quantities, prices, extensions and footing, and freight allowances and checked with customers' orders? Yes. Accounts receivable clerk
13. Is there an overall check for errors in arithmetic accuracy of period sales data by a statistical or product-line analysis? Yes. Marketing vice president
14. Are periodic sales data reported directly to general ledger accounting independent of accounts receivable accounting? No....
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BUDGETED BALANCE SHEET
Accounts receivable (see below) 500,000
Prepaid insurance 12,000
Property and equipment, net 964,000
Total assets $1,618,700
Liabilities and Stockholders' Equity
Accounts payable, purchases $84,000
Dividends payable 15,000
Capital stock 800,000
Retained earnings (see below) 719,700
Total liabilities and stockholders' equity $1,618,700
Accounts receivable at June 30:
May sales x 10% $100,000
June sales x 80% 400,000
Retained earnings at June 30:
Balance, March 31 $580,000
Add net income 154,700
Less dividends declared (15,000)
Balance, June 30 $719,700
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year with stockholders' equity of $185,000. During the year, the company recorded revenues of $250,000, expenses of $190,000, and paid dividends of $20,000. What was Black Keys’ stockholders' equity at the end of the year?
5. Misra Company compiled the following financial information as of December 31, 2013:
Retained earnings 30,000
Accounts payable 20,000
Accounts receivable 35,000
Common stock 40,000
Misra’s assets on December 31, 2013 are
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, how much is stockholders’ equity?
11. Which is a permanent account?
B. Advertising Expense
C. Accounts Receivable
E. Insurance Expense
12. Which is a temporary account?
B. Accounts Receivable
C. Insurance Expense
D. Accounts Payable
E. Notes Payable
13. In terms of debits and credits, which accounts have the same normal balances?
A. Dividends, retained earnings, liabilities
B. Capital stock, liabilities, expenses
C. Revenues, capital stock, expenses
D. Expenses, assets, dividends
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companies. Since, lumber is a commodity the company has to find a new way to compete. One way is to have a larger selection for the customers. As for accounts receivable turnover, it is also decreasing and less than the average but also signifies another area in which the company is trying to compete in the industry. For instance, in 1995, it was 7.46 and the industry average was 10.7 times. Therefore, Clarkson doesn’t get paid right away but it does make the customers more comfortable since they don’t have to worry about paying the lumber back to Clarkson. Also, since most customers are probably contractors, it would make them happier to be able to use the wood and get paid first, so they
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customers a reason to come to them instead of other companies. Since, lumber is a commodity the company has to find a new way to compete. One way is to have a larger selection for the customers. As for accounts receivable turnover, it is also decreasing and less than the average but also signifies another area in which the company is trying to compete in the industry. For instance, in 1995, it was 7.46 and the industry average was 10.7 times. Therefore, Clarkson doesn’t get paid right away but it does make the customers more comfortable since they don’t have to worry about paying the lumber back to Clarkson. Also, since most customers are probably contractors, it would make them happier to be
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Case Study: CRAZY EDDIE 1-6
1. Key Ratios: 1987, 1986, 1985, 1984
Current Ratio: 2.4062, 1.3985, 1.5626, 0.9287
Quick Ratio: 1.4044, 0.5982, 0.7680, 0.1499
Debt to Assets Ratio 0.6837 0.6643 0.6359 0.8298
Times Interest Earned 3.6169 30.3927 28.2877 14.9253
Long-Term Debt to Equity 2.1617 1.9786 1.7462 4.8755
Accounts Receivable Turnover 32.5026, 116.7711 49.7515, 52.7208
Inventory Turnover Ratio: 4.98, 3.55, 1.89, 1.95
Looking at the key ratios during that period there were a lot of red flags. The audit risk for Crazy Eddie would be very high. Some of the major red flags were inventory turnover in 4 years went from
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Interest Expense $2,500
Accounts Receivable 14,800 Land 18,000
Auto Expense 1,900 Loan Payable 40,000
Building 30,000 Tax Expense 3,300
Cash 7,400 Utilities Expense 4,100
Fee Revenue 56,900 Wage Expense 37,500
a. Determine Rossi’s total assets as of December 31.
b. Determine the company’s total liabilities as of December 31.
c. Compute 20X3 net income or loss.
3. Balance sheet
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. Jones receives $220 from a customer in settlement of accounts receivable—see transaction for Jan 14, 20x1.
j. Jan. 31, 20x1. Cash receipts for services performed for the remainder of the month, $750.
k. Jan. 31, 20x1. Jones pays the utilities bill, $410.
l. Jan. 31, 20x1. Jones withdraws $850 in cash for personal use.
m. Jan. 31, 20x1. Wages paid to a new part-time employee, Dave, $500 cash.
n. Jan. 31, 20x1. Jones pays rent of $500 in cash.
a. Recall the accounting equation Assets = Liabilities + Owner’s Equity. Analyze the effect of each of transaction, keeping in mind the accounting equation. Use the table provided below.
Transaction | Assets | Liabilities
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company’s cash flow statement, we can know the operation status of the company and the how the company invests in its area.
In chapter 7, we mainly learned how to do the account receivable. The basic concepts we got in this chapter are how to take note for account receivable and related accounts like bad debt expense, allowance for bad debt expense, sales discount and so on. Besides, we also learned how to do general entries for discounted or premium note receivable. The new account for us is the discount on note receivable or premium on note receivable. When the company led money on discount, the discount on note receivable would be the par value minus money given. And the discount on note
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nutraceutical product line. This decision increased SNC’s EBIT by approximately 200,000. Although SNC’s sales and EBIT figures increased, their net working capital and profit margins will remain at current figures.
Additionally, acquiring Atlantic Wellness as a client will help increase SNC’s sales significantly but will sacrifice portions of inventory and accounts receivable. Because of their current cash position SNC must keep a minimum of $3 on hand to meet their company’s operational needs therefore sacrificing portions of inventory and accounts receivable may not be a good idea. However, there is a positive for SNC. The risk of inventory and accounts receivable can be
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1. Accounts Receivable Subsidiary Ledger – account records of customers containing the customer name, customer address, current balance, available credit, transaction dates, invoice numbers, and credits for payments, returns, and allowances. It is updated from information the sales order provides.
2. Analytical Review – provides the auditor with an overall perspective for trends in the account balances.
3. Batch Control Totals – calculated totals for each batch on a transaction file to reconcile output produced by the system with the input originally entered into the system.
4. Bill of Lading – a formal contract between the seller and the shipping company (carrier
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cash equivalents approximates the carrying value due to their short maturities.
1. An accounting measure used to quantify a firm's effectiveness in extending credit as well as collecting debts. The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets. By maintaining accounts receivable, firms are indirectly extending interest-free loans to their clients. A high ratio implies either that a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient.
2. Materials and purchased parts, work in process, finished goods.
1. First in, first out for both
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While making the agenda for the annual finance committee meeting there are some standard routine items to be included. According to Bergner (2014) these routine matters include, a review of the financial statement, accounts receivable updates, and approval of minutes. The agenda for the upcoming meeting in two months would also include the strategic financial plan. The accounts receivable, or the money owed, should include a discussion on how long accounts have been open, and the accounts receivable ratio (Bergner, 2014, p. 24).
Bergner (2014) explains that a review of the financial statement would include points on the following five financial statements; balance sheet
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from sales in 2011.
Accounts Receivable & Bad Debts
Australian Vintage has made an estimation regarding the expected amount of receivables that may be irrecoverable (Australian Vintage, 2011, p58). The estimation is generated by using reference to the trading company’s past default experiences. In calculating this, Australian Vintage ‘considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date’ (Australian Vintage, 2011, p58).
Figure 1: Extract from Australian Vintage’s annual report (Australian Vintage, 2011, p58)
The above table shows the total ‘Allowance for Doubtful Debts’ for the reporting period
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, pp. 135-136. |
| Points Received: | 5 of 5 |
| Comments: | |
5. | Question : | (TCO F) Which of the following is not a characteristic of the reliability of evidence? |
| Student Answer: | | Qualification of individual providing information |
| | | Auditor's direct knowledge |
| | | Degree of subjectivity |
| | | Degree of objectivity |
| Instructor Explanation: | Chapter 7, pp. 172-173. |
| Points Received: | 5 of 5 |
| Comments: | |
6. | Question : | (TCO F) Which of the following forms of evidence is most reliable? |
| Student Answer: | | General ledger account balances |
| | | Confirmation of accounts receivable
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Cathy Kudler, a successful business woman is running her own business, geographically spread across three different areas; based on fine foods since 1998. Kudler Fine Foods uses MS Access for payroll, revenue clientele, as well as inventory records and documentation.
It is necessary to show the transactions and movements of various items through flow charts or in a similar illustrative way so that it can get its user understood the scheme in no time, but the existing table does not possess this type of quality for accounts receivable sales and payments etcetera. All of this should be in a complete manner that may prove to be a complete manual for the business conduct
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stock market begins to rebound. Additionally, with real estate prices plummeting, the value of the Patton-Fuller Community Hospital property also fell, reducing the overall market value roughly 34% from $41,000,000 to $27,000,000. Patient Accounts Receivable showed a significant increase from 2008 to 2009 due to a change over in contract with HMO insurance providers during the 2008 fiscal year. This change brought about a slow reimbursement process as the new steps were set-up to ensure proper receipt of funds. The additional payments...
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recently expanded into solar engines. The engine manufacturing business is competitive and increasingly outsourced. The solar business depends on developing technology. These characteristics are most likely to affect Inventory to a lesser extent , and accounts receivable fixed assets. and
Pinnacle could overstate revenues in several ways. The auditor would especially focus on the Machine-Tech division because of the incentives identified in part a.
There is a major change in perating expenses O and Income from operations this . If change was not expected, it could suggest revenue recognition fraud. The decline in bad debt expense and increase in depreciation
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client, and observe control-related activities. A major internal control issue of Smackey is the controls related to returned Best Boy Gourmet food and how it is not properly documented and restocked, and eventually expires.
3. Substantive tests. The audit team will perform substantive tests on the material account balances of Smackey Dog Food, mainly the accounts receivable and inventory accounts. Substantive tests of transactions, test of details of balances, and analytical procedures will be the best test to perform on these accounts to look for completeness, accuracy, occurrence, classification, timing and posting.
4. Audit finalization. As this is the end/wrap up of the
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free up cash and the deal would result in inventory and accounts receivable suffering. This would put a strain on cash on hand, which was too risky for me.
II. Leverage Supplier Discount – I accepted working with Ayuveda Naturals, the supplier of herb for Nutrilife to obtain its product line which will allow a benefit to sales of approximately $2 million, offers a very attractive payment terms, and could lower SNC’s accounts payable.
III. Tighten Accounts Receivable – I decided to drop Super Sports Centers, which accounts for 20% of SNC’s sales. However, Super Sports Centers takes approximately 200 days to pay their bills with SNC, which is above the normal 90-day average
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(2005). Though sales didn’t increase a lot, but days sales in receivables increased a lot. There may be customers who are not paying due to defective products they purchased. The auditors need to look at accounts receivable aging report and returns that are not processed timely by reviewing returns. Plus, finished goods, copper rod, and plastic inventories increased as a percent of sales. The auditors need to have a question if they are expecting to have more sales and make sure that the company’s standard cost for copper and plastics are reasonable. Companies usually update their standard costs every year. If they updated their standard costs properly, maybe they just have more inventories
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|$1,007 |$766 |($332) |
ending cash | |$699 |$1,007 |$766 |($332) |$934 | |Group：Jeffrey Gui, Vincent Wang, JoshuaClifford, Matthew Gallagher
Assessment of Hampton Tool Repurchase：
The first step to assess this repurchase was to analyze whether we could remain financially healthy by accepting the loan. We analyzed this by calculating our cash flow by using their collection period of 30 days for accounts receivable and their payment period for accounts payable of 30 days. We also deducted from the cash balance the advance payment from General Aircraft Corporation from September to November. Using this cash flow statement we found that accepting
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, financial events are recorded at the time they occur. For example; when a service is rendered to a customer, the company will generate an invoice and record this revenue at this time, even though it may be several weeks before payment is collected. This is done using the double entry bookkeeping method, in this example, with an entry in both an accounts receivable account and a service revenue account.
In the same way, the operating expenses for the company would also be recorded within the period they were incurred, and not necessarily at the time they were paid. An example of this is prepaid insurance. Insurance is typically paid for one year, in advance. The cost for this insurance would be
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Assignment Set #1
1. What is the Free Cash Flow for 2014?
Free Cash Flow = NOPAT – Net Investment In Operating Capital
To find NOPAT = EBIT * (1 – Tax Rate)
= 502,640 * (1-.4)
= 502,640 *.6
So, FCF = 301,584 – Net Investment in Operating Capital
2014 Net Operating Working Capital= Operating current assets – Operating Current Liabilities
= (Cash+Accounts receivable+Inventories) – (Accounts payable + accruals)
= (14000+878000+1716480)- (359800+380000)
=2,608,480 – 739,800
2013 NOWC was
NOWC = (7282+632160+1287360)-(324000+284960)
Net Investment in Operating Capital is
1868680 – 1317842 = 550,838
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ACC 291 Final Exam Assignments
Multiple Choice Question 86
An aging of a company's accounts receivable indicates that $4,500 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,200 credit balance, the adjustment to record bad debts for the period will require a
• debit to Bad Debt Expense for $4,500.
• debit to Bad Debt Expense for $3,300.
• credit to Allowance for Doubtful Accounts for $4,500.
• debit to Allowance for Doubtful Accounts for $3,300.
Multiple Choice Question 182
The financial statements of the Melton Manufacturing Company reports net sales of $300,000 and accounts receivable of $50,000 and
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department. The accounts receivable clerk will reconcile the payment transaction. She checks if the validated duplicate copy of the deposit slips corresponds to the duplicate official receipt. If it matched, this will trigger the posting of payment of the client in the official receipts and updates the invoicing book and accounts receivable ledger. At the end of each week, the collector and the accounting staff prepares a weekly collection report and summary of accounts receivable aging report respectively that will be given to the accounting manager. The aging reports are for internal purposes and to see how many collection the company made.
At the end of each month, the accounting manager
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|Constant Growth (1976 onwards) |2% |
Calculation of Change in Networking Capital and Capital Expenditure:
The table below shows our calculation of projected change in networking capital and capital expenditure. We have projected the accounts of payable and receivables for 5 years ahead based on the ratio of the corresponding accounts to sales in the year 1971. The Ratio is as below.
|Accounts Receivable to Sales Ratio - 1971 |0.14 |
|Inventories to Sales Ratio - 1971 |0.33 |
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recognized when earned.
March 25, 2011
The Honorable Rodney G. Ellis
440 Louisiana, Suite 575
Houston, Texas 77002
Dear Senator Ellis:
The purpose of this letter is to address why the Federal Government should adopt the accrual basis of accounting system. Viewpoints of the benefits of accrual basis accounting are
• Helps in compare performance and stability from one reporting period to the next
• Tends to overstate revenue
• Focus on the outputs of a business rather than inputs
• Improved accountability
• Provides tracking accounts receivable and payable more efficient
• Provides better financial management
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Department at GE because they will actually be making money. The company is not using accounts receivable as a use of cash so that it means that they are collecting their accounts, and it won’t reflect a poor management structure if the loan does get approved. They will also not have penalties, cancellations of credit and a decrease in reputation because of the fact that they are not using accounts receivable. The Clark Carriers company has been in good standing and their financial performance hasn’t had many real changes to it. The condition of the company over the short amount of time that they have been around has been good also. The profitability of Clark Carriers is pretty good
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$10 per unit. The price today is $11 per unit. The inventory shall appear on balance sheet at $1,000 and not at $1,100.
It states that expected loss is never to be understated, whereas, expected profit is never to be overstated. Future losses should be recorded immediately and expected profits should not be recorded unless they are realized.
Prudence is a key accounting principle which makes sure that assets and income are not overstated and liabilities and expenses are not understated.
1. Bad debts are probable in many businesses, so they create a special contra-account to accounts receivable called allowance for bad debts which brings the accounts
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capital. A further impact on Deutsche Brauerei’s working capital could be as a result of the effect of Pinchuck’s extremely relaxed accounts receivable in Ukraine. Finally, Schweitzer should evaluate the benefits and shortfalls of the firm’s aggressive expansion into Ukraine.
Dividends Declaration Policy:
Deutsche Brauerei is currently enjoying a high growth rate in sales, for 2001 the projected growth rate is approximately 48%. It is unusual that a firm that is so successful at generating sales is taking on such a large amount of short-term debt. One of the principle reasons Deutsche Brauerei has such a large amount of short term borrowings is the pressure they are put under to provide