Balance Sheet, Income Statement, Statement of Cash Flows, and Statement of Changes in Stockholders' Equity I would rather invest in or give money to Glenwood Heating, Inc. Gross profit margin measures how much of each dollar of revenue is left over after paying the cost of goods sold. Gross profit margin and profit margin show that Glenwood generates more profit per dollar of sales after expenses are subtracted.
ROE, profit margin and gross profit margin ratios support that Glenwood is more profitable than Eads.
ACCY 420: CASE STUDY 2 SOLUTION
The gross profit for Totz must be recorded as gross profit on the income statement. The ASC set out below outlines where a gain or loss recognized on the sale of a long-lived asset should be in the income statement.
ACCY 420: CASE STUDY 3 SOLUTION
Sell stock for cash and on account. Accounts receivable has increased operationally 4. Paying for inventory Accounts payable has decreased operationally 5.
ACCY 420: CASE STUDY 4 SOLUTION
Given her autonomy with this process, Lucy may underreport sales and not deposit all of the money. To respect the separation of duties, one employee should be responsible for recording sales and another should be responsible for depositing the cash for those sales. This separation of responsibilities makes it more difficult for one person to commit this type of fraud.
To prevent this and ensure that disbursements from petty cash funds are accurate, access controls must be in place. Clerks must enter all amounts into the system and keep the coupon upon receipt of the transaction. Kayla is responsible for overseeing inventory, orders for new inventory, and payments for inventory.
This separation of responsibility would prevent one person from autonomously falsifying orders payable to external accounts. Kayla should not have to deal with so much responsibility within the business since she is the owner of the company. There is no way to know which employee is responsible for the credit card sale.
ACCY 420: CASE STUDY 5 SOLUTION
Raw materials - Raw materials inventory consists of purchased raw materials that have not yet been used. Work in Process – Work in process inventory includes the cost of raw materials that were used in production along with direct labor. W/p inventory consists of raw materials that have been converted into products but have not yet been completed.
Cost of goods manufactured equals direct material costs plus direct labor cost plus indirect labor cost plus indirect material cost plus factory overhead plus beginning work in process inventory minus ending work in process inventory. The Obsolete and Unmarketable Inventory Legislation is a contra inventory account and appears with inventory in the financial statements. The inventory holding period decreases from 2011 to 2012 indicating that the company is selling and moving its inventory faster than the previous year, 2011.
As an investor or analyst, I would like to know how much a company has paid its liabilities. This would make it easier to figure out the "plugs" of the t-graphs and how much COGS it was.
ACCY 420: CASE STUDY 6 SOLUTION
Assets are defined as probable future economic benefits obtained and controlled by a company as a result of transactions. Expenditure is defined as the outflow, consumption of assets, or incurring of liabilities in exchange for providing services, performing other business activities, or delivering or producing goods. But overtime the assets will be depreciated so the "costs" will be spread over subsequent periods.
WorldCom made these costs look like they had future benefits, making them look like assets.
ACCY 420: CASE STUDY 7 SOLUTION
According to the codification, employee benefits must be recognized as a liability in the balance sheet and a loss in the income statement. 25-2 An employer that provides contractual severance benefits must recognize a liability and a loss when it is probable that employees will be entitled to benefits and the amount can be reasonably estimated. Severance pay costs recognized as a liability and a loss shall include the amount of any one-time payments and the present value of any expected future payments.
Therefore, Targa should recognize a liability on the balance sheet in the amount of $500,000 for two weeks. Special or contractual retirement termination benefits (for example, welfare benefits), payable upon termination of another defined benefit. 25-1 A liability for a cost associated with an exit or disposal activity shall be recognized in the period in which the liability arises, except as shown in paragraphs and for a liability for employee separation benefits once they arise on the transition times) .
Targa should not recognize $500,000 in relocation costs and $1.5 million in training costs at December. Therefore, the liability associated with these costs should not be recorded on the 31 December 20X1 balance sheet. A liability for other costs associated with an exit or disposal activity will be recognized in the period in which the liability is incurred (usually when goods or services associated with the activity are received).
ACCY 420: CASE STUDY 8 SOLUTION
Companies pay dividends to their common and common shareholders to give them returns on their investments. When dividends are paid, the company's stock price falls by the amount of dividends paid. Dividend payouts can give investors a positive impression that the company has sufficient capital to pay out.
It could also be a negative signal to potential investors that the company's growth is slowing. When shares are undervalued, a company can buy back the shares at the discounted price and then reissue them once the stock price has risen. The balance sheet is treated according to this method by deducting the treasury shares in the lower part of the equity.
Merck does not disclose treasury shares as an asset because they do not have a future financial benefit, although it does have a future cash benefit.
ACCY 420: CASE STUDY 9 SOLUTION
A stock option plan gives employees the right to purchase a certain number of shares of the company at a specific time at a predetermined price. If they retire or resign before the vesting period is over, they will lose their stock options and receive no benefits. Restricted stock unit is offered to the employee in the form of shares, similar to a stock option.
Grant Date – A grant is the issuance of the stock, therefore the grant date is the date the stock option is issued. Vesting period - Vesting period is the time the employee must wait to exercise the stock options. Expiry date - The expiry date of an option contract is the last date on which the employee can exercise the share.
Options exercised - Stock option exercise is the right of employees to purchase shares of the company. The stock purchase plan allows employees to purchase at a discount to fair market value. To account for these equity incentive plans, share-based payments, Xilinx has measured the cost of equity incentive plans that are expected to be exercised at fair value at the grant date.
ACCY 420: CASE STUDY 10 SOLUTION
In this case, a contract exists when the student orders the beer and the bartender takes the order. The performance obligations of this contract are that the student pays the bartender $5 for the beer and that the bartender fills a plastic cup with beer for the customer. In this case, there is only one performance obligation and the transaction price is fully attributed to the bartender who hands the beer to the student.
The bartender has an obligation to serve the student a beer in a thermal beer mug, while the student has an obligation to pay for the beer and the mug. The bartender has a performance obligation to fill the student's mug with beer and give him a coupon, when he accepts $7.00 from the student. Bier Haus has a performance obligation to give the student two pretzels when redeeming their coupon.
A contract is created when the student orders two pretzels and the bartender takes the order. The bartender is obliged to give the student two pretzels, and accept the coupon in exchange for the goods. However, because the student has coupon, the transaction price is determined by the value of the coupon, which is $3.50.
ACCY 420: CASE STUDY 11 SOLUTION
A deferred tax liability arises when book income exceeds taxable income due to temporary differences arising from tax accounting and financial accounting. Taxable income is normally not the same as book income, which is reported in the annual accounts. The differences will never be eliminated and will permanently reduce a company's tax liability.
Sales tax rates have a flat statutory rate, while an income tax may have multiple statutory rates for different income levels. Companies report deferred income taxes as part of total income tax expense to reduce their taxable income. A deferred income tax is a liability that arises as a result of the recognition of income under various tax laws.
A situation arises in which the income tax payable on the tax return is greater than the income tax burden on the annual accounts. A deferred tax asset arises when a company has paid too much tax or made an advance on the balance sheet. A company must create a valuation allowance for a deferred tax asset if it is probable that the company will not recognize part of the asset.
ACCY 420: CASE STUDY 12 SOLUTION
Also, the cash that would have been used to purchase the asset can be used to help with economic growth. An operating lease is the lease of an asset from a lessor, but not on terms that would classify it as a capital lease. A capital lease is a leasing contract where the lessee registers the underlying asset as if it owns the asset.
The lessor must register a lease as a capital lease if the lease term covers at least 75% of the useful life. There is an option to purchase the leased asset after the lease expiration at a lower level. A sales-type lease is a lease that is valued by the lessor at the fair value of the leased property. Accountants distinguish between different types of lease agreements to determine what is best for the business.
This lease will be treated as an operating lease because it does not meet the criteria of a capital lease. The term of the lease does not constitute a large part of the useful life of the assets.
