Luca Hanson owns Luca’s Limousine, which operates a fleet of limousines and shuttle buses. Upon reviewing the most recent financial statements, he became confused over the recent decline in net income. He called his accountant and asked for an explanation. The accountant told Luca that the numerous repairs and maintenance expenses such as oil changes, cleaning, and minor engine repairs had totalled up to a large amount. Further, because several drivers were involved in accidents, the fleet insurance premiums had also risen sharply. Luca told his accountant to simply capitalize all the expenses related to the vehicles rather than expensing them. These capitalized repair costs could then be depreciated over the next 10 to 20 years. By capitalizing those expenses, the net income would be higher, as would property and equipment assets; therefore, both the income statement and balance sheet would look better. His accountant, however, disagreed because the costs were clearly routine maintenance and because they did not extend the fleet’s useful life. Luca then told his accountant that the estimated useful life of the vehicles needed to be changed from 5 years to 15 years to lower the amount of depreciation expense. His accountant responded that capitalizing costs that should be expensed and extending the estimated lives of assets just to increase the reported net income was unethical and wrong. Luca said that it was his business and therefore demanded that the financial statements be changed to show more net income. As a result, the accountant told Luca to pick up his files and find another accountant. What ethical concerns did the accountant have? If the total amount of repairs and maintenance was so large, couldn’t a case be made that the amount should be capitalized? Is it unethical to change the estimated life of an asset? Was it unethical for the accountant to sever the business relationship? Do you have any suggestions?
> Internal control is a. the act of stealing a business’s assets. b. the process that helps a business achieve its objectives, such as operating efficiently and effectively. c. the reconciliation of the bank’s cash balance to the book’s cash balance. d. th
> Assume you were recently hired as a staff accountant for Advanced Energy Solutions, Inc. You report to Tina, the director of financial reporting, who in turn reports to the CFO. One of your first assignments is to prepare the adjusting entries for the en
> What is the control environment? Discuss how the control environment had a strong influence over a situation with which you are personally familiar (e.g., a place where you work, your family, your living group in college, a classroom, etc.).
> Score More Sports uses the average cost inventory method. Score More Sports started December with 10 helmets that cost $54 each. On December 19, Score More Sports bought 15 helmets at $52 each. On December 28, Score More Sports sold 12 helmets. Prepare a
> Ling Company issued a $280,000, 4 percent mortgage on January 1, 2016, to purchase a building. Payments of $8,055 are made semi-annually. Complete the following amortization schedule (partial) for Ling Company. Round to the nearest dollar.
> What is the term used to describe an unsecured bond? a. Mortgage bond b. Debenture bond c. Serial bond d. Callable bond
> What is the distinguishing feature of the following types of bonds? a. Convertible b. Callable c. Secured d. Unsecured e. Serial f. Term
> Noxon, Inc., repaired a piece of equipment at a cost of $3,000, which Noxon, Inc., paid in cash. Noxon, Inc., erroneously capitalized this cost as part of the cost of the equipment. Requirements 1. Journalize both the incorrect entry the accountant mad
> An airplane costs $75 million and is expected to fly 750 million miles during its 12-year life. Residual value is expected to be zero because the plane was used when acquired. If the plane travels 45 million miles the first year, how much depreciation ex
> Are useful life and physical life the same thing relative to fixed assets? Provide some examples that illustrate your answer.
> Prepare the current assets section of the balance sheet as of May 31, 2016, for Spices and More, Inc., using the following information:
> Sam Olson is the manager of a Stop and Go convenience store. He has been employed by the company for 14 years, the last 4 years as a store manager. Sam applied for a promotion to regional manager, who oversees all 30 store locations, but was once again d
> After performing a bank reconciliation, journal entries are required for a. all items on the book side of the reconciliation. b. all items on the bank side of the reconciliation. c. all items on the reconciliation. d. no items from the reconciliation be
> How is Allowance for Doubtful Accounts reported on the financial statements? Why is it important for companies to report net realizable value of Accounts Receivable on the balance sheet?
> Lynn’s Music School created a $250 petty cash fund on August 1. During the month, the fund custodian authorized and signed petty cash tickets as follows: Requirements 1. Record the journal entry to create the petty cash fund. 2. Assuming that the ca
> Explain why separation of duties is often described as the cornerstone of internal control for safeguarding assets. Describe what can happen if the same person has custody of an asset and also accounts for the asset.
> Separation of duties refers to separating all of these functions except which of the following? a. Keeping accounting records b. Hiring personnel c. Authorizing transactions d. Maintaining custody of assets
> Jennifer Sims was hired as the new store manager for Bargain Hunter. The store used four cash registers, and 10 cashiers worked various shifts in the store. Store operations include the following procedures: • At the start of each shift, a cashier counts
> Do you think the risk factors for management fraud are the same as the risk factors for employee fraud? Why or why not?
> On January 1, 2016, you borrowed $15,000 on a five-year, 9 percent note payable. At December 31, 2016, you should record a journal entry that includes which of the following? a. Note Payable of $15,000 b. Nothing; the note has already been recorded c. I
> If a company with a 12/31 year-end were to borrow money in the form of a four-month note on 11/1, what accounts would be debited on 3/1 when it pays the note off?
> For each of the following long-term assets, identify the type of expense that will be incurred to allocate the asset’s cost as depreciation expense (DR), depletion expense (DL), amortization expense (A), or none of these (NA). ______ 1. Franchises _____
> Northwest Airways bought four used Boeing 737 airplanes. Each plane had a selling price of $40 million, but Northwest bought the combination for $144 million. How much is Northwest Airways’ cost of each plane? a. $144 million b. $36 million c. $160 milli
> Panco Corporation purchased Apex Unlimited for $12 million. The fair market value of Apex Unlimited’s net assets at the time was $9 million, so Panco Corporation recorded $3 million of goodwill. Included in the purchase was a patent valued at $1.5 millio
> If a company were to purchase a piece of land with a building on it that it demolishes to make room for its new building, in which account would the cost of demolition be recorded (Land, Building, Demolition Expense, or something else)? Why?
> Score More Sports uses the LIFO inventory method. Score More Sports started December with 10 helmets that cost $54 each. On December 19, Score More Sports bought 15 helmets at $52 each. On December 28, Score More Sports sold 12 helmets. Prepare a perpetu
> Classify each of the following items as one of the following: Addition to the book balance (+ Book) Subtraction from the book balance (− Book) Addition to the bank balance (+ Bank) Subtraction from the bank balance (- Bank) ______ 1. Outstanding checks
> The document that identifies and explains all differences between the company’s record of cash and the bank’s record of that cash is the a. bank reconciliation. b. electronic fund transfer. c. bank collection. d. bank statement
> Bob and Larry were finishing the financial statements for their business when they saw the net income for the year was not going to be as large as they had hoped. Concerned that the bank would question the lower reported net income, Bob suggested that th
> After preparing a bank reconciliation, which reconciling items will require journal entries? Why?
> Record the following petty cash transactions of Wilson Supply in the journal; explanations are not required.
> Identify each of the following as an example of a perceived pressure (P), perceived opportunity (O), or rationalization (R) in the fraud triangle: _______ 1. Job dissatisfaction _______ 2. Greed _______ 3. “It’s for a good purpose.” _______ 4. Weak inte
> On what element of the fraud triangle do most organizations usually focus their fraud prevention efforts? a. Rationalization b. Perceived opportunity c. Perceived pressure d. All three
> Ali Jamison is the controller at Williams Supply Company, a publicly traded distributor of automotive supplies. It is the end of the third quarter, and Ali is working under a deadline to get the quarterly financial statements prepared before the board o
> Is there a distinction between personal and professional ethics? What are the implications for the study of ethics in the college classroom?
> Cunnington Furniture doesn’t expect prices to change dramatically and wants to use a method that averages price changes. 1. Which inventory method would best meet Cunnington Furniture’s goal? 2. What if Cunnington Furniture wanted to expense out the new
> Phatboy Motorcycles, Inc., a motorcycle manufacturer, included the following note in its annual report: Notes to Consolidated Financial Statements Commitments and Contingencies The Company self-insures its product liability losses in the United States u
> Bike World, Inc., wholesales a line of custom road bikes. Bike World’s inventory, as of November 30, 2016, consisted of 22 mountain bikes costing $1,650 each. Bike World’s trial balance as of November 30 appears as follows: Requirements 1. Using
> On August 31, 2016, Freemont Co., purchased $18,000 of inventory with a one-year, 8 percent note payable. Journalize the following for the company: 1. Accrual of interest expense on December 31, 2016 2. Payment of the note plus interest on August 31, 20
> Known liabilities of uncertain amounts should be a. ignored; record them when they are paid. b. estimated and accrued when they occur. c. described in the notes to the financial statements. d. reported on the income statement.
> Provide an example of a known liability, an estimated liability, and a contingent liability.
> A client of yours notified you that she just closed a deal to purchase an existing business. It’s a pretty hefty purchase. As part of the purchase of the business, she received the land, the building, all the equipment, and the entire merchandise invento
> You’ve made an appointment to take your year-end financial statements down to the bank. You know that your banker is usually concerned about two things, your net income and the amount of cash you have. You are a little concerned because you know that you
> Identify each of the following assets as a fixed asset (F) or an intangible asset (I): ______ 1. Franchises ______ 2. Vehicles ______ 3. Buildings ______ 4. Furniture ______ 5. Patents ______ 6. Copyrights ______ 7. Trademarks ______ 8. Land improvement
> Which cost is not recorded as part of the cost of a building? a. Construction materials, labor, and overhead b. Annual building maintenance c. Earthmoving for the building’s foundation d. Real estate commission paid to buy the building
> Find the Columbia Sportswear Company Annual Report located in Appendix A and go to the Notes to the Consolidated Financial Statements starting on page 663. Now access the 2014 Annual Report for Under Armour, Inc., from the Internet. For instructions on h
> This case addresses the long-term assets of Columbia Sportswear. The majority of these assets consist of property and equipment and intangible assets. In the text, you learned how most long-term tangible assets used in business are capitalized and deprec
> Northern Electric owed Estimated Warranty Payable of $1,700 at the end of 2015. During 2016, Northern Electric made sales of $180,000 and expects product warranties to cost the company 3 percent of the sales. During 2016, Northern Electric paid $4,300 fo
> What is management fraud? What is employee fraud? Give some examples of each.
> When a company makes an expenditure, it can either capitalize or expense the cost, depending on the nature of the expenditure. What does it mean to capitalize an expenditure? What determines whether an expenditure can be capitalized?
> This problem continues our accounting for Fitness Equipment Doctor, Inc., from Chapter 7. During 2016, Fitness Equipment Doctor made the following purchases: • On March 3, Fitness Equipment Doctor, Inc., purchased equipment for $3,600 cash. The equipmen
> Let’s look at Dick’s Sporting Goods (Dicks) some more. Think about Dick’s. What assets did Dick’s need to operate? Return to Dick’s Annual Report (see the Continuing Financial Statement Analysis Problem in Chapter 2 for instructions on how to access the
> This exercise continues our accounting for Sensations Salon, Inc., from previous chapters. In this exercise, we will account for the annual depreciation expense for Sensations Salon, Inc. In the Continuing Exercise in Chapter 2, we learned that Sensation
> Refer to the preceding Small Business Analysis case. Prepare an e-mail to the owner of Hastings & Associates, Inc., explaining the situation with the returned check and the charge that the bank applied to your account for processing the returned check. A
> You’re pretty excited about your cash balance at the end of the month because this was the month you were going to take the big bonus from the business and make a down payment on a new house. You were waiting on a big check to come in from a client who h
> For each of the following, indicate whether the item is an adjustment to the bank balance or the book balance: ______ 1. Bank service charge ______ 2. Deposit in transit ______ 3. Bank collection of amount due from customer ______ 4. Interest revenue on
> The document that identifies and explains all differences between the company’s record of cash and the bank’s record of that cash is the a. bank reconciliation. b. electronic fund transfer. c. bank collection. d. bank statement
> Find the Columbia Sportswear Company Annual Report located in Appendix A and go to the Financial Statements starting on page 663. Now access the 2014 Annual Report for Under Armour, Inc., from the Internet. For instructions on how to access the report on
> What is the difference between a current liability for an uncertain amount and a contingent liability? Give an example of each and demonstrate how they differ in respect of the difference that you identified in the first part of this question.
> This case will address the accounts receivable reflected on Columbia Sportswear’s Balance sheet. We will once again refer to the annual report for Columbia Sportswear located in Appendix A in order to answer some questions related to Columbia Sportswear’
> Susan Casey is the controller of Casey’s Collectibles. The business uses the accrual method of accounting and recognizes sales revenue in the period in which the sale is made. As a result, the Accounts Receivable balance at year end was $86,370, which wa
> Which duties should be segregated in the purchasing process? Why? That is, what could go wrong if two or more of those duties are not segregated?
> In this problem, we continue our accounting for Fitness Equipment Doctor, Inc., from Chapter 5. Refer to the Continuing Problem in Chapters 4 and 5. Assume that all 15 of the treadmills Fitness Equipment Doctor, Inc., sold in July were sold on account fo
> Let’s continue our examination of Dick’s Sporting Goods (Dick’s). Return to Dick’s Annual Report (see the Continuing Financial Statement Analysis Problem in Chapter 2 for instructions on how to access the Annual Report). Now answer the following question
> In this exercise, we continue our accounting for Sensations Salon, Inc., from Chapter 5. Refer to the Continuing Exercise from Chapter 5. On June 15, Sensations Salon, Inc., sold 7 bottles of shampoo to Chelsie Hobart for $196 on account. On July 18, Sen
> Record the following petty cash transactions of Wilson Supply in the journal; explanations are not required.
> You’ve been asked by your boss to write a brief description of the control activities that should be a part of the development of a strong internal control system in your office. You know that the office is small in terms of personnel, which does create
> You’re having a tough time figuring out why your actual cash is always coming up less than the amount the general ledger says should be there. You would hate to think that any of your employees would be stealing from you because they have all been with y
> Indicate by letters the type of fraud committed: Check tampering (CT) Cash register scheme (CR) Expense scheme (E) Bribe (B) Fraudulent financial reporting (F) Here is an example: CT Employee writes a fraudulent check, making it payable to herself. ____
> Peterson purchased land having a current market value of $110,000, a building with a market value of $88,000, and equipment with a market value of $22,000. Journalize the lump-sum purchase of the three assets purchased for a total cost of $210,000 in exc
> Which of the following is necessary for fraud to occur? a. Rationalization b. Perceived opportunity c. Perceived pressure d. All three are necessary
> Find the Columbia Sportswear Company Annual Report located in Appendix A and go to the section titled “Design and Evaluation of Internal Control Over Financial Reporting” in Item 9A starting on page 694. Now access the 2014 Annual Report for Under Armour
> The annual report of Columbia Sportswear in Appendix A contains much more information than what is reported in the financial statements and related footnotes. In this case, you will explore other information presented in the annual report in order to det
> Roberto needed a summer job and was lucky enough to land a position as a ticket collector at a local amusement park. On his first day, he was assigned to work alongside Suzanne, who had worked at the park for the past two summers. Suzanne explained to Ro
> Can ethics be taught in the college classroom? Why or why not?
> You just finished a telephone conversation with one of your clients, who has decided to expand her business by beginning to offer some merchandise for sale. Previously, the company had only been a consulting business, but now it has an opportunity to sel
> It’s the end of the year, and your warehouse manager just finished taking a physical count of the inventory on hand. Because you are utilizing the perpetual inventory method with a relatively sophisticated inventory software program, you expect that the
> Hasse Landscaping would like to assign the oldest costs of inventory items to its ending inventory. Which inventory costing method should Hasse Landscaping choose?
> Find the Columbia Sportswear Company annual report located in Appendix A, and go to the financial statements starting on page 663. Now access the 2014 annual report for Under Armour, Inc., from the Internet. For instructions on how to access the report o
> This case continues our examination of the financial statements of Columbia Sportswear. In addition to the income statement (statement of operations) and the balance sheet of Columbia Sportswear in Appendix A, you will also be investigating the notes to
> Which depreciation method usually produces the most depreciation expense in the first year? a. Straight-line b. Double-declining-balance c. Units-of-production d. All produce the same amount of depreciation for the first year.
> Susan Hopkins recently went to work for RJ Enterprises as the accounting manager. At the end of the year, Bill Harrison, the CEO, called Susan into his office for a meeting. Mr. Harrison explained to Susan that RJ Enterprises was in the midst of obtainin
> This continues our accounting for Fitness Equipment Doctor, Inc. As stated in the Continuing Problem in Chapter 4, Fitness Equipment Doctor, Inc., began selling gym equipment in June. For this problem, we will focus on the purchases and sales of treadmil
> Let’s look at Dick’s Sporting Goods (Dick’s) some more. Think about Dick’s. Think about accountants reporting what Dick’s has, where it got its money, and what it has been doing to create value. Is Dick’s earning net income or loss? What resources did Di
> This exercise continues the Sensations Salon, Inc., exercise begun in Chapter 1. Consider the June transactions for Sensations Salon presented in Chapter 4. (Cost data has been removed from the sale transactions.) Requirements 1. Prepare perpetual i
> The following is selected data for Patina Industries: Requirements 1. Calculate the return on assets (ROA) and the fixed asset turnover ratio for Patina Industries for 2015 and 2016. Round your answers to two decimal places. 2. Have the ratios impro
> O’Malley Resources, Inc., balance sheet includes three assets: Natural Gas, Oil, and Coal Reserves. Suppose O’Malley Resources, Inc., paid $1,700,000 cash for the right to work a mine with an estimated 75,000 tons of coal. Assume the company paid $64,500
> The Log Cabin Cafe acquired Hungry Boy Diners. The financial records of Hungry Boy Diners included: Requirements 1. Make the journal entry to record The Log Cabin Cafe’s purchase of Hungry Boy Diners for $325,000 cash, including any goodwill. 2. How
> Ferguson Industries had a piece of equipment that cost $49,000 and had accumulated depreciation of $45,000. Requirement 1. Record the disposition of the equipment assuming the following independent situations: a. Ferguson discarded the equipment receiv
> Osborne Organic Foods, Inc., has the following information for the years ending December 31, 2016 and 2015: Requirements 1. Compute the rate of inventory turnover for Osborne Organic Foods, Inc., for the years ended December 31, 2016 and 2015. Round
> On January 4, 2016, Crux Systems, Inc., paid $281,200 for equipment used in manufacturing automotive supplies. In addition to the basic purchase price, the company paid $2,800 transportation charges; $1,100 insurance for the equipment while in transit; $
> What is depreciation, and why is it used in accounting?
> The comparative financial statements of Appleway Flowers, Inc., for 2016, 2015, and 2014 include the following selected data: Requirements 1. Compute these ratios for 2016 and 2015: a. Quick ratio b. Current ratio c. Accounts receivable turnover; as
> Casey’s Marine Supply, Inc., lost its entire inventory in a hurricane that occurred on March 31, 2016. Over the past five years, gross profit has averaged 35 percent of net sales. The company’s records reveal the following data for the month of March:
> Brown Freightway provides freight service. The company’s balance sheet includes Land, Buildings, and Motor-Carrier Equipment. Brown Freightway uses a separate accumulated depreciation account for each depreciable asset. During 2016, Brown Freightway comp
> Record the following transactions in the journal of Sounds on Wheels, Inc. Explanations are not required. Use a 360-day year for interest computations and round to the nearest dollar.
> Savemore Supply, Co., shows the following financial statement data for 2014, 2015, and 2016 Prior to issuing the 2016 statements, auditors found that the ending inventory for 2014 was overstated by $4,000 and that the ending inventory for 2016 was un
> Zenith Manufacturing incurred the following costs in acquiring land, making land improvements, and constructing and furnishing a new building. Zenith Manufacturing depreciates buildings over 35 years, land improvements over 15 years, and furniture ov
> The KJ Auto Sales, Inc., received the following notes during 2016: Requirements 1. Identifying each note by number, compute the total interest on each note over the note term using a 360-day year, and determine the due date and maturity value of eac
> Due to a nationwide recession, Computer World, Inc.’s merchandise inventory is gathering dust. It is now October 31, 2016, and the $66,800 that Freeze It Corp., paid for its ending inventory is $2,300 higher than current replacement cost. Before any adju
