ACC305 Wk 1 Assignments - E3-18, E3-20, JCase 3-5
ACC305 Wk 1 Assignments - E3-18, E3-20, JCase 3-5
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Date Created: 01/09/16
E3-18 (Page 152) The current asset section of the Excalibur Tire Company’s balance sheet consists of cash, marketable securities, accounts receivable, and inventories. The December 31, 2011, balance sheet revealed the following: Required: Determine the following 2011 balance sheet items: 1. Current assets 2. Shareholders’ equity 3. Noncurrent assets 4. Long-term liabilities Exercise 318 1. Acidtest ratio = Quick assets ÷ Current liabilities = .20 Quick assets = Current assets Inventories Quick assets = Current assets $840,000 Current assets ÷ Current liabilities = 2.25 Current assets $840,000 ÷ Current liabilities = .20 $840,000 ÷ Current liabilities = 1.05 Current liabilities = $800,000 Current assets ÷ $800,000 = 2.25 Current assets = $1,800,000 2. Debt to equity ratio = Total liabilities ÷ Shareholders’ equity = 1.8 Total liabilities + Shareholders' equity = Total assets Total liabilities + Shareholders' equity = $2,800,000 Let x equal shareholders' equity 1.8 x + x = $2,800,000 x = $1,000,000 = Shareholders' equity 3. Noncurrent assets = Total assets Current assets Noncurrent assets = $2,800,000 – 1,800,000 = $1,000,000 4. Longterm liabilities = Total assets Current liabilities Shareholders' equity Longterm liabilities = $2,800,000 800,000 1,000,000 = $1,000,000 E3-20 (Page 152) Most decisions made by management impact the ratios analysts use to evaluate performance. Indicate (by letter) whether each of the actions listed below will immediately increase (I), decrease (D), or have no effect (N) on the ratios shown. Assume each ratio is less than 1.0 before the action is taken. Exercise 320 Current Acidtest Debt to Action Ratio RatioEquity Ratio 1. Issuance of long-term bonds I I I 2. Issuance of short-term notes I I I 3. Payment of accounts payable D D D 4. Purchase of inventory on account I D I 5. Purchase of inventory for cash N D N 6. Purchase of equipment with a 4-year note N N I 7. Retirement of bonds D D D 8. Sale of common stock I I D 9. Write-off of obsolete inventory D N I 10. Purchase of short-term investment for cash N N N 11. Decision to refinance on a long-term basis some currently maturing debt I I N Judgment Case 3-5(Page 161) You recently joined the internal auditing department of Marcus Clothing Corporation. As one of your first assignments, you are examining a balance sheet prepared by a staff accountant Required: Identify and explain the deficiencies in the statement prepared by the company’s accountant. Include in your answer items that require additional disclosure, either on the face of the statement or in a note. Judgment Case 35 DEFICIENCIES: 1. Accounts receivable if material, the allowance for uncollectible accounts should be disclosed. 2. Note receivable only the interest receivable of $3,000 should be classified as a current asset. The $50,000 note receivable should be classified in the noncurrent Investments category. 3. Inventories the method used to cost inventory should be disclosed in a note. 4. Investments should be classified in the noncurrent Investments category. Also, disclosures include information about the types of investments and the accounting method used to value the investments. 5. Prepaid expenses in the absence of information to the contrary, should be classified as a current asset. 6. Land should be classified in the noncurrent Investments category. 7. Equipment, net should be classified in the Property, plant, and equipment category. Original cost should be disclosed along with the accumulated depreciation to arrive at the net amount. Also, the method used to compute depreciation should be disclosed in a note. 8. Patent should be classified in the Intangible assets category of noncurrent assets. 9. Note payable $20,000, the next installment, should be classified as a current liability as current maturities of longterm debt. Also, note disclosure is required for the note and bonds payable that provides information such as payment terms, interest rates, and collateral pledged as security for the debt. 10. Interest payable should be classified as a current liability. 11. Common stock the par value, if any, and the number of shares authorized, issued and outstanding should be disclosed.
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