What consist in the annual reports and discuss its financial implications
misc4sales
acctg_work_part_2.xlsxAnswer
| For Luv company, it is a capital lease. The following tests are met: | Lease payments | $18,000 | ||||
| PV of annuity due i=10%, n=5 years | 4.16987 | |||||
| It has a bargain-purchase option. | Present value of lease payments | $75,057.66 | ||||
| Economic test (75%): The lease term (5 years) is greater than 75% than the economic life of the leased equipment (5 years). The economic test in this case is 100%. | ||||||
| Recovery test (90%): The present value of the lease payments (present value annuity factor for n=5 years, i=10% is 4.16987. You can use present value annuity tables to find this factor): | Bargain option | $4,000 | ||||
| PV of i=10% , n =5 years | 0.621 | |||||
| $18,000 (annual lease payment) x 4.16987 (present value annuity factor) = 75,058, which is 107% of the fair value ($75,058 / $70,000 = 107%) | Present value of the bargain option | $2,484 | ||||
| For Soap Company, because there is a bargain-purchase option and payments are guaranteed without much uncertainty of payment, it is also an operating lease. However, because the fair value of the lease is $70,000, and the present value of the lease payments is $75,000—which is greater than the fair value of $70,000—it is a sales-leaseback lease. | Present value of lease payments | $75,057.66 | ||||
| Present value of bargain option | $2,484 | |||||
| Prepare the amortization schedule for Luv Company for the 5-year term: | Total lease liability | $77,541.66 | ||||
Phase 4 and 5 IP Part 1A
| PART 1A: Explain to Craig the following: | |||||||||
| As you show the depreciation computations, be sure to show your work. | ABC depreciation: | ||||||||
| Straight-line depreciation: | (show your work) | The journal entry to record the sale would be the following: | |||||||
| Annual depreciation | Accumulated depreciation Dr | ||||||||
| Cash Dr | |||||||||
| Sum-of-years method | (show your work) | Loss on sale of machine Dr | |||||||
| Year 1 depreciation = $ | Machine Cr | ||||||||
| Year 2 depreciation = | |||||||||
| Year 3 depreciation = | If the machine was sold for $10,000, what will the entry be? | ||||||||
| Year 4 depreciation = | Accumulated depreciation Dr | ||||||||
| Cash Dr | |||||||||
| Double-declining method | (show your work) | Gain on sale of machine Cr | |||||||
| Year 1 depreciation = | Machine Cr | ||||||||
| Year 2 depreciation = | |||||||||
| Year 3 depreciation = | ABC trade-in journal entry: | ||||||||
| Year 4 depreciation = | Accumulated depreciation Dr | ||||||||
| New model Dr | |||||||||
| Units of production | (show your work) | Cash Cr | |||||||
| Year 1 depreciation = | Old machine Cr | ||||||||
| Year 2 depreciation = | Gain on exchange Cr | ||||||||
| Year 3 depreciation = | |||||||||
| Year 4 depreciation = | |||||||||
1) Why it is it important to distinguish between expenses that need to be capitalized and expenses that need to be expensed. 2) What the underlying fundamental concept is that governs what expenses should be capitalized and what should be expensed. 3) Give an example of a company that experienced financial difficulty because of capitalizing expenses that should have been expensed. Answer these questions here:
Phase 4 and 5 IP Part 1B
| PART 1B: |
| Research the annual reports of various companies to find examples of the following, and explain the meaning of your findings to Craig: |
| Equity securities: Find a company that has investments and equity securities listed on its balance sheet. |
| Cite the source of the statement(s). |
| Look at the footnotes to the financial statements and comment on its holdings in equity securities. |
| Explain how this information is used by an investor. |
| Equity securities: One company’s 2003 Annual Report: Equity Security Annual Report |
| Cumulative effect: This has an impact on shareholders equity. Find a company that has an impact on their financial statements because of cumulative effect. |
| Cite the source of the statement(s). |
| Explain its footnotes. |
| Explain how this information is used by an investor. |
| Cumulative effect: One company’s 2003 Annual Report: Cumulative Effect Annual Report |
| Leases: Find a company that has leases. |
| Cite the source of the statement(s). |
| Examine its footnotes. See if it has capital leases or operating leases. What is the difference in the presentation in the financial statements? Provide an explanation of the notes to financial statements about leases. |
| Leases: One company’s 2009 Annual Report: Leases Annual Report |
| Answer the questions below: |
Phase 5 Part 2
| Phase 5 Part 2: | ||
| Identify, analyze, and record accounting error corrections. | ||
| Find a company that has accounting changes or correction of errors in its annual report. | ||
| Cite the source of the statement(s). | ||
| Discuss the footnote that explains the accounting change. | ||
| Explain the net impact on the financial statements. | ||
| Answer below: | ||
| ABC company depreciation: | ||
| Prepare the entry to correct the prior year’s depreciation. | ||
| Answer is an entry necessary for the prior year's depreciation? Answer "Yes" or "No" and explain your answer below. | ||
| Prepare the entry to record the depreciation for 2011. | ||
| How much is annual deprecation based on cost of $300,000, residual value of $50,000 and 5 years useful life? | ||
| Remember Cost, less residual value divided by number of years. | ||
| Show your calculation and result: | ||
| After 2 years, how much depreciation expense has been taken? Show your work. | ||
| Show your calculation and result: | ||
| Calculate the new annual depreciation amount based on the changes of useful life of 10 years total and salvage value of $5,000. | ||
| What is the annual entry for depreciation based on the changes? | ||
| Depreciation expense Dr | ||
| Accumulated depreciation Cr |
Phase 5 IP Part 2
| Phase 5 | |||||||||||
| Part 2A: | |||||||||||
| Analyze the financial statements of the company that you have already selected in Part 1 for intercompany and intracompany transactions. | |||||||||||
| Why do you think it is important to make entries to eliminate intercompany transactions? | |||||||||||
| What is the difference between intercompany and intracompany transactions? | |||||||||||
| Enter answers below: | |||||||||||
| Part 2B: | |||||||||||
| You just got hired to work as an accountant in the consolidations department of a multinational firm. | |||||||||||
| Your boss comes to you and wants to see how much knowledge you have on consolidations. | |||||||||||
| He says, “I want you to prepare a report explaining the steps that go into preparing consolidated income statements and balance sheets.” | |||||||||||
| Please prepare the report for your boss below. | |||||||||||
| Part 2C | |||||||||||
| Entry on ABC books: | |||||||||||
| Cash Dr | |||||||||||
| Sales Cr | |||||||||||
| Cost of goods sold Dr | |||||||||||
| Inventory Cr | |||||||||||
| Entry on XYZ books: | |||||||||||
| Inventory Dr | |||||||||||
| Cash Cr | |||||||||||
| Intercompany entry: | |||||||||||
| Sales Dr | |||||||||||
| Cost of goods sold Cr | |||||||||||
| Inventory Cr | |||||||||||
| Explain how failure to record this intercompany transaction will impact the consolidated financial statement. | Answer below: |
List the steps to prepare a consolidated income statement:
List the steps to prepare a consolidated balance sheet:
