ACC-02

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1.This is a group discussion, to be completed in a group discussion forum.

Prompt:

Answer the following question:

Describe LIFO as an Inventory Method. Discuss the differences in accounting for LIFO under:

· U.S. GAAP

· IFRS

· IRS

Compose an initial response that is one or two paragraphs long. In your response, please indicate where you found the relevant information by citing the appropriate sections or pages in the textbook.

2.Analyzing Transactions Using the Financial Statement Effects Template Hanlon Advertising Company began the current month with the following balance sheet.

Cash	$ 80,000	Liabilities	$ 70,000
Noncash assets	135,000	Contributed capital	110,000
		Earned capital	35,000
Total assets	$215,000	Total liabilities and equity	$215,000

Following are summary transactions that occurred during the current month.

1. The company purchased supplies for $10,000 cash; none were used this month.

2. Services of $5,000 were performed this month on credit.

3. Services were performed for $20,000 cash this month.

4. The company purchased advertising for $16,000 cash; the ads will run next month.

5. The company received $2,400 cash as partial payment on accounts receivable from transaction 2.

6. The company paid $6,800 cash toward the accounts payable from the prior month.

7. Paid $6,200 cash toward this month's wages expenses.

8. The company declared and paid dividends of $1,000 cash.

(a) Record the effects of each transaction using the financial statement effects template.

	Balance Sheet
Transaction	Cash Asset	+	Noncash Assets	=	Liabilities	+	Contributed Capital	+	Earned Capital
Beginning bal.	Answer		Answer		Answer		Answer		Answer
1	Answer		Answer		Answer		Answer		Answer
2	Answer		Answer		Answer		Answer		Answer
3	Answer		Answer		Answer		Answer		Answer
4	Answer		Answer		Answer		Answer		Answer
5	Answer		Answer		Answer		Answer		Answer
6	Answer		Answer		Answer		Answer		Answer
7	Answer		Answer		Answer		Answer		Answer
8	Answer		Answer		Answer		Answer		Answer
Ending balance	Answer		Answer		Answer		Answer		Answer

Income Statement
Revenue	-	Expenses	=	Net Income
Answer		Answer		Answer
Answer		Answer		Answer
Answer		Answer		Answer
Answer		Answer		Answer
Answer		Answer		Answer
Answer		Answer		Answer
Answer		Answer		Answer
Answer		Answer		Answer
Answer		Answer		Answer
Answer		Answer		Answer

(b) Prepare the income statement for this month and the balance sheet as of month-end.

Hanlon Advertising Company Income Statement
Sales revenue	$Answer
Total expenses (enter as a positive)	Answer

Net income	$Answer

Hanlon Advertising Company Retained Earnings Reconciliation
	Common Stock
Retained earnings. beginning of month	$Answer
Net income	Answer
Dividends (enter as a negative)	Answer

Retained earnings. end of month	$Answer

Hanlon Advertising Company

Balance Sheet

Cash	$Answer
Noncash assets	Answer



Total assets	$Answer

Liabilities	$Answer

Contributed capital	Answer
Retained earnings	Answer

Total equity	Answer
Total liabilities and equity	$Answer

Bottom of Form

Question 3.

Top of Form

Reconciling and Computing Operating Cash Flows from Net Income Petroni Company reports the following selected results for its current calendar year.

Net income	$195,000
Depreciation expense	37,500
Accounts receivable increase	15,000
Accounts payable increase	9,000
Prepaid expenses decrease	4,500
Wages payable decrease	6,000

(a) Prepare the operating section only of Petroni Company's statement of cash flows for the year. Hint: Remember to use negative signs with answers when appropriate.

Petroni Company Statement of Cash Flows (operating section)
Operating activities
Net income		$Answer
Adjustments to reconcile net income to operating cash flow
Depreciation	Answer
Changes in operating assets and liabilities
Accounts receivable	Answer
Prepaid expense	Answer
Accounts payable	Answer
Wages payable	Answer	Answer
Net cash provided from operating activities		$Answer

(b) Which of the following statements best describes the sign (positive or negative) on depreciation expense?

The sign on depreciation is positive because depreciation lowers the tax liability of the company. A decrease in tax liability generates an increase in net income since less tax is paid.

The sign on depreciation is positive because the computation of net income included a noncash depreciation expense. The noncash expense is removed by adding depreciation.

The sign on depreciation is negative because expenses are always subtracted from net income in cash flow statements to reflect the true amount of cash generated from operating activities.

The sign on depreciation is negative because cash is paid for equipment used in operations that are not yet reflected in the cost of goods sold. This increase in the cost of goods sold is subtracted from net income.

(c) Which of the following statements best describes the reason that accounts receivable is listed on the statement of cash flows?

An increase in accounts receivable means Sales have also increased. Sales are an increase in cash and contribute a positive cash flow. Therefore, an increase in accounts receivable is listed on the cash flow statement as a positive adjustment to net income.

An increase in accounts receivable means more cash has been received than has been reported in Sales. This surplus is an increase in cash and contributes a positive cash flow. Therefore, an increase in accounts receivable is listed on the cash flow statement as a negative adjustment to net income.

An increase in accounts receivable means less cash has been received than has been reported in Sales. This deficit is a decrease in cash and contributes a negative cash flow. Therefore, an increase in accounts receivable is listed on the cash flow statement as a negative adjustment to net income.

An increase in accounts receivable means Sales have also increased. Sales have increased, but cash has not yet been received. Therefore, an increase in accounts receivable is listed on the cash flow statement as a negative adjustment to net income.

(d) Which of the following statements best describes the reason that prepaid expense is listed on the statement of cash flows?

Since prepaid expense is an asset, a decrease in prepaid expense means assets have decreased causing cash to decrease. This contributes a negative cash flow. Therefore, a decrease in prepaid expense is listed on the cash flow statement as a negative adjustment to net income.

Since prepaid expense is a liability, a decrease in prepaid expense means liabilities have decreased causing cash to increase. This contributes a positive cash flow. Therefore, a decrease in prepaid expense is listed on the cash flow statement as a negative adjustment to net income.

Prepaid expense is an asset because Cash had been paid, but the expense had not yet been realized. A decrease in this asset means an expense has been recognized in the current period, decreasing net income, but not affecting cash. Therefore, decrease in prepaid expense is listed on the cash flow statement as a positive adjustment to net income.

Prepaid expense is a liability because expense has been realized, but Cash has not yet been paid. A decrease in liabilities leads to an increase in Cash and positive cash flow. Therefore, a decrease in prepaid expense is listed on the cash flow statement as a positive adjustment to net income.

2. Reconciling and Computing Operating Cash Flows from Net Income Petroni Company reports the following selected results for its current calendar year.

Net income	$195,000
Depreciation expense	37,500
Accounts receivable increase	15,000
Accounts payable increase	9,000
Prepaid expenses decrease	4,500
Wages payable decrease	6,000