Question

Jones Corporation is a company that makes accounting software programs. You are a senior accountant at Jones Corporation. Your job is to create internal reports for management. The Chief Operating Officer (COO), Patty Mccoy received your latest report. While she feels that the report is informative, there are several things that do not make sense to her. Her concerns are below:

Jones Corporation distributed $60,000 of cash dividends in the year 2017. Jones Corporation distributed its last dividend in 2014, so the issuance of such a large dividend is newsworthy. Its outstanding common stock has a par value of $400,000 and its 6% cumulative preferred stock has a par value of $100,000 at the end of 2017. As a common stockholder, the COO expected the preferred shareholders to receive $6,000 and the common shareholders to receive the remaining $54,000. The COO does not understand why the common shareholders will not receive $54,000.

The company bought back 3,000 shares of its $50 par value common stock for $180,000 in August 2017. The company also had a year over year reduction in stockholder’s equity. The COO would like to know why stockholder’s equity declined.

The company had net income of $100,000 for the year 2017. The ending balance of the cash account for 2017 was $150,000. She does not understand the difference between the cash account and net income. The COO also questions why Jones Corporation only declared $50,000 in dividends if the company had a net income of $100,000 and a cash balance of $150,000.

The COO noticed that a report mentioned a prior period error. She wonders why Jones Corporation did not reissue financial statements to account for the $10,000 overstatement of depreciation expense. She would also like to understand the process for recording prior period adjustments.

The COO does not understand the difference between earnings per share and return on equity. She would specifically like to know why shareholder’s care about these metrics… why do investors care about these metrics?

The COO would like to know the ending retained earnings balance assuming retained earnings had a $230,000 balance at the beginning of 2017. She does not remember what statement to look for this information. She would like for you to tell her which financial statements have the retained earnings balance and explain the calculation of retained earnings.

You are to write a memorandum to the COO that addresses her concerns and questions. Be sure to use the APA format for your memo. The memo should be at least one page, but no greater than two pages in length.

Answer 1