Topic 3-2 Accounts Receivable Problem:

Receivables Forever Corp. started business on January 1, 20x3. The following information is provided about its sales during its first two years of operations.

[Hint: Companies can also use % of sales method to estimate bad-debt expense provision directly, instead of using aging schedule which estimate the ending allowance balance to back out bad-debt expense provision. For example, suppose the company estimate that 1% of the reported sales as bad-debt expense provision, then the ending balance would follow as beginning balance + bad-debt expense provision - write-offs.]

Year 20x3

During its first year of operations, 20x3, it had sales of $100,000. All sales were on credit. At the time that the sales were made, it was expected that 5% of the sales would be uncollectible. It collected $75,000 of the 20x3 sales during 20x3 and another $18,000 of the 20x3 sales during 20x4. It wrote off $3,000 of the 20x3 sales during 20x3 and $1,000 of the 20x3 sales during 20x4.

Year 20x4

During its second year of operations, 20x4, it had sales of $200,000. All sales were on credit. At the time that the sales were made, it was expected that 5% of the sales would be uncollectible. It collected $168,000 of the 20x4 sales during 20x4 and another $20,000 of the 20x4 sales during 20x5. It wrote off $8,000 of the 20x4 sales during 20x4.

20x4 year-end aging analysis

At year-end at 20x4, the company performed an aging analysis of existing accounts receivable calculation and found that the Allowance for Uncollectible Accounts account should have an ending balance of $6,000. It proceeded to make with the appropriate adjustment to Allowance and bad-debt expense accounts at the end of 20x4.

Questions:

1. Fill in the following account details for the Allowance for Uncollectible Accounts

2. 
   Fill in following balance sheet and income statement presentation for respective year

Reconciliation from IFRS to GAAP

You are the CFO for Mills company (reporting using IFRS) and must reconcile your financial statements for the years ending 2008, 2009, and 2010 to U.S. GAAP (The Income Statement and Statement Stockholders’ Equity). Youhave identified the following 5 areas where there are differences between IFRS and U.S. GAAP at various dates.  Be sure to consider the cumulative effects of prior year transactions for each year.

Intangible Assets

As part of a business combination in January 2004, the company acquired a brand for $15,000,000.  The brand is classified as an intangible asset with a 15 year useful life.  At year-end 2008, the brand is determined to have a selling price of $8,000,000 with zero cost to sell.  Expected future cash flows from continued use of the brand are $13,000,000 (undiscounted) and the present value of future cash flows is 9,000,000

Research and Development Costs

The company incurred research and development costs of $2,000,000 in 2008.  Of this amount, 70% related to development activities subsequent to the point at which criteria had been met that an intangible asset existed.  The development costs were completed at the end of 2008 and will be amortized over 10 years beginning 2009.

Property Plant and Equipment

On January 1, 2009 a building that had an original cost of $20,000,000 and (Purchase date January 1 2001) and was being depreciated over 20 years was determined to have a fair value of $15,000,000.   The company uses the revaluation model for such assets.

Sale Leaseback

On January 1, 2006 the company realized a gain on a sales leaseback of $6,000,000.  The term of the lease (starting the date of the sale) is 15 years.

Case Study: Not Easy Being Indie
Tough time to be in the retail music business. That wasn’t always the case as chains such as
Sam Goody’s and Tower Records competed side by side with thousands of independent record
stores. Back in the day, one of the best independents was Millennium Music in Charleston,
South Carolina—perennially winning awards for best CD store and best store staff. But things
change.
Millennium Music owner Kent Wagner had done everything possible to fight the changing tide
brought on by the rise of digital music: At the apex of the business, Wagner owed seven stores,
but for seven straight years, Millennium had suffered double-digit revenue declines. We always
thought of ourselves as a community center, a meeting place,” says Wagner. “We knew the
industry was in decline, but we thought we were different.”
It turned out Millennium wasn’t different. And Wagner and his business partner, Clayton
Woodson, soon faced a stark choice: fold up the business completely and walk away, or attempt
to transform it into something entirely different. The once-hot business had but one glowing
ember left: a small but growing online trading business that allowed customers to exchange
used CDs, DVDs, and books for electronics—iPods and the like. Millennium was able to make
money by reselling the used merchandise on Amazon, eBay, and other sites.
Millennium was launched by Wagner in 1994 with the focus of creating a thinking person’s
music store. Their competitive advantage was based on an inventory of hard-to-find records
with large classical and jazz sections and stellar customer service. Millennium would make
music connoisseurship friendly and accessible.
In the early years, that philosophy worked well, and revenue grew some 20 percent annually.
At its peak, Millennium generated sales of about $10 million annually. Live bands played
regularly, Millennium hosted a live-jazz happy hour, and they held book readings. Wagner
opened a restaurant and a bar and expanded to book sales and DVD rentals.
But the seismic industry shifts that put Sam Goody’s, Tower Records, and many others out of
business started catching up to Millennium. As the years rolled by, the losses mounted.
Wagner’s empire was hemorrhaging, and he was soon ready to try anything. In 2006, he turned

2

for help to his marketing director, Clayton Woodson, whose eclectic background included
making furniture, teaching first grade at a charter school in New York, and teaching acrobatic
yoga. “Clayton tends to see looking at the abyss as a growing experience,” says Wagner. “I’m
the opposite.”
That glowing ember of Millennium’s business—the used-CD section—gave Woodson an idea.
Customers often came in hoping to exchange their old CDs for store credit. What if Millennium
could formalize the process to entice additional customers by offering to trade iPods for used
CDs? In the summer of 2005, he persuaded Wagner to give the idea a try. Woodson soon had
another insight: Buying a used CD online was actually cheaper than buying an MP3 album
through iTunes. If Millennium moved its iPod trading program online, it could collect discs
from across the globe, profitably resell them online, and still undercut iTunes’s prices.
Millennium launched FeedYourPlayer.com in 2006. Traffic soared from a few hundred visitors
per week to more than 15,000. New customers were soon mailing in more than 6,000 items a
week. By 2007, the online exchange brought in $400,000 of Millennium’s $1.7 million
revenue. FeedYourPlayer’s performance was heading in the exact opposite direction of
Millennium’s lone remaining store. In its last full year of operation, the store lost nearly $1
million. In September 2007, Wagner called a company meeting with his 25 or so remaining
employees. He delivered the news that many had already foreseen. The retail business was
dying. The future was online. The store would remain open, but resources would be put toward
building FeedYourPlayer.
Employees were still upset even if they had seen the changes coming. Millennium’s music
buyer quit when he realized the emphasis would be peddling used CDs rather than fresh
releases. Wagner understood his employees’ anguish. He says, “staff members were
accustomed to being tastemakers.” Wagner felt the confliction himself. He clung to the hope
that the huge changes might save the store. “When you spend so much of your energy fighting
against the blindingly obvious,” says Wagner, “you can lose your focus on the big picture.”

Required:
1.
a. Using the strategic planning process discussed in class, describe three core
problems to be solved by Millennium?
b. Explain four potential alternative solutions to the problems identified?

Firm X has a new promotional program that offers a free gift-wrapping service for its customers. Its customer-service department has practical capacity to wrap 5,000 gifts at a budgeted fixed cost of $4,950 each month. The budgeted variable cost to gift-wrap an item is $0.35. During September 2020, the department budgeted to wrap 4,500 gifts. Although the service is free to customers, a gift-wrapping service cost allocation is made to the department where the item was purchased. The customer-service department reported the following for the month:

(27-1) Using the single-rate method, allocate gift-wrapping costs to different departments in these three ways (7 points):

  (27-1-a). Calculate the budgeted rate based on the budgeted number of gifts to be wrapped and allocate costs based on the budgeted use (of gift-wrapping services).

    (27-1-b). Calculate the budgeted rate based on the budgeted number of gifts to be wrapped and allocate costs based on actual usage.

    (27-1-c). Calculate the budgeted rate based on the practical gift-wrapping capacity available and allocate costs based on actual usage

(27-2) Using the dual-rate method, compute the amount allocated to each department and the budgeted rate is based on capacity. (3 points)

(27-3) Comment on your results in (26.1) and (26.2). Discuss the differences, advantages, and disadvantages of the single-rate method and dual-rate method. (6 points)

A cable company offers two basic packages: sports and kids, and a combined package. There are three different types of users: parents, sports fans, and generalists. Assume that the cable company cannot discriminate among the three groups and must charge all customers the same price. The following table shows the maximum price that each type of consumer is willing to pay for each package. Sports Package Kids Package Parents 10 50 Sports fans 50 10 Generalists 40 40

If the cable company sells the packages separately, how much price should it charge for each package? What will be total revenue? What will happen if this price is slightly raised?

b. Rather than raising the single package price to increase revenue, suppose now the firm opts to offer mixed bundling where the customers can buy either a single package or a bundled package. Show that the cable company will earn a higher revenue with mixed bundling than the single pricing method in part a.

Auditing is a valuable skill in accounting and business, as the odds are very high that you or your organization will be subject to a compliance, federal, IRS, internal, government, or revenue audit at one point in your career. Accountants are required to make professional judgments on both the financial accounting issues and internal accounting forecasts within their organization. The auditor must provide fair, unbiased, materially correct information for investors, employers, employees, and independent stakeholders. This course will help you navigate the relevant processes to provide that unbiased, accurate information.

The purpose of the assessment is to familiarize you with the process of auditing and what to do with the auditing information once you have it. You will explore how to plan audit work, analyze financial statements, perform tests on that information, and properly and professionally communicate the results of an audit.

For this assessment, you should assume you are on the internal audit staff of a publicly traded company. Choose one of the following companies: Walmart, Target, Sears, Kroger, or Amazon. You will be required to obtain the last two years’ worth of financial statements and a recent audit report. The internal audit group at the company is tasked with preparing for an upcoming revenue audit and analyzing the business risk internally to mitigate audit findings. You will conduct an internal audit of the company using the information gathered and create a report. Then, you will prepare appropriate memos analyzing the audit report you have prepared, while offering feedback and recommendations.

For Milestone One, you will submit a draft of the procedures and field work required for conducting your audit process. Describe how you would conduct the audit process for the company you have chosen, including the analytical procedures you would use to investigate selected business transactions. Explain the appropriate field work needed to review high-risk business transactions for cash and revenue, and create a test to assess appropriate assertions for designated high-risk business transactions.

Prompt: Outline the field work and procedures that will be involved in conducting the internal audit report and explain how you intend to communicate your findings. Create a test to assess appropriate assertions for designated high-risk business transactions.

Specifically, the following critical elements must be addressed:

A. Describe how you would conduct the audit process, incorporating the analytical procedures you would use to investigate selected business transactions.

1. What steps will you take to review the company’s business transactions?

2. What would your plan be to utilize these procedures?

B. Explain the appropriate field work needed to review high-risk business transactions for cash and revenue.

1. What would you need to do in the field to investigate these?

2. Could you convey this information through charts or other supporting documentation?

C. Create a test to assess appropriate assertions for designated high-risk business transactions.

Guidelines for Submission: Your paper must be submitted as a 3–4-page Microsoft Word document with double spacing, 12-point Times New Roman font, oneinch margins, and at least three sources cited in APA format.

1. Explain how each of the following events would affect the aggregate demand curve.
a. Lower interest rates (5 points)
b. A decrease in net exports (5 points)
c. A decrease in the price level (5 points)
d. Slower income growth in other countries (5 points)
e. A decrease in imports (5 points)

2. Explain how each of the following events would affect the long-run aggregate supply curve.
a. A lower price level (5 points)
b. A decrease in the labor force (5 points)
c. A decrease in the quantity of capital goods (5 points)
d. Technological change (5 points)
e. An unexpected decrease in the price of an important raw material (5 points)

3. Starting from long-run equilibrium, use the basic aggregate demand and aggregate supply diagram to show what happens in both the long run and the short run when there is a decline in wealth. (10 points)

4. Beginning with long-run equilibrium, use the aggregate demand and aggregate supply model to illustrate what happens in the short run when the economy suffers a negative supply shock. (10 points)

5. Using the aggregate supply and demand model, illustrate what happens in the long run when the economy suffers a supply shock. Begin your analysis by assuming the economy has suffered the supply shock in the short run, but has not yet adjusted to it in the long run. (10 points)

6. Starting from long-run equilibrium, use the basic aggregate demand and aggregate supply diagram to show what happens in both the long run and the short run when there is an increase in wealth. (10 points)

7. Hurricane Katrina resulted in a decline in oil production infrastructure along the gulf coast. As a result there was an unexpected decline in oil and natural gas supplies in 2005. Suppose that this caused an increase in the price level and a decline in real GDP in 2006. Also assume that potential real GDP continued to grow due to other factors. You can assume the aggregate demand curve did not change. Show the macroeconomic equilibrium for 2005 and 2006 using the dynamic aggregate supply and aggregate demand model.

CAC 510 FINANCIAL ACCOUNTING

Assignment 7 Questions

Case: The 10 Beach Hut by Dana Gillett and Julie Harvey, Richard Ivey School of Business

1. What was Mandy Arlington’s business?

2. What was Mandy Arlington’s brand name?

3. Explain what “sole proprietorship” is.

4. Would you say the idea of sole proprietorship was in line with the vision of the protagonist? Advise Mandy on this issue.

                5. Losses were incurred in the first few years. a. Comment about this.

                b. After how many years was a profit made?

                c. How do you explain the fact that the business made losses for all the years you have indicated and yet was able to survive?

6. In exhibit 2, there is an item “drawings”. Explain its meaning in regard to (1) sole proprietorship and (2) Company

7. Using Exhibit 3;

(a) Explain what is meant by “prepaids.”

(b) Compute the working capital of the business for 2003 and 2004. Explain what your figures mean.

THE 10 BEACH HUT

Upon graduation, a young business school student, Mandy Arlington, decided to follow her dream of becoming a clothing designer. After much thought, she decided to design her own line of beachwear to be sold in beach towns across the province of Ontario in Canada. Arlington would design the clothing and have it produced by a local manufacturer. After researching suppliers, manufacturers, vendors and office locations, Arlington’s clothing line, The 10 Beach Hut, was launched as a sole proprietorship in January of 2001, in time for the upcoming spring season. Operations started slowly and losses were incurred in the first few years; however, by 2004, sales resulted in a profit as demand grew for the 10 beach Hut wear. Selected financial statements for 2003 and 2004 are shown in Exhibits 1, 2 and 3.

Exhibit 1

STATEMENT OF EARNINGS

For the year ending December 31, 2004

Net Sales                                                                            $   296,475

Cost of goods sold                                                                    221,109

Gross profit                                                                                  75,366

Operating expenses

Selling and administration                     $   48,384

Amortization                                                  6,106

Interest                                                        14,115

                                                                                                    68,605

Net income                                                                              $    6,761

Additional note regarding 2004 operations:

The owner made an additional $5,580 capital in October 2004 (see Exhibit 2).

Exhibit 2

STATEMENT OF CAPITAL

For the year ending December 31, 2004

Beginning Capital (2003)                                      $ 45,627

Net income                                                                 6,761

Capital investment                                                      5,580

                                                                                 57,968

Less: drawings                                                           3,283                

Ending capital (2004)                                            $ 54,685

Exhibit 3

BALANCE SHEETS

For the years ending December 31, 2003 and 2004

ASSETS                                       2004                                       2003

Current assets:

Cash                                                   $ 3,939                                                      $ 1,970

Accounts receivable                             73,856                                                        60,726

Inventory                                               65,322                                                        58,100

Prepaids                                                  1,313                                                          1,641

Total current assets                                             $144,430                                                  $122,437                

Fixed assets¹:

Land                                                       16,084                                                       16,084

Building & fixtures                $ 79,764                                  $ 72,543

Less: accum.amortization        20,548     59,216                     14,442                       58,101

Total net fixed assets                                             75,300                                                        74,185

Total assets                                                    $    219,730                                                 $ 196,622

LIABILITIES & OWNER’S EQUITY

Current liabilities:

Bank indebtedness                                          $     32,760                                                  $   23,962

Accounts payable                                                    40,375                                                      31,840

Total current liabilities                                              73,135                                                      55,802

Long-term debt                                                         91,910                                                     95,193    

Total Liabilities                                                          91,910                                                    95,193

Owner’s equity:

Owner, capital                                                           54,685                                                   45,627

Total liabilities and owner’s equity                    $   219,730                                              $   196,622

¹ Several fixed assets worth $7,221 were purchased throughout the year, however, no fixed assets were sold during the year.

Chapter 7, Section 2, Exercise 032

Find the expected count and the contribution to the chi-square statistic for the (B,E) cell in the two-way table below.

Round your answer for the expected count to one decimal place, and your answer for the contribution to the chi-square statistic to three decimal places.

Expected count =

contribution to the chi-square statistic =

1. The firm’s Cash Book showed a Dr. balance of S$7,522 on 31st January 2004. The Bank statement showed a different balance. The following differences were discovered.

1. A cheque of S$364 issued to a creditor was not reflected in the bank statement.
2. Cheques totalling S$147 deposited on 30th January were not credited.
3. Bank paid S$240 to insurance company per standing order.

4. Bank charges, S$86.

5. A cheque of S$132 from K Sly deposited on 27th January was returned unpaid. This was not recorded in the Cash Book.

Questions(Explanation required):

1.Update the Cash Book
2.Prepare a Bank Reconciliation Statement as at 31st January 2004