I thought for this type of question I am supposed to make a chart with the inventory, purchases, sales, etc., but instead, these questions are throwing me off for the little understanding I have on this new topic...

Kayla Company uses the perpetual inventory system and the LIFO method. The following information is available for the month of June:

June 1 Beginning inventory 200 units @ $5

12 Purchase on account 400 units @ $6

15 Sales on account 440 units

23 Purchase on account 300 units @ $7

27 Sales on account 360 units

The selling price (price the company charged the customers) was $10 per unit.

a) Show the calculation of cost of goods sold and ending inventory under LIFO.

b) What is the amount of Sales Revenue?

c) Prepare a journal entry for the sale of inventory on June 15.

d) In which financial statement does the amount of ending inventory appear?

e) In which financial statement do the amount of sales and amount of cost of goods sold appear?

f) What is the amount of gross margin for month June?

g) What is the gross margin percentage?

Homework 2 Statement of Cash flows

Construct a cash flow statement for XYZ Company using the following information

                             XYZ COMPANY

                            BALANCE SHEET

                      DECEMBER 31, 2006, 2007

                   Assets                Liab + equity

                  2006  2007                           2006 2007

Cash              120   150         Acc. payable      200  150

Mkt. Sec          80   100          Notes payable     300 250  

Acc. Rec          360  200          other liab.       100 150

Inventory         340  600

current assets    900  1050         Current liab.     600 550

Gross FA          2200 2400         Long term debt    1000 1200

Acc. Dep          500  600          Common stock      400 250

Net fixed asset   1700 1800         Retained earnings 600  850

Total assets      2600 2850        Total liab.+equity 2600 2850

The firm’s EAT for 2007 was 400

QUESTION 1

A kickback is a payment made by a vendor to employees of a purchasing company for directing business to the vendor.

QUESTION 2

A business diversion is the offering, giving, receiving, or soliciting anything of value to influence an official.

QUESTION 3

When an employee demands a payment demands a payment from a vendor in order to make a decision in that vendor’s favor, it is called an illegal gratuity.

QUESTION 4

Most of conflicts of interest occur because there is an undeclared economic interest in the transaction.

QUESTION 5

The majority of conflicts of interest frauds are involved in purchasing or sales schemes.

QUESTION 6

The Foreign Corrupt Practices Act is a state law in Massachusetts that prohibits conflicts of interest.

QUESTION 7

The Foreign Corrupt Practices Act requires publicly traded corporations to keep accurate books and records and adopt a system of internal controls.

QUESTION 8

Under the Foreign Corrupt Practices Act, the Congress can seek civil penalties of up to $5,000,000 for corporate entities and up to $1,000,000 for individuals who violate the law.

QUESTION 9

Collusion is a secret agreement between two or more people for a fraudulent, illegal, or deceitful purpose such as subverting the internal controls of their employer.

QUESTION 10

A slush fund is a noncompany account into which company money is deposited and from which bribes (illegally) may be paid.

MERGER ANALYSIS Apilado Appliance Corporation is considering a merger with the Vaccaro Vacuum Company. Vaccaro is a publicly traded company, and its current beta is 1.30. Vaccaro has been barely profitable, so it has paid an average of only 20% in taxes during the last several years. In addition, it uses little debt, having a debt ratio of just 25%. If the acquisition were made, Apilado would operate Vaccaro as a separate, wholly owned subsidiary. Apilado would pay taxes on a consolidated basis, and the tax rate would therefore increase to 35%. Apilado also would increase the debt capitalization in the Vaccaro subsidiary to 40% of assets, which would increase its beta to 1.47. Apilado’s acquisition department estimates that Vaccaro, if acquired, would produce the following cash flows to Apilado’s shareholders (in millions of dollars):

Year 1 2 3 4 5 and beyond

Cash Flows $1.30 1.50 1.75 2.00 Constant growth at 6%

These cash flows include all acquisition effects. Apilado’s cost of equity is 14%, its beta is 1.0, and its cost of debt is 10%. The risk-free rate is 8%.

a. What discount rate should be used to discount the estimated cash flows? (Hint: Use Apilado’s rs to determine the market risk premium.)

b. What is the dollar value of Vaccaro to Apilado?

c. Vaccaro has 1.2 million common shares outstanding. What is the maximum price per share that Apilado should offer for Vaccaro? If the tender offer is accepted at this price, what will happen to Apilado’s stock price?

Mastery Problem: Analyzing Transactions

KL Company Inc.

In February, Katie Long formed KL Company Inc. Transactions for the month of March have been posted to the T accounts. An intern has prepared a trial balance from the T accounts, but there seem to be some errors.

T accounts

Required:

Transactions

Descriptions of the transactions for the month of March are provided in the following table. Each of the transactions that follow has been posted to the T accounts. Referring to the T accounts, select the date on which each transaction occurred, enter the amount of the transaction, and select the account to debit and credit.

On November 1, 2017, Kingbird, Inc. had the following account balances. The company uses the perpetual inventory method. Debit Credit Cash $10,800 Accumulated Depreciation—Equipment $1,200 Accounts Receivable 2,688 Accounts Payable 4,080 Supplies 1,032 Unearned Service Revenue 4,800 Equipment 30,000 Salaries and Wages Payable 2,040 $44,520 Common Stock 24,000 Retained Earnings 8,400 $44,520 During November, the following summary transactions were completed. Nov. 8 Paid $4,260 for salaries due employees, of which $2,220 is for November and $2,040 is for October. 10 Received $2,280 cash from customers in payment of account. 11 Purchased merchandise on account from Dimas Discount Supply for $9,600, terms 2/10, n/30. 12 Sold merchandise on account for $6,600, terms 2/10, n/30. The cost of the merchandise sold was $4,800. 15 Received credit from Dimas Discount Supply for merchandise returned $360. 19 Received collections in full, less discounts, from customers billed on sales of $6,600 on November 12. 20 Paid Dimas Discount Supply in full, less discount. 22 Received $2,760 cash for services performed in November. 25 Purchased equipment on account $6,000. 27 Purchased supplies on account $2,040. 28 Paid creditors $3,600 of accounts payable due. 29 Paid November rent $450. 29 Paid salaries $1,560. 29 Performed services on account and billed customers $840 for those services. 29 Received $810 from customers for services to be performed in the future.

Post to the ledger accounts. (Post entries in the order of journal entries presented in the previous part.)

On November 1, 2017, Larkspur, Inc. had the following account balances. The company uses the perpetual inventory method. Debit Credit Cash $10,980 Accumulated Depreciation—Equipment $1,220 Accounts Receivable 2,733 Accounts Payable 4,148 Supplies 1,049 Unearned Service Revenue 4,880 Equipment 30,500 Salaries and Wages Payable 2,074 $45,262 Common Stock 24,400 Retained Earnings 8,540 $45,262 During November, the following summary transactions were completed. Nov. 8 Paid $4,331 for salaries due employees, of which $2,257 is for November and $2,074 is for October. 10 Received $2,318 cash from customers in payment of account. 11 Purchased merchandise on account from Dimas Discount Supply for $9,760, terms 2/10, n/30. 12 Sold merchandise on account for $6,710, terms 2/10, n/30. The cost of the merchandise sold was $4,880. 15 Received credit from Dimas Discount Supply for merchandise returned $366. 19 Received collections in full, less discounts, from customers billed on sales of $6,710 on November 12. 20 Paid Dimas Discount Supply in full, less discount. 22 Received $2,806 cash for services performed in November. 25 Purchased equipment on account $6,100. 27 Purchased supplies on account $2,074. 28 Paid creditors $3,660 of accounts payable due. 29 Paid November rent $458. 29 Paid salaries $1,586. 29 Performed services on account and billed customers $854 for those services. 29 Received $824 from customers for services to be performed in the future.

Prepare a multiple-step income statement for November.

Case Study- Microsoft Solving a Good Problem for a Company to Have (2004)

Strategic Overview:

Microsoft announced at the annual shareholders meeting in November 2002 that, despite having $40 billion in cash on its balance sheet, the company would be taking any substantive measures to distribute the cash to its roughly 4.2 billion shareholders. Microsoft state that the cash was needed to satisfy judgements that could arise from ongoing corporate and private antitrust lawsuits. While the company had a history of buying back its stock, Microsoft had never paid a dividend since going public in 1986. The no dividend policy made sense historically as high-tech, growth companies with high P/E’s, typically don’t issue dividends, but instead elect to plow their profits back into the business. But as of the shareholder meeting, Microsoft’s growth had slowed to about 10 percent annually, from 30 percent or more in the company’s early years, and the stock, as evidenced by its inclusion in the Dow Jones Industrial Average, had begun to look more like a stable blue chip that a high-flying tech issue. The announcement made at the 2002 meeting angered many shareholders. Growth had stagnated and the company was sitting on a pot of cash. It was an efficient business that was generating $1 billion a month in free cash. In a shrinking interest rate environment, Microsoft’s returns on short term investments were insignificant and reduced the firm’s return on equity. The state of affairs led one investor at the meeting to comment, “We need a reason to hold the stock. We need a dividend. We need something.”

Options:

Management was under pressure to act. They could choose between a myriad of options including: 1) Doing nothing, 2) Using the cash to finance acquisitions and expansion, 3) Returning the cash to shareholders by beefing-up the ongoing stock repurchase program, a program that had the company buying back shares at the rate of up to $ 6 billion a quarter, or 4) Returning cash to shareholders by issuing dividends. Given the company had virtually no debt (see below), share repurchase appeared to be an efficient way to solve the problem. Buybacks are tax efficient to individua investors and protect shares from dilution due to option exercise. Unlike repurchases, investors assume that dividends payments, once begun, will continue indefinitely.

Decision:

In mid-January of 2003, three months after the November 2002 shareholder meeting, the company surprised the investment community by announcing its first-ever annual cash dividend of 8 cents per share (2 cents per quarter). The dividend represented a total outlay of more than $850 million which translated into just over a quarter of 1 percent of the share price. While the dividend made big news, it was met with criticism that the dollar amount was insignificant. Following the announcement speculation immediately rose over Microsoft’s change in philosophy. One suggested reason for the dividend was President Bush proposed tax reform plan which would exempt shareholders from income tax on dividends (later changed to a 0.15 tax rate). Another possible reason, and the one that Microsoft stated publicly, is that many of the company’s legal risks are largely behind them. The company settled with the Justice Department and many private antitrust claimants and has made progress with the European Union.

Shareholder Reaction and Company Update:

Microsoft’s stock price dropped about $4 or 7% the day following the dividend announcement. This was partially attributable to the relatively weak outlook for the current quarters, but the falling price was likely an indication that some investors concluded that Microsoft had exhausted its growth options and the future looked uncertain. Despite the dividend payments and despite the stock buy back, Microsoft continued to increase its cash balance. In July of 2004, the company announced it would issue a special cash dividend of $3 per share payable on December 2, 2004. With almost 11 billion shares outstanding, the special dividend would return almost $33 billion in cash to shareholders. In July of 2004, the company also announced that it would begin to pay a regular quarterly dividend of $0.08 per quarter. The move represented a doubling of the dividend – the second time the dividend had doubled since the initial dividend issuance. But even with the latest doubling, Microsoft’s yield will still be below the 1.7% average yield for the S&P 500.

Questions:

1. Was the decision to start paying a cash dividend of $0.02 per share per quarter a good decision?

2. Was the $3 per share special dividend desirable?

3. What, if anything, should Microsoft have done with its $64 billion of cash and short term investments?

ccounting conventions represent the principles, assumptions, and rules that guide an accountant as he or she analyzes the effects of business events on the accounting cycle and applies them to various cycle procedures. Part 3 of the assessment requires you to determine which of these conventions apply to a given business scenario to enhance your understanding of the foundation of accounting procedures and processes.

Using Part 3 of the Assessment 1 Template, identify the applicable accounting convention for each of the following business scenarios. More than one convention may apply to each scenario. Explain your choices for each scenario.

Before completing the scenarios consider and describe what role ethics has throughout the accounting process and reporting to internal and external customers. Throughout your assessments ensure that you apply ethics to your decision making and reporting.

Scenario 1: The Acme Company is undergoing a reorganization to improve its financial structure. As part of this process, the company is considering lowering its expense calculations to improve the bottom line net income.

Scenario 2: Regal Enterprises has purchased $45,000 worth new equipment for use in its manufacturing operations and would like to write off the cost of this equipment in just a couple of years, instead of the usual 10 years for this equipment type. The company's president fears that the economic conditions in its industry will worsen and cause the company to sell the equipment sooner than expected.

Scenario 3: Bozrah Industries, a small independent retailer, wants to change its accounting system from cash-based to accrual-based, and is concerned about how this change will affect the recording of sales and expenses.

Scenario 4: Randolph, Inc., has experienced major turnover in its accounting department, and the new head of accounting has been going through the current records of transactions. A couple of those transactions appear problematic. The first contains an error of $10,000 that the previous accountant decided was not large enough to adjust before the financial statements were prepared. This error would understate income and make the company look more profitable than it actually is.

Scenario 5: The Morrison Company receives much of its revenue from those customers who buy or rent furniture and appliances on the installment plan. Because the company uses an accrual-based accounting system, revenue is recognized at the point of sale, even though cash comes in on a monthly basis from customers. Lately, the company's accountant is questioning the use of the accrual basis for recognizing revenue, because several customers have defaulted on their contracts, causing problems in the accounting system.

Scenario 6: Charter Communications has recently found itself at the wrong end of multiple lawsuits for failure to provide necessary services according to their contractual obligations. Senior management does not want to disclose the potential liability of these lawsuits on its financial statements.

Q2:

Consider the following scenario.

A company that focuses on selling perfumes in small sales kiosks in Malls across the UAE has experienced a significant drop in revenue. Customers are approached by promoters with a standard sales pitch, and kiosks are positioned in areas assumed to be where majority of the footfall in the mall is. Propose two (2) strategies to assess how to investigate the reasons behind this drop in revenue. Ensure to detail and motivate your recommended strategies.

Explain.