At the beginning of the year, Swifty Company had total assets of $862,000 and total liabilities of $600,000. Answer the following questions.

(a) If total assets increased $137,000 during the year and total liabilities decreased $70,000, what is the amount of stockholders’ equity at the end of the year?

(b) During the year, total liabilities increased $120,000 and stockholders’ equity decreased $84,000. What is the amount of total assets at the end of the year?
(c) If total assets decreased $77,000 and stockholders’ equity increased $101,000 during the year, what is the amount of total liabilities at the end of the year?

This research assignment is an actual simulation directly taken from the audit section of a CPA exam. Please research the questions and provide the correct answer along with a short explanation as to why you chose that answer. Each question is worth ten points.

Gloria CPA, an auditor for Smart Move Inc., observed changes in certain Year 2 financial ratios or amounts from the Year 1 ratios or amount. For each observed change, answer the following questions regarding possible explanations. (Assume that the turnover ratios were calculated using year-end balances.)

Inventory turnover decreased substantially from the prior year. Which of the following is a possible explanation for this finding?

A. Items shipped FOB shipping point during December, Year 2, were included in Year 3 sales.

B. Items shipped on consignment during the last month of the year were recorded as sales.

C. A significant number of credit memos for returned merchandise that were issued during the last month of the year were not recorded.

D. Year-end purchases of inventory were understated by incorrectly excluding items received before year-end.

Accounts receivable turnover decreased substantially from the prior year. Which of the following is not a possible explanation for this finding?

A. Items shipped on consignment during the last month of the year were recorded as sales.

B. A significant number of credit memos for returned merchandise that were issued during the last month of the year were not recorded.

C. A larger percentage of sales occurred during the last month of the year, as compared to the prior year.

D. Sales increased at a lower percentage than cost of goods sold increased, as compared to the prior year.

Allowance for doubtful accounts increased from the prior year, but allowance for doubtful accounts as a percentage of accounts receivable decreased from the prior year. Which of the following is not a possible explanation for this finding?

A. Items shipped on consignment during the last month of the year were recorded as sales.

B. A significant number of credit memos for returned merchandise that were issued during the last month of the year were not recorded.

C. A larger percentage of sales occurred during the last month of the year, as compared to the prior year.

D. Sales increased at a lower percentage than cost of goods sold increased, as compared to the prior year.

Long-term debt increased from the prior year, but interest expense increased a larger-than-proportionate amount than long-term debt. Which of the following is a possible explanation for this finding?

A. A significant amount of long-term debt was paid off during the current year.

B. Long-term borrowing was refinanced on a short-term basis at lower interest rates.

C. Short-term borrowing was refinanced on a long-term basis at lower interest rates.

D. Short-term borrowing was refinanced on a long-term basis at higher interest rates.

Articulation Exercise

Listed below are selected account balances for Moby Corporation at December 31, Year 2 and Year 1. Also available for you is selected information from the income statement for Moby for the year ended December 31, Year 2.

Selected balance sheet accounts:       Year 2                                       Year 1

Assets:

Accounts Receivable                           $18                                           $22

Prepaid Salaries                                     8                                              7

Prepaid Rent                                         3                                              5

Property, Plant & Equipment                310                                           283

(Accumulated Depreciation)                (75)                                          (68)

Investments                                         26                                             24

Liabilities & Stockholders’

Equity:

Salaries Payable                                   12                                              9

Unearned Sales Rev.                              4                                              1

Notes Payable                                     39                                             34

Dividends Payable                                 6                                              4

Contributed Capital                              32                                             24

Retained Earnings                                42                                             39

Selected income statement information for the year ended December 31, Year 2:

Sales revenue                                     $74

Depreciation                                       18

Salaries Expense                                  27

Gain on sale of equipment                       7

Loss on sale of investments                     3

Net Income                                         21

Additional information:

1. During Year 2, Property, Plant & Equipment costing $26 was sold causing a gain.
2. During Year 2, $22 of Notes Payable were issued in exchange for Property, Plant and Equipment. This involves an exchange of Notes Payable for Property, Plant and Equipment.
3. During Year 2, the firm sold Investments for $8 cash.

Required: Determine the correct dollar amounts for each of the following items. Place your answers in the spaces provided.

1. Cash paid for salaries in Year 2.                                                                  $_________                                              
2. Payments for the purchase of Investments in Year                                        $_________           

3. Notes Payable paid off in Year 2.                                                                 $_________                                                           

4. Cash dividends paid in Year 2                                                                     $_________                      
5. Cash received from the sale of Property, Plant and Equipment in Year 2              $_________                                                           
6. Cash paid for Property, Plant & Equipment in Year 2                                      $_________           

7. Cash collected from customers in Year 2                                                         $_________

Newlands Brewery is evaluating a new product line for the production of two new cider brands for the young affluent target market. The brewery is currently operating at its optimal capacity and it will have to invest in an expansion for new machinery and production space. The expected cash flows for the two cider brands are:
Project Cider A, Cashflows are as follows , Year 0=(25 000), Year 1=12 900, Year 2=10 900, Year 3 =8 300 and year 4=7 240.

Project Cider B, Cashflows are as follows , Year 0=(13 500), Year 1=7 230, Year 2=8 200, Year 3 =8 600 and year 4=5 400

Also the expected net income figures for the new product line are as follows

Project Cider A net incomes Year 1=6 728, Year 2=4 800, Year 3 =2 009 and Year 4= 7 420

Project Cider B net incomes Year 1=3 855, Year 2=4 725, Year 3=5 255 and Year 4 =1 864

Consider the following information:
• The average book value for Cider A project is R12,500,000
• The average book value for Cider B project is R6,800,000
• Management requires 15 percent for the project to go ahead based on accounting rate of return perspective
• The discount rate for a project of similar risk level is 10 percent
• Management requires a minimum payback of 1.75 years for the type of risk associated with this project

Required:
Taking into consideration that the two projects are independent and no scaling issues, what should Newlands Brewery do? Your answer should be supported by the analysis of the following calculations:
• Payback method
• Discounted payback method
• Accounting rate of return (using averages)
• Net present value
• Internal rate of return
• Profitability index
Now consider the presence of scaling issue, which project should Newland Brewery consider?

Abby, a single taxpayer, purchased 10,000 shares of § 1244 stock several years ago at a cost of $20 per share. In November of the current year, Abby received an offer to sell the stock for $12 per share. She has the option of either selling all of the stock now or selling half of the stock now and half of the stock in January of next year. Abby will receive a salary of $80,000 for the current year and $90,000 next year. Abby will have long-term capital gains of $8,000 for the current year and $10,000 next year.

If Abby's goal is to minimize her AGI for the two years, determine whether she should sell all of her stock this year or half of her stock this year and half next year.

a. Determine Abby's total AGI under both options for the current year and next year.

If an amount is zero, enter "0".

Articulation Exercise

Listed below are selected account balances for Moby Corporation at December 31, Year 2 and Year 1. Also available for you is selected information from the income statement for Moby for the year ended December 31, Year 2.

Selected balance sheet accounts:       Year 2                                       Year 1

Assets:

Accounts Receivable                           $18                                           $22

Prepaid Salaries                                     8                                              7

Prepaid Rent                                         3                                              5

Property, Plant & Equipment                310                                           283

(Accumulated Depreciation)                (75)                                          (68)

Investments                                         26                                             24

Liabilities & Stockholders’

Equity:

Salaries Payable                                   12                                              9

Unearned Sales Rev.                              4                                              1

Notes Payable                                     39                                             34

Dividends Payable                                 6                                              4

Contributed Capital                              32                                             24

Retained Earnings                                42                                             39

Selected income statement information for the year ended December 31, Year 2:

Sales revenue                                     $74

Depreciation                                       18

Salaries Expense                                  27

Gain on sale of equipment                       7

Loss on sale of investments                     3

Net Income                                         21

Additional information:

1. During Year 2, Property, Plant & Equipment costing $26 was sold causing a gain.
2. During Year 2, $22 of Notes Payable were issued in exchange for Property, Plant and Equipment. This involves an exchange of Notes Payable for Property, Plant and Equipment.
3. During Year 2, the firm sold Investments for $8 cash.

Required: Determine the correct dollar amounts for each of the following items. Place your answers in the spaces provided.

1. Cash paid for salaries in Year 2.                                                                  $_________                                              
2. Payments for the purchase of Investments in Year                                        $_________           

3. Notes Payable paid off in Year 2.                                                                 $_________                                                           

4. Cash dividends paid in Year 2                                                                     $_________                      
5. Cash received from the sale of Property, Plant and Equipment in Year 2              $_________                                                           
6. Cash paid for Property, Plant & Equipment in Year 2                                      $_________           

7. Cash collected from customers in Year 2                                                         $_________

Rotorua Products, Ltd., of New Zealand markets agricultural products for the burgeoning Asian consumer market. The company’s current assets, current liabilities, and sales over the last five years (Year 5 is the most recent year) are as follows: Year 1 Year 2 Year 3 Year 4 Year 5 Sales $ 4,500,090 $ 4,903,310 $ 5,148,110 $ 5,529,910 $ 5,632,260 Cash $ 88,312 $ 103,640 $ 102,980 $ 86,199 $ 83,505 Accounts receivable, net 404,988 431,050 442,486 500,081 567,716 Inventory 804,331 872,355 823,816 886,170 914,938 Total current assets $ 1,297,631 $ 1,407,045 $ 1,369,282 $ 1,472,450 $ 1,566,159 Current liabilities $ 317,437 $ 336,296 $ 343,679 $ 323,620 $ 390,799 Required: 1. Express all of the asset, liability, and sales data in trend percentages. Use Year 1 as the base year. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).) Rotorua Products, Ltd., of New Zealand markets agricultural products for the burgeoning Asian consumer market. The company’s current assets, current liabilities, and sales over the last five years (Year 5 is the most recent year) are as follows: Year 1 Year 2 Year 3 Year 4 Year 5 Sales $ 4,500,090 $ 4,903,310 $ 5,148,110 $ 5,529,910 $ 5,632,260 Cash $ 88,312 $ 103,640 $ 102,980 $ 86,199 $ 83,505 Accounts receivable, net 404,988 431,050 442,486 500,081 567,716 Inventory 804,331 872,355 823,816 886,170 914,938 Total current assets $ 1,297,631 $ 1,407,045 $ 1,369,282 $ 1,472,450 $ 1,566,159 Current liabilities $ 317,437 $ 336,296 $ 343,679 $ 323,620 $ 390,799 Required: 1. Express all of the asset, liability, and sales data in trend percentages. Use Year 1 as the base year. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).) problem is filled as: sales in percents current assets accounts receivable as % Inventory % total Current Assets % current Liabilites%  

THE ANSWER THAT IS ALREADY ON THIS SITE IS WRONG

Rotorua Products, Ltd., of New Zealand markets agricultural products for the burgeoning Asian consumer market. The company’s current assets, current liabilities, and sales over the last five years (Year 5 is the most recent year) are as follows: Year 1 Year 2 Year 3 Year 4 Year 5 Sales $ 4,500,090 $ 4,903,310 $ 5,148,110 $ 5,529,910 $ 5,632,260 Cash $ 88,312 $ 103,640 $ 102,980 $ 86,199 $ 83,505 Accounts receivable, net 404,988 431,050 442,486 500,081 567,716 Inventory 804,331 872,355 823,816 886,170 914,938 Total current assets $ 1,297,631 $ 1,407,045 $ 1,369,282 $ 1,472,450 $ 1,566,159 Current liabilities $ 317,437 $ 336,296 $ 343,679 $ 323,620 $ 390,799 Required: 1. Express all of the asset, liability, and sales data in trend percentages. Use Year 1 as the base year. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).) Rotorua Products, Ltd., of New Zealand markets agricultural products for the burgeoning Asian consumer market. The company’s current assets, current liabilities, and sales over the last five years (Year 5 is the most recent year) are as follows: Year 1 Year 2 Year 3 Year 4 Year 5 Sales $ 4,500,090 $ 4,903,310 $ 5,148,110 $ 5,529,910 $ 5,632,260 Cash $ 88,312 $ 103,640 $ 102,980 $ 86,199 $ 83,505 Accounts receivable, net 404,988 431,050 442,486 500,081 567,716 Inventory 804,331 872,355 823,816 886,170 914,938 Total current assets $ 1,297,631 $ 1,407,045 $ 1,369,282 $ 1,472,450 $ 1,566,159 Current liabilities $ 317,437 $ 336,296 $ 343,679 $ 323,620 $ 390,799 Required: 1. Express all of the asset, liability, and sales data in trend percentages. Use Year 1 as the base year. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).) problem is filled as: sales in percents current assets accounts receivable as % Inventory % total Current Assets % current Liabilites%

Question 5: Which of the following contracts has the most price risk? The most reinvestment risk?

7-year bond with a 5% coupon

1-year bond with a 12% coupon

3-year bond with a 5% coupon

15-year zero coupon bond

15-year bond with a 10% coupon

Calculate the annual cash flows of a $100,000, 10-year fixed-payment deferred annuity earning a guaranteed 3.6 percent per year if annual payments are to begin at the end of year 4 (beginning of year 5). (Hint: Grow the original investment for 4 years and then all payments are paid at the beginning of the year.)