ACCOUNTING 450/550 Review Project

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Description

ACCOUNTING 450/550 Review Project

 Deliverables–Part 1: Adjusting entries, 12/31/13 adjusted trial
balance and corrected 12/31/12 balance sheet.

Deliverables–Part 2: Using the solution to part 1 which will be
made available after part 1 is turned in on blackboard, you are to prepare the comprehensive income statement, statement
of stockholders’ equity, statement of cash flows, balance sheet
; all in
proper form

Assume all errors are material.

Both parts must be typed in 10 or 12 font.

NOTE: Important! Make a copy of
your solution. The solution to the
problem will be posted on blackboard after you turn in the project.

Purpose
of this assignment:

  1. Review the adjustment/correction process
    including sophisticated topics from accounting 350/351/352
  2. Prepare all of the financial statements in proper
    form.

These
are foundational to this course and your career as accountants.

Setting:

You have been hired by Dillard to prepare
adjusting entries and financial statements for 2013. Previously Rinky Dink Accounting had been
performing such tasks.

Ignore tax effects

The trial balance at 12/31/13 before you
work your magic and the balance sheet at 12/31/12 are included in a separate
excel file.

  1. The
    investments account at 12/31/13 contains stocks that were all purchased
    during 2012. In discussions with
    the CFO, you determine that they were made to invest excess cash. The company expects that they will need
    the cash within the next year.
    Here is information that you gather regarding that portfolio (in
    000’s):

Company

Initial
Investment Cost

Market
Value at 12/31/13

Market
Value at 12/31/12

DAG

$500

$450

$510

GLS

50

55

60

HRG

90

81

92

You also discuss with the CFO the
Investment in Sammy Corporation. You
discover that this Investment was first made 3 years ago on 1/1/11 and that the
investment cost was $2,000,000. The
investment in 40% of the voting stock of Sammy was made in order to be able to
have representation on its board since Sammy is a key supplier of the inventory
that Dillard sells. Dillard wants to have
a say in the quality control and other decisions that Sammy makes. You dig around and realize that the $2,000,000 investment cost was exactly equal to 40% of
the book value of equity of Sammy on 1/1/11.
You also determine that Dillard has been recording dividend revenue when
it receives payment. During 2011,
Dillard received $25,000 in dividends, in 2012
$25,000 and in 2013, $27,000.
Sammy has reported income during 2011, 2012 and 2013 of $400,000, $320,000 and
$500,000 respectively.

On 1/1/10, Dillard purchased 500, $1,000
face 5% Mickey Mouse Corporation bonds, interest paid semi-annually on 7/1 and
12/31, with a maturity term of 20 years.
The purchase price was $568,389.

  1. You also discover that the Rosie Product Line was sold on
    6/30/13. This did not result in any
    decline in plant and equipment, however, the Rosie patent was a part of
    the sale. You also are able to
    determine that sales related to Rosie for 2013 were $200,000, CGS was $180,000,
    Salaries Expense was $25,000, patent amortization $1,000.
    A reclassification entry within is preferred here.

  1. You discover that Dillard bought and installed equipment for $400,000
    on 1/1/10. The equipment’s use will
    result in environmental damage that will need to be cleaned up when the
    equipment is retired. The estimated
    life of the equipment is 10 years on 1/1/10. The environmental clean-up cost is
    estimated to be $50,000. The $50,000
    will all be paid at the end of the equipment’s life. You notice that the equipment was
    expensed when originally purchased.
    A discount rate of 6% is reasonable discount rate for the clean-up
    cost. Straight-line with no salvage
    value is appropriate.

  1. The company uses the
    percentage of accounts receivable method and historically does not collect
    4% of its ending accounts receivable.

  1. The company has been recording warranty expense as it has been
    paid. The company first warranted
    its products, 4 years ago, beginning 1/1/10. Warranty costs paid by year are listed
    below:

Year

Warranty costs paid

2010

$6,000

2011

$8,000

2012

$13,000

2013

$14,000

After exploring the timing of sales during
the year and what seems like the company will pay given experience, you compute
the following warranty liabilities at each year–end.

Original Sale year

Estimated liability @12/31/10

Estimated liability at 12/31/11

Estimated liability at 12/31/12

Estimated liability at 12/31/13

2010

$5,000

$2,000

0

0

2011

$4,500

$500

0

2012

$7,000

$1,000

2013

$8,500

  1. In 2013, you discover that an equipment costing $200,000 purchased on 7/1/10 which actually had
    zero salvage value and a 5 year life has been depreciated using
    straight-line assuming a 5 year life, but $20,000 salvage value. This was a mistake, no change in
    estimate has occurred. 2013 depreciation has been recorded.

  1. Additional information: Dillard purchased equipment for $600,000
    cash this year. This transaction
    was properly recorded.

  1. You discover that the ending inventory for 2011, 2012 and 2013
    were all wrong. This is first
    detected by you this year. Inventory
    on 12/31/11 was understated by $100,000, on 12/31/12 overstated by $50,000
    and on 12/31/13 understated by $30,000.
    These appear to be independent errors.

9. The 10-year $1,000,000, 6% note payable was issued on 5/1/08 and
pays interest on 4/30 and 11/1 each year.

10. On 1/1/10, Dillard leased
equipment from Shady Peeps. The lease
term is 10 years and the estimated economic life to the equipment is 12. The lease payments were made on 1/1/10 and
then 12/31/10, 12/31/11, 12/31/12, 12/31/13 (the payments are due on 12/31 each
of the following years). There is
guaranteed residual value is $50,000.
The payments are $45,000 each. An
appropriate interest rate is 5.25%.

11. You notice that in 2012
Dillard reduced Retained Earnings by $65,000 due to the repurchase of common
stock. The stock has not been resold or
retired.

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ACCOUNTING 450/550 Review Project

$26.00

Description

ACCOUNTING 450/550 Review Project

This is an individual
assignment. You may confer with one another, but remember
that conferring does not mean allowing others to just copy your work. Everyone should be working hard on this!

 Part 1:
Adjusting entries, 2012 adjusted trial balance and corrected 12/31/11
balance sheet.

Due: Tuesday 7/9/13—at the beginning of class. Part 2:
Using the solution to part 1 which will be made available after part 1
is turned in on blackboard, you are to prepare the income statement, statement of stockholders’ equity, statement of cash
flows, balance sheet
; all in proper form
You have the option of preparing a statement of comprehensive income or
to incorporate that into the statement of stockholders’ equity.

Both parts must be typed in 10 or 12 font.

NOTE: Important! Make a copy of your solution. The solution to the problem will be posted on
blackboard after you turn in the project.

Purpose of this
assignment:

  1. Review the adjustment/correction process including sophisticated
    topics from accounting 350/351/352.
  2. Prepare all of the financial statements in proper form.

These are
foundational to this course and your career as accountants.

Setting:

You have been hired by Dillard to prepare adjusting entries
and financial statements for 2012.
Previously Rinky Dink Accounting had been performing such tasks.

Ignore tax effects.

The trial balance at 12/31/12 before you work your magic and
the balance sheet at 12/31/11 are included in a separate excel file.

  1. The
    investments account at 12/31/12 contains stocks that were all purchased
    during 2011. In discussions with
    the CFO, you determine that they were made to invest excess cash. The company expects that they will need
    the cash within the next year.
    Here is information that you gather regarding that portfolio (in
    000’s):

Company

Initial Investment
Cost

Market Value at
12/31/11

Market Value at
12/31/12

DAG

$300

$330

$320

GLS

50

55

40

HRG

100

78

95

You also discuss with the CFO the Investment in Timberside
Corporation. You discover that this
Investment was first made 3 years ago on 1/1/10 and that the investment cost
was $700,000 . The investment in 30% of
the voting stock of Timberside was made in order to be able to have
representation on its board since Timberside is a key supplier of the inventory
that Dillard sells. Dillard wants to
have a say in the quality control and other decisions that Timberside makes. You dig around and realize that the $700,000 investment cost was exactly equal to 30% of
the book value of equity of Timberside on 1/1/10. You also determine that Dillard has been
recording dividend revenue when it receives payment. During 2010, Dillard received $10,000 in
dividends, in 2011 $25,000 and are
$25,000 in 2012. Timberside has reported
income during 2010, 2011 and 2012 of $300,000, $350,000 and $330,000 respectively.

On 1/1/08, Dillard purchased 300, $1,000 face 8% Mickey
Mouse Corporation bonds, interest paid semi-annually on 7/1 and 12/31, with a maturity
term of 10 years. The purchase price was
$280,488.

  1. You
    discover that Dillard bought and installed equipment for $170,000 on
    1/1/10. The equipment’s use will
    result in environmental damage that will need to be cleaned up when the equipment
    is retired. The estimated life of
    the equipment is 10 years on 1/1/10.
    The environmental clean-up cost is estimated to be $50,000. The $50,000 will all be paid at the end
    of the equipment’s life. You notice
    that the equipment was expensed when originally purchased. A discount rate of 6% is reasonable
    discount rate for the clean-up cost.
    Straight-line with no salvage value is appropriate.

  1. The company uses the percentage of
    accounts receivable method and historically does not collect 5% of its
    ending accounts receivable.

  1. The
    company has been recording warranty expense as it has been paid. The company first warranted its
    products, 4 years ago, beginning 1/1/09.
    Warranty costs paid by year are listed below:

Year

Warranty costs paid

2009

$7,000

2010

$10,000

2011

$12,000

2012

$11,000

After exploring the timing of sales during the year and what
seems like the company will pay given experience, you compute the following
warranty liabilities at each year –end.

Original Sale year

Estimated liability on 12/31/09

Estimated liability on 12/31/10

Estimated liability on 12/31/11

Estimated liability at 12/31/12

2009

$4,000

$1,000

0

0

2010

9,000

$1,000

0

2011

7,000

$2,000

2012

4,000

Total

$4,000

$10,000

$8,000

$6,000

  1. Additional
    information: Dillard purchased equipment for $300,000 cash this year. This transaction was properly recorded.

  1. You
    discover that the reported ending inventory for 2010, 2011 and 2012 were
    all wrong. This is first detected
    by you this year. Inventory on
    12/31/10 was understated by $50,000, on 12/31/11 understated by $80,000
    and on 12/31/12 overstated by $90,000.
    These appear to be independent errors.

  1. The
    10-year $400,000, 8% note payable was issued on 4/1/08 and pays interest
    on 3/31 and 9/30 each year.

  1. On
    1/1/10, Dillard entered into a 5-year lease agreement for equipment. The equipment’s estimated life was 6
    years. The 5 annual lease payments
    are due on 12/31 each year except there were two payments the first year,
    on on 1/1 and one on 12/31. The lease payments are $10,000 each. Dillard guarantees a residual value of
    $10,000. An incremental borrowing
    rate of 7% would be appropriate.

  1. 2011 is the first year that Dillard had a
    separate Treasury Stock account.

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