unit 2 discussions
You are one of three partners who own and operate Marys Maid
Service. The company has been operating for seven years. One of the other
partners has always prepared the companys annual financial statements.
Recently, you proposed that the statements be audited each year because it
would benefit the partners and prevent possible disagreements about the
division of profits. The partner who prepares the statements proposed that his
uncle, who has a lot of financial experience, can do the job at little cost.
Your other partner remained silent.
What position would you take on the proposal? What would you strongly
Unit 3 discussion
You work as an accountant
for a small land development company that desperately needs additional
financing to continue in business. The president of your company is meeting
with the manager of a local bank at the end of the month to try to obtain this
financing. The president has approached you with two ideas to improve the
companyâ€™s reported financial position. First, he claims that because a big part
of the companyâ€™s value comes from its knowledgeable and dedicated employees,
you should report their Intellectual Abilities as an asset on the balance
sheet. Second, he claims that although the local economy is doing poorly and
almost no one is buying land or new houses, he is optimistic that eventually
things will turn around. For this reason, he asks you to continue reporting the
companyâ€™s land on the balance sheet at its cost, rather than the much lower
amount that real estate appraisers say its really worth.
on the following questions. Why do you think the president is so concerned with
the amount of assets reported on the balance sheet? What accounting
concept relates to the presidents first suggestion to report Intellectual
Abilities as an asset? What accounting concept relates to the presidents
second suggestion to continue reporting land at its cost? Who might be
hurt by the presidents suggestions, if you were to do as he asks? What should
Unit 5 discussion
Assume you work as an
assistant accountant in the head office of a national movie rental business, a
la Blockbuster Inc. With the increasing popularity of online movie rental
operations, your company has struggled to meet its earnings targets for the
year. It is important for the company to meet its earnings targets this year
because the company is renegotiating a bank loan next month, and the terms of
that loan are likely to depend on the companys reported financial success. Also,
the company plans to issue more stock to the public in the upcoming year, to
obtain funds for establishing its own presence in the online movie rental
business. The chief financial officer ( CFO) has approached you with a solution
to the earnings dilemma. She proposes that the depreciation period for the
stock of reusable DVDs be extended from 3 months to 15 months. She explains
that by lengthening the depreciation period, a smaller amount of depreciation
expense will be recorded in the current year, resulting in a higher net income.
She claims that generally accepted accounting principles require estimates like
this, so it would not involve doing anything wrong.
the CFOs proposed solution. In your discussion, consider the following questions.
Will the change in depreciation affect net income in the current year in the
way that the CFO described? How will it affect net income in the following
year? Is the CFO correct when she claims that the change in estimated
depreciation is allowed by GAAP? Who relies on the video companys financial
statements when making decisions? Why might their decisions be affected by the
CFOs proposed solution? Is it possible that their decisions would not be
affected? What should you do?
Unit 7 discussions
Snake Creek Company has one trusted employee who, as the owner
said, handles all of the book-keeping and paperwork for the company. This
employee is responsible for counting, verifying, and recording cash receipts
and payments, making the weekly bank deposit, preparing checks for major
expenditures (signed by the owner), making small expenditures from the cash
register for daily expenses, and collecting accounts receivable. The owners
asked the local bank for a $ 20,000 loan. The bank asked that an audit be
performed covering the year just ended. The independent auditor ( a local CPA),
in a private conference with the owner, presented some evidence of the
following activities of the trusted employee during the past year:
a. Cash sales sometimes were not entered in the cash register, and the trusted
employee pocketed approximately $ 50 per month.
b. Cash taken from the cash register ( and pocketed by the trusted employee)
was replaced with expense memos with fictitious signatures ( approximately $ 12
c. $ 300 collected on an account receivable from a valued out- of- town
customer was pocketed by the trusted employee and was covered by making a $ 300
entry as a debit to Sales Returns and a credit to Accounts Receivable.
d. $ 800 collected on an account receivable from a local customer was pocketed
by the trusted employee and was covered by making an $ 800 entry as a debit to
Sales Discounts and a credit to Accounts Receivable.
What was the approximate amount stolen during the past year?
TIP: Assume employees work 5 days a week, 52 weeks a year.
2. What would be your recommendations to the owner?