Wk 1 DQ
DQ 1 Accounting and the Business Environment
Accounting and the Business Environment. From Chapter 1, Ethical Issue 1-1, page 59. Complete all parts of the case and respond to at least two of your classmates’ postings.
Ethical Issue 1-1 The board of directors of Xiaping Trading Company is meeting to discuss the past year’s results before releasing financial statements to the bank. The discussion includes this exchange:
Wai Lee, company owner: “This has not been a good year! Revenue is down and expenses are way up. If we are not careful, we will report a loss for the third year in a row. I can temporarily transfer some land that I own into the company’s name, and that will beef up our balance sheet. Brent, can you shave $500,000 from expenses? Then we can probably get the bank loan that we need.”
Brent Ray, company chief accountant: “Wai Lee, you are asking too much. Generally accepted accounting principles are designed to keep this sort of thing from happening.”
Requirements
1. What is the fundamental ethical issue in this situation?
2. How do the two suggestions of the company owner differ?
DQ 2Recording Business Transactions
Recording Business Transactions. Define the terms “debit” and “credit”. Explain how debits and credits affect the following: assets, liabilities, owner’s capital account, revenues and expenses. Respond to at least two of your classmates’ postings
Week2
The Adjusting Process
From Chapter 3, Ethical Issue 3-1.Complete all parts of the case and respond to at least two of your classmates’ postings.
Ethical Issue 3-1
The net income of Steinbach & Sons, a department store, decreased sharply during 2014. Mort Steinbach, manager of the store, anticipates the need for a bank loan in 2015. Late in 2014, Steinbach instructs the store’s accountant to record a $2,000 sale of furniture to the Steinbach family, even though the goods will not be shipped from the manufacturer until January 2015. Steinbach also tells the accountantnot to make the following December 31, 2014, adjusting entries:
Salaries owed to employees $900
Prepaid insurance that has expired 400
Requirements
1. Compute the overall effects of these transactions on the store’s reported income for 2014.
2. Why is Steinbach taking this action? Is his action ethical? Give your reason, identifying the parties helped and the parties harmed by Steinbach’s action. (Challenge)
3. As a personal friend, what advice would you give the accountant? (Challenge)
Completing the Accounting Cycle
Explain the purpose of adjusting entries.
How is net income affected if adjusting entries are not made?
Describe the four closing entries and explain their purpose.
Week 3
DQ 1 Merchandising Operations
From Chapter 5, Ethical Issue 5-1. Complete all parts of the case and respond to at least two of your classmates’ postings.
Dobbs Wholesale Antiques makes all sales under terms of FOB shipping point. The company usually ships inventory to customers approximately one week after receiving the order. For orders received late in December, Kathy Dobbs, the owner, decides when to ship the goods. If profits are already at an acceptable level, Dobbs delays shipment until January. If profits for the current year are lagging behind expectations, Dobbs ships the goods during December.
Requirements
1. Under Dobbs’ FOB policy, when should the company record a sale?
2. Do you approve or disapprove of Dobbs’ manner of deciding when to ship goods to customers and record the sales revenue? If you approve, give your reason. If you disapprove, identify a better way to decide when to ship goods.
DQ 2 Merchandise Inventory
Merchandise Inventory.
Describe the inventory valuation methods FIFO and LIFO.
Which items are included in ending inventory under each method?
Wk 4 DQ
DQ 1 Internal Control and Cash
From Chapter 7, Fraud Case 7-1. Complete all parts of the case and respond to at least two of your classmates’ postings.
Levon Helm was a kind of one-man mortgage broker. He would drive around Tennessee looking for homes that had second mortgages, and if the criteria were favorable, he would offer to buy the second mortgage for “cash on the barrelhead.” Helm bought low and sold high, making sizable profits. Being a small operation, he employed one person, Cindy Patterson, who did all his bookkeeping. Patterson was an old family friend, and he trusted her so implicitly that he never checked up on the ledgers or the bank reconciliations. At some point, Patterson started “borrowing” from the business and concealing her transactions by booking phony expenses. She intended to pay it back someday, but she got used to the extra cash and couldn’t stop. By the time the scam was discovered, she had drained the company of funds that it owed to many of its investors. The company went bankrupt, Patterson did some jail time, and Helm lost everything.
Requirements
1. What was the key control weakness in this case?
2. Many small businesses cannot afford to hire enough people for adequate separation of duties. What can they do to compensate for this?
DQ 2 Receivables
Discuss the allowance method and the direct write-off method of accounting for bad debts. When is the expense for uncollected accounts receivable recognized under each method?
WK 5 DQ
DQ 1 Plant Assets and Intangibles
From Chapter 9, Fraud Case 9-1. Complete all parts of the case and respond to at least two of your classmates’ postings.
Jim Reed manages a fleet of utility trucks for a rural county government. He’s been in his job 30 years, and he knows where the angles are. He makes sure that when new trucks are purchased, the salvage value is set as low as possible. Then, when they become fully depreciated, they are sold off by the county at salvage value. Jim makes sure his buddies in the construction business are first in line for the bargain sales, and they make sure he gets a little something back. Recently, a new county commissioner was elected with vows to cut expenses for the taxpayers. Unlike other commissioners, this man has a business degree, and he is coming to visit Jim tomorrow.
Requirements
1. When a business sells a fully depreciated asset for its salvage value, is a gain or loss recognized?
2. How do businesses determine what salvage values to use for their various assets?
3. How would an organization prevent the kind of fraud depicted here?
DQ 2 Current Liabilities and Payroll
There are two types of current liabilities that must be estimated. Describe them and explain why they must be estimated. How are the financial statements affected if they are not estimated?
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