Intermediate Accounting II
ACCT 356
Spring, 2011
W. David Albrecht, Ph.D., CPA
Associate Professor of Accounting
Offutt School of Business
Concordia College
Moorhead, MN
Last update: April 28, 2011
Word count: 91,575
© 2011 by W. David Albrecht. .
Intermediate Accounting II
ACCT 356
Spring, 2011
Table of Contents
Instructor contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Course time and location . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Prerequisites & position in the accounting program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Who should take this course . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
What Intermediate Accounting is all about . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Why you should take this course . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
1
2
3
Approach to the course . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professor’s goals for this course . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foundational knowledge and application learning outcomes
and assessment for students . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Learning outcomes and assessment for holistic education
What each class is like . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
7
7
8
Required materials (textbook & calculator) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Grading policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
How to study for this course . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Attendance policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Homework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Class discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Computers and e-mail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Accommodations for disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Religious holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Codes of conduct and academic policy statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Academic honesty for ACCT 356 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Schedule of approximate due dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Topical content . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
About the professor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Papers and projects (part of course grade) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . start on 16
Resources (to supplement textbook) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . start on 41
Homework problems (essential for learning, not part of course grade) . . . . . . start on 118
Solutions to homework problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . start on 181
Exam previews . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . start on
© 2011 by W. David Albrecht. .
Intermediate Accounting II
ACCT 356
Spring, 2011
Pr ofessor : Dr . David Albr echt
Associate Pr ofessor of Accounting
Office:
401A Old Main
Phone:
419-575-4513 (cell, call/text any time)
Accounting can be
the key
to your future.
218-299-3523
E-mail:
albr echt@pr ofalbr echt.com
albr echt@cor d.edu
Web:
Classes:
Off Hr s:
http://pr ofalbr echt.wor dpr ess.com
Http://accountingpr ofessor .wor dpr ess.com
256
12:50 TTh 101 Old Main
356
10:30 TTh 225 Iver s
356
4:30 TTh 225 Iver s
12:15-12:45
TTh
2:35-4:25
TTh
Contact me for other times
Walk-ins ar e always welcome
Prerequisites & position in the accounting program
The prerequisites of this course for undergraduate students are (1) passing Principles of
Accounting I (ACCT 155) or the equivalent,(2) passing Principles of Accounting II (ACCT 156), and
(3) passing Intermediate Accounting I (ACCT 355).
Undergraduate accounting students must take at least six accounting courses to
graduate with an accounting degree. If you plan on taking the CPA exam in
Minnesota or North Dakota, you can sit for it during the semester you are to reach
150 hours, or you can wait until after you complete 150 hours.
Who should take this course
All accounting majors. Every finance major. Possibly, everyone else.
© 2011 by W. David Albrecht. .
1
What Intermediate Accounting is all about
Financial accounting refers to the financial statements (and the entire process involved in creating
the financial statements) published by a company for an audience of interested parties outside the
company. It is very important to our economy because many people, such as investors and lenders,
need information to help them make informed decisions. For example, an investor is a person with
excess money who wants additional income. The investor sometimes has the opportunity to buy stock
in a particular company. Many factors go into the investor's decision, such as:
What to do?
- Is the person running the company capable?
- Is the manager someone I can trust?
- Can the business make money?
- How long before I can get my profits & money out of the investment?
- What are the chances of losing my investment?
A company prepares financial reports, financial accounting's product, to inform investors and
other interested parties about its financial performance. The four financial reports are the
income statement, balance sheet, statement of cash flows, and statement of
changes in stockholders equity. For example, the investor looks at the income
statement to see if the company has made a profit in the past. Past profitability
is a factor in predicting future profitability. The investor can look at the
balance sheet to see if the company owes others a lot of money. A small debt
load lessens the investment's risk. The statement of cash flows reveals the rates of dividend
payout in the past.
To help the investor, the manager hires a credible outsider (a Certified Public
Accountant) to check on the truthfulness of the financial statements. This may not
help the investor trust the manager, but it will enable the investor to trust the financial
statements. Financial reports don't directly evaluate the manager, but they can be
used by investors to help them form an opinion about the manager.
© 2011 by W. David Albrecht. .
2
Why you should take this course
I believe that Intermediate Accounting I and Intermediate Accounting II are the most valuable
courses in the undergraduate accounting program, and possibly the most valuable courses you will ever
take. There are many reasons for this, however, I will focus on only four.
Taking Intermediate Accounting now is more important than ever because the
rules of financial accounting change all the time. Perhaps you knew something
about the financial accounting rules in place two years ago. Well, they have
changed so much that publishing houses are giving up on revising older texts that
teach accounting. They are commissioning authors to start from scratch in
explaining the current rules of accounting.
Second, American businesses are measured by the amount of profit they make. If ever you will
be in a position to evaluate a business–for investing in it, selling to it on credit, lending money to it,
auditing it–then you will need to know as much as you can about the primary evaluation criterion of
profit. If you don’t know about or understand profit, then any decision you will make would have to be
suspect–a gamble in part or in whole. Well, the measurement of profit is net income, and net income is
an accounting calculation. I don’t know that calculating net income is as difficult as calculating the
trajectory needed to take a space shuttle from launch pad to orbiting space station, but I think it is
arguable. Net income is the most important number that financial accounting produces and reports. In
the same way that the person guiding a space shuttle needs to know about trajectory, business people
need to know about accounting’s net income
Third, accounting is more than the calculation of net income. It is the language
of business! This language is composed of vocabulary (business and accounting
words), grammar (rules for constructing the equivalent of sentences and paragraphs)
and idiom (expression of a given language that cannot be understood from the
individual meanings of its elements). In the same way that you would need to know
Chinese if you were going to emigrate to China, you should know accounting if you are going
to work in business.
Finally, there are people who will try to dupe you
when they communicate to you in accounting. There are
subtle ways to influence the meaning of accounting
reports. There are dozens of recent stories of corporate
fraud, and the resulting coverup in which the financial
statements have been deliberately misstated. Enron, for
example, was a complex situation of infectious greed on
the part of corporate management. Once their coverup in
the financials was discovered, the company went
bankrupt, its auditor (Arthur Andersen) was forced out
of business and the financial markets of the world
© 2011 by W. David Albrecht. .
3
crashed. WorldCom, another example, was a case of a company
whose unprecedented growth suddenly stopped. As it turned out, its
large, costly investments in additional capacity were unnecessary and
bankrupted the company. It hid its losses by a simple (but effective)
misstatement of the financials. Then, the truth came out.
In the past six years, there have been nearly 5,000 instances of
corporations restating their previous financials to correct an error. In
many cases, this has been the result of companies pushing the envelope of what is a reasonable
disclosure and auditors now finally forcing better accounting.
The public outcry following Enron and WorldCom motivated Congress to pass the SarbanesOxley Act of 2002, the most significant legislation pertaining to the financial markets since the
Securities Act of 1933 and the Securities Exchange Act of 1934. We are in a new age where
companies simply have to get the numbers right.
And if the companies don’t get the
numbers right? It is the responsibility of
auditors and users of financial information
to be able to dig into the financial
statements to discover what is really going
on!
Most of you hope to start a career in
accounting, say as a CPA or a company
accountant. Some of you are finance
majors who anticipate needing to know
about accounting in your future positions.
All of you need to understand the precise
composition of every financial statement
item. We will therefore cover each of the
financial statements in great detail.
© 2011 by W. David Albrecht. .
4
Approach to the course
Knowledge of generally accepted accounting principles is the foundation of this course.
Application of the rules and uses of accounting information cannot be understood until you have
mastered the knowledge.
Accounting can be taught from two distinct approaches: learner centered or content/teacher
centered. In a learner centered approach, students learn by doing. Content is only important to the
extent that students can do something with it after the course is long over. In the content/teacher
centered approach, students must learn what the professor knows–factual knowledge, concepts and
applications..
The content/teacher centered approach is the traditional approach used in most
college classrooms. In this approach the professor lectures (or at least is clearly in
charge), the students learn to know what the professor wants them to, and there are
tests of factual knowledge where students must show what they have memorized and
know. Frequently, discussion and homework are included as part of the course grade.
Professors are rated as good if they are organized, good speakers and friendly, and are
rated as excellent if they are mesmerizing. Students are supposed to remember the knowledge through
subsequent courses and into the real world, where they eventually will have to apply what is
remembered. The conclusion from more than one thousand research studies is clear. Most knowledge
that the professor wants students to know (i.e., memorize) will soon be forgotten (even if the teacher is
rated as good or excellent). How soon? Much will be lost even by the end of the course. There is a
rapid decline in retention to three months and by six months hardly anything is left. If the student
doesn’t put the knowledge to use quickly, 100% will be forgotten after one year.
“One should be
able to do what
one knows”
The learner centered approach is in use when the course is
structured to allow the student opportunities to apply (in realistic
simulations) what is learned.
It has frequently been said that
students learn best by doing. It’s true.
If a teacher is able to show a student
what is possible to do with the
knowledge and concepts that have been taught, then that student is
changed for a life-time. Without being able to do something with
knowledge and concepts, the knowledge and concepts soon will be
completely forgotten.
Milt Hakel, BGSU
How can students be shown how to do things with what they have
learned? First, students must be given a realistic context in which to
operate. The realistic context should simulate the after-school world as
much as possible. Second, in this realistic context, professors show
© 2011 by W. David Albrecht. .
Learning by doing is a
moo-ving experience.
5
students how to do things with what they have learned, and give them enough guidance and practice so
they can learn how to do these things. When the student starts applying knowledge, a statement like
“Oh that’s how it works. I see now,” is frequently heard. Class time is enhanced when students get an
opportunity to do something during each class. This approach is called learning by doing.
I use the learner centered approach. Don’t get me wrong, learning what to know is still a major
part of the course, but it isn’t the entirety.
Sometimes opportunities to learn by doing will take place in working a problem, either as
homework or work in class. There also will be a major project where the focus will be you putting your
knowledge to play in a simulated but realistic business setting. This will help you learn how to do it,
and at the same time you’ll learn the knowledge better.
From teacher-centered
to learner-centered
© 2011 by W. David Albrecht. .
6
The professor’s goals for this course
After reading the preceding pages, you probably can figure them all out. Of course, I want you to
learn about accounting and financial statements. But you are not just learning about them–you are
learning to be an accountant and become a more capable human being. Here is my list of goals for this
offering of the course:
(1)
(2)
(3)
(4)
(5)
(6)
To drill and train students in the form and structure of
all four financial statements.
To train students in the basic policies (rules)
governing the preparation of financial accounting
reports. In other words, you will be taught more
generally accepted accounting principles, mostly related to the right side of the balance
sheet.
To show how external parties can use financial accounting information.
To give students an opportunity to apply accounting rules in at least one realistic situation.
To give students an opportunity to think through the issues related to post-retirement
benefits and to issues related to the possible adoption of IFRS.
To help students learn to become better accounting students.
Foundational knowledge and application learning outcomes and
assessment for students
After taking this course, you will be able to:
(1)
(2)
(3)
(4)
Define and explain common accounting terminology without referring to the textbook, your
notes or an accounting dictionary. The professor assesses your ability to do this through
using vocabulary drills, working problems (formative), and knowledge oriented tests
(summative).
Read, use and analyze accounting information
using debits and credits, all three types of journal
entries (transaction, adjusting, closing) and
accounts. The professor assesses your ability to
do this through working problems (formative), and
knowledge oriented tests and the simulation game
(summative).
Prepare financial statements (with notes) for a
business with many types of activities. The professor assesses your ability to do this
through using homework problems (formative), and projects and knowledge oriented tests
(summative).
Explain how each number on the right side of the balance sheet is computed, and what
information is needed for the computation. The professor assesses your ability to do this
© 2011 by W. David Albrecht. .
7
(5)
(6)
(7)
through using vocabulary drills and homework problems (formative), and knowledge
oriented tests and projects (summative).
Be able to “read” a set of financial statements for comprehension. The professor assesses
your ability to do this through using homework problems (formative), and projects and
knowledge oriented tests (summative).
Be able to use accounting terminology in presentations and discussions. The professor
assess your ability to do this through using homework problems (formative), and projects
(summative).
Visually skim through a set of financial statements and form an initial impression as to how
well the company is doing. The professor assesses your ability to do this through using
homework problems (formative), and projects and knowledge oriented tests (summative).
What each class is like
A fair portion of each class period is conducted in a
lecture/clarification format. This doesn’t sound too appealing,
but there is quite a bit of interaction. I have been working for 25
years on developing effective explanations on how to compute
the numbers required by generally accepted accounting
principles. Some of my explanations have spread to other schools.
I am best known for teaching pensions, but my explanation of errors
Come prepared to get involved.
and leases have also gained some attention. It is to your advantage to
work with me during every class.
Unless every student can get involved, little or no learning will take place. I’ll frequently interact
with various students while we go through the material. During this interactive portion, I usually ask
several types of questions, including: “What is this?” “How
is this done?” “Why is it done?” “What’s next.” “What if
we did this?” “Define this.” “Can you relate this to other
concepts or principles we’ve talked about?” “Can you
reconcile this accounting with the underlying economic
event?” Can you explain how this accounting principle
I know that!
could be applied to this different issue?”
I never bring a calculator to class. I rely on all students to compute the numbers for examples and
homework. I’ll lay out a problem in class, and students work it, step-by-step with me in the lead. Or, it
might be that I’ll stop and let everyone in the class do a problem on his/her own. I encourage students
to work together in class, check answers with neighbors, and help others until everyone has it figured
out. I think students should be able to talk with each other during class, as well as text each other.
I rely on students to present problem solutions on the board and to walk the class through the
solution.
© 2011 by W. David Albrecht. .
8
Periodically, I’ll bring to class financial statements from real companies. Perhaps they will be for
a few companies in the same industry. Through analysis and interpretation, we should be able to see
which one is doing the best job in one respect or another. Perhaps the financial statements will be for
one company over time. Through analysis and interpretation we should be able to describe the stories
being told.
I’m sure you will get your money’s worth if you regularly come to class.
Required materials
Intermediate Accounting, 17th edition., by Earl K. Stice, Fred Skousen and
James Stice
Calculator capable of performing present and future value computations.
Grading
Letter grades will be assigned according to relative class standing (in other words, students that
score better on tests and projects will receive better grades). Rest assured that the goal is a fair
assessment of student knowledge and understanding. When all is said and done, grade assignments
remain the result of the professor's professional judgment.
The grade of "A" requires excellent performance on tests and projects. Exam scores are perfect
or nearly perfect. "B" means very good. Students really know their stuff, but make small errors. "C"
stands for competent. Students sometimes really know their stuff, and other times make errors because
they are only familiar with the material. Students who don't get it very well receive a "D." A grade of
"F" is for those who don't get it at all.
Sanford Pinkster has an interesting way of explaining the difference in grades:
An A+ is a touchdown that got the crowd to its feet -- a forty-yard pass play or a seventy-yard run from
scrimmage. As color commentators like to put it, :so and so "took it to the house." Players like this get in
the game's highlight films. An A is a touchdown that generates loud cheers but not necessarily a standing
ovation. True, six points are six points but some touchdowns are simply more graceful than others ...
B grades are akin to field goals. The student got close but at the end had to settle for a good kick and three
points. Granted, teams can win games with field goals but not nearly as many as they can win with touchdowns ...
C students are the sort who can get a first down, even a couple of first downs, but in the end, they punt the ball. ... The most
positive thing one can say about C work is that field position is important and that a good punter can put the opposing team deep
© 2011 by W. David Albrecht. .
9
in its own territory. Eventually field position can win games, but field goals and touchdowns win them more often and more
decisively.
D work might be likened to a team that cannot protect its quarterback and that thus suffers the big-time loss of yardage known as
"sacks." When a team loses ground, punting the ball usually puts it in great field position for one's opponents. D papers lug
around enough mechanical mistakes so that a teacher's red grading pencil gets a brisk workout. These can be equated to sacks,
and they have the same bad consequences as do sacks on the football field.
F work is obvious. It can come as an interception or a fumble but, either way, you've given up the ball. Period.
Your course grade will be assigned on the professor’s subjective evaluation of
your tests and papers. The course grade will integrate these items:
Exams (two during term & final)
Papers & projects
~ 60%
~ 40%
100%
Exams are scheduled to be taken at night. The primary reason for this is that it permits students
an unlimited amount of time for taking the test. Exams are problem-oriented, and can contain
problems, written response questions and case analysis. Exams are usually closed-book and
closed-notes. Calculators should always be used Approximately one week preceding the date of the
exam, each student will receive a copy of an exam preview (detailed description of content and format
of test) as well as a copy of a test from a previous semester.
Projects are designed to give you an opportunity to work a real-world problem in a realistic
setting. Projects for this course include:
(1)
(2)
(3)
(4)
(5)
Spreadsheet projects dealing with loans.
Realistic case project dealing with error correction and financial restatement.
Writing a paper in which you take a position on some accounting issue and then persuade me that
they’ve taken the better position. Topics I’m considering are: Should the U.S. drop GAAP and
switch to IFRS? Should leased assets (and the corresponding financial obligation) be accounted
for differently than now? Should the U.S. retain the old rule for contingencies or switch to the
new rule?
Tearing apart the financials for a company to figure out what is going on. In other words, a full
blown exercise in financial statement analysis.
Accounting cycle practice set, based on topics covered in Intermediate Accounting II.
How to study for this course
I have written an article that could help you study for any college course, especially accounting courses.
It has been accessed several thousand times. I recommend you download it and read it.
http://profalbrecht.wordpress.com/2008/12/30/ace-your-accounting-classes-12-hints-to-maximize-your-potential/
© 2011 by W. David Albrecht. .
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Attendance policy
You should attend every class. However, I realize that interviews, work and family commitments
sometimes get in the way. If you miss a class, please make arrangements with another student for a
copy of their notes. If you know about an absence in advance, send a voice recorder of some type.
Finally, if you need to miss a class, send me an e-mail letting me know of your absence. There is no
penalty for missing a class. Please keep in mind that regular attendance is a requirement for retesting.
Assignments
Will be announced on a daily basis. I’ll make announcements far enough in
advance for you to have adequate time to work the problems.
Homework
Completion of homework problems is a nongraded requirement of the class. Homework
problems are assigned for most of the class periods. You will not have to hand in HW solutions on a
daily basis throughout the term. However, you will be expected to be current for discussion purposes.
If the class does not stay current on the HW assignments, then daily quizzes will be given. Solutions to
the HW problems are e-mailed or distributed in class. Many homework problems are worked
interactively in class.
In addition, you must maintain a notebook or collection of
your hand-written attempts to do the homework problems. This
notebook should contain a table of contents listing all homework
problems worked. By the date of the final exam for this course,
you must turn in your notebook/collection for inspection by Dr.
Albrecht. If your notebook does not contain your hand-written
solutions for at least 75% of all problems assigned, then your
course grade will be docked one letter.
Class discussion
Everyone is expected to speak up in class. If I do not get adequate participation from each
student, I will establish standards and a process to measure your participation.
© 2011 by W. David Albrecht. .
11
Computers and e-mail
All students are required to regularly check their e-mail, whether it be
Concordia or a private e-mail . I recommend free e-mail accounts on the
Internet. Check your e-mail often, because I'm going to send out notes,
assignments, etc., by e-mail. I assume that by 24 hours after I send out an e-mail,
everyone has read it.
Accommodations for disability
In accordance with the Concordia policy, if a student has a documented disability and requires
accommodations to obtain equal access in this course, he or she should contact the instructor at the
beginning of the semester and make this need known. Students with disability must verify their
eligibility through the Counseling Center (218-299-3514).
I am committed to going the extra mile in making reasonable accommodations for a student’s
disability.
Religious Holidays
It is the policy of the College to make every reasonable effort allowing students to observe their
religious holidays without academic penalty. In such cases, it is the obligation of the student to provide
the instructor with reasonable notice of the dates of religious holidays on which he or she will be
absent. Absence from classes or examinations does not relieve the student of responsibility for
completing required work missed. Following the necessary notification, the student should consult
with the instructor to determine what appropriate alternative opportunity will be provided, allowing the
student to complete his or her academic responsibilities.
I am committed to going the extra mile to accommodate a student’s religious beliefs. If you have
decided to follow your religion’s prescription to observe a certain day or date, I guarantee that you will
not be penalized in this course.
Codes of Conduct and Academic Policy Statement
The instructor and students in this course will adhere to the College’s general Codes of Conduct
defined in the Student Handbook. It that students do not cheat, fabricate, plagiarize or facilitate
academic dishonesty. For details, refer to:
 Student Handbook (http://www.cord.edu/Studentlife/StudentHandbook/AcademicPolicies/academicintegrity.php)
© 2011 by W. David Albrecht. .
12
Academic honesty for ACCT 356
You are expected to adhere to Concordia College Academic Integrity
policy. At various times, the professor will describe activities that constitute
academic dishonesty. Violations will be dealt with according to policy. If you
are academically dishonest on an exam, the penalty is score of zero on the exam
and a grade of F for the course. If you are academically dishonest either the Real
Money simulation game or the project, the penalty is a score of zero. If there are
two or more violations by the same student on Real Money, then the penalty will
include a grade of F for the course.
Two well written paragraphs, “What constitutes plagiarism” and “How can you avoid plagiarism
can be found on-line at at http://www2.liu.edu/cwis/cwp/library/exhibits/plagstudent.htm
Schedule of approximate due dates
Test one
Test two
Papers & course projects
week 6
week 11
various dates
© 2011 by W. David Albrecht. .
13
Topical content in ACCT 356
Review
Financial statements
Payroll & other current liabilities
Financial statement analysis
Long-term liabilities / Notes and Bonds
Installment loans, interest bearing notes, non-interest bearing notes
For all of above, amortization tables (ordinary & due), journal entries
Troubled debt restructuring
Debt covenants
Basic bonds, serial bonds, bonds issued between dates, early retirement / convertibles
Contingencies
Leases & lease obligations
Operating, capital
Both for lessor and lessee
Investments & OCI & minority interest
Comprehensive income
Fair value method, equity method
Consolidations
Equities & monetary for above
Pension obligations
Basic worksheet with CSC & PSC
Tables
Minimum liability, unrecognized gains/losses
Other post-retirement benefits
Preferred stock
Income taxes
Intra period tax allocation,
Interperiod tax allocation
Stockholders equity
Contributed capital, retained earnings, treasury stock, dividends
BEPS & DEPS
Accounting errors
Analysis
Correction
Accounting changes
American GAAP and IFRS
Derivatives
© 2011 by W. David Albrecht. .
14
About the Professor
As an undergraduate student at the University of Iowa, I
majored in playing cards, foosball and pool (and political science).
As you can imagine, I didn’t make much progress toward getting
a good start in life.
After working for a while at making pizzas
and then delivering mail, I saw the light and returned to school
at Iowa to learn something worthwhile–accounting and business.
Subsequently, in no particular order, I married, fathered two sons, received a
Ph.D. from Virginia Tech, and professed accounting at Andrews University, Virginia
Tech, North Carolina-Chapel Hill, and Bowling Green State University.
In 2009 I
came to Concordia.
Helping students learn is very important to me.
the learning-centered approach.
I have become a proponent of
Creating the “learn accounting while playing
Monopoly” simulation game has earned me a reputation in accounting education.
Increasingly adapting the learning-centered approach to my classes has resulted in
much student acceptance.
I am actively involved in writing essays related to financial accounting and
accounting education.
These essays appear on my blog at
http://profalbrecht.wordpress.com/. I have a national reputation as an accounting
theorist, and my blog essays are read by many.
In my spare time I have several activities to keep me busy.
Professionally, I
read up to 100 articles per day about accounting from Internet newspapers and
magazines.
I am also putting my approach for Acct 155 into a textbook.
the professional realm, I play bridge at several tournaments each year.
about 300 films per year.
Outside of
I also view
Usually people gang up against me in Monopoly and Boggle.
In addition, I am always open to receiving your movie recommendations, favorite
cartoons or jokes, and challenging sudoku puzzles.
© 2011 by W. David Albrecht. .
15
Papers and projects
ACCT 356
Table of Contents
Persuasive paper on leases . . . . . . . . . . . . . . . . . .
Spreadsheet assignment #1 . . . . . . . . . . . . . . . . . .
Spreadsheet assignment #2 . . . . . . . . . . . . . . . . . .
Case on restatements . . . . . . . . . . . . . . . . . . . . . .
Comprehensive project . . . . . . . . . . . . . . . . . . . . .
17
19
21
23
29
© 2011 by W. David Albrecht. .
Make every assignment
a work of art.
16
Persuasive Paper on Lease Accounting
ACCT 356
The FASB and the IASB are both studying the accounting for leases. Currently both bodies allow
both operating leases and capital leases for lessees, and for lessors. Both bodies wonder if (1) lessees
should be required to account for all leases as capital leases, and (2) lessors should be required to
account for all leases as capital leases
The objectives of this assignment are two fold. The first part is for you to take a position, and
justify it, on whether or not you think lessee accounting should be changed to capitalization of
all leases. The second part is for you to take a position, and justify it, on whether or not you
think lessor accounting should be changed to capitalization of all leases.
In any persuasive paper, you should both analyze the alternatives (strengths and weaknesses) and
evaluate (one is better than the other) to justify your opinion. But don’t lose track, this paper is about
your opinion and why your opinion is best.
Your paper can be any length, but I think that something in the 1,000 to 1,200 word range for
each part should be adequate (2,000 to 2,400 in total). One key to writing a good paper is to start with a
good introduction. An introduction should convince the reader that the remainder of the paper is
interesting and worth reading. A good introduction informs the reader of many things: what the paper
is about, what is the problem about which the author is taking a position (and why the problem is
significant), and what is the author’s position. Sometimes an introduction contains a brief statement as
to how the paper is organized.
I expect your paper to be well written. Proper grammar is to be used at all times. Sentences
should be constructed properly and make sense. Paragraphs should center around a point, contain
related sentences and be organized to advance your argument. Your paper should be organized so that
each paragraph leads logically to the next. As a general rule, no paragraph should consume an entire
page. There should be two or three paragraphs per page.
The first page of your paper should be a cover page with the title of your paper, your name, the
name of your student editor (or editors) and the date submitted to me. In the body of your paper, font
size should be 12 points. Line spacing should be between 1.3 and 2.0. All papers should contain
citations to at least four external works. Use the author date system of in-text citation, along with a
reference list at the end of the paper. You should use the Turabian Style Guide for Citations found at
www.liu.edu/cwis/cwp/library/workshop/cittur.htm
If you include tables or charts, label them as exhibit one, exhibit two, and so on. Please do not
put them at the end of the paper, but place them close to the in-text reference.
Eventually, your paper should be submitted in a word processing file, e-mailed to me
© 2011 by W. David Albrecht. .
17
(albrecht@profalbrecht.com) as an attachment to an e-mail. You should name your paper
Leases_Lastname_Firstname, where Lastname is your last name and Firstname is your first. For
example, John Smith would name his file GAAPorIFRS_Smith_John.doc.
© 2011 by W. David Albrecht. .
18
Spreadsheet project 1
Loans
Acct 356
Professor Albrecht purchased a house on September 1, 2003. The house cost $184,000. He made
a down payment of $40,000 and borrowed the rest in the form of a mortgage (real estate loan where real
estate is collateral until final repayment).
Professor Albrecht was quoted a fixed rate of 6.25% (doesn’t change during
life of mortgage) for a 30 year mortgage with no points (interest payment up front),
and 12 monthly payments per year. He accepted.
Required:
Part 1: Prepare an amortization table that will be useful in accounting for
this mortgage, assuming the mortgage was taken out September 1,
2003, and the first payment was due on October 1, 2003. Place
this amortization table on page A of the spreadsheet. In an e-mail, answer these questions,
“How much is the unpaid mortgage balance immediately after making the Feb 1, 2009 loan
payment?” and “How much is the 360th and final payment?”
Part 2: Professor Albrecht has been paying an extra $100 every month, starting with the first
payment. Prepare an amortization table that accounts for each additional $100 payment
made so far. Place this amortization table on page B of the spreadsheet. In the e-mail,
answer these questions, “How much is the unpaid mortgage balance immediately after he
makes his mortgage payment on Feb 1, 2009?” and If Professor Albrecht continues paying
an extra $100 every month, in what year and month will the mortgage be paid off?”
General Instructions
Refer to the instructional resource titled, Amortization tables on MS Excel, for instructions in creating
an amortization table using a spreadsheet program.
Your spreadsheet project will be graded, and the grade will be part of your course grade.
Send your spreadsheet to Professor Albrecht as an attached file to an e-mail. You should name your
spreadsheet A1_Lastname_Firstname.xls where Lastname is your last name and Firstname. For
example, John Smith would name his spreadsheet file A1_Smith_John.xls The assignment will
not be accepted on paper or on disk. This e-mail should contain your answers to the three
questions above. Your spreadsheet files should be saved in MS Excel 2003 format.
You may not work together with anyone (in any sort of way) on this project. You may not consult with
anyone in a lounge, you may not borrow a copy of a friend’s file to see how to work the problem
(nor may you loan a copy of your file to anyone else in class), you may not work alongside
© 2011 by W. David Albrecht. .
19
anyone from class in a campus computer lab, you may not chat with said person while working in
the lab. You may not ask (or help) a classmate about creating a spreadsheet to answer handout
problems 23, 24 and 25. Aiding a classmate on this project, or receiving aid from anyone on this
project constitutes academic dishonesty. The penalty for academic dishonesty on this assignment
is a zero for the project and the grade of F for the course.
Cells A1..A3 of each page should include this information:
Name
Spreadsheet project 1
Date
Spreadsheets that are designed to be general purpose receive more credit than those that are very
specific. Formulas or equations are more general purpose than merely typing in numbers (except
in your input table).
Use proper formatting (currency amounts in either currency or comma formats, interest rates in percent
format). Currency amounts should be rounded and formatted to two places, percent should be
formatted to two places but not rounded. Rounding on the percent will create a significant error.
© 2011 by W. David Albrecht. .
20
Spreadsheet project 2
Loans
Acct 356
Professor Albrecht is trying to make a decision about
how to finance the purchase of a vacation cottage in
picturesque Accountingville, Michigan. He can afford a
down payment, but needs to borrow $98,000 to completely
fund the purchase.
The Finance4Suckers Mortgage company has two
financial products for Professor Albrecht, a fifteen year
6.55% mortgage loan and a twenty year 7.05% mortgage
loan. Both are “fixed rate” mortgages, meaning the rate
doesn’t change during the life of the mortgage, and both
require 12 monthly payments per year. The final payment
amount floats to the number needed to pay interest and the final amount of principal.
Required:
Part 1: Prepare a table of initial values for each mortgage loan. For guidance, refer to the
resource titled “Amortization Tables on MS Excel.”
Part 2: For each mortgage, prepare an amortization table that would be useful in accounting for
it, assuming the mortgage is taken out Feb 1, 2009, and the first payment is due on March
1, 2009. These amortization tables can be placed side by side on the same page or your
spreadsheet. Include a field in your spreadsheet where you show the total interest paid over
the life of each loan. This field can be placed in the table of initial values.
Part 3: In the e-mail in which you attach the spreadsheet file, answer these questions for each
mortgage. These answers should also be incorporated in you spreadsheet files.
(1) How much is an normal monthly payment?
(2) How much is the final payment?
(3) How much interest is paid over the life of the loan?
General Instructions:
Refer to the instructional resource titled, Amortization tables on MS Excel, for instructions in creating
an amortization table using a spreadsheet program.
Your spreadsheet project will be graded, and the grade will be part of your course grade.
© 2011 by W. David Albrecht. .
21
Send your spreadsheet to Professor Albrecht as an attached file to an e-mail. You should name your
spreadsheet A2_Lastname_Firstname.xls where Lastname is your last name and Firstname. For
example, John Smith would name his spreadsheet file A2_Smith_John.xls The assignment will
not be accepted on paper or on disk. This e-mail should contain your answers to the three
questions above. Your spreadsheet files should be saved in MS Excel 2003 format.
You may not work together with anyone (in any sort of way) on this project. You may not consult with
anyone in a lounge, you may not borrow a copy of a friend’s file to see how to work the problem
(nor may you loan a copy of your file to anyone else in class), you may not work alongside
anyone from class in a campus computer lab, you may not chat with said person while working in
the lab. You may not ask (or help) a classmate about creating a spreadsheet to answer homework
or hypothetical problems. You should know how to do it by now, this assignment is to have you
do it. Aiding a classmate on this project, or receiving aid from anyone on this project constitutes
academic dishonesty. The penalty for academic dishonesty on this assignment is a zero for the
project and the grade of F for the course.
Cells A1..A3 of each page should include this information:
Name
Spreadsheet project 2
Date
Spreadsheets that are designed to be general purpose receive more credit than those that are very
specific. Formulas or equations are more general purpose than merely typing in numbers (except
in your input table).
Use proper formatting (currency amounts in either currency or comma formats, interest rates in percent
format). Currency amounts should be rounded and formatted to two places, percent should be
formatted to two places but not rounded. Rounding on the percent will create a significant error.
© 2011 by W. David Albrecht. .
22
Case on Restatements
Acct 356
For a hypothetical company–Operating Leases, Unlimited (OLU)–financial data has been provided for
the past four years, culminating with the 2010 financials issued on December 31, 2010.
OLU only owns a small portion of the equipment it uses, the rest it leases from
other companies. During recent years, OLU has treated all leases as operating
leases because it is accepted industry practice (everyone else does it this way,
so why not us?). The SEC has announced that it is cracking down on lessee
companies that improperly treat capital leases as operating leases. The CEO has
decided that the financial statements must be restated to correct for the error,
and it must be done as soon as possible.
The company has three rentals at the current time, all of which are being treated
as operating leases and all of which should have been treated as capital leases.
OLUleased some equipment on January 2, 2008. The lessor company structured the lease payments to
recoup the equipment's fair market value of $40,000 plus initial direct costs of $2,620. The estimated
salvage value is 3,000, none of which is guaranteed. The lease payments are structured by the lessor to
incorporate an 8% rate of return, and OLU is aware of this rate. The lease is for nine years, and the first
annual payment was due at the very start of the lease (January 2, 2008). The lease payments are in the
amount of $6,095 per year. At the inception of the lease, OLU had an incremental borrowing rate of
8.5%.
OLU leased some more equipment on July 2, 2009. The lessor company structured the semi-annual
lease payments to recoup the equipment's fair market value of $64,400 plus initial direct costs of
$2,350. The estimated salvage value is 7,000, half of which is guaranteed. The lease payments are
structured by the lessor to incorporate a 9% rate of return, and OLU is aware of this rate. The lease is
for four years, and the first of eight semi-annual payment was due at the very start of the lease (July 2,
2009). The lease payments are in the amount of $8,970 per six-month period. At the inception of this
lease, OLU had an incremental borrowing rate of 9.0%.
OLU leased yet some more equipment on January 2, 2010. The lessor company structured the lease
payments to recoup the equipment's fair market value of $35,000 plus initial direct costs of $3,100. The
estimated salvage value is 5,000, and only one-fifth is guaranteed. The lease payments are structured by
the lessor to incorporate a 9% rate of return, and OLU is aware of this rate. The lease is for seven years,
and the first annual payment was due at the very start of the lease (January 2, 2010). The lease
payments are in the amount of $6,446 per year. At the inception of this lease, OLU had an incremental
borrowing rate of 8.5%.
Should depreciation be appropriate, straight line depreciation is to be used with one-half year taken in
© 2011 by W. David Albrecht. .
23
the year of acquisition.
The 2010 financials were published on a timely basis in the company's annual report to shareholders
and the 10-K. It is believed that OLU as an incremental borrowing rate of 8.5% as of December 31,
2010.
It is imperative, the CEO says, to get the financials restated to correct the error.
Required: Restate the original financial statements (attached) so that the effects of the errors are
removed. Also, submit a write-up detailing what corrections were made and why. Finally,
comment on what impact the restatement has on the financial condition of the company. Be sure
to look at changes to (1) the ratio of operating income to sales revenue (income statement), (3)
debt ratio of total liabilities divided by total assets (balance sheet), and (3) re-classifications of
cash flow (statement of cash flows).
Miscellaneous:
You may work on this case individually or with one other person. If working with another
person, both receive the same grade.
Other than the person with whom you are coauthoring, you are not allowed to consult with any
other person. There is to be no sharing of hints, answers, check figures, files, documents,
etc.
Your work should be presented in a word-processing file, or in a word-processing file and a
spreadsheet file. You should name your wordprocessing file
Restatement_Lastname_Firstname.xxx, where Lastname is your last name and Firstname.
For example, John Smith would name his wordprocessing file
Restatement_Smith_John.xxx. If you send me a spreadsheet file, it should be named
Restatement_Lastname_Firstname.xxx.
Submit electronically to albrecht@profalbrecht.com
© 2011 by W. David Albrecht. .
24
Operating Leases, Unlimited
Statements of Financial Position
for December 31
2007
Cash
Market Securities
Accts Receivable
Inventory
Total
2008
2009
2010
15,341
5,450
36,247
56,450
113,488
18,262
11,061
34,168
59,273
122,764
31,608
25,233
36,359
62,237
155,437
27,959
13,183
54,461
65,349
160,952
0
9,000
18,000
6,777
Land
Building
Equipment
(Accum deprec)
Total
53,100
83,500
10,000
(19,320)
127,280
63,100
83,500
10,000
(25,270)
131,330
68,100
83,500
10,000
(31,220)
130,380
68,100
113,500
10,000
(37,170)
154,430
Total Assets
240,768
263,094
303,817
322,159
Investments (AFS)
2007
2008
2009
2010
Accts Payable
Wages Payable
Interest Payable
Unearned Revenue
Total Liab
13,643
5,960
0
3,491
23,094
10,238
6,471
0
7,861
24,570
12,311
6,665
0
10,007
28,983
13,763
6,865
0
7,498
28,126
Common Stock
Retained Earnings
Comprehensive Inc
Total SHE
84,660
133,014
0
217,674
84,660
151,864
2,000
238,524
90,660
181,174
3,000
274,834
114,660
187,596
(8,223)
294,033
Total Liab & SHE
240,768
263,094
303,817
322,159
© 2011 by W. David Albrecht. .
25
Operating Leases, Unlimited
Statements of Income
for the years ended December 31
2008
2009
2010
Sales Revenue
Cost of Sales
Gross Margin
364,820
167,817
197,003
421,302
202,225
219,077
481,432
226,273
255,159
Wages
SGA
Rent
Depreciation
Total
64,710
83,909
6,095
5,950
160,664
66,651
88,473
15,065
5,950
176,139
68,651
125,172
30,481
5,950
230,254
Operating Income
36,339
42,938
24,905
Interest Expense
Gains
Losses
Net Income
0
3,511
0
3,511
39,850
0
2,522
(2,150)
372
43,310
0
0
(11,483)
(11,483)
13,422
Shares of common stock
Earnings per share
21,165
1.88
22,665
1.91
28,665
0.47
© 2011 by W. David Albrecht. .
26
Operating Leases, Unlimited
Statements of Cash Flows
for the years ended December 31
2008
2009
2010
Cash Flows – Operating Activities
From advance sales
From cash sales
From collections on AR
To suppliers
To employees
For SG&A payments
For rentals
For interest
Total
26,000
135,243
210,026
(174,045)
(64,199)
(83,909)
(6,095)
0
43,021
27,450
176,921
216,886
(203,116)
(66,457)
(88,473)
(15,065)
0
48,146
21,360
231,290
208,171
(227,933)
(68,451)
(125,172)
(30,481)
0
8,784
Cash Flows – Investing Activities
Purchase of Trading Securities
Purchase of AFS Securities
Purchase of Land
Purchase of Building
Purchase of Equipment
Sale of Trading Securities
Sale of AFS Securities
Sale of Land
Sale of Building
Sale of Equipment
Total
(5,200)
(7,000)
(10,000)
0
0
3,100
0
0
0
0
(19,100)
(15,000)
(8,000)
(5,000)
0
0
1,200
0
0
0
0
(26,800)
0
0
0
(30,000)
0
567
0
0
0
0
(29,433)
Cash Flows – Financing Activities
From sale of stock
From lenders
For purchase/retirement of stock
For repayment of lenders
For payment of dividends
Total
0
0
0
0
(21,000)
(21,000)
6,000
0
0
0
(14,000)
(8,000)
24,000
0
0
0
(7,000)
17,000
2,921
15,341
18,262
13,346
18,262
31,608
(3,649)
31,608
27,959
none
none
none
Net Change in Cash
Beginning Cash
Ending Cash
Transactions not requiring cash
© 2011 by W. David Albrecht. .
27
Operating Leases, Unlimited
Statements of Change in Stockholders Equity
for the years ended December 31
2008
Beginning Common Stock
New Common Stock Issued
Ending Common Stock
Beginning Retained Earnings
Net Income
Dividends
Ending Retained Earnings
Beginning Accum Other Comprehensive Income
Other Comprehensive Income for year
Ending Accum Other Comprehensive Income
2009
2010
84,660
0
84,660
84,660
6,000
90,660
90,660
24,000
114,660
133,014
39,850
(21,000)
151,864
151,864
43,310
(14,000)
181,174
181,174
13,422
(7,000)
187,596
0
2,000
2,000
2,000
1,000
3,000
3,000
(11,223)
(8,223)
© 2011 by W. David Albrecht. .
28
Comprehensive Project
Accounting Cycle
Acct 356
The Widget Company is a small company with only a few employees. Its line of business is to
purchase several items from a line of widgets and resale them to other companies. The Company owns
one small shop with two rooms, one for sales and office work, and one for product receiving and
shipping. The company is owned by a group of investors and it is organized as a corporation.
Widget Company uses a straight-forward financial accounting information system. Of course, accrual
accounting is used. Other generally accepted accounting principles used are the $-Value LIFO of
valuing product inventory, FIFO for valuing supplies, the straight-line depreciation method for
matching the cost of long-term assets to periods of use (half year of depreciation in in year of
acquisition and disposition), and earnings per share. Widget’s fiscal year extends from January 1
through December 31.
Additional information
Accounts receivable is recorded at gross. The Allowance for doubtful accounts is computed at 2% of
ending accounts receivable. The Office supplies inventory is valued according to FIFO.
The Product inventory balance of 62,754 on December 31, 2010 is based on the following information:
$-Value LIFO index at January 1, 2006
1.0000
$-Value LIFO index at December 31, 2006
1.0425
$-Value LIFO index at December 31, 2007
1.0750
$-Value LIFO index at December 31, 2008
1.0675
$-Value LIFO index at December 31, 2009
1.1400
$-Value LIFO index at December 31, 2010
1.1825
Ending inventory valued at FIFO
Ending inventory valued at base
Base layer
2006 layer at base
2009 layer at base
2010 layer at base
Ending inventory at $-Value Lifo
$72,000
$60,888
$35,200
$19,250
$3,000
$3,438
$62,754
Prepaid insurance is for a six-month policy that expires on April 30, 2011.
The sole Building was purchased in early 2003 for $550,000. At that time, the useful life was expected
to be 25 years, and the eventual salvage value was expected to be $0. After a half year of depreciation
in 2003, seven years of straight-line depreciation have been recorded at $22,000 per year.
Equipment is recorded using straight-line depreciation.
© 2011 by W. David Albrecht. .
29
Accounts payable is comprised of $28,000 owed to various artisans for credit purchases, and $1,000 of
accrued utilities.
Wages: A healthcare deduction from employee paychecks is computed at 5% of gross wages. The
Widget Company contributes an additional 5% of gross wages (record under Fringe Benefit Expense).
Federal income taxes average 9% and state income taxes average 4% of income taxable wages
(deductions for healthcare are not taxable for federal or state income tax purposes). State
unemployment taxes are 7% on the first $12,000 of yearly accumulated wages. Federal unemployment
taxes are 6.2% (credit of 5.4% granted for state unemployment taxes) on the first $7,000 of yearly
accumulated wages. For social security, the tax rate on employees is 4.2%, and on employers is 6.2%.
The medicare tax rate is 1.45% on both employee and employer.
Prepayments and deposits are from customer deliveries that are to be made in 2011.
Note Payable: There are two loans outstanding. One is an interest-bearing note of $100,000, due on
October 1, 2014. The annual interest rate is 10%, and semi-annual interest payments are made on April
1 and October 1 of each year. Accrued interest of $2,500 is for three months.
The second is for a 9% installment loan, with annual installments of $44,584 is due on December
31 of each year. The last scheduled payment was made. It’s amortization table is:
Date
Jan 1, 2008
Dec 31, 2008
Dec 31, 2009
Dec 31, 2010
Dec 31, 2011
Dec 31, 2012
Dec 31, 2013
Cash
Payment
Interest
Expense
Amort.
44,584
44,584
44,584
44,584
44,584
44,584
18,000
15,607
13,000
10,157
7,059
3,681
26,584
28,977
31,584
34,427
37.525
40,903
Loan
Balance
200,000
173,416
144,439
112,855
78,428
40,903
0
Common stock issued and outstanding (December 31, 2010) consists of 47,000 shares of $1 par value.
© 2011 by W. David Albrecht. .
30
Trial Balance (post closing ) December 31, 2010
Here is a trial balance prepared on December 31, 2010. It includes all accounts that you are to use.
Closing entries can be made using an income summary account, or you can omit the income summary
account and make closing entries directly to retained earnings.
Cash
Accounts receivable
Allowance for uncollectible accounts
Office supplies inventory
Product inventory
Prepaid insurance
Land
Building
Accumulated depreciation–building
Equipment Group
Accumulated depreciation–equipment
Debit
210,326
34,512
Credit
690
2,000
62,754
3,000
75,000
550,000
165,000
316,000
126,400
Accounts payable
Wages payable
Federal income taxes payable
State income taxes payable
Social security payable
Medicare payable
State unemployment tax payable
Federal unemployment tax payable
Health care payable
Prepayments & deposits
Interest payable
Note payable
29,000
30,000
3,420
1,520
4,960
1,160
350
16
4,000
17,500
2,500
212,855
Common stock
Additional paid in capital
Retained earnings
Dividends
Income summary
47,000
24,000
583,221
Sales revenue
Cost of goods sold expense
Utilities expense
Wages expense
Payroll taxes expense
Fringe benefits expense
Bad debt expense
Supplies expense
Insurance expense
Depreciation expense
Gain on sale
Loss on sale
Interest expense
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1,253,592
© 2011 by W. David Albrecht. .
1,253,592
31
Transactions to account for during 2011
Jan 1
Reversing entries made where appropriate.
Jan 1
Jan 1
Jan 5
Jan 10
Purchased on credit and received $160,000 of product inventory.
Purchased on credit and received $5,000 of office supplies inventory.
Made all payments related to 4th quarter payroll.
Paid $1,000 utility bill for 4th quarter.
Mar 31
Mar 31
Mar 31
Sold product inventory for $320,000 on credit and shipped to customers.
Made payments to suppliers $for 125,000.
Receipts on account and prepayments from customers total $290,000. AR of $1,800
written off.
Apr 1
Apr 1
Apr 1
Apr 1
Apr 5
Apr 10
Purchased on credit and received $185,000 of product inventory.
Purchased on credit and received $3,000 of office supplies inventory.
Made $5,000 interest payment on first loan.
Paid dividends of 13,000
Made all payments related to 1st quarter payroll. Gross wages of $65,000, income
taxes wages of $61,750, social security wages of $65,000, medicare wages of
$65,000, state unemployment wages of $52,000, federal unemployment wages of
$49,000.
Paid $1,200 utility bill for 1st quarter.
May 1
May 1
Sold 80,500 shares of common stock for $140,000
Purchased $5,000 insurance policy for May 1 to October 31.
June 30
June 30
June 30
Sold product inventory for $280 000 on credit and shipped to customers.
Made payments to suppliers $for 130,000.
Receipts on account and prepayments from customers total $310,000. AR of $1,700
written off.
July 1
July 1
July 1
Purchased on credit and received $165,000 of product inventory.
Purchased on credit and received $11,000 of office supplies inventory.
Sold equipment with original historical cost of $20,000 for $3,000. Its depreciation
table is:
Equipment
Date purchased
Purchase cost
Salvage value
Year
2007
2008
2009
2010
#315
May 1, 2007
$20,000
$0
Depreciation expense
2,000
4,000
4,000
4,000
Accumulated depreciation
2,000
6,000
10,000
14,000
© 2011 by W. David Albrecht. .
Book value
18,000
14,000
10,000
6,000
32
2011
2012
July 1
July 5
July 10
Sep 30
Sep 30
Sep 30
Oct 1
Oct 1
Oct 1
Oct 1
Oct 5
4,000
2,000
18,000
20,000
2,000
0
Purchased equipment (5 year useful life and 0 salvage value) for $80,000. This will
be identified as Equipment #512
Made all payments related to 2nd quarter payroll. Gross wages of $70,000, income
taxes wages of $66,500, social security wages of $70,000, medicare wages of
$70,000, state unemployment wages of $37,000, federal unemployment wages of
$11,000.
Paid $800 utility bill for 2nd quarter.
Receipts on account and prepayments from customers total $270,000. AR of $1,600
written off.
Sold product inventory for $487,000 on credit and shipped to customers.
Made payments to suppliers $for 135,000.
Oct 10
Oct 25
Made $5,000 interest payment on first loan.
Purchased on credit and received $110,000 of product inventory.
Purchased on credit and received $5000 of office supplies inventory.
Paid dividends of 10,000
Made all payments related to 3rd quarter payroll. Gross wages of $60,000, income
taxes wages of $57,000, social security wages of $60,000, medicare wages of
$60,000, state unemployment wages of $17,000, federal unemployment wages of
$5,000.
Paid 1,100 utility bill for 3rd quarter.
Purchased land for 60,000
Nov 1
Purchased $6,000 insurance policy November 1 to April 30.
Dec 31
Dec 31
Sold product inventory for $430,000 on credit and shipped to customers.
Receipts on account and prepayments from customers total $330,000. AR of $1,500
written off.
Made payments to suppliers $for 125,000.
Made $44,584 installment payment on second loan.
Dec 31
Dec 31
Dec 31
Dec 31
Dec 31
Dec 31
Dec 31
Dec 31
Dec 31
Dec 31
Accrued for 4th quarter payroll. Gross wages of $70,000, income taxes wages of
$66,500, social security wages of $70,000, medicare wages of $70,000, state
unemployment wages of $9,000, federal unemployment wages of $0.
Ending product inventory of $85,000 valued at FIFO. Index value for $-Value LIFO
on December 31, 2011, is 1.2333.
Office supplies on hand, 500.
Record accrued interest for loans.
Record accrued utilities of 1,900.
Record time passage on insurance policy.
Record adjustment for uncollectible accounts.
Prepayments still owed to customers amount to $18,000.
© 2011 by W. David Albrecht. .
33
Dec 31
Dec 31
Record depreciation for building.
Depreciation for equipment (not including #512 or #315) is $45,200.
Required:
Your assignment is to set up a journal and general ledger to account for transactions during 2011.
The journal for each year can be a plain sheet of paper where journal entries are neatly recorded
for transactions, adjustments and closing. The general ledger can be comprised of a set of Taccounts.
To assist your preparation of financial statements, you should generate post-transaction
(unadjusted), pre-closing (adjusted) and post-closing trial balances for each year.
Finally, you should also create a set of financial statements (balance sheet, income statement,
statement of cash flows and notes to the statements) for 2011. The balance sheet should also
have a comparative for 2010.
You should have notes to the financial statements as necessary but as a minimum should include
significant accounting policies, current assets, depreciable assets, and long-term debt.
You should document all work.
You are expected to work on this entirely on your own. Discussing anything about this project is
considered cheating. Do not share workpapers, answers, final copy or project, or hints.
© 2011 by W. David Albrecht. .
34