国际财会案例练习题

International Accounting

Supplemental Cases & Exercises

Supplemental Exercises:

1.Account balances for Crystal Auto Wash at September 30, 2009, are shown below.

The figure for retained earnings is not given, but it can be determined when all the available information is assembled in the form of a balance sheet.

Accounts payable ………. $14,000 Land ………………. $68,000 Accounts receivable ……. 800 Machinery & equipment 65,000 Buildings ……………….. 52,000 Notes payable (due in 30

Cash .......................... 9,200 days) ................... 29,000 Capital stock ................ 100,000 Salaries payable .......... 3,000 Retained earnings .......... ? Supplies .. (400)

Instructions:

a.Prepare a balance sheet at September 30, 2009.

b.Does this balance sheet indicate that the company is in a strong financial

position? Explain briefly.

2.Satka Fishing Expeditions, Inc., recorded the following transactions in July:

1)Provided an ocean fishing expedition for a credit customer; payment is due

August 10;

2)Paid Marine Service Center for repairs to boats performed in June. (In June,

Satka Fishing Expeditions, Inc., had received and properly recorded the invoice for these repairs.)

3)Collected the full amount due from a credit customer for a fishing expedition

provided in June.

4)Received a bill from Baldy’s Bait Shop for bait purchased and used in July.

Payment is due August 3.

5)Purchased a new fishing boat on July 28, paying part cash and issuing a note

payable for the balance. The new boat is first scheduled for use on August 5.

6)Declared and paid a cash dividend on July 31.

Indicate the effects that each of these transactions will have upon the following six total amounts in the company’s financial statements for the month of July.

Organize your answer in tabular form., using the column headings shown, and use the code letters I for increase, D for decrease, and NE for no effect. The answer to transaction 1 is provided as an example.

Income statement Balance sheet

Transaction Revenue – Expenses = Net Income Assets = Liabilities + Owner’s Equity

1 I NE I I NE I

2

3

4

5

6

3.The following transactions were carried out during the month of May by M.

Palmer and Company, a firm of design architects. For each of the five transactions, you are to state whether the transaction represented revenue to the firm during the month of May. Give reasons for your decision in each case.

a.M. Palmer and Company received $25,000 cash by issuing additional

shares of capital stock.

b.Collected cash of $2,400 from an account receivable. The receivable

originated in April from services rendered to a client.

c.Borrowed $12,800 from Century Bank to be repaid in three months.

d.Earned $83 interest on a company bank account during the month of

May.

https://www.360docs.net/doc/bd16826942.html,pleted plans for guest house, pool, and spa for a client. The $5,700

fee for this project was billed to the client in May, but will not be

collected until June 25.

4.During March, the activities of Evergreen Landscaping included the following

transactions and events, among others. Which of these items represented expenses in March? Explain.

a.Purchased a copying machine for $2,750.

b.Paid $192 for gasoline purchases for a delivery truck during March.

c.Paid $2,280 salary to an employee for time worked during March.

d.Paid an attorney $560 for legal services rendered in January.

e.Declared and paid an $1,800 dividend to shareholders.

5.Arrowhead Optis

Arrowhead Optis employed you as the consultant. You are now assisting the company in preparing its profit and loss statement for the purpose of applying for a loan of $1,000,000 from Kansas National Bank.

Arrowhead sells optical fiber telephone systems to large enterprises. Arrowhead

purchases this system from Santa Fe Communication Electronics. The purchases in the first year of the operation of the company are summarized as follows: Month Units purchased Unit cost Total cost

November 1,000 $1,500 $1,500,000

February 5,000 1,400 7,000,000

April 4,000 1,200 4,800,000

May 2,000 1,100 2,200,000

The ending inventory at the end of the accounting year of the company on 31 May is 3,500 units. Because this is the first year of its operation, Arrowhead has not yet decided which inventory valuation method is to be used. The total sales revenue of the year is $14,800,000, with a total operating expense of $1,700,000. Instructions：

(1)Prepare a profit and loss statement by using the FIFO, LIFO and

Weighted-Average method respectively under the periodic inventory system.

（rounding the weighted-average cost into dollars）

(2)Which inventory valuation method would you suggest Arrowhead to use when it

applies to the bank for loans? Why?

(3)Suppose the income tax rate of Arrowhead is 40%, for taxation purpose, which

inventory valuation method would you suggest Arrowhead to use? Why?

Case 2 The Northshore Sailing Association (NSA)

Case 3: Joan’s Fishing Tackle Shop

Joan Robbins, the owner of Joan’s Fishing Tackle Shop, marks up the goods in

her shop by 30 per cent. Figures for the past financial year, 20X0, are outlined below:

$ $

000

550

Sales 1

Less: cost of goods sold:

000

Opening

inventory 168

218

000

Purchases 1

386

000

1

207

500

1

500

inventory 178

Closing

500 Gross

profit 342

000

expenses 340

Less:

operating

Net profit 2 500

Joan has given no discounts during the 20X0 period and has kept turnover constant so her inventories have moved quickly. Nevertheless, she is unhappy with

the year’s results and asks you for your advice on the following:

(1) Is it possible to determine from the figures whether there has been any theft by

staff and/or customers?

(2) On the assumption that theft has occurred, can it be determined from the figures

whether it was cash or inventory that was taken?

(3) A perpetual inventory control system could be established at a cost of $21 000

per year to monitor the more expensive goods in the shop. Would you

recommend such a measure?

(4) O n the assumption that Joan is able to detect future theft, would you advise her to

embark on a $21 000 advertising campaign if sales would rise by $210 000,

leaving all other expenses unchanged?

Case 6 Starting a bakery in Melbourne and Sydney

Two brothers are planning to start a bakery in Melbourne and Sydney. They are contemplating the purchase of two stores currently owned by the same company and

used as retail outlets for shoes. For this reason, the buildings and fixtures for both

shops have the same cost, residual value and useful lives. They also plan to purchase

the same type of equipment. The following schedule provides details of the assets:

Cost of each Residual value Useful life of each

$8,000 40

years Building $408,000

Fixtures $40,000 $5,000 5 years

Equipment $34,000 $2,000 8 years In addition, each building will need to be renovated at a cost of $40,000. The

estimated statements of comprehensive income for the first year for the two shops have been separately determined by each brother and are shown in the schedule below.

Sydney Projected statement of comprehensive income for year ended 31 December 20X1 Melbourne

Projected statement of comprehensive income

for year ended 31 December 20X1

Sales ………………… Cost of goods sold … Gross profit on sales … Operating expenses: Salaries expense … Building renovation .. Other expenses ……. Depreciation expenses: Building ………………Fixtures ………….. Equipment ………… Total expenses ……… Profit for year………… Other comprehensive income ……………. Total comprehensive income for the year ….. ………… ………… ………… $60,000 40,000 8,000 20,400 16,000 8,500 10,400………… …………

…………

………….

$380,000 200,000$180,000 152,900$27,1000$27,100Sales …………………Cost of goods sold …Gross profit on sales …Operating expenses: Salaries expense …Other expenses …….Depreciation expenses:Building ……………Fixtures …………..Equipment ………

Total expenses ………Profit for year…………Other comprehensive income …………….Total comprehensive income for the year …..………… ………… …………

$60,000 8,000

11,000 7,000

4,000

………… ………… …………. $380,000 200,000

$180,000 90,000

$90,000

0$90,000

The brother who plans to open a store in Sydney does not understand how his projected profits can be so much lower than his brother’s when they are projected to make the same sales, employ the same number of people, and spend about the same amount for other necessary operating items.

Required:

a. Which depreciation method has each elected to use for their buildings,

fixtures, and equipment? Show the calculations of depreciation for each of the assets.

b. How did each brother account for the $40,000 cost of renovation? Which is

correct?

c. Based on the projected statement of comprehensive income, which shop

would you invest in? Lend money to?

Case 7Singapore Airlines (SIA) Profit Due to Depreciation

By Paul Thompson

I refer to your article ‘SIA hints net profit may be above $200m’by Andrea Tan (BT, April 20). First, may I say that, for the sake of the hardworking staff, I certainly hope it is true. They would then stand a good chance of getting previously implemented wage cuts restored. Second, may I bring to investors’attention – if they are not already aware – that SIA is engaging in earnings management, much like their peers in Europe and North America.

SIA’s earnings management makes it difficult for me to get excited about the mildly bullish sentiment surrounding SIA. While things are indeed looking up for SIA, it is worth noting that the primary reason it stands any chance of making any profit at all for the year ended March 31, 2002 boils down to what some might call an accounting sleight of hand.

I hold SIA in high regard. SIA is a high-flier in the word of aviation. It offers impeccable service, far better than any other flag carrier I have flown in. It is also one of the world’s most profitable airlines and , unlike many like the big US flag carriers and British Airways, it appears to have avoided a free fall into financial losses – and it has averted slashing staff numbers (the latter achievement is especially commendable).

The main reason, however, it has managed to steer clear of reporting losses for the past financial year (announcement is due in early May but SIA, for sure, already knows the score) is through a timely change in its accounting policy on the depreciation of fixed assets.

Depreciation is a major expense for airlines whose balance sheets are bulging with an expensive aircraft fleet. In its half-year report issued last October, soon after the terrorist attack on the World Trade Center, SIA said:‘Commencing this financial year, the company changed its depreciation rate for passenger aircraft, spares and spare engines from 10 years to 20 per cent residual value to 15 years to 10 per cent residual value. This is to bring it more in line with airline industry practice. Aircraft depreciation charge was $133 million lower as a result.’

In other words, SIA’s policy change for the six months to Sept 30, 2001 caused expenses to be lower by $133 million and hence profit higher by the same figure. For the full year, the effect is likely to be double – that is, a boost to profits by some $266 million.

I do not doubt SIA when it says that this policy change aligns itself with industry practice. In fact, in 1999, I compared the depreciation policy of SIA with BA and found it to be more conservative. But the fact remains that had it not made this change, SIA would almost certainly be reporting a loss for the year to March 31, 2002 in the next few weeks.

(Business Times Singapore, 25 April 2002)

Required:

(a)Does this change in profit, resulting from a change in an accounting rule, makes

SIA more valuable?

(b)Will there have any change in the value of SIA’s shares based on this higher

reported profit?