describe the purpose of the Income Statement
Question 1.1.(TCO D) Please describe the purpose of the Income Statement and the interrelationship between the income statement and the other major financial statements that we covered in this class. In your answer, please also address which financial statements should be created before the Income Statement, if any, and which financial statements need to be completed after the Income Statement, if any. (Points : 25)
Question 2.2.(TCO
E) Your friend, Lisa, plans to open a nail salon. Lisa states that she does not
have time to develop and implement a system of internal controls.
(a) Explain to Lisa the components of internal control. (10 points)
(b) Explain to Lisa at least 5 internal control procedures she must establish
to protect herself against fraud. You should state specific internal control
procedures from the textbook, and relate your answer to her nail salon
business. (15 points) (Points : 25)
Question 3.3.(TCO
H) Simpson Inc. purchased 5, $4,000, 11% bonds of Hillsdale Corporation when
the market rate of interest was 10%. Interest is paid semiannually on the
bonds, and the bonds mature in 4 years.
Instructions:
Compute the total price paid by Simpson Inc. for the bonds showing your
calculation for the present value of the principal and the present value of the
interest payments.
Present value tables (Exhibit 8-14 and Exhibit 8-15) are available on pages 452
and 453 of your Harrison, Horngren, and Thomas textbook. NOTE: Be
sure you review the PV Tables completely to ensure you find the correct period
and interest rate for the calculation. (Points : 20)
Question 4.4.(TCO A) The following items are taken from the financial statements of BCT Company for 2013:
|
Cash |
$138,800 |
|
Accounts Payable |
75,000 |
|
Supplies |
15,000 |
|
Accounts Receivable |
35,000 |
|
Inventory |
45,000 |
|
Salaries Payable |
30,000 |
|
Unearned Revenue |
45,000 |
|
Property, plant, and equipment, net |
318,000 |
|
Intangible assets |
260,000 |
|
Common Stock |
100,000 |
|
Additional Paid-in Capital |
400,000 |
|
Retained Earnings, 12/31/2012 |
21,000 |
|
Long-term debt |
90,000 |
|
Service revenue |
746,000 |
|
Cost of Goods Sold |
639,200 |
|
Rent expense |
30,000 |
|
Supplies expense |
5,000 |
|
Insurance expense |
21,000 |
Instructions:
(1) Create a classified balance sheet in good form for the year ended 2013. (30
points)
(2) Calculate the current ratio and debt ratio and explain your findings. (6
points) (Points : 36)
Question 5.5.(TCO B) The Caldor Company gathered the following condensed data for the year ended December 31, 2014:
|
Cost of Goods Sold |
$500,000 |
|
Net Sales |
975,000 |
|
Selling Expenses |
150,000 |
|
Interest Expense |
25,000 |
|
Administrative Expenses |
175,000 |
|
Common Stock Dividends Paid |
50,000 |
|
Income tax percentage |
35% |
Instructions:
(1) Prepare a multiple-step income statement for the year ended December
31, 2014. (30 points)
(2) Compute the gross margin percentage and net profit margin ratio. Caldor
Company’s assets at the beginning of the year were $900,000, and the assets
were $950,000 at the end of the year. To qualify for full credit, you must
state the formula you are using, show your computations, and explain your
findings. (6 points) (Points : 36)
Question 6.6.(TCO C) This is a 2-part question.
Part 1) Indicate which section of the statement of cash flows should contain each of the following items, and whether each item would result in an inflow or outflow of cash. The sections are Operating, Investing, and Financing. (30 points)
(a)
Amortization of a patent
(b) Increase in accounts payable
(c) Paid cash dividends to common stockholders
(d) Purchased equipment with cash
(e) Increase in inventory
Part 2) Please explain how to calculate free cash flow and the importance of free cash flow to investors. (6 points) (Points : 36)
Question 7.7.(TCO F) This is a 2-part question.
Part 1) Journalize the adjusting entries below at year-end December 31, XXXX. Please share your supporting calculations for the adjusting entries requiring computations.
(a) The unadjusted
balance of the Supplies account is $2,200. The total cost of supplies remaining
is $1,000.
(b) Accrued Service Revenue of $9,000.
(c) Equipment was purchased at the beginning of the year for $45,000. The
equipment’s useful life is 5 years, and the residual value is $5,000. Record
the depreciation for this year.
(d) The weekly payroll is $25,000. Employees are owed for 3 days of a 5-day
work week.
(e) Beginning unearned service revenue is $7,500, and ending unearned service
revenue is $3,500.
(f) The business has interest expense of $750 that is due in January.
(30 points)
Part 2) Calculate the overall overstatement or understatement of net income if the above adjusting entries were not made. Please share your work. (6 points) (Points : 36)
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Rating:
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Solution: describe the purpose of the Income Statement