Working Capital Comprehensive Problem Scoring 2

  • Suggested Resources

    The resources provided here are optional. You may use other resources of your choice to prepare for this assessment; However, you will need to ensure that they are appropriate, credible, and valid. They provide helpful information about the topics in this unit. The MBA-FP6014 – Financial Accounting Library Guide can help direct your research. The Supplemental Resources and Research Resources, both linked from the left navigation menu in your courseroom, provide additional resources to help support you.The following resources provide relevant financial accounting methods and practices.

    • Doran, D. T. (2012). Financial reporting standards: A decision-making perspective for non-accountants. New York, NY: Business Experts Press.
      • Chapter 1, “Overview of financial Accounting,” pages 1-25
      • Chapter 2, “Cash, Receivables, and Revenue Recognition,” pages 27-55
      • Chapter 4, “Operational Assets,” pages 89-124
      • Chapter 5, “Liabilities: Current Contingent, and Long Term Debt,” pages 125-161
      • Chapter 7, “Financial Instruments: Investment Securities and Derivatives,” pages 179-222
      • Chapter 8, “Accounting for Postretirement Benefits and Income Taxes,” pages 223-259
      • Chapter 9, “Stockholders’ Equity and Earnings Per Share,” pages 261-296
      • Chapter 10, “Statements of Cash Flows,” pages 297-317
    • Libby, R., Libby, P., & Hodge, F. (2017). Financial accounting (9th ed.). New York, NY: Irwin. – Available from the bookstore
      • Chapter 9, “Reporting and Interpreting Liabilities,” pages 450–479.
      • Chapter 11, “Reporting and Interpreting Owners’ Equity,” pages 544–569.
      • Chapter 13, “Analyzing Financial Statements,” pages 642–670.
  • Assessment Instructions

    Note: Some of the assessments in this course build upon each other, so you are strongly encouraged to complete them in the order in which they are presented.For this assessment, complete Problems 1 and 2. You may use Word or Excel to complete the assessments throughout this course, but you will find Excel to be most helpful for creating spreadsheets. Tutorials for using Excel are provided in the Supplemental Resources in the left navigation menu. If you use Excel, submit the assessment in one Excel document, using separate tabs for each spreadsheet.

    Problem 1: Working Capital, Current Ratio, Quick Assets, Acid-Test Ratio

    The Sanchez Corporation is preparing its 2012 balance sheet. The company records show the following selected amounts at the end of the accounting period, December 31, 2012:

    Problem 1: Sanchez Corporation Selected Amounts
    Account Dollar Amount
    Total assets $600,000
    Total noncurrent assets $350,000
    Liabilities Dollar Amount
    Notes payable (8%, due in 6 years) $40,000
    Accounts payable $60,000
    Income taxes currently payable $15,000
    Liability for withholding taxes $4,000
    Rent revenue collected in advance by up to four months $8,000
    Bonds payable (due in 15 years). $100,000
    Wages payable $6,000
    Property taxes payable $3,000
    Note payable (10%, due in 6 months) $22,000
    Interest payable $1,200
    Common stock $200,000

    Use the information provided in the table to compute and answer the following for the Sanchez Corporation:

    1. Compute (a) working capital and (b) the quick ratio—quick assets are $120,000.
    2. Why is working capital important to management?
    3. How do financial analysts use the quick ratio?
    4. Would your computations be different if the company reported $250,000 worth of contingent liabilities in the notes to the statements? Explain. Include in your explanation a definition of contingent liabilities and an example of a contingent liability.

    Problem 2: Comprehensive Problem

    Bring together various financial analysis measures and interpret their meaning in order to draw conclusions about hypothetical companies.Note that each situation provided is to be considered independently of the others.

    Situation A:

    The following tables represent selected data from recent financial statements of Lincoln and Samuelson, Inc. (dollars in thousands):

    Problem 2, Table 1: Lincoln and Samuelson, Inc. Selected Items from Balance Sheets
    Assets (in thousands) December 31, 2012 December 31, 2011
    Current assets: Cash and cash equivalents $4,000 $3,400
    Accounts receivable (net of allowances of $32 and $28, respectively) $6,500 $5,700
    Problem 2, Table 2: Lincoln and Samuelson, Inc. Selected Income Statement Data
    Account 2012 2011 2010
    Net sales (in millions) $6,020 $5,425 $5,000
    Net income (in millions) $300 $285 $220

    The selected income statement data is for the year ended December 31. The company also reported bad debt expense of $62,000 in 2012; $55,000 in 2011; and $49,500 in 2010.Using the data provided, complete the following for Lincoln and Samuelson, Inc.:

    1. Compute the dollar amount of uncollectible accounts receivable that the company wrote off as uncollectible in 2012. Show all of your work.
    2. Assuming all sales were on credit, what amount of cash did the company collect on accounts receivable in 2012? Show all of your work.
    3. Compute the company’s net profit margin for the three years presented. What does the trend suggest to you about the company?
    Situation B:

    The Israel Manners Entertainment Group uses the allowance approach to estimate bad debt expense, as is required of all companies with significant sales on accounts receivable. At the end of 2012, the Manners Group reported a balance in accounts receivable of $4,350,000 and estimated that $44,000 of its accounts receivable would likely be uncollectible. The allowance for doubtful accounts has a $1,500 debit balance at year-end, prior to the adjustment needed to raise it to the $44,000 desired amount. Use this information to answer the following questions for the Manners Group:

    1. How is it possible that the allowance for doubtful accounts has developed a debit balance instead of a credit balance?
    2. What amount of bad debt expense should be recorded for 2012?
    3. What amount will be reported on the 2012 balance sheet as the net realizable amount of accounts receivable?
    Situation C:

    At the end of 2012, the unadjusted trial balance of Donovan, Inc. included $6,000,000 in accounts receivable, a credit balance of $50,000 in the allowance for doubtful accounts, and sales revenue (all on credit) of $200,000,000. Based on knowledge that the current economy is in distress, Donovan increased its bad debt rate estimate to 0.4 percent on credit sales. Use this information to answer the following questions for Donovan, Inc.:

    1. What amount of bad debt expense should be recorded for 2012?
    2. What amount will be reported on the 2012 balance sheet for the net realizable amount of accounts receivable, after being reduced by the balance in the allowance for uncollectible accounts?
    Situation D:

    BrightStar Company reported the following inventory records for June 2012:

    Problem 2, Table 3: BrightStar Company Inventory Records
    Date Activity # of Units Cost/Unit
    June 1 Beginning balance 200 $40
    June 5 Purchase 600 $42
    June 8 Sale @ $100 per unit 500
    June 17 Purchase 400 $45
    June 23 Sale @ $100 per unit 500

    Selling, administrative, and depreciation expenses for the month were $20,000. BrightStar’s tax rate is 35 percent. Use this information and the table above to complete the following for BrightStar Company:

    1. Calculate the cost of ending inventory and the cost of goods sold under each of the following methods:
      • a. First in, first out (FIFO).
      • b. Last in, first out (LIFO).
      • c. Weighted average.
    2. Using your answers from question 1 above, answer the following:
      • a. What is the gross profit percentage under the FIFO method?
      • b. What is net income under the LIFO method?
      • c. Which method would you recommend to BrightStar for tax purposes? Explain your recommendation.
      • d. If BrightStar also used the method that you recommended for tax purposes on its balance sheet, would BrightStar’s current ratio suffer, compared to the use of FIFO?
    3. BrightStar uses the lower of FIFO cost or market method to value its inventory for reporting purposes at the end of the month. If inventory had a market replacement value of $44 per unit, what would BrightStar report in its balance sheet for inventory? Why?
    Situation E:

    BlackBurn Company purchased the following on January 1, 2012:

    • Office Equipment at a cost of $100,000 with an estimated useful life to the company of five years and a residual value of $10,000. The company uses the double-declining-balance method of depreciation for the equipment.
    • Factory equipment at an invoice price of $780,000 plus shipping costs of $20,000. The equipment has an estimated useful life of 100,000 hours and no residual value. The company uses the units-of-production method of depreciation for the equipment.
    • A patent at a cost of $450,000 with an estimated useful life of 15 years. The company uses the straight-line method of amortization for intangible assets with no residual value.

    Use the information above to complete the following for BlackBurn Company:

    1. Prepare a partial depreciation schedule for 2012, 2013, and 2014 for the following assets. Round your answers to the nearest dollar.
      • a. Office equipment.
      • b. Factory equipment. The company used the equipment for 8,000 hours in 2012; 9,000 hours in 2013; and 8,500 hours in 2014.
    2. On January 1, 2014, BlackBurn altered its corporate strategy dramatically. The company sold the factory equipment for $700,000 in cash. Record the entry related to the sale of the factory equipment.
    3. On January 1, 2014, when the company changed its corporate strategy, its patent had estimated future cash flows of $300,000 and a fair value of $250,000. What would the company report on the income statement (account and amount) regarding the patent on January 2, 2014? Explain your answer. (Hint: You may need to research this question using Internet sources.)
    Working Capital and Comprehensive Problem 2 Scoring Guide

    VIEW SCORING GUIDEUse the scoring guide to enhance your learning.

You can leave a response, or trackback from your own site.


7 Responses to “Working Capital Comprehensive Problem Scoring 2”

  1. 391983 170764This internet internet site is my breathing in, very wonderful pattern and perfect content . 982620

  2. 390594 36591I do not have a bank account how can I spot the order? 173527

  3. 465186 732922Cheapest player speeches and toasts, or perhaps toasts. continue to be brought about real estate . during evening reception tend to be likely to just be comic, witty and therefore instructive as properly. very best man speeches free of charge 561259

  4. 239495 176746Very good day. Extremely cool blog!! Man .. Superb .. Wonderful .. Ill bookmark your internet site and take the feeds additionallyI am glad to locate numerous useful info proper here within the post. Thank you for sharing.. 84433

  5. 615002 54703Hey i just visited your web site for the very first time and i truly liked it, i bookmarked it and will be back 84849

  6. 3D printing says:

    440577 417022I genuinely enjoy your website, but Im having a issue: any time I load one of your post in Firefox, the center with the internet page is screwed up – which is bizarre. May possibly I send you a screenshot? In any event, maintain up the superior work; I undoubtedly like reading you. 430494

  7. 779421 430222Some genuinely interesting details, nicely written and broadly user pleasant. 558092

Leave a Reply

Powered by WordPress | Designed by: buy backlinks | Thanks to webdesign berlin, House Plans and voucher codes