ACCT 1220 Chapter Notes - Chapter 1-4: Cash Flow Statement, Retained Earnings, Accounts Payable

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Financial statements: are the reports that companies use to convey the financial results of their business activities to various user groups, which can include managers, investors, creditors, and regulatory agencies. Accounting: is an information system that measures and records business activities, processes data into reports, and reports results to decision makers. Accounting is the language of business. accounting produces the financial statements that report information about a business entity. The financial statements report a business"s financial position, operating performance, and cash flows among other things. Also called the statement of operations or statement of earnings. Reports two main categories: revenues and gains, expenses and losses. Shows the bottom line : net income or net loss for the period. Net income is the most important item in the financial statements. Reports revenues and expenses: these accounts are only reported on the income statement.

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The following report was drafted on October 25, 2015, by Major,CPA, at the comple-
tion of an engagement to compile the financial statements of AjaxCompany for the fis-
cal year ended September 30, 2015. Ajax is a non-public entity inwhich Majorâs child

has a material direct financial interest. Ajax decided to omitsubstantially all of the

disclosures required by generally accepted accounting principlesbecause the financial

statements will be for managementâs use only. The statement ofcash flows was also

omitted because management does not believe it to be a usefulfinancial statement.

To the Board of Directors of Ajax Company:

I have compiled the accompanying financial statements of AjaxCompany as of

September 30, 2015, and for the year then ended. I planned andperformed the compila-
tion to obtain limited assurance about whether the financialstatements are free of material

misstatements.

Management is responsible for the preparation and fairpresentation of the financial

statements in accordance with accounting principles generallyaccepted in the United

States of America and for designing, implementing, andmaintaining internal control rel-
evant to the preparation and fair presentation of the financialstatements.

My responsibility is to conduct the compilation in accordancewith Statements on Stan-
dards for Accounting and Review Services issued by the AmericanInstitute of Certified

Public Accountants. It is substantially less in scope than anaudit in accordance with gen-
erally accepted auditing standards, the objective of which is theexpression of an opinion

regarding the financial statements taken as a whole. I have notaudited the accompanying

financial statements and, accordingly, do not express anyopinion on them.

Management has elected to omit substantially all of thedisclosures required by

accounting principles generally accepted in the United States ofAmerica. If the omit-
ted disclosures were included in the financial statements, theymight influence the userâs

conclusions about the companyâs financial position, results ofoperations, and cash flows.

I am not independent with respect to Ajax Company. This lack ofindependence is due

to my daughterâs ownership of a material direct financialinterest in Ajax Company.

This report is intended solely for the information and use ofthe board of directors and

management of Ajax Company and should not be used for any otherpurpose.

Major, CPA

Required:

Identify the deficiencies contained in Majorâs report on thecompiled financial state-
ments. Group the deficiencies by paragraph where applicable. Do notredraft the

report.

(AICPA, adapted)

amethystmule785

Problem 1-33Interrelationships among financial statements Crawford Enterprises started the 2014 accounting period with $75,000 of assets (all cash), $15,000 of liabilities, and $25,000 of common stock. During the year, Crawford earned cash revenues of $46,000, paid cash expenses of $26,000, and paid a cash dividend to stockholders of $5,000. Crawford also acquired $15,000 of additional cash from the sale of common stock and paid $10,000 cash to reduce the liability owed to a bank. Required a.Prepare an income statement, statement of changes in stockholdersâ equity, period-end balance sheet, and statement of cash flows for the 2014 accounting period. (Hint: Determine the amount of beginning retained earnings before considering the effects of the current period events. It also might help to record all events under an accounting equation before preparing the statements.) b.Determine the percentage of total assets that were provided by creditors, investors, and earnings. c.Determine the balance in the Revenue, Expense, and Dividends accounts as of January 1, 2015. LO 1-2, 1-3, 1-4, 1-5, 1-6, 1-7 CHECK FIGURES a. Net Income: $19,000 e. Net Cash Flow from Operating Activities: $19,000

lavenderwombat729

I'll rate posting for sec times just do last parts likecost and balance sheet ( account balance and cost incurred ) that'sit ready question carefully then answer all last partthanks

Charles Maxwell is starting a cheesecake bakery, Able BakerCharlie Company, to produce and sell different flavored cheesecakesto restaurants and the general public. He has just begun his studyof accounting, and is a bit confused about the many types ofreports he has read about and how they will help him run hisbusiness. He asks you to help him clarify what the differencesbetween managerial accounting and financial accounting are. Heâsalso wondering how to set up his inventory, how to classify thecosts of his business, and how to fill in some missinginformation.

	Required:
1.	Choose whether thecharacteristics on the Managerial vs. Financial panel are mostoften associated with managerial accounting or financialaccounting.
2.	Charles has provided some ofthe costs he expects to incur on the Cost Classification panel.Decide on the classifications that could be applied to each ofthese costs using the table provided. The cost object in each caseis the cheesecake.
3.	Charles found some sampleincome statements and balance sheets on the Internet, and askedwhich of them might be most appropriate for a manufacturingbusiness like his. Review income statements A and B on the IncomeStatements panel, and balance sheets C and D on the Balance Sheetspanel. Determine which income statement and balance sheet would bemost appropriate for a manufacturing business like Able BakerCharlie. Then, on the Financial Statements panel, denote whichincome statement and balance sheet would be most appropriate for amanufacturing business.
4.	At the end of February, afterthe second month of operations of Able Baker Charlie Company,Charles shows you the data heâs collected, but he was unable tofigure out some of the amounts. On the Costs and Balances panel,determine the missing amounts. Note: It may behelpful to use T accounts to map the flow of the amounts throughthe manufacturing accounts and solve for the missing dollarvalues.

Managerial vs. Financial

Choose whether the following characteristics are most oftenassociated with managerial accounting or financial accounting.

	Managerial Accounting	Financial Accounting
Primarily used for internal decision making
Generally Accepted Accounting Principles (GAAP) must beused
Prepared statements usually pertain to the company as a wholerather than individual departments or products
Information provided will often be subjective, such asestimated future results
Often prepared on an as-needed basis rather than at fixedintervals
Use principles of the Sustainability Accounting Standards Board(SASB) to provide sustainability information to external financialstatement users
Consideration of sustainability practices to contribute to thecompanyâs long-term success
Using eco-efficiency measures to reduce expenses

Cost Classification

Charles has provided some of the costs he expects to incur asfollows. Decide on the classifications that could be applied toeach of these costs using the table provided. The cost object ineach case is the cheesecake.

Cost	Product	Period	Direct	Direct	Factory	Selling	Administrative	Direct	Indirect	Prime	Conversion
Cost	Cost	Cost	Materials	Labor	Overhead	Expense	Expense	Cost	Cost	Cost	Cost
Eggs used to make cheesecakes
Bakerâs wages
Delivery driver wages
Depreciation of office computers
Power to run the cheesecake ovens
Presidentâs salary
Sales commissions
Factory supervisor salary

Financial Statements

Charles found some sample income statements and balance sheetson the Internet, and asked which of them might be most appropriatefor a manufacturing business like his. Review income statements Aand B on the Income Statements panel, and balance sheets C and D onthe Balance Sheets panel. Determine which income statement andbalance sheet would be most appropriate for a manufacturingbusiness like Able Baker Charlie Company.

Which income statement is most appropriate for a manufacturingbusiness?

Income statement A

Income statement B

Which balance sheet is most appropriate for a manufacturingbusiness?

Balance sheet C

Balance sheet D

Income Statements

Income Statement A (scroll down for Income StatementB):

Sample Company A

Income Statement

For the Year Ended December 31, 20Y8

1	Sales		$42,000.00
2	Beginning finished goods inventory	$5,250.00
3	Plus cost of goods manufactured	6,400.00
4	Cost of finished goods available for sale	$11,650.00
5	Less ending finished goods inventory	400.00
6	Cost of goods sold		11,250.00
7	Gross profit		$30,750.00
8	Operating expenses:
9	Selling expenses	$6,400.00
10	Administrative expenses	5,250.00
11	Total operating expenses		11,650.00
12	Net income		$19,100.00

Income Statement B:

Sample Company B

Income Statement

For the Year Ended December 31, 20Y8

1	Sales		$42,000.00
2	Beginning merchandise inventory	$5,250.00
3	Plus net purchases	6,400.00
4	Merchandise available for sale	$11,650.00
5	Less ending merchandise inventory	400.00
6	Cost of merchandise sold		11,250.00
7	Gross profit		$30,750.00
8	Operating expenses:
9	Selling expenses	$6,400.00
10	Administrative expenses	5,250.00
11	Total operating expenses		11,650.00
12	Net income		$19,100.00

Balance Sheets

Balance Sheet C (scroll down for Balance SheetD):

Sample Company C

Balance Sheet

December 31, 20Y8

1	Assets
2	Cash		$20,800.00
3	Accounts receivable (net)		10,000.00
4	Merchandise inventory		6,000.00
5	Supplies		2,100.00
6	Land		17,000.00
7	Total assets		$55,900.00
8	Liabilities
9	Accounts payable		$17,800.00
10	Stockholdersâ Equity
11	Common stock	$19,000.00
12	Retained earnings	19,100.00
13	Total stockholdersâ equity		38,100.00
14	Total liabilities and stockholdersâ equity		$55,900.00

Balance Sheet D:

Sample Company D

Balance Sheet

December 31, 20Y8

1	Assets
2	Cash		$20,800.00
3	Accounts receivable (net)		10,000.00
4	Inventories:
5	Finished goods	$2,000.00
6	Work in process	1,500.00
7	Materials	2,500.00	6,000.00
8	Supplies		2,100.00
9	Land		17,000.00
10	Total assets		$55,900.00
11	Liabilities
12	Accounts payable		$17,800.00
13	Stockholdersâ Equity
14	Common stock	$19,000.00
15	Retained earnings	19,100.00
16	Total stockholdersâ equity		38,100.00
17	Total liabilities and stockholdersâ equity		$55,900.00

Costs and Balances

At the end of February, after the second month of operationsof Able Baker Charlie Company, Charles shows you the data heâscollected, but he was unable to figure out some of the amounts.Review the following data and fill in the missing amounts on thechart for Able Baker Charlie Company. Note: It maybe helpful to use T accounts to map the flow of the amounts throughthe manufacturing accounts and solve for the missing dollar values.It may also be helpful to review the steps for determining the costof materials used, total manufacturing cost incurred, and cost ofgoods manufactured.

Data forFebruary
Decrease in materialsinventory	$3,300
Materials inventory on Feb. 28	50% of materials inventory on Jan.31
Direct materials purchased	$12,600
Direct materials used	3 times the direct laborincurred
Total manufacturing costs incurredin period	$29,400
Total manufacturing costs incurredin period	70% of Cost of GoodsManufactured
Total manufacturing costs incurredin period	$7,000 less than Cost of GoodsSold

Account	Account Balances		Costs Incurred
Account	Jan.31	Feb.28	Costs Incurred
Materials Inventory			DirectMaterials Used
Work inProcess Inventory	$27,000		DirectLabor Incurred
FinishedGoods Inventory		$16,000	FactoryOverhead Incurred
			Cost ofGoods Sold

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ACCT 1220 Chapter Notes - Chapter 1-4: Cash Flow Statement, Retained Earnings, Accounts Payable

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