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P E S C I N F O R M A T I O N C O L L E G E A c c o u n t i n g a n d F i n a n c e f o r M a n a g e r s A s s i g n m e n t ( 4 0 % ) P a r t I A t t e m p t any f o u r o f t h e f o l l o w i n g q u e s t i o n s [4 x5 % = 2 0 %] 1) W hen a c o m pa ny h a s n e t i n co me, w h at h app ens t o i t s a s s e ts a n d /o r t o i ts l iab ili ti es? 2 . W hy m u st a c o m pan y t hat g i ve s a g u a ra nty o r w a rr ant y w ith i t s p r odu ct o r s e rv ice s h ow a n e xpe nse i n t h e y e ar o f s a l e r at her t han i n a l a t e r y ea r w h en a r e p a ir o r r e p la cem ent i s m a de? 3 . I s a c c rua l a cco unt in g m o re c l o sel y r e la ted t o a c o m pan y’s g o al o f p r o fit abi lit y o r l iqu idi ty ? 4 . U n der n o rm al c i rc ums tan ces , w il l t h e c arr yin g v al ue o f a l ong -te rm as set be equ al to it s m arke t v alu e? 2) I t i s c o m m o n l y s u g g e s t e d t h a t a m a n a g e m e n t a c c o u n t i n g s y s t e m s h o u l d b e c a p a b l e o f s u p p l y i n g d i f f e r e n t m e a s u r e s o f c o s t f o r d i f f e r e n t p u r p o s e s . Y o u a r e r e q u i r e d t o s e t o u t t h e m a i n t y p e s o f p u r p o s e f o r w h i c h c o s t i n f o r m a t i o n m a y b e r e q u i r e d i n a b u s i n e s s , a n d t o d i s c u s s t h e a l t e r n a t i v e m e a s u r e s o f c o s t w h i c h m i g h t b e a p p r o p r i a t e f o r e a c h p u r p o s e . 3) E x p l a i n t h e l i m i t a t i o n s o f b r e a k e v e n a n a l y s i s . 4) I den tif y e a c h o f t h e f o ll owi ng s t ate men ts a s r e lat ed t o e i t he r t h e o bje cti ve ( O ) o f f i na nc i al i n fo rma tio n o r a q u a li ta tiv e ( Q) c har act er ist ic of a cco unt in g i nfo rmat ion : a. I nfo rma ti on a b ou t b u s i ne ss r e so urce s, c l a ims t o t h os e r e so urc es, a nd cha ng es in them sh oul d be pro vide d. b. D eci sio n mak ers mus t b e a bl e t o i nter pre t a cc oun tin g in for mat io n. c. I nfo rma ti on t h at i s u s e f ul i n m aki ng i n v est men t a n d c r e dit d eci sio ns sh oul d be fu rni sh ed. d. A cco unt in g i n fo rma tio n m u st e x hib it r e l eva nce a n d f a it hfu l r epr ese nt ati on. e. I nfo rma ti on u s efu l i n a s se ssi ng c a s h f lo w p ro sp ect s s h o ul d b e p rov ide d. 5) H old ing a l l o t h er f a cto rs c o nst an t, i n d ic ate w h et her e a ch o f t h e f oll owi ng ch ang es g ene ral ly si gna ls g ood or b ad new s ab out a co mpa ny. a) I ncr eas e in pro fi t mar gin . b) D ecr eas e in inv ento ry tur no ver . c) I ncr eas e in the cur re n t r at io. d) D ecr eas e in ear ning s p er sh are . e) I ncr eas e in pri ce -e arn ing s rat io. f) I ncr eas e in deb t to as set s rat io. g) D ecr eas e in tim es i nte res t ear ned . E x e r c i s e s : A t t e m p t a l l t h e e x e r c i s e s [ 4 x 5 % = 2 0 % ] 1) T he l e d ger o f D u st on C o m pan y c o nt ain s t h e f o l low ing b ala nce s: O w n er’ s C api t al $ 3 0, 000 , O w n er ’s D r a win gs $ 2 ,0 00, S e rvi ce R e ve nue $ 5 0,0 00 , S ala rie s a n d W a ge s E x p e ns e $ 2 9,0 00, a nd S u p pli es E x pe ns e $ 7 ,0 00. P r e par e t he clo si ng ent ries at De ce mbe r 3 1. 2) T he P r e pa id I n s uran ce a c c ou nt b e g an t h e y e ar w i t h a b a l anc e o f $ 9 2 0.

D uri ng t h e y e ar , i n sur anc e i n t h e a mo unt o f $ 2 ,0 80 w a s p u r ch ase d. A t t h e e nd o f t h e y e a r ( D ece mbe r 3 1 ) , t h e a mou nt o f i n sur an ce s t il l u n ex pir ed w as $ 1 , 40 0. P r e pare t h e y e ar -e nd e n t ry i n j o u rn al f o r m t o r e co rd t h e a dju stm en t f or insu ran ce ex pen se for the ye ar . 3) D uri ng t h e m o n th o f A u gu st, d e pos its i n t h e a m oun t o f $ 2 ,20 0 w e re r ece ive d f o r s e rvic es t o b e p e r fo rmed . B y t h e e n d o f t h e m o n th, s e rvi ces i n t h e a m oun t o f $ 1 , 5 20 h a d b e en p e r f orm ed. P r e par e t h e n e ces sar y a dju stm en t i n j ourn al for m for Se rvic e R eve nu e a t t he e nd of th e m ont h. 4) L ing enf el ter C o r por ati on e x p eri enc ed a f i r e o n D e ce mb er 3 1 , 2 0 1 7, i n w hic h i ts f i n anc ial r e co rds w e r e p art ial ly d e st roy ed. I t h as b e e n a bl e t o s a lv age s o me o f t h e r e c ord s a n d h a s a s c ert ain ed t h e f o ll owi ng b ala nce s. De c . 31 , 2 017 D ec . 31 , 201 6 C ash $ 3 0,0 00 $ 10 ,00 0 A cc o unt s rec eiv able (n et) 72, 500 1 26, 000 I nve nto ry 20 0,0 00 1 80, 000 A cco unt s pay abl e 5 0,0 00 90, 000 N ote s p ay abl e 3 0,0 00 60, 000 C omm on st ock , $ 100 par 40 0,0 00 4 00, 000 R eta ine d ear nin gs 11 3,5 00 1 01, 000 A ddi tio na l i nfo rmat ion : 1. T he inv en tor y t urno ver is 4 .5 tim es. 2. T he r e t ur n o n c o mm on s t o ck hol der s’ e qui ty i s 1 6 % . T h e c o mpa ny h a d n o a ddi tio na l p aid -in cap ita l. 3. T he acc ou nts re ceiv abl e t ur nov er is 8 .8 tim es . 4. T he ret ur n o n a sset s i s 1 2. 5%. 5. T ota l a ss ets at Dec emb er 31 , 2 016 , we re $65 5, 000 . I nstr uct ion s Co mp ute t he fol lowi ng for L ing enf elte r C orp or ati on. a) C ost of g ood s s old for 20 17 . b) N et sal es (c red it) for 20 17 . c) N et inc om e f or 2017 . d) T ota l a ss ets at Dec emb er 31 , 2 017 .

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