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You are a senior manager of a small public accounting firm, Travis & Company. One of your interns is dealing with a disgruntled client, Mr. Kenneth Donaldson, owner of a chemical delivery company. Mr. Donaldson is applying to a bank for a substantial loan to expand his fleet of trucks. The bank requires accrual based financial statements but Mr. Donaldson has always kept the company's records on a cash basis. He does not see the purpose of accrual based statements. On his phone call with your intern, Mr. Donaldson said: "After all, I collect cash from customers, pay my bills in cash, and I am going to pay the bank loan with cash." Mr. Donaldson asked the supervisor of the intern to explain the reason for accrual based statements. Your intern has put Mr. Donaldson's accounting information during the past two years in the following table: Year 1 Year 2 Amounts billed to customers for services rendered $170,000 $220,000 Cash collected from customers 160,000 190,000 Cash disbursements: Salaries paid to employees for services during the year 90,000 100,000 Utilities 30,000 40,000 Purchase of insurance policy 60,000 -0-In addition, your intern told you that the company incurred utility costs of $35,000 in year 1, that there were no liabilities at the end of year 2, no anticipated bad debts on receivables, and that the insurance policy covers a three-year period. After reviewing Mr. Donaldson's accounting information, you are about to write a business memo to Mr. Donaldson. In the memo, you should compare cash-based operating cash flows with accrual-based net income and explain why it is of Mr. Donaldson's benefit to prepare financial statements on accrual basis.
Which of the following is an example of a consideration the government takes into account when creating a tax?
a barn with an adjusted basis of 125,000 was destroyed by a tornado on March 5, 2011 on May 15, 2011 the insurance company paid the owner 150,000 the owner reingested 170,000 in another barn what is the basis of the new barn if non-recognition of ..
It is now December 31, 2011, and Fortune has provided legal services as planned. What adjusting entry should Fortune make to account for the work performed from October 1 through December 31, 2011?
A corporation had 50,000 shares of $20 per value common stock outstanding on July 1. Later that day the board of directors declared a 10% stock dividend when the market value of each share was $27. The entry to record this dividend is:
Research this situation on the internet or through the university library. Write a 400-word paper describing the situation and the implications of the practice including any legal or ethical ramifications.
Waves Company purchased a patent for $170,000 at the beginning of 2011, and estimated that its expected useful life was 10 years. The patent has a legal life of 17 years. What amount should be recorded as amortization expense for the patent in 201..
On September 1, 2005, Saturn Corporation's common stock was selling at a market price of $300 per share. On that date, Saturn announced a 3 for 2 stock split. At what price would you expect the stock to trade immediately after the split goes into ..
The goggles sell for a retail price of $8.00 per pair. The sports apparel division is doing a promotion whereby each customer that purchases a swimsuit during the month of May receives a free pair of goggles. The apparel division would like to pur..
Jake Smith opened his Balinese coffee shop business in downtown Boise on January 1st 2010. On December 31st, 2010, he sat down with his accountant to figure out how his business had done in its first year and heaved a sigh of relief when his accou..
Use the checklist to outline phases of the internal control evaluation. You may use the (1) components of internal control, or (2) relevant assertions as headers within your checklist.
On October 31, a company's Cash account had a normal balance of $7,000. During October, the account was debited for a total of $4,250 and credited for a total of $5,340. What was the balance in the Cash account at the beginning of October?
Explain the meaning of the term "accounting principles" as used in the audit report. How is it determined if an accounting principle is "generally accepted". Discuss the sources of evidence for determining whether an accounting principle has substa..
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