ACCT-256 Lecture 3: Q - Chapter 6

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ambermink21

21 Dec 2015

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E6 2 (revenue recognition under earnings approach various consumer industries) (lo 2 ) E6 3 (transactions with customer acceptance provisions under earnings approach) (lo 1 ) E6 4 (bill and hold transaction under earnings approach) (lo 2 ) E6 13 (recognition of profit on long-term contracts and entries) (lo 5 ) Round the percentage complete to two decimal places. (b) prepare all necessary journal entries for 2014, 2015, and 2016, including closing the contract accounts upon completion of the contract, assuming the percentage of completion method is used. (c) calculate the amount of gross profit that should be recognized each year under the completed contract method. (d) prepare the necessary journal entry in 2016 to close the contract accounts and to recognize the revenues and costs upon completion, assuming the completed contract method is used. (e) assume that antoinette cannot reliably measure the outcome of the contract.

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Company Background & Scenario

The Auto Zone Company is a well-established, publicly-held corporation, operating as a wholesaler in the auto parts industry. Specifically, Auto Zone purchases auto parts from manufacturers and sells them to large business customers. Most purchases and sales are on account, with trade credit terms (specified below).

Youâre a Davenport University student pursuing a bachelorâs degree in business and employed at the Auto Zone Company this semester as an intern. Youâve worked in various departments and on several projects so far, learning a lot about the companyâs business operations. Management seems impressed with your enthusiasm and the quality of your work.

The companyâs accountant has just been called away for a family emergency and will likely be absent for a month or so. The General Manager asks you to take over the accountantâs regular duties on an interim basis. Youâre nervous about doing so, but are confident that what youâve learned in accounting class, plus your personal problem-solving skills, will make this a successful experience. What a great learning opportunity, not to mention an enhancement to your resume!

Part I

Journal Entries

a. Within the "Transactions" worksheet you will find journal entry statements. Use those statements to write the corresponding journal entries. You are to write the journal entries in the proper special journal. The special journals included within this workbook include the Sales Journal, Purchases Journal, Cash Receipts Journal and Cash Payments Journal. Any transaction that does natually work within one of the special journals should be written into the General Journal.

b.Within the "Transactions" worksheet you will find journal entry statements. At the end of this list you will find "adjusting" information. Use this "adjusting" information to write the respective adjusting journal entries. Write all adjusting entries in the worksheet labled "General Journal ADJ".

c. Before starting work, review the entire project: all instructions, business transactions descriptions, workbook sections, check figures, due dates, and submission requirements.

Credit Terms & Inventory Accounting

a. When Auto Zone purchases merchandise from a supplier or vendor on account, they receive credit terms of 2/15, net 30.

b. When Auto Zone sells merchandise to a customer on account, they offer that customer credit terms of 2/30, net 45.

c. Auto Zone uses a perpetual inventory accounting system and a last-in, first-out (LIFO) inventory costing method. Within this workbook there is a worksheet labeled "Inventory Control". You will need to use the "Inventory Control" worksheet to keep a perptual record of your inventory. As part of that process you will be calculating the value of CGS each time you generate a sale. Use the "Inventory Control" worksheet to calcluate your Cost of Goods Sold values.

d. Auto Zone uses the "Gross" method of accounting for purchases and sales. The "Net" method assumes that discounts are taken at the point of sale or purchase.

MAY JOURNAL TRANSACTIONS

May 1

Paid $2,100 to LG for utilities bill that was recorded in April as an Account Payable, Check #1000.

May 1

Purchased 3,000 GPS units on Credit from Yamaha for $35.00 per unit.

May 1

Purchases office supplies from Staples on credit for $1,800

May 1

Signed a one-year 15%, $150,000 note payable with Chase Bank.

May 2

Rented part of the warehouse to a new tenant and received $12,000 for three months rent (May, June, July).

May 2

Sold 2,000 Aux Cords on account to Tesla for $85 per units, Invoice #2000.

May 2

Sold 400 USB Ports for $70 per unit and 1,200 GPS units for $75 per unit on account to Dodge, Invoice #2001.

May 3

Received a bill from the law firm of Davenport Associates for $6,300, payable upon receipt, for bond consulting fees, Check #1001.

May 4

Sold 500 Aux Cords on credit to Buick for $77 per unit, Invoice #2002.

May 4

Purchased 2,100 USB Ports on credit from Shure for $45 per unit.

May 5

Paid for office supplies purchased at Staples on May 1st, Check #1002.

May 7

Sold 200 GPS units on account to Chevrolet for $49 per unit, Invoice #2003.

May 8

Issued 4,750 shares of common stock for $13 per share

May 11

Purchased 1,875 GPS units on credit from Sony for $25 per unit.

May 11

The Board of Directors declared a cash dividend of $7 per share for shareholders of record on May 13th, payable on May 17th.

May 12

Paid in full for the May 1 purchase from Yamaha, Check #1003.

May 13

Received and paid expense reports for travel and entertainment totaling $1,500, Check #1004.

May 13

Took advantage of a special deal to purchase 1,500 Aux Cords on account from Panasonic for $42 per unit.

May 15

Received payment in full from Tesla for the May 2nd sale.

May 15

Sold 1,050 USB Ports on credit to Chevrolet for $57 per unit, Invoice #2004.

May 16

Received payment from Buick for $125,000 of the $300,000 owed from April 5.

May 17

Paid the dividend that was declared on May 11th, Check #1005.

May 17

Check # 1006 was issued for payroll: $14,900 for salaries and $5,100 for wages.

May 20

Issued a credit to Chevrolet for the return of 150 defective units from the May 7th sale. These units has a cost basis of $35 per unit.

May 20

Returned the 150 defective units received from Chevrolet to Yamaha.

May 22

Purchased a $500 international phone card for one of the sales representative's upcoming European business trip, Check #1008.

May 23

Issued bonds payable at face value for $420,000

May 23

Purchased 2,080 USB Ports from Shure for $41 per unit paying in cash, Check #1009

May 24

Check #1010 was issued for payroll: $14,900 for salaries and $5,100 for wages.

May 25

Hired and paid a consultant $50,000 to devise a marketing plan. Auto Zone's management felt this was necessary to develop brand awareness. Check #1011.

May 26

While inspecting the May 11th purchase, it was discovered that the GPS units were programmed for Asia instead of North America. Auto Zone returned the entire order to Sony.

May 27

A bankruptcy judge disallowed Auto Zone's claim for $25,000 due from Jeep. Management Decided to write off this accounts receivable.

May 27

Sold 500 USB Ports on credit to GMC for $61 per unit, Invoice #2005.

May 29

Paid in full for the purchase from Panasonic on May 13, Check #1012.

May 29

Received payment in full from GMC for the May 27th transaction.

May 30

Auto Zone is behind in its mortgage payments to Fifth Third Bank. Paid a total of $20,000 ($5,000 principal and $15,000 interest), Check #1013.

May 31

Paid the first month's principal payment of $12,500 on the note payable. In addition, paid one month's interest, Check #1007

*All purchases on account terms of 2/15, n/30

**All credit sales have terms of 2/30, n/45

May Month-end Adjustments:

( A )

The Company took a physical count of Office Supplies on May 30 and found the following the value of inventory on hand to be $2,500. The beginning inventory was $3,200. Write the adjusting journal entry.

( B )

Auto Zone estimates bad debt expense on a monthly basis rather than waiting until year-end. The company uses the allowance method. Based on recent industry estimates, Auto Zone estimates that the allowance account should be 7.5% of accounts receivable. The ending AR balance is $850,000. At the end of the month (prior to this journal entry) there is a CREDIT balance of $19,000 in the Allowance for Doubtful Accounts account. Write the necessary adjusting entry.

( C )

The Balance of $23,000 in the prepaid insurance account at the beginning of May represents 5 months of coverage. Record the amount of insurance for May.

( D )

The Company took a physical inventory count on May 30 and found the following inventory on hand to be $100,641. The ending balance in the Inventory account (before this adjusting entry) was $128,947. Write the necessary adjusting entry.

( E )

Auto Zone has earned two months of the prepaid rent received from their tenant at the beginning of May.

( F )

Depreciation on the company's fixed assets for the month of May is as follows:

1. The furniture and equipment for the office was purchased last year for $7,350. these assets have a 5 year life, an expected salvage value of $500, and are depreicated using straight-line method.

2. The furniture and equipment for the warehouse was purchased a few years ago for $30,000. These assets have a 8-year life, an expected salvage value of $5,000, and are depreciated using the straight-line method.

Shoe:

GPS

Beginning Inventory (BI)

Purchases

Sales

Ending Inventory (EI)

Beginning Inventory (BI)

Purchases

Sales

Ending Inventory (EI)

Beginning Inventory (BI)

Purchases

Sales

Ending Inventory (EI)

Role of Accounting Information System

What is the relationship between Accounting and an Accountinginformation system? (2.5 Marks)

â¢ What has happened to the relationship over the years? (2.5Marks)

â¢ What is accounting information? (1 marks)
â¢ Name 4 uses of Accounting Information? ( 4 Marks)

â¢ Use an example to illustrate the difference between data,information, and intelligence? (4 Marks)

â¢ Discuss security concerns related to shadow data and businessintelligence technologies. (2 Marks)

â¢ Discuss the role of accounting professionals in thedevelopment of shadow data. (2 Marks)

System Documentation

â¢ What is system documentation? (1 Mark)

â¢ Why is it important to know system documentation? ( 4marks)

â¢ Explain the 4 elements that makes up the Data Flow Diagrams? (4 marks)

â¢ Give an example of who or when one of these documents may berequired ( 2 marks)

â¢ What are Flowcharts? (1 mark)
â¢ List an example of an Input/output, processing and storage

Symbols (6 marks)

â¢ Differentiate between different types of Flowchart? ( 6marks)

â¢ If you were a new factory employee on your first day at a vastfactory, indicate which level Flowcharts would be required and

â¢ If you were a new external auditor (assume that you have over10 years of experience but new to this factory) and wish to reviewthe strength of internal control of the same factory, indicatewhich Flowcharts you would require and why? ( 1.5 marks)

why? ( 1.5 marks)

ERP

â¢ What sort of organisation would most benefit from having anERP ? (5 Marks)

â¢ Describe some problems one might encounter from your readingswhen using an ERP? (5 Marks)

â¢ How can a Supply Chain Management system and CustomerRelationship Management system help a company? (5 Marks)

Database

ABC is a large car retailer that also manufactures its ownbrand, assembles made-to-order cars from purchased components andsells fully assembled branded names. The Company also have as stocklots of spare parts that it usually need to help with the processabove.

You have been employed as a consultant to ABC.

What databases are available to help ABC capture, store, manageand manipulate data for decision making and reporting? (1 Mark) Useone of those databases to explain its operation? (3 Marks) What areits advantages and disadvantages of a database?

(6 Marks)

System Development

ABC is a non profit company. It has several branches and allof
them specialises in different operations. It has around 15different operations some of which are free food catering toelderly, free temporary accommodation to elderly, providing freecomputer training to elderly etc. The company receives grants fromgovernment and several local agencies and donation from the generalpublic.

One of the staff was heard saying âOur ERP cannot handlethe
amount of transactions and requirement. Last month, we helped
around 3000 elderly clients and received revenue from at least 30government and private agencies. The company has plenty of fundingfor the new ERP but just recently thought about getting a newERPâ.

As a student who completed ACC200, what would you suggest thebest ways of getting the new ERP? Use the pros and Cons in youranswer about all the different methods of getting a new ERP.(15marks)

Woolworths is a major supermarket in Australia with over 500Outlets all around the country. The company is about to implement anew system.

As a student of ACC200, You have been asked to write a report onthe best way for this conversion to best suit the interest of thecompany. (15 Marks)

Controls

ABC is a company currently set up in Melbourne and currentlyoperating in all around Victoria. The operation of the company isgeneral cleaning offices and cleaning after constructionoperations.

Until now the company was only accepting cash payment from theclients upon delivery of services and also whenever possible onlymaking cash payment to employees and some suppliers.

Due to lack of business and pressure from clients, the companywill now also accept credit card payment from Businesses and set acredit account as well with payment to be made end of month.

Discuss the internal control/s necessary for this new procedurein billing. (10 marks)

Controls

XYZ is a company operating in wholesale wheelchairs repairs andretail sale. The company will be undergoing some changes inmanagement in a few weeks. You have been hired as part of the newmanagement to report on operations.

As part of your investigation, you found that all repairsservices were delegated to another company which belonged to theincumbent CEOâs wife. You also noticed that all the invoices fromthe company to XYZ were very costly and no detailed on the invoicesof the actual repairs. You also noticed that there was only 1option in for customers when paying the bills,

cash payment. It also came to your attention that XYZ did nothave a proper warehouse but all the stocks were being stored at aremote property owned by the CEO.

Write a report to the future management advising them on yourfindings and possible solution. (15 marks)

Controls

â¢ Describe the Revenue cycle activities. Provide 3 examples ofpreventative controls suitable for the Revenue Cycle (15 Marks)

â¢ Describe the Purchase Cycle activities. What are the mainactivities in the purchasing cycle that an organisation should beaware of from a control perspective? (15 Marks)

Controls

In the Revenue cycle, identify possible issues when using acredit note. (5 Marks)

What is/are the consequences of not using a Remittance Advice inthe revenue cycle? (5 Marks)

It is a current trend in many companies to leave the creditapplication as an informal process done by marketing managers.Discuss (5 Marks)

Controls

A survey recently done by reputable company found that receivingreports in many companies is almost inexistent. Some of theparticipants answers were as follows :- â It is too timeconsumingâ, âThere is no staff to do itâ, âIâm not required to fillout the reportâ.

As a student of ACC200, what are your thoughts? (10 marks)

Controls

Under what conditions is MRP more suitable than JIT and viceversa? (5 Marks)

Corporate Networks

What is a VPN and why would an organisation invest in one? (5marks)

What benefits can RFID provide to an organisation that wouldoutweigh the costs? (5 Marks)

What part does a router play in a simple network? (2 marks)

Discuss the difference between operating system software andapplication software and how they are used in a corporate network.(5 marks)

Solve the following QS and Exercises from your textbook in chapter 8.

QS 8-1

Internal control objectives

An internal control system consists of all policies and procedures used to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies. Evaluate each of the following statements and indicate which are true and which are false regarding the objectives of an internal control system.

____	1.	Separation of recordkeeping for assets from the custody over assets is intended to reduce theft and fraud.
____	2.	The primary objective of internal control procedures is to safeguard the business against theft from government agencies.
____	3.	The main objective of internal control procedures is best accomplished by designing an operational system with managerial policies that protect the assets from waste, fraud, and theft.
____	4.	Separating the responsibility for a transaction between two or more individuals or departments will not help prevent someone from creating a fictitious invoice and paying the money to herself or himself.

QS 8-2

Cash and equivalents

Choose from the following list of terms/phrases to best complete the following statements.

a.	Cash
b.	Cash equivalents
c.	Outstanding check
d.	Liquidity
e.	Bank reconciliation
f.	Current assets

____	1.	The category includes currency and coins along with amounts on deposit in bank accounts, checking accounts, and savings accounts.
____	2.	The term __________ refers to a companyâs ability to pay for its near-term obligations
____	3.	The __________ category includes short-term highly liquid investment assets that are readily convertible to a known cash amount and sufficiently close to their due dates so that their market value is not sensitive to interest rate changes.

QS 8-3

Internal control for cash

A good system of internal control for cash provides adequate procedures for protecting both cash receipts and cash disbursements. Identify each of the following statements as either true or false regarding this protection.

____	a.	A basic guideline for safeguarding cash is that all cash receipts be deposited weekly or monthly.
____	b.	A voucher system of control is a control system exclusively for cash receipts.
____	c.	A basic guideline for safeguarding cash is to separate the duties of those who have custody of cash from those who keep cash records.
____	d.	A petty cash system is not a control procedure for safeguarding cash.

QS 8-4

Petty cash accounting

The petty cash fund of the Brooks Agency is established at $150. At the end of the current period, the fund contained $28 and had the following receipts: film rentals, $24; refreshments for meetings, $46 (both expenditures to be classified as Entertainment Expense); postage, $30; and printing, $22. Prepare journal entries to record (a) establishment of the fund and (b) reimbursement of the fund at the end of the current period.

Identify the two events from the following that cause a Petty Cash account to be credited in a journal entry.

____	a.	Fund amount is being reduced
____	b.	Fund amount is being increased
____	c.	Fund is being eliminated
____	d.	Fund is being established

Exercise 8-13^A

Documents in a voucher system

Match each document in a voucher system in column one with its description in column two.

Document

1.	Purchase requisition
2.	Purchase order
3.	Invoice
4.	Receiving report
5.	Invoice approval
6.	Voucher

Description

____	A.	An itemized statement of goods prepared by the vendor listing the customerâs name, items sold, sales prices, and terms of sale.
____	B.	An internal file used to store documents and information to control cash disbursements and to ensure that a transaction is properly authorized and recorded.
____	B.	An internal file used to store documents and information to control cash disbursements and to ensure that a transaction is properly authorized and recorded.
____	C.	A document used to place an order with a vendor that authorizes the vendor to ship ordered merchandise at the stated price and terms.
____	D.	A checklist of steps necessary for the approval of an invoice for recording and payment; also known as a check authorization.
____	E.	A document used by department managers to inform the purchasing department to place an order with a vendor.
____	F.	A document used to notify the appropriate persons that ordered goods have arrived, including a description of the quantities and condition of goods.

Exercise 8-14^B

Record invoices at gross or net amounts

Piere Imports uses the perpetual system in accounting for merchandise inventory and had the following transactions during the month of October. Prepare entries to record these transactions assuming that Piere Imports records invoices (a) at gross amounts and (b) at net amounts.

Oct.	2	Purchased merchandise at a $3,000 price, invoice dated October 2, terms 2/10, n/30.
	10	Received a $500 credit memorandum (at full invoice price) for the return of merchandise that it purchased on October 2.
	17	Purchased merchandise at a $5,400 price, invoice dated October 17, terms 2/10, n/30.
	27	Paid for the merchandise purchased on October 17, less the discount.
		31Paid for the merchandise purchased on October 2. Payment was delayed because the invoice was mistakenly filed for payment today. This error caused the discount to be lost. Please provide all the answer thank you

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ACCT-256 Lecture 3: Q - Chapter 6

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