EMBA FINANCIAL ACCOUNTING QUESTIONS
QUESTION 1 - Magic Animation
Magic Animation Corporation uses aging analysis to determine its allowance for doubtful accounts. You are given the following information about the age of the receivable held in the books at the end of 2012:
|
Age of Receivables
|
Customer Balance
|
Estimated % Allowance uncollectible
|
|
Current
|
$375,200
|
1%
|
|
30-60 days past due
|
39,600
|
3%
|
|
61-90 days past due
|
16,900
|
10%
|
|
Over 90 days past due
|
3,800
|
50%
|
Net receivables reported in the balance sheet at beginning of the year was $393,250. Allowance for bad debts at the beginning of the year was of 7,650. During the year, one of the customers who owed $5,900 filed for bankruptcy. Another customer who owed $1,890 and had been written off sent a check to pay off his outstanding balance. All other accounts are current.
1. What allowance for bad debts balance should the company have at the end of 2012?
2. What bad debt expense should the company report in its income statement for 2012?
3. What is the journal entry to record the bad debt expense?
4. What is the journal entry(s) to record the recovery of $1,890 from the delinquent customer?
5. What is the Accounts Receivables (Net) Balance at the end of the year?
6. If the company reported revenues (all credit sales) of $3,625,500 for 2012, can you estimate collections from customers during 2012?
7. Compute DSO for 2012 using average receivables.
8. If the company reported revenues of $3,245,000 in 2011, and the reported Accounts Receivable (net) at the beginning of 2011 was 344,600, and allowance of 6,100, compute DSO for 2011 and compare with the number computed in (7) above.
QUESTION 2 - Harley's Leather
The following facts pertain to Harley's leather jacket product line. Assume that the company uses periodic inventory method.
Transactions for 2014 are summarized below:
|
|
Unit Cost
|
# of units
|
|
Beginning inventory
|
$75
|
400
|
|
Purchases
|
$80
|
600
|
|
Sales
|
$100
|
700
|
Transactions for the year 2015 is summarized in the table below.
|
|
Unit Cost
|
# of units
|
|
Beginning inventory
|
|
|
|
Purchases
|
$85
|
1,400
|
|
Sales
|
$105
|
1,100
|
a. What is the cost of goods sold and ending inventory reported by the company each year under (A) FIFO and (B) LIFO? Which method is more profitable (pre-tax)? [In filling up the table above, the beginning inventory for 2015 should be the same as the ending inventory for 2014.]
b. What is the LIFO Reserve at the end of 2014 and 2015?
c. Show how the equation FIFO COGS + change in LIFO Reserve = LIFO COGS is satisfied in your answers for the year 2015.
d. If the company has a 30% tax rate, what is the savings in tax in the year 2015? What is the cumulative savings in tax over the two years?
QUESTION 3 - Happy Goat
The Happy Goat Company is a leader in the goat meat market. It produces and markets fresh and frozen goat meat. Its frozen products are known for their value and healthful qualities.
Happy Goat's balance sheet for the fiscal year ended on December 31, 2014 and 2013 disclosed the following:
|
|
2014
|
2013
|
|
Property plant and equipment (at cost)
|
$1,633,998
|
$1,488,862
|
|
Less Accumulated depreciation
|
$515,026
|
$417,512
|
|
|
$1,118,972
|
$1,071,350
|
In the income statement for 2014 Happy Goat disclosed the following:
Depreciation expense $ 103,366
In the cash flow statement for 2014, under Cash Flow from Investing Activities, Happy Goat provided the following information:
Additions to property, plant and equipment $ (203,657)
Proceeds from dispositions of property, plant and equipment $ 16,291
Required:
a. What was the cost of property, plant and equipment purchased in 2014?
b. What was the net book value of property, plant and equipment disposed of during 2014?
c. Did Happy Goat generate a gain or a loss on the disposition of PP&E? How much?
d. Happy Goat calculates depreciation primarily using the straight-line method. Assuming the average life of all of Happy Goat's assets is 10 years, what was the average age of the property, plant and equipment disposed of in 2014?
e. What is the journal entry for the asset disposal in 2014?
QUESTION 4 - Apple
You are given portions of Apple's 2016 Annual Report. (Note fiscal year 2016 ends on September 24, 2016 - all references to years in the questions refer to fiscal year). The file has 34 non-consecutive pages. (File is available on Canvas).
PART A - The following questions relate to material already covered in class. You are required to submit answers to these questions.
a. Describe in no more than three lines Apple's business. [Hint: See Note 1]
b. Consider Apple's Accounting Equation for September 24, 2016 and September 26, 20015. What is the percentage increase in the level of the equation? Which asset had the highest growth in terms of dollar amount?
c. Calculate the Operating working capital (OWC) for Apple as of September 24, 2016.
d. Over the years where data exists, in which year did Apple report the highest percentage of Gross Margin, relative to Net Sales? In which year did Apple report the highest percentage of Net Income, relative to Net Sales?
e. Briefly explain the recognition policies adopted by Apple for sales of iPhone.
f. As of 24 September 24, 2016, what was the total cash received from customers that Apple had not yet recognized as revenue?
g. How does Apple record shipping costs that are billed to customers? What is the effect of this policy on Net Income?
h. When does Apple expense warranty related costs? When does Apple expense advertising costs?
i. Which apple do you like better (i) or (ii) ? Why?
j. Did the percentage of gross accounts receivable that Apple does not anticipate collecting increase or decrease in 2016, relative to 2015? What kind of business partners account for the highest percentage of trade receivables?
k. What depreciation method does Apple use? How much was the Depreciation and Amortization on Property and Equipment in 2016?
l. When and how does Apple decide a Long-lived Asset is impaired? Did Apple record any significant impairment on Long-Lived Assets in 2016?
m. What is the net balance of acquired intangible assets with definite service life as of September 24, 2016?
n. What cost flow assumption did Apple use in valuing its inventory? What is the main category (or categories) of inventory items?
PART B - The following questions relate to material not yet covered in class. You do not have to submit this with your problem set. It will be a good review for the final when we cover these materials in class.
o. How many shares were used to calculate Apple's Diluted Earnings Per Share in 2016? What was the percentage impact of the dilution on the reported Basic EPS?
p. Was 2016 Net Income higher or lower than Total Comprehensive Income? What was the main reason for the difference (item and magnitude)?
q. Do you know that scientists recently found proof of Einstein's theory of gravity being the curvature of space time?
r. What journal entry did Apple make to record repurchase of Common Stock during 2016?
s. Provide the journal entry that summarizes Apple's Income Tax Expense for 2016. How much was actually paid in cash by Apple for Income Taxes?
t. What statutory federal income tax rate did Apple use for 2016? What was Apple's effective tax rate for the same year? Which item was the most significant in explaining the difference?
u. As of September 24, 2016, is the market value of Apple's available-for-sale marketable securities above or below their costs? Did the company report the cost of market value on the Balance Sheet? What is the amount?
v. What was Apple's Rent Expense for its Operating Leases during 2016? How much is Apple anticipating paying in 2017? What is the longest lease term for retail space?
w. Which geographical segment generated the highest Net Sales during 2016? Which geographical segment has the highest percentage sales growth from 2015 to 2016? Which quarter generates the highest sales for Apple? Does this quarter include the holiday season?