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ACCOUNTING 450/550 Review Project




Question;ACCOUNTING 450/550 Review Project;Deliverables--Part 1: Adjusting entries, 12/31/13 adjusted trial;balance and corrected 12/31/12 balance sheet.;Deliverables--Part 2: Using the solution to part 1 which will be;made available after part 1 is turned in on blackboard, you are to prepare the comprehensive income statement, statement;of stockholders? equity, statement of cash flows, balance sheet, all in;proper form;Assume all errors are material.;Both parts must be typed in 10 or 12 font.;NOTE: Important! Make a copy of;your solution. The solution to the;problem will be posted on blackboard after you turn in the project.;Purpose;of this assignment;Review the adjustment/correction process;including sophisticated topics from accounting 350/351/352Prepare all of the financial statements in proper;form.;These;are foundational to this course and your career as accountants.;Setting;You have been hired by Dillard to prepare;adjusting entries and financial statements for 2013. Previously Rinky Dink Accounting had been;performing such tasks.;Ignore tax effects;The trial balance at 12/31/13 before you;work your magic and the balance sheet at 12/31/12 are included in a separate;excel file.;The;investments account at 12/31/13 contains stocks that were all purchased;during 2012. In discussions with;the CFO, you determine that they were made to invest excess cash. The company expects that they will need;the cash within the next year.;Here is information that you gather regarding that portfolio (in;000?s);Company;Initial;Investment Cost;Market;Value at 12/31/13;Market;Value at 12/31/12;DAG;$500;$450;$510;GLS;50;55;60;HRG;90;81;92;You also discuss with the CFO the;Investment in Sammy Corporation. You;discover that this Investment was first made 3 years ago on 1/1/11 and that the;investment cost was $2,000,000. The;investment in 40% of the voting stock of Sammy was made in order to be able to;have representation on its board since Sammy is a key supplier of the inventory;that Dillard sells. Dillard wants to have;a say in the quality control and other decisions that Sammy makes. You dig around and realize that the $2,000,000 investment cost was exactly equal to 40% of;the book value of equity of Sammy on 1/1/11.;You also determine that Dillard has been recording dividend revenue when;it receives payment. During 2011;Dillard received $25,000 in dividends, in 2012;$25,000 and in 2013, $27,000.;Sammy has reported income during 2011, 2012 and 2013 of $400,000, $320,000 and;$500,000 respectively.;On 1/1/10, Dillard purchased 500, $1,000;face 5% Mickey Mouse Corporation bonds, interest paid semi-annually on 7/1 and;12/31, with a maturity term of 20 years.;The purchase price was $568,389.;You also discover that the Rosie Product Line was sold on;6/30/13. This did not result in any;decline in plant and equipment, however, the Rosie patent was a part of;the sale. You also are able to;determine that sales related to Rosie for 2013 were $200,000, CGS was $180,000;Salaries Expense was $25,000, patent amortization $1,000.;A reclassification entry within is preferred here.;You discover that Dillard bought and installed equipment for $400,000;on 1/1/10. The equipment?s use will;result in environmental damage that will need to be cleaned up when the;equipment is retired. The estimated;life of the equipment is 10 years on 1/1/10. The environmental clean-up cost is;estimated to be $50,000. The $50,000;will all be paid at the end of the equipment?s life. You notice that the equipment was;expensed when originally purchased.;A discount rate of 6% is reasonable discount rate for the clean-up;cost. Straight-line with no salvage;value is appropriate.;The company uses the;percentage of accounts receivable method and historically does not collect;4% of its ending accounts receivable.;The company has been recording warranty expense as it has been;paid. The company first warranted;its products, 4 years ago, beginning 1/1/10. Warranty costs paid by year are listed;below;Year;Warranty costs paid;2010;$6,000;2011;$8,000;2012;$13,000;2013;$14,000;After exploring the timing of sales during;the year and what seems like the company will pay given experience, you compute;the following warranty liabilities at each year?end.;Original Sale year;Estimated liability @12/31/10;Estimated liability at 12/31/11;Estimated liability at 12/31/12;Estimated liability at 12/31/13;2010;$5,000;$2,000;0;0;2011;$4,500;$500;0;2012;$7,000;$1,000;2013;$8,500;In 2013, you discover that an equipment costing $200,000 purchased on 7/1/10 which actually had;zero salvage value and a 5 year life has been depreciated using;straight-line assuming a 5 year life, but $20,000 salvage value. This was a mistake, no change in;estimate has occurred. 2013 depreciation has been recorded.;Additional information: Dillard purchased equipment for $600,000;cash this year. This transaction;was properly recorded.;You discover that the ending inventory for 2011, 2012 and 2013;were all wrong. This is first;detected by you this year. Inventory;on 12/31/11 was understated by $100,000, on 12/31/12 overstated by $50,000;and on 12/31/13 understated by $30,000.;These appear to be independent errors.;9. The 10-year $1,000,000, 6% note payable was issued on 5/1/08 and;pays interest on 4/30 and 11/1 each year.;10. On 1/1/10, Dillard leased;equipment from Shady Peeps. The lease;term is 10 years and the estimated economic life to the equipment is 12. The lease payments were made on 1/1/10 and;then 12/31/10, 12/31/11, 12/31/12, 12/31/13 (the payments are due on 12/31 each;of the following years). There is;guaranteed residual value is $50,000.;The payments are $45,000 each. An;appropriate interest rate is 5.25%.;11. You notice that in 2012;Dillard reduced Retained Earnings by $65,000 due to the repurchase of common;stock. The stock has not been resold or;retired.


Paper#42977 | Written in 18-Jul-2015

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