Reference no: EM132639643

ACC201 Financial Accounting

Question 1: FACTORS IN COMMUNICATING USEFUL INFORMATION

The primary objective of accounting is to provide information useful for decision making. To provide information that supports this objective, accountants must consider the intended users, the types of decisions users make with financial statement information, and available means of analysing the information.

Required: discuss this statement in terms of the following:

1. Who the Users of financial statement information are and the different purposes they are used for.

2. The Types of Decisions; Just as the knowledge level of potential users varies, the information needs of users also vary, depending on the decision at hand.

3. Because of the diversity of users, their different levels of knowledge, the varying information needs for particular decisions, and the general nature of financial statements, a variety of analysis techniques have been developed.
• Explain the ratio method of analysis and how this technique appears to provide the most relevant information in a given situation.
• Discuss 4 ratios of your choice in terms of the users, objectives, decisions and outcomes of the selected ratios.
• Select a company of your choice and calculate 4 ratios based on data extracted from the financial statements. Briefly explain the interpretation of the result.

Note: Objectives of Ratio Analysis as suggested earlier; various users approach financial statement analysis with many different objectives.

Question 2: Ratio Analysis

The following ratios are for four companies in different industries. Some of these ratios have been discussed in the textbook, others have not, but their names explain how the ratio was computed. These data are for the companies' 2016 fiscal years. The four sets of ratios, presented randomly are:

Ratio	Company 1	Company 2	Company 3	Company 4
Current assets ÷ Total assets	7%	18%	31%	19%
Average days to sell inventory	72 days	12 days	163 days	108 days
Average days to collect receivables	60 days	3 days	47 days	9 days
Return-on-assets	7%	8%	3%	5%
Gross margin	39%	22%	22%	50%
Sales ÷ Property, plant, and equipment	1.1 times	3.4 times	4.5 times	23.5 times
Sales ÷ Number of full-time employees	$279,98 0	$46,350	$397,743	$64,71 7

The four companies to which these ratios relate, listed in alphabetical order, are:

• Wayward Brewing Company is a company that produces beer and related products.
• Darden Restaurants, Inc. operates approximately 2,150 restaurants under 10 different names, including Olive Garden, Bahama Breeze, and LongHorn Steakhouse.
• Liebherr Group is a large equipment manufacturer that manufactures heavy construction equipment.
• Weight Watchers International, Inc. is a company that provides weight loss services and products. Its fiscal year-end was December 31, 2016, during which 81 percent of its revenues came from services and 19 percent from product sales.

Required:

1. Determine which company should be matched with each set of ratios.
2. Write a memorandum explaining the rationale for your decisions.

Question 3: Comprehensive Problem

The trial balance of Camilo Security Services Pty Ltd. as of January 1, Year 8, had the following normal balances:

Cash	$93,708
Petty cash	100
Accounts receivable	22,540
Allowance for doubtful accounts	1,334
Supplies	250
Prepaid rent	3,600
Merchandise inventory (18 @ $285)	5,130
Land	4,000
Salaries payable	2,100
Common stock	50,000
Retained earnings	75,894

During Year 8, Camilo Security Services experienced the following transactions:

1. Paid the salaries payable from Year 7.

2. Purchased equipment and a van for a lump sum of $36,000 cash on January 2, Year 8. The equipment was appraised for $10,000 and the van was appraised for
$30,000.

3. Paid $9,000 on May 1, Year 8, for one year's office rent in advance.

4. Purchased $300 of supplies on account.

5. Purchased 120 alarm systems at a cost of $280 each. Paid cash for the purchase.

6. After numerous attempts to collect from customers, wrote off $2,350 of uncollectible accounts receivable.

7. Sold 115 alarm systems for $580 each. All sales were on account. (Be sure to compute cost of goods sold using the FIFO cost flow method).

8. Billed $86,000 of monitoring services for the year. Credit card sales amounted to
$36,000, and the credit card company charged a 4 percent fee. The remaining
$50,000 were sales on account.

9. Replenished the petty cash fund on June 30. The fund had $12 cash and receipts of $45 for yard mowing, $28 for office supplies expense, and $11 for miscellaneous expenses.

10. Collected the amount due from the credit card company.

11. Paid installers and other employees a total of $52,000 cash for salaries.

12. Collected $115,500 of accounts receivable during the year.

13. Paid $12,500 of advertising expense during the year.

14. Paid $6,800 of utilities expense for the year.

15. Sold the land, which was purchased in 2011, for $12,000.

16. Paid the accounts payable.

17. Paid a dividend of $10,000 to the shareholders.

18. Adjustments

19. Determined that $180 of supplies were on hand at the end of the year.

20. Recognized the expired rent for both the old van and the office building for the year. The lease on the van was not renewed. Rent paid on March 1, Year 7, for the van was $4,800.

21. Recognized uncollectible accounts expense for the year using the allowance method. Camillo estimates that 3 percent of sales on account will not be collected.

22. Recognized depreciation expense on the equipment and the van. The equipment has a five-year life and a $2,000 salvage value. The van has a four-year life and a $6,000 salvage value. The company uses double-declining-balance for the van and straight-line for the equipment.

23. Accrued salaries at December 31, Year 8, were $1,500.

Required

1. Record the preceding transactions in general journal form.
2. Post the transactions to T-accounts.

3. Prepare a trial balance.
4. Prepare an income statement, statement of changes in stockholders' equity, balance sheet, and statement of cash flows.
5. Close the temporary accounts to retained earnings.
6. Post the closing entries to the T-accounts and prepare a post-closing trial balance.