Thought Provokers

LO 3.1Is it possible to be too conservative? Explain your answer.

LO 3.1Why is it important to learn all of this terminology when accounting is a quantitative subject?

LO 3.2Assume that you are the controller of a business that provides legal services to clients. Suppose that the company has had a tough year, so the revenues have been lagging behind, based on previous years’ standards. What would you do if your boss (the chief executive officer [CEO] of the company) asked to reclassify a transaction to report loan proceeds of $150,000 as if the cash came from service fee revenue from clients instead. Would following the CEO’s advice impact the company’s accounting equation? How would reclassifying this one transaction change the outcome of the balance sheet, the income statement, and the statement of retained earnings? Would making this reclassification change the perception that users of the financial statements would have of the company’s current year success and future year potential?

Write a memo, detailing your willingness (or not) to embrace this suggestion, giving reasons behind your decision. Remember to exercise diplomacy, even if you must dissent from the opinion of a supervisor. Note that the challenge of the assignment is to keep your integrity intact, while also keeping your job, if possible.

LO 3.2Visit the website of the US Securities and Exchange Commission (SEC) (https://www.sec.gov/edgar/searchedgar/companysearch.html). Search for the latest Form 10-K for a company you would like to analyze. Submit a short memo that

1. Includes the name and ticker symbol of the company you have chosen.
2. Reviews the company’s end-of-period Balance Sheet to determine the following:
   1. total assets
   2. total liabilities
   3. total equity
3. Presents the company’s accounting equation at the end of the period, from the information you collected in (A), (B), and (C):
   1. provide the web link to the company’s Form 10-K to allow accurate verification of your answers

LO 3.3Is the order in which we place information in the journal and ledger important?

LO 3.4Visit the website of the SEC (https://www.sec.gov/edgar/searchedgar/companysearch.html). Search for the latest Form 10-K for a company you would like to analyze. Submit a short memo that

1. Includes the name and ticker symbol of the company you have chosen
2. Reviews the company’s comparative Balance Sheet to gather the following information:
   1. Compare beginning and ending Assets totals, noting amount of change for the most recent period
   2. Compare beginning and ending Liabilities totals, noting amount of change for the most recent period
   3. Compare beginning and ending Equity totals, noting amount of change for the most recent period
3. State the changes identified in (A), (B), and (C) in accounting equation format. If the “change” equation does not balance, explain why not. Hint: Double-check your calculations, and if the accounting equation change still does not balance, search for notes in the company’s files about prior period adjustments, which will often explain why balances may differ.
   1. Provide the web link to the company’s Form 10-K to allow accurate verification of your answers.

LO 3.5Visit the website of the US Securities and Exchange Commission (SEC) (https://www.sec.gov/edgar/searchedgar/companysearch.html). Search for the latest Form 10-K for a company you would like to. When you are choosing, make sure the company sells a product (has inventory on the Balance Sheet, and Cost of Goods Sold on the Income Statement). Submit a short memo:

1. Include the name and ticker symbol of the company you have chosen.
2. Follow the financial statement progression from the Income Statement to the Retained Earnings Statement to the Balance Sheet. Find the net income amount from the Income Statement and identify where it appears on the Statement of Retained Earnings (or the Statement of Stockholders’ Equity).
3. On the statement found for instruction (A), find the ending retained earnings balance, and identify where it appears on the Balance Sheet for year-end.
4. Provide the web link to the company’s Form 10-K to allow accurate verification of your answers.

LO 3.6Analyze Trusty Company’s trial balance and the additional information provided to determine the following:

1. what is causing the trial balance to be out of balance
2. any other errors that require corrections that are identified during your analysis
3. the effect (if any) that correcting the errors will have on the accounting equation

A review of transactions revealed the following facts:

• A service fee of $18,000 was earned (but not yet collected) by the end of the period but was accidentally not recorded as revenue at that time.
• A transposition error occurred when transferring the account balances from the ledger to the trial balance. Salaries expense should have been listed on the trial balance as $64,500 but was inadvertently recorded as $46,500.
• Two machines that cost $9,000 each were purchased on account but were not recorded in company accounting records.