AccountingAccountingAssessment 10Assessment 10.docx· Wr.docx

Accounting/Accounting/Assessment 10/Assessment 10.docx
· Write a 3- to 5-page essay about the ethical and financial
implications of insider trading.
Note: Some of the assessments in this course build upon each
other, so you are strongly encouraged to complete them in the
order in which they are presented.
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Investors depend on the information from financial statements
in making investment decisions. However, if a company's
financial information is used or shared before it is released to
the public, this could cause substantial movement in the price of
a company's stock. Some individuals do not see anything
unethical about insider trading, yet it is a criminal offense, one
for which even well-known and respected individuals have
served, and are serving, time in prison. CPAs agree to a
professional code of conduct upon licensure, but it is important
to develop your own conclusions regarding the ethical
implications of financial reporting, planning, and decision
making within an organization.
By successfully completing this assessment, you will
demonstrate your proficiency in the following course
competencies and assessment criteria:
· Competency 2: Examine regulatory, ethical, and credibility
issues in accounting
1. Analyze how insider trading may affect general business
management planning and decision making.
1. Analyze the ethical implications related to financial decisions
concerning inside information.
. Competency 5: Communicate in a manner that is professional
and consistent with expectations for members of the business
professions.

2. Communicate in a manner that is professional and consistent
with expectations for members of the business professions.
Competency Map
Check Your ProgressUse this online tool to track your
performance and progress through your course.
· Toggle Drawer
Resources
Suggested Resources
The following optional resources are provided to support you in
completing the assessment or to provide a helpful context. For
additional resources, refer to the Research Resources and
Supplemental Resources in the left navigation menu of your
courseroom.
Library Resources
The following e-books or articles from the Capella University
Library are linked directly in this course:
. Murthy, G. (2009). Financial accounting. Mumbai, India:
Himalaya Publishing House.
. Vataliya, K. S. (2009). Practical financial accounting:
Advance methods, techniques and practices. Jaipur, India:
Paradise Publishers.
. Doran, D. T. (2012). Financial reporting standards: A
decision-making perspective for non-accountants. New York,
NY: Business Experts Press.
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Course Library Guide
A Capella University library guide has been created specifically
for your use in this course. You are encouraged to refer to the
resources in the MBA-FP6014 – Financial Accounting Library
Guide to help direct your research.
Bookstore Resources
The resources listed below are relevant to the topics and
assessments in this course. These resources are available from
the Capella University Bookstore. When searching the
bookstore, be sure to look for the Course ID with the specific –
FP (FlexPath) course designation.

. Libby, R., Libby, P., & Hodge, F. (2017). Financial accounting
(9th ed.). New York, NY: Irwin.
· Assessment Instructions
Based on your own experience and knowledge with financial
reporting, planning, and decision making, develop conclusions
and explain the ethical implications of financial decisions
within an organization. You may need to do additional research
on the implications of using insider information (for example,
the case of Martha Stewart) to help you complete this
assessment.
Write an essay in which you respond to the following:
. Why is insider trading considered unethical? Keep in mind that
some individuals do not see anything unethical about it, even
though it is a criminal offense.
. Would allowing insider trading, even if it were ethical, hinder
the operation of the stock market in raising capital for new and
existing companies? Explain.
You must use two or more scholarly sources in your essay to
support your responses.
Additional Requirements
. Length: Your essay should be 3–5 typed, double-spaced pages,
including a title page and references.
. Written communication: Written communication should be free
of errors that detract from the overall message.
. Style and formatting: Use current APA style to format your
essay and cite your references. You must use at least two
references in your essay.
. Font and font size: Times New Roman, 12 point.
Ethical Issues: Ethics and Insider Trading Scoring Guide
View Scoring GuideUse the scoring guide to enhance your
learning.How to use the scoring guide
· [u10a1] Ethical Issues: Ethics and Insider Trading
Write a 3- to 5-page essay about the ethical and financial
implications of insider trading.
· Assessment Submit
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Assessment 2
· For this assessment, complete the problem below. You may
use Word or Excel to complete the assessments throughout this
course, but you will find Excel to be most helpful for creating
spreadsheets. Tutorials for using Excel are provided in the
Supplemental Resources in the left navigation menu. If you use
Excel, submit the assessment in one Excel document, using
separate tabs for each spreadsheet.
To complete this assessment, you may choose to use the
Assessment 2 Problem Template linked in the Suggested
Resources under the Capella Resources heading.
Transactions
Audrey Jhingree opened an ice cream parlor in a university
town. The parlor specializes in ice cream combinations named
after popular professors in the business department of the
university. You have been hired as a manager. Your duties
include maintaining the store's financial records. The following

transactions occurred in April 2012, the first month of
operations:
· a. Received cash of $40,000 total ($10,000 each) from four
investors. Each investor received 100 shares of common stock.
This took place on April 1.
· b. Paid three months' rent for the store on April 1 at $2,000
per month (recorded as prepaid expenses).
· c. Purchased ice cream and cones for $6,000 on account
payable, due in 60 days. This took place on April 2.
· d. Purchased supplies for $1,000 cash on April 2.
· e. Received a two-year $11,000 loan at the bank. The note
payable is dated April 2.
· f. Used the money from (e) to purchase a computer for $3,000
(for record keeping and inventory tracking) and to purchase
$8,000 of used furniture and fixtures for the store.
· g. Placed a grand opening advertisement in the local paper for
$600 cash.
· h. Made sales in the first half of the month totaling $5,000:
$4,250 was in cash and the rest was on accounts receivable. The
cost of the ice cream sold was $2,000.
· i. Made a $600 payment on accounts payable on April 18.
· j. Incurred and paid employee wages of $2000 for the month
of April.
· k. Collected accounts receivable of $700 from customers.
· l. Made a repair to one of the refrigerators for $300.
· m. Made sales in the last half of the month for $6,000, all for
cash. The cost of the ice cream sold was $2,400.
Recording Transactions, Posting to T-Accounts, Preparing
Financial Statements, and Commenting on What Financial
Statements Tell Potential Investors
Using the information provided above, complete the following
for Audrey Jhingree's ice cream parlor. To complete this
problem, you may choose to use the Assessment 2 Problem
Template, which is linked in the Suggested Resources under the
Capella Resources heading.
1. Set up appropriate T-accounts for cash, accounts receivable,

supplies, inventory, prepaid expenses, equipment, furniture and
fixtures, accounts payable, notes payable, contributed capital,
sales revenue, cost of goods sold (expense), advertising
expense, wage expense, and repair expense. All accounts begin
with zero balances.
1. Record in the T-accounts the effects of each transaction for
Audrey's shop in April, referencing each transaction in the
accounts with the transaction letter. Show the ending balances
in the T-accounts. Note that transactions (h) and (m) require
two types of entries, one for sales and one for cost of goods
sold. Prepare trial balances for 4/30/12.
1. Prepare financial statements at the end of the month ended
April 30, 2012. Hint: Do the income statement first, followed by
the statement of stockholders' equity, and then the balance
sheet. Properly label each statement: Does it cover a period of
time or just a point in time?
1. Write a short memo to Audrey offering your opinion on the
results of operations during the first month of business.
1. After three years in business, you are being evaluated for a
promotion. One measure is how efficiently you have managed
the assets of the business. Using the data in the following table,
compute the total asset turnover ratio for 2014 and 2013 and
evaluate the results. Also compute the return on invested capital
(net income divided by total stockholders' equity). Do you think
you should be promoted? Why or why not?
Audrey's Ice Cream Parlor: Financial Data
Account
2014
2013
2012
Total assets
$93,000
$78,000
$61,000
Total liabilities
$23,000

$23,000
$16,500
Total contributed capital plus retained earnings
$70,000
$55,000
$44,500
Total sales
$100,000
$82,500
$57,250
Net income
$15,000
$10,500
$4,500
Accounting/Accounting/Assessment
2/assessment_2_problem_template.xls
T-Accounts SetupWorksheet 1 of 6. Template for requirement 1:
Set up appropriate T-accounts for cash, accounts receivable,
supplies, inventory, prepaid expenses, equipment, furniture and
fixtures, accounts payable, notes payable, contributed capital,
sales revenue, cost of goods sold (expense), advertising
expense, wage expense, and repair expense. All accounts begin
with zero balances.Learner:Audrey's Ice Cream
ParlorCashAccounts ReceivableSuppliesPrepaid
ExpensesEquipment- 0- 0- 0InventoryAccounts PayableNotes
Payable- 0- 0- 0- 0Furniture & FixturesSales RevenueCost of
Goods Sold- 0- 0Advertising ExpenseWage ExpenseRepair
ExpenseContribution CapitalEnd of worksheet
T-AccountsWorksheet 2 of 6. Template for requirement 2:
Using columns A through N, record in the T-accounts the
effects of each transaction for Audrey's shop in April,
referencing each transaction in the accounts with the transaction
letter. Show the ending balances in the T-accounts. Note that
transactions (h) and (m) require two types of entries, one for

sales and one for cost of goods sold. In columns P through S,
prepare trial balances for 4/30/12.Learner:Audrey's Ice Cream
ParlorAudrey's Ice Cream ParlorTrial Balance30-Apr-
12CashAccounts
ReceivableSuppliesDebitCredit(a)(b)(h)(k)(d)Cash(e)(d)Accoun
ts Receivable(h)(f )- 0Supplies(k)(g)Inventory(m)(i)Prepaid
Expenses(j)Equipment(l)Prepaid ExpensesEquipmentFurniture
and Fixtures- 0- 0(b)(f)Accounts Payable- 0Notes
PayableCommon StockSalesInventoryAccounts PayableNotes
PayableCost of Goods Sold( c )(h)(i)(c
)(e)Advertising(m)Wages- 0- 0- 0Repairs- 0Totals- 0=-
0Furniture & FixturesSales RevenueCost of Goods
Sold(f)(h)(h)(m)(m)- 0- 0Advertising ExpenseWage
ExpenseRepair Expense(g)(j)(l)Contribution Capital(a)End of
worksheet
Income StatementWorksheet 3 of 6. Template for requirement 3:
Prepare the income statement at the end of the month ended
April 30, 2012.Learner:Audrey's Ice Cream ParlorIncome
StatementFor the Month Ended April 30, 2012SalesLess: Cost
of Goods SoldGross Profit- 0Less:
ExpensesAdvertisingWagesRepairs- 0Net Income$ -
00.00%End of worksheet
Stockholders' EquityWorksheet 4 of 6. Template for
requirement 3: Prepare the statement of stockholders' equity at
the end of the month ended April 30, 2012.Learner:Audrey's Ice
Cream ParlorStatement of Stockholders' EquityFor the Month
Ended April 30, 2012Contributed Capital:Balance, April 01-
0Add: Issue of Common StockTotal Contributed Capital$ -
0Retained Earnings:Balance, April 01Add: Net
Income0.00%Retained Earnings, April 30$ - 0Total
Shareholders' Equity$ - 0End of worksheet
Balance SheetWorksheet 5 of 6. Template for requirement 3:
Prepare the balance sheet at the end of the month ended April
30, 2012.Learner:Audrey's Ice Cream ParlorBalance SheetApril
30, 2012AssetsLiabilitiesCashAccounts PayableTotal Current
Liabliites- 0Accounts ReceivableNotes PayableTotal Long-Term

liabliites- 0SuppliesTotal Liabilities- 0InventoryPrepaid
ExpensesTotal Current Assets- 0Stockholders'
EquityEquipmentShareholders' EquityFurniture and
FixturesTotal Equipment, Furniture and Fixtures- 0Total
Assets$ - 0Total Liabilities and Owner's Equity$ - 0Current
Ratio =0.00%End of worksheet
Req 4 & 5Worksheet 6 of 6. Template for requirements 4 and 5:
Write a short memo to Audrey offering your opinion on the
results of operations during the first month of business. Then,
using the financial data from the assessment, compute the total
asset turnover ratio for 2014 and 2013 and evaluate the results.
Also compute the return on invested capital (net income divided
by total stockholders' equity). Evaluate whether you should be
promoted based on how efficiently you have managed the assets
of the business.Learner:(4) Memo to Audrey on the results of
operations during the first month of business.Audrey's Ice
Cream ParlorAccount201420132012Total
assets$93,000$78,000$61,000Total
liabilities$23,000$23,000$16,500Total contributed capital plus
retained earnings$70,000$55,000$44,500Total
sales$100,000$82,500$57,250(5) Compute the total asset
turnover ratio and the return on invested capital and evaluate
the results. Based on this measure, do you think you should be
promoted? Why or why not?Net
income$15,000$10,500$4,50020142013Average
Assets8550069500Average Capital6250049750
3/cf_assessment_3_problem_1_template.xls
Journal EntriesTemplate for adjusting entries in a journal:
Column A is the letter (a through h) for the transaction, column
B is for the type of adjustment, column B is for debits (DR),
and column D is for credits (CR).Learner:Huntington
CompanyAdjusting Entries31-Dec-11DRCRa.Unearned Rent
RevenueRent Revenue(4 months of 6 months of
$9,000)b.Interest ExpenseInterest Payable($30,000 × .12 ×

3/12)c.Depreciation ExpenseAccumulated Depreciation -
Truck(amount of $5,000 is given)d.Unearned Service
RevenueService Revenue($4,800/12 × 2 months)e.Insurance
ExpensePrepaid Insurance($12,000/12 × 2 months)f.Accrued
Service RevenueService Revenues(amount of $6,000 is
given)g.Wages ExpenseAccrued Wages Payable(amount of
$17,500 is given)h.Property Tax ExpenseAccrued Taxes
Payable(amount of $16,000 is given)End of worksheet
Effects of AdjustingTemplate for indicating the effect of each
adjusting entry (a through h from Problem 1) on the balance
sheet and income statement. Compute the assets, liabilities,
stockholders' equity, revenues, expenses, and net income for all
transactions. Huntington Company, year ended December 31,
2012.Learner:TRANSACTIONBALANCE SHEETINCOME
STATEMENTAssetsLiabilitiesStockholders'
EquityRevenuesExpensesNet
IncomeaNENEbNENE900cNEdNE-800800800NE800e-2,000NE-
2,000NE2,000-2,000fgNENE-17,500hNE16,000NE-
16,000CRCRDRCRDRDR-2,00015,200-1,2008002,900-
34,700Change in Assets & Liabilities17,200Revenue − Expense
=-2,100Change In:DRCRAssetsLiabilitiesEquity28,600Must
Equal28,600-End of worksheet
Accounting/Accounting/Assessment 3/Note.docx
Assessment 3
· Note: Some of the assessments in this course build upon each
For this assessment, complete Problems 1 and 2. You may use
Word or Excel to complete the assessments throughout this

Templates for both problems are linked in the Suggested
Problem 1: Adjusting the Books Using Adjusting Entries
Huntington Company's annual accounting year ends on
December 31. It is December 31, 2012, and all of the 2012
entries except the following adjusting entries have been made:
· a. On September 1, 2012, Huntington collected six months of
rent worth $9,000 on storage space. At that date, cash was
debited and unearned rent revenue was credited for $9,000.
· b. On October 1, 2012, the company borrowed $30,000 from a
local bank and signed a 12 percent note for that amount. The
principal and interest are payable on the maturity date,
September 30, 2012.
· c. Depreciation of $5,000 must be recognized on a service
truck purchased on July 1, 2012, at a cost of $30,000.
· d. Cash of $4,800 was collected on November 1, 2012, for
services to be rendered evenly over the next year beginning on
November 1. Unearned service revenue was credited when the
cash was received.
· e. On November 1, 2012, Huntington paid a one-year premium
for fire insurance of a total of $12,000 for one year of coverage
starting on that date. Cash was credited and prepaid insurance
was debited for this amount.
· f. The company earned service revenue of $6,000 on a special
job that was completed December 24, 2012. Collection will be
made during January 2012. No entry has been recorded.
· g. At December 31, 2012, wages earned by employees totaled
$17,500. The employees will be paid on the next payroll date,
January 15, 2012.
· h. On December 31, 2012, the company estimated it owed
$16,000 for 2012 property taxes on land. The tax will be paid
when the bill is received in January 2012.
Using the information above, prepare the adjusting entry
required for each transaction at December 31, 2012.

To complete this problem, you may choose to use the
Assessment 3, Problem 1 Template, which is linked in the
Suggested Resources under the Capella Resources heading.
Problem 2: Analyzing the Effects of Adjusting Entries on the
Accounting Model
To complete this problem, you will need to refer to Problem 1.
Indicate in a table format the effect of each adjusting entry in
Problem 1 (a through h) and the amount of the effect. Use + for
increase, − for decrease, and NE for no effect.
This problem is built around the following formulas and
concepts:
· Assets = Liabilities + Stockholders' Equity.
· Revenues − Expenses = Net Income.
· Net Income accounts are closed to Retained Earnings, a part of
Shareholders' Equity.
Assessment 4
· Note: Some of the assessments in this course build upon each
For this assessment, you may use Word or Excel to complete the
assessments throughout this course, but you will find Excel to
be most helpful for creating spreadsheets. Tutorials for using
Excel are provided in the Supplemental Resources in the left
navigation menu. If you use Excel, submit the assessment in one
Excel document, using separate tabs for each spreadsheet.
To complete this problem, you may choose to use the
Assessment 4, Comprehensive Problem Template, which is
linked in the Suggested Resources under the Capella Resources
heading.
Comprehensive Problem
Patricia Allison began an engineering consulting business on
January 1, 2011, organized as a corporation (PA Engineering,
Inc.) under the laws of Delaware. The annual reporting period

ends December 31, 2011. The trial balance on January 1, 2012,
is provided in the following table:
PA Engineering Trial Balance, January 1, 2012
Account Titles
Debit
Credit
Cash
$10,000
Accounts Receivable
Office Supplies
$20,000
Land
Computers
$80,000
Accumulated Depreciation (on computers)
Miscellaneous Other Assets
$5,000
Accounts Payable
Salaries and Wages Payable
Interest Payable

Income Taxes Payable
Long-Term Notes Payable
Contributed Capital (100,000 shares)
$115,000
Retained Earnings
Service Revenue
Depreciation Expense
Supplies Expense
Wages Expense
Interest Expense
Income Tax Expense
Remaining Expenses (not detailed to simplify)
Totals
$115,000
$115,000

Transactions during 2012 are as follows:
· a. Borrowed $20,000 cash on a five-year, 10 percent note
payable, dated July 1, 2012.
· b. Purchased land for a future building site; paid cash,
$10,000.
· c. Earned $200,000 in revenues for 2012, including $60,000 on
credit and the rest in cash.
· d. Sold 4,000 additional shares of capital stock for cash at
$1.15 market value per share on January 3, 2012.
· e. Incurred $120,000 in remaining expenses for 2012,
including $20,000 on credit and the rest paid in cash.
· f. Collected accounts receivable, $40,000.
· g. Purchased other assets for $8,000 cash.
· h. Paid accounts payable, $18,000.
· i. Purchased office supplies on account for future use,
$25,000.
· j. Signed a three-year, $33,000 service contract to start
February 1, 2013.
· k. Declared and paid cash dividends, $10,000.
Data for adjusting entries:
· l. Supplies counted on December 31, 2012, $18,000.
· m. Depreciation for the year on the equipment, $21,000.
· n. Interest accrued on notes payable (to be computed).
· o. Wages earned by employees since the December 24 payroll
but not yet paid, $15,000.
· p. Income tax expense, $10,000, payable in 2013.
Complete the following for this problem:
1. Set up T-accounts for the accounts on the trial balance and
enter beginning balances.
1. Prepare journal entries for transactions (a) through (k) and
post them to the T-accounts.
1. Journal and post the adjusting entries (l) through (p).
1. Prepare an income statement (including earnings per share),
statement of stockholders' equity, balance sheet, and statement
of cash flows.
1. Journal closing entries.

1. Compute the following ratios for 2012 and explain what the
results suggest about the company.
22. Current ratio. (Industry average is 2.2 to 1.0.)
22. Total asset turnover. (Industry average is 3 times a year.)
22. Net profit margin. (Industry average is 5.00%.)
4/cf_assessment_4_comp_problem_template.xls
T-Accounts BegWorksheet 1 of 9. Template for requirement 1:
Set up T-accounts for the accounts on the trial balance and enter
beginning balances.Learner:PA Engineering, Inc.CashAccounts
ReceivablePrepaid Office SuppliesB. BalB. Bal- 0- 0- 0- 0- 0-
0- 0- 0- 0Prepaid ExpensesComputersMiscellaneous Other
AssetsB. BalB. Bal5,000.00Land5,000.00Accounts
PayableNotes PayableInterest Payable- 0- 0- 0Supplies
ExpenseIncome Tax PayableSalaries and Wages PayableWages
ExpenseContributed CapitalAccumulated
Depreciation115,000.00B. Bal115,000.00Depreciation
ExpenseDividends DeclaredService RevenueRemaining
ExpensesInterest ExpenseIncome Tax ExpenseRetained
EarningsEnd of worksheet
Journal EntriesWorksheet 2 of 9. Template for requirements 2
and 3, journal entries: Prepare journal entries for transactions
(a) through (k) in columns A through D. Journal the adjusting
entries (l) through (p) in columns G through I.Learner:PA
Engineering, Inc.Transactions during 2012DRCRAdjusting
entriesDRCRDebit is always first and credit is
indenteda.Cashl.Supplies expenseNote PayablePrepaid Office
SuppliesBorrowed cash(20000+25000-
18000)b.Landm.Depreciation expenseCashAccumulated
depreciationPurchased landc.Cashn.Interest expenseAccounts
ReceviableAccrued Interest payableService Revenue($20,000 x
.1 x (6/12))Earned revenues for 2012o.Wages
expensed.CashSalaries and Wages payableContributed
Capital(4,000 shares @1.15 - market value)p.Income tax

expensee.Remaining ExpensesIncome tax payableCashAccounts
PayableDebits must equal Credits- 0- 0Incurred remaining
expensesf.CashAccounts ReceivableCollected on Accounts
Receivableg.Other AssetsCashPurchased other assetsh.Accounts
PayableCashPaid accounts payablei.Prepaid Office
SuppliesAccounts PayablePurchased office suppliesj.No entry
contract onlyk.Dividends DeclaredCashDeclared and paid cash
dividendsDebits must equal Credits- 0- 0End of worksheet
T-AccountsWorksheet 3 of 9. Template for requirements 2 and
3, T-accounts: Post transactions (a) through (k) and adjusting
entries (l) through (p) to the T-accounts.Learner:PA
Engineering, Inc.CashAccounts ReceivablePrepaid Office
SuppliesB. Bal(b)( c)60,000.0040,000.00(f)B. Bal(l)(a)(e)(i)(c
)(g)60,000.0040,000.00- 0- 0(d)(h)20,000.00- 0(f)(k)- 0- 0-
0Prepaid ExpensesComputersMiscellaneous Other AssetsB.
Bal80,000.00B.
Bal5,000.00Land(g)(b)10,000.005,000.00Accounts
Payable(h)(e)Notes PayableInterest
Payable25,000.00(i)(a)1,000.00(n)-
025,000.0025,000.00Supplies ExpenseIncome Tax
PayableSalaries and Wages Payable(l)10,000.00(p)(o)Wages
ExpenseContributed CapitalAccumulated Depreicaiton(o)B.
Bal(m)(d)- 0Depreciation ExpenseDividends DeclaredService
Revenue(m)(k)( c)Remaining ExpensesInterest ExpenseIncome
Tax Expense(e)(n)(p)Retained EarningsEnd of worksheet
Income StatementWorksheet 4 of 9. Template for requirement 4:
Prepare an income statement (including earnings per
share).Learner:PA Engineering, Inc.Income StatementFor the
Year Ended December 31, 2012Service RevenueLess:
ExpensesDepreciation expenseSupplies expenseWages
expenseInterest expenseRemaining expenseTotal expense- 0Net
Income before taxes- 0Less: Income TaxesNet Income$ -
0End of worksheet
Stockholders' EquityWorksheet 5 of 9. Template for
requirement 4: Prepare a statement of stockholders'
equity.Learner:PA Engineering, Inc.Statement of Stockholder's

EquityFor the Year Ended December 31, 2012Contributed
Capital: December 31, 2011, 100,000 sharesAdd: January 3,
2012 issue of 4,000 sharesTotal Contributed Capital at
December 31, 2012- 0Retained Earnings:Balance December 31,
2011Add: Net IncomeLess DividendsBalance December 31,
2012- 0Total Stockholder's Equity$ - 0End of worksheet
Balance SheetWorksheet 6 of 9. Template for requirement 4:
Prepare a balance sheet.Learner:PA Engineering, Inc.Balance
SheetAt December 31, 2012AssetsLiabilitiesCurrent
AssetsCurrent LiabilitiesCashAccounts PayableAccounts
ReceivableSalaries and Wages PayablePrepaid Office
SuppliesInterest PayableIncome Tax PayableTotal Current
Assets- 0Total Current Liabilities- 0Long-Term Notes
PayableLong-Term AssetsLandComputersContributed
CapitalLess: Accumulated Depreciation (enter as -)Retained
EarningsMiscellaneous Other Assets- 0Total Long-Term Assets-
0Total Liabilities and Owners' Equity$ - 0Total Assets$ -
0End of worksheet
Cash FlowsWorksheet 7 of 9. Template for requirement 4:
Prepare a statement of cash flows.Learner:PA Engineering,
Inc.Statement of Cash FlowsFor the Year Ending December
2012Cash flows from operating activitiesCash collected from
customersCash paid to suppliersCash paid for remaining
expensesNet cash flows from operating activities0Cash flows
from investing activitiesCash paid for landCash paid for other
assetsNet cash flows from investing activities0Cash flows from
financing activitiesCash received from issuing stock to
ownersCash received from note payableCash paid for
dividendsNet cash flows from financing activities0Net increase
in cash during the month0Cash and cash equivalents, January
1Cash and cash equivalents, December 310Ending Cash balance
should agree to Balance Sheet balance of $68,600. If agrees to
Balance Sheet, next cell will be zero.$ - 0End of worksheet
Closing EntriesWorksheet 8 of 9. Template for requirement 5:
Journal closing entries.Learner:PA Engineering, Inc.Closing
EntriesDRCRService RevenueIncome SummaryIncome

SummaryDepreciation ExpenseSupplies ExpenseWages
ExpenseInterest ExpenseIncome Tax ExpenseRemaining
ExpenseIncome SummaryRetained EarningsRetained
EarningsDividends DeclaredDebits must equal credits- 0- 0End
of worksheet
RatiosWorksheet 9 of 9. Template for requirement 6: Compute
the current ratio, asset turnover, and net profit margin for 2012
and explain what the results suggest about PA Engineering,
Inc.Learner:RatiosCurrent Ratio = Current Assets ÷ Current
LiabilitiesCurrent Assets=- 0Current LiabilitiesCurrent ratio
results compared to industry average (2.2 to 1.0):Asset
Turnover = Sales ÷ AssetsSales=- 0AssetsAsset turnover results
compared to industry average (3 times per year):Net Profit
Margin = Net Income ÷ SalesNet Income=0%SalesNet profit
margin results compared to industry average (%5.00):End of
worksheet
Assessment 5
· Preparation
For this problem, you will need to select a publicly traded
company. Once you have selected a publicly traded company,
obtain Form 10-K for the company for the most current fiscal
year. Use the EDGAR database from the U.S. Securities and
Exchange Commission (SEC) or the investor (or investor
relations) page on the company's site.
Follow these steps to find Form 10-K for your selected company
using the SEC's EDGAR database:
1. Go to the Company Search Page by clicking the link in the
Required Resources, under Internet Resources.
2. Type the company's official name in the Company Name box
to search for the company's filings.
3. Select the 10-K form from the list of search results.
Analysis of a Company's Financial Statements

Assume you have been hired by a client to evaluate the financial
health of the company you have selected. The client wants
advice on whether or not the company is a viable option for
their current portfolio. Create your analysis and
recommendation for the client using the company's financial
statements and your prior knowledge of accounting,
supplemented by textbooks or other references of your
choosing, to answer the following questions and computations:
4. What were the company's assets, liabilities, and owners'
equity amounts at the end of fiscal year?
5. If the company were liquidated at the end of the fiscal year,
are the shareholders guaranteed to receive the total shown in
your answer for owners' equity (question 1)? Clearly explain
why or why not.
6. What were the company's noncurrent liabilities for the fiscal
year?
7. What was the company's current ratio for the fiscal year?
8. For the fiscal year, did the company have a cash inflow or
outflow from investing activities? How much?
9. For the fiscal year, how much was the company's cash flow
from operations? Why is this not the same amount as the
company's operating income? Explain in general terms.
10. What is the company's revenue recognition policy? (Hint:
Look in the notes to the financial statements.)
11. Calculate general, administrative, and selling expenses as a
percentage of sales for the past three fiscal years. By what
percentage did these expenses increase or decrease? This is
calculated as Percentage Change = (Current Year % − Prior
Year %) / Prior Year %.
12. Compute the company's total asset turnover for the fiscal
year and explain its meaning. Show all of your work.
13. How much is in the prepaid expenses and other current
assets account at the end of fiscal year? Where did you find this
information?
14. What did the company report for deferred rent and other
liabilities at the end of fiscal year? Where did you find this

information?
15. What is the difference between prepaid rent and deferred
rent?
16. What are accrued liabilities? Describe in general terms.
17. What would generate the interest income that is reported on
the income statement?
18. What are the company's earnings per share (basic only) for
the three years reported?
19. Compute the company's net profit margin for the three years
reported. What does the trend suggest to you?
20. How much cash and cash equivalents does the company
report at the end of the fiscal year?
21. What was the change in accounts receivable and how did it
affect net cash provided by operating activities for the current
year?
22. Compute the company's gross profit percentage for the most
recent two years. Has it risen or fallen? Explain the meaning of
the change.
Deliverable to the Client: Analysis Summary and Investment
Recommendation
Prepare a business memo addressed to the client summarizing
your analysis and providing a recommendation on investing:
. Write 2–4 pages in a professional format appropriate for the
information you are presenting.
. Make sure you have answered all of the provided questions
and computations in your analysis. If a question or computation
does not apply, there should be a statement within your memo
stating that the aspect does not apply and why. For example:
"Based on the review of the XYZ Company, there were no
prepaid expenses."
. Include support for your investment recommendation by citing
the company's financial statements and other references of your
choosing,

· When a company owns inventory, it has to decide how to
consistently value the inventory sold and on hand. Four
inventory valuation methods are available to help the
organization effectively value its inventory. These valuation
methods are based on the systematic cash flow of adding and
removing inventory, and each has its advantages and
disadvantages. When selecting an inventory method,
management should select the method that best reflects their
operations. Once an inventory valuation method is selected, it
must be applied consistently from year to year.
Show Less
The four inventory valuation methods are described below:
· Average cost: An average cost is calculated based the total
costs for the inventory on hand.
· First in, first out (FIFO): This method assumes that inventory
is used in the order it is received.
· Last in, first out (LIFO): This method assumes that the newest
inventory is always used first.
· Specific identification: Under this method, the costs and
selling price are specified for one particular item. This method
is appropriate when each item has a unique identifying
characteristic.
When a company purchases a long-term asset such as
equipment, the cost of the long-term asset is capitalized. This
means the asset will benefit more than one accounting period,
so the original cost of the asset is allocated to the accounting
periods it benefits. This allocation results in an expense that is
recorded over several periods known as depreciation expense.
Depreciation is used in accounting to estimate the cost of the
fixed asset that is allocated to each period. There are a variety
of depreciation methods available to estimate depreciation
expense.
· Toggle Drawer

Questions to Consider
To deepen your understanding, you are encouraged to consider
the questions below and discuss them with a fellow learner, a
work associate, an interested friend, or a member of the
business community.
Show Less
· What are the acceptable inventory valuation methods under the
U.S. Generally Accepted Accounting Principles (GAAP)?
· How does each affect the valuation of inventory?
· How does each affect cost of goods sold?
· What elements might organizational leaders consider when
selecting which inventory valuation method to adopt?
· Toggle Drawer
Resources
Suggested Resources
courseroom.
Capella Resources
Click the links provided to view the following resources:
· Assessment 6, Problem 1 Template.
Show More
Library Resources
· Murthy, G. (2009). Financial accounting. Mumbai, India:
· Vataliya, K. S. (2009). Practical financial accounting:
· Doran, D. T. (2012). Financial reporting standards: A

Bookstore Resources
· Libby, R., Libby, P., & Hodge, F. (2017). Financial
accounting (9th ed.). New York, NY: Irwin.
To complete the first problem, you may choose to use the
Assessment 6, Problem 1 Template linked in the Suggested
Problem 1: The Effects of Different Cost Flow Assumptions for
Inventory
At the end of January 2011, the records of Sheldon and Blair
showed the following for a particular item that sold at $20 per
unit:
Problem 1, Table 1: Records of Sheldon and Blair
Transactions
Units
Total Amount
Inventory, January 1, 2011

500 @ $6.00
$3,000
Purchase, January 12
600 @ $7.00
$4,200
Purchase, January 26
200 @ $7.10
$1,420
Sale
(400 units sold for $20 each)
Sale
(300 units sold for $20 each)
Based on the information provided in the table above, complete
the following. An optional template, Assessment 6, Problem 1
Template, is provided in the Suggested Resources under the
Capella Resources heading.
4. Assuming the use of a periodic inventory system, prepare a
summarized income statement through gross profit for the
month of January under each method of inventory listed below.
Show the inventory computations for each method in detail.
1. a. Average cost. (Round the average cost per unit to the
nearest cent.)
1. b. First in, first out (FIFO).
1. c. Last in, first out (LIFO).
1. d. Specific identification. (Assume that the first sale was
selected from the beginning inventory and the second sale was
selected from the January 12 purchase.)
4. Of FIFO and LIFO, which method would result in the higher
pretax income? Which would result in the higher EPS?
4. Of FIFO and LIFO, which method would result in the lower
income tax expense? Explain, assuming a 35 percent average tax
rate.
4. Of FIFO and LIFO, which method would produce the more
favorable cash flow? Explain.

Problem 2: The Effects of Differing Depreciation Methods
Total Workout, Inc. purchased three ï¬ï¿½tness machines from
Ace Used Equipment at the beginning of the year. All three
were used machines that had to be overhauled and installed
before they were put into use. The costs of the machines and
their renovation and installation are shown in Table 1 below:
Problem 2, Table 1: Equipment Costs
Account
Machine A
Machine B
Machine C
Amount paid for asset
$21,000
$30,750
$8,000
Installation cost
$500
$1,000
$200
Renovation costs prior to use
$2,000
$1,000
$1,500
By the end of the first year, each machine had been operating
4,800 hours. Depreciation estimates are shown in Table 2
below:
Problem 2, Table 2: Equipment Depreciation
Machine
Life
Residual Value
Depreciation Method
A
5 years
$1,000
Straight-line
B

60,000 hours
$2,000
Units-of-production
C
4 years
$1,500
Double-declining balance
Using the data provided above, complete the following:
4. Compute the cost of each machine.
4. Give the entry to record depreciation expense at the end of
the first year, using all three depreciation methods listed in
Table 2.
Inventory Analysis and Depreciation Methods Scoring Guide
View Scoring GuideUse the scoring guide to enhance your
learning.How to use the scoring guide
1. [u06a1] Inventory Analysis And Depreciation Methods
Complete a problem involving inventory analysis and a problem
involving the use of depreciation methods.
1. Assessment Submit
Submit Assessment
This button will take you to the next available assessment
attempt tab, where you will be able to submit your assessment.
1. u06a1 Inventory Analysis and Depreciation Methods
>> View/Complete
1. u06a1 Inventory Analysis and Depreciation Methods:
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>> View/Complete
1. u06a1 Inventory Analysis and Depreciation Methods:
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Solution
Template for a summarized income statement through gross
profit for the month ended January 31, 2011, under four
inventory valuation methods: (a) weighted average, (b) FIFO,
(c) LIFO, and (d) specific identification. For Sheldon and
Blair.Learner:Sheldon and BlairPartial Income StatementFor the
Month Ended January 31, 2011(a) Weighted Average(b)
FIFO(c) LIFO(d) Specific IdentificationSales
revenue1$14,000$14,000$14,000$14,000Cost of goods
sold2$3,000$200$2,300($1,120)Gross
profit$11,000$13,800$11,700$15,120Sheldon and
BlairComputations1Sales revenue:700 units @ $20
=$14,0002Cost of goods sold:UnitsWeighted
AverageFIFOLIFOSpecific IdentificationBeginning
inventory500$3,000$3,000$3,000$3,000Purchases
(net)30$0$0$0$0Goods available for
sale500$3,000$3,000$3,000$3,000Ending
inventory4$0$2,800$700$4,120Cost of goods
sold500$3,000$200$2,300($1,120)3Purchases (net)Purchase,
January 12$0Purchase, January 26$0Totals0$04Ending
inventory(a) Weighted-average cost:UnitsAmountBeginning

inventory500@$6$3,000Purchases30$0500$3,000Average
cost:$8,620 ÷ 1,300 units =6.00Ending inventory:600 units ×
$6.63 =$0(b) FIFO:units @ $7.10units @
$7.00$2,800600$2,800(c) LIFO:units @ $6.00units @
$7.00$700600$700(d) Specific identification:units @ $6.00units
@ $7.00units @ $7.10$1,420600$4,120Of FIFO and LIFO,
which method would result in the higher pretax income? Which
would result in the higher EPS?Of FIFO and LIFO, which
method would result in the lower income tax expense? Explain,
assuming a 35 percent average tax rate.FIFO = Gross profit ×
.35LIFO = Gross profit × .35Of FIFO and LIFO, which method
would produce the more favorable cash flow? Explain.End of
worksheet
· Complete two problems. Problem 1 focuses on working capital
and quick ratio, and Problem 2 is a comprehensive problem in
which you will bring together various financial analysis
measures and interpret their meaning in order to draw
conclusions about hypothetical companies.
Show Less
By successfully completing this assessment, you will

demonstrate your proficiency in the following course
competencies and assessment criteria:
· Competency 1: Apply theories, models, and practices of
accounting in the construction and analysis of financial
statements.
1. Perform appropriate computations using data from company
financial statements.
1. Compute working capital using appropriate financial data.
1. Compute the quick ratio using appropriate financial data.
. Competency 4: Integrate accounting analyses into general
business management planning and decision making.
2. Interpret the implications of the working capital results.
2. Report recommendations and solutions for each company.
Competency Map
Check Your ProgressUse this online tool to track your
performance and progress through your course.
· Toggle Drawer
Questions to Consider
As you complete the assessment, you may find it helpful to
consider the questions below. You are encouraged to discuss
them with a fellow learner, a work associate, an interested
friend, or a member of the business community, in order to
deepen your understanding of the topics.
Show More
. What is meant by liquidity?

. What metrics can be used to assess improvement or
deterioration in liquidity?
. How is liquidity influenced by debt?
. How do different types of debt affect liquidity?
. How does equity affect liquidity?
. How do different types of assets affect liquidity?
· Toggle Drawer
Resources
Suggested Resources
courseroom.
Library Resources
. Murthy, G. (2009). Financial accounting. Mumbai, India:
. Vataliya, K. S. (2009). Practical financial accounting:
. Doran, D. T. (2012). Financial reporting standards: A

Show Less
Bookstore Resources
. Libby, R., Libby, P., & Hodge, F. (2017). Financial accounting
(9th ed.). New York, NY: Irwin.

Problem 1: Working Capital, Current Ratio, Quick Assets, Acid-
Test Ratio
The Sanchez Corporation is preparing its 2012 balance sheet.
The company records show the following selected amounts at
the end of the accounting period, December 31, 2012:
Problem 1: Sanchez Corporation Selected Amounts
Account
Dollar Amount
Total assets
$600,000
Total noncurrent assets
$350,000
Liabilities
Dollar Amount
Notes payable (8%, due in 6 years)
$40,000
Accounts payable
$60,000
Income taxes currently payable
$15,000
Liability for withholding taxes
$4,000
Rent revenue collected in advance by up to four months
$8,000

Bonds payable (due in 15 years).
$100,000
Wages payable
$6,000
Property taxes payable
$3,000
Note payable (10%, due in 6 months)
$22,000
Interest payable
$1,200
Common stock
$200,000
Use the information provided in the table to compute and
answer the following for the Sanchez Corporation:
· Compute (a) working capital and (b) the quick ratio—quick
assets are $120,000.
· Why is working capital important to management?
· How do financial analysts use the quick ratio?
· Would your computations be different if the company reported
$250,000 worth of contingent liabilities in the notes to the
statements? Explain. Include in your explanation a definition of
contingent liabilities and an example of a contingent liability.
Problem 2: Comprehensive Problem
Bring together various financial analysis measures and interpret
their meaning in order to draw conclusions about hypothetical

companies.
Note that each situation provided is to be considered
independently of the others.
Situation A:
The following tables represent selected data from recent
financial statements of Lincoln and Samuelson, Inc. (dollars in
thousands):
Problem 2, Table 1: Lincoln and Samuelson, Inc. Selected Items
from Balance Sheets
Assets (in thousands)
December 31, 2012
December 31, 2011
Current assets: Cash and cash equivalents
$4,000
$3,400
Accounts receivable (net of allowances of $32 and $28,
respectively)
$6,500
$5,700
Problem 2, Table 2: Lincoln and Samuelson, Inc. Selected
Income Statement Data
Account
2012
2011

2010
Net sales (in millions)
$6,020
$5,425
$5,000
Net income (in millions)
$300
$285
$220
The selected income statement data is for the year ended
December 31. The company also reported bad debt expense of
$62,000 in 2012; $55,000 in 2011; and $49,500 in 2010.
Using the data provided, complete the following for Lincoln and
Samuelson, Inc.:
· Compute the dollar amount of uncollectible accounts
receivable that the company wrote off as uncollectible in 2012.
Show all of your work.
· Assuming all sales were on credit, what amount of cash did
the company collect on accounts receivable in 2012? Show all
of your work.
· Compute the company's net profit margin for the three years
presented. What does the trend suggest to you about the
company?
Situation B:
The Israel Manners Entertainment Group uses the allowance

approach to estimate bad debt expense, as is required of all
companies with significant sales on accounts receivable. At the
end of 2012, the Manners Group reported a balance in accounts
receivable of $4,350,000 and estimated that $44,000 of its
accounts receivable would likely be uncollectible. The
allowance for doubtful accounts has a $1,500 debit balance at
year-end, prior to the adjustment needed to raise it to the
$44,000 desired amount. Use this information to answer the
following questions for the Manners Group:
· How is it possible that the allowance for doubtful accounts has
developed a debit balance instead of a credit balance?
· What amount of bad debt expense should be recorded for
2012?
· What amount will be reported on the 2012 balance sheet as the
net realizable amount of accounts receivable?
Situation C:
At the end of 2012, the unadjusted trial balance of Donovan,
Inc. included $6,000,000 in accounts receivable, a credit
balance of $50,000 in the allowance for doubtful accounts, and
sales revenue (all on credit) of $200,000,000. Based on
knowledge that the current economy is in distress, Donovan
increased its bad debt rate estimate to 0.4 percent on credit
sales. Use this information to answer the following questions
for Donovan, Inc.:
· What amount of bad debt expense should be recorded for

2012?
· What amount will be reported on the 2012 balance sheet for
the net realizable amount of accounts receivable, after being
reduced by the balance in the allowance for uncollectible
accounts?
Situation D:
BrightStar Company reported the following inventory records
for June 2012:
Problem 2, Table 3: BrightStar Company Inventory Records
Date
Activity
# of Units
Cost/Unit
June 1
Beginning balance
200
$40
June 5
Purchase
600
$42
June 8
Sale @ $100 per unit
500

June 17
Purchase
400
$45
June 23
Sale @ $100 per unit
500
Selling, administrative, and depreciation expenses for the month
were $20,000. BrightStar's tax rate is 35 percent. Use this
information and the table above to complete the following for
BrightStar Company:
· Calculate the cost of ending inventory and the cost of goods
sold under each of the following methods:
. a. First in, first out (FIFO).
. b. Last in, first out (LIFO).
. c. Weighted average.
· Using your answers from question 1 above, answer the
following:
. a. What is the gross profit percentage under the FIFO method?
. b. What is net income under the LIFO method?
. c. Which method would you recommend to BrightStar for tax
purposes? Explain your recommendation.
. d. If BrightStar also used the method that you recommended
for tax purposes on its balance sheet, would BrightStar's current

ratio suffer, compared to the use of FIFO?
· BrightStar uses the lower of FIFO cost or market method to
value its inventory for reporting purposes at the end of the
month. If inventory had a market replacement value of $44 per
unit, what would BrightStar report in its balance sheet for
inventory? Why?
Situation E:
BlackBurn Company purchased the following on January 1,
2012:
· Office Equipment at a cost of $100,000 with an estimated
useful life to the company of five years and a residual value of
$10,000. The company uses the double-declining-balance
method of depreciation for the equipment.
· Factory equipment at an invoice price of $780,000 plus
shipping costs of $20,000. The equipment has an estimated
useful life of 100,000 hours and no residual value. The company
uses the units-of-production method of depreciation for the
equipment.
· A patent at a cost of $450,000 with an estimated useful life of
15 years. The company uses the straight-line method of
amortization for intangible assets with no residual value.
Use the information above to complete the following for
BlackBurn Company:
· Prepare a partial depreciation schedule for 2012, 2013, and
2014 for the following assets. Round your answers to the

nearest dollar.
. a. Office equipment.
. b. Factory equipment. The company used the equipment for
8,000 hours in 2012; 9,000 hours in 2013; and 8,500 hours in
2014.
· On January 1, 2014, BlackBurn altered its corporate strategy
dramatically. The company sold the factory equipment for
$700,000 in cash. Record the entry related to the sale of the
factory equipment.
· On January 1, 2014, when the company changed its corporate
strategy, its patent had estimated future cash flows of $300,000
and a fair value of $250,000. What would the company report
on the income statement (account and amount) regarding the
patent on January 2, 2014? Explain your answer. (Hint: You
may need to research this question using Internet sources.)
· Using the transactions listed below for Audrey's Ice Cream
Parlor, prepare a statement of cash flows for the month of April
2012. Classify the transactions into appropriate categories
(operating activities, investing activities, and financing
activities).
To complete this assessment, use the Statement of Cash Flows
Template to complete and submit the following information:

· a. Received cash of $40,000 total ($10,000 each) from four
investors. Each investor received 100 shares of common stock.
This took place on April 1.
· b. Paid three months' rent for the store on April 1 at $2,000
per month (recorded as prepaid expenses).
· c. Purchased ice cream and cones for $6,000 on account
payable, due in 60 days. This took place on April 2.
· d. Purchased supplies for $1,000 cash on April 2.
· e. Received a two-year $11,000 loan at the bank. The note
payable is dated April 2.
· f. Used the money from (e) to purchase a computer for $3,000
(for record keeping and inventory tracking) and to purchase
$8,000 of used furniture and fixtures for the store.
· g. Placed a grand opening advertisement in the local paper for
$600 cash.
· h. Made sales in the first half of the month totaling $5,000:
$4,250 was in cash and the rest was on accounts receivable. The
cost of the ice cream sold was $2,000.
· i. Made a $600 payment on accounts payable on April 18.
· j. Incurred and paid employee wages of $2000 for the month
of April.
· k. Collected accounts receivable of $700 from customers.
· l. Made a repair to one of the refrigerators for $300.
· m. Made sales in the last half of the month for $6,000, all for
cash. The cost of the ice cream sold was $2,400.

8/cf_statement_cash_flows_template.xls
Statement of Cash FlowsTemplate for statement of cash flows
for Audrey's Ice Cream Parlor for the month ended April 30,
2012. Classify the transactions into appropriate categories
(operating activities, investing activities, and financing
activities). See the transactions provided in the
assessment.Learner:Audrey's Ice Cream ParlorStatement of
Cash FlowsFor the Month Ended April 30, 2012Cash from
Operations:Collections from Customers (Items K, H, and
M)Cash paid for Inventory (Item I)Cash paid for Rent (Item
B)Cash paid for Supplies (Item D)Cash paid for Advertising
(Item G)Cash paid for Wages (Item J)Cash paid for Repairs
(Item L)Cash provided by Operations$ - 0Investing Cash
Flow:Cash from borrowing from bank (Item E)Cash paid for
Equipment and Furniture (Item F)Net Investing Cash Flow$ -
0Financing Cash Flow:Issuance of Stock (Item A)Overall
Increase in Cash$ - 0Add: Cash at April 1Yields: Cash at April
30$ - 0End of Worksheet
· Preparation
For this problem, you will need to select two publicly traded

companies. For comparison purposes, the two companies should
be competitors within the same industry. Once you have
selected two publicly traded companies, obtain Form 10-K for
each company for the most current fiscal year. Use the EDGAR
database from the U.S. Securities and Exchange Commission
(SEC) or the investor (or investor relations) page on the
company's site.
Follow these steps to find Form 10-K for each selected company
using the SEC's EDGAR database:
1. Go to the Company Search Page by clicking the link in the
Required Resources, under Internet Resources.
2. Type the company's official name in the Company Name box
to search for the company's filings.
3. Select the 10-K form from the list of search results.
Analysis of the Financial Statements and Comparison of the
Results
Your supervisor has given you an important task to complete for
one of the firm's top clients. The client has identified two
companies within the same industry to add to his current
portfolio. He does not want to add both since these are
competing companies. Your task is to complete an analysis on
these companies, compare the results, and provide a
recommendation to the client.
Complete your analysis for the client using the financial
statements and your prior knowledge of accounting,

supplemented by textbooks or other references of your
choosing, to answer the following questions and computations:
4. What method does the company use to determine the cost of
inventory for the fiscal year?
5. Compute the inventory turnover ratio for the fiscal year. Also
compute it for the previous two fiscal years. What conclusions
can you make?
6. What method of depreciation does the company use? Does the
company use the same method for all fixed assets, or are
different classes of assets depreciated differently?
7. What is the amount of accumulated depreciation and
amortization at the end of the most recent reporting year?
8. For depreciation purposes, what is the estimated useful life of
furniture and fixtures?
9. What was the original cost of leasehold improvements owned
by the company at the end of the most recent reporting year?
10. What amount of depreciation and amortization was reported
as expense for the most recent reporting year?
11. How many shares of common stock are authorized at the end
of the current year? How many shares are issued and
outstanding at the end of the current year?
12. Is there more than one class of common stock? If so, what is
the name of each class of common stock?
13. Is there any preferred stock? If so, what is the dividend rate
on the preferred stock, as a percentage of the par value of the

preferred stock?
14. Did the company pay dividends on the common stock during
the most recent reporting year? If so, what was the total amount
of dividends paid and how much were they per share?
15. Does the company have any treasury stock? If so how much?
16. Has the company issued a stock dividend or a stock split
over the past three reporting years? If so, what percentage and
in what year or years?
17. Does the company's common stock have par value? If it
does, what is the par value?
18. Did the common stockholders buy back a significant amount
of shares in the current year? You can see this in the Statement
of Stockholders' Equity as a reduction in shares.
19. Does the company have any marketable securities at the end
of the year? How many dollars of marketable securities? How
are they classified? Short-term, long-term, or both?
20. How much cash did the company use to purchase marketable
securities during the current year, if any? Where did you look to
find this information?
21. Is the total amount of cash flows from operations the exact
same amount regardless of whether the direct or the indirect
method is used? Explain.
22. How about the Financing and Investing Cash Flow sections?
Are they the exact same regardless of whether the direct or the
indirect method is used?

23. Which method, the direct or indirect method, was used to
report cash flows from operating activities? How can you be
sure about this? Include in your answer the first three items in
the Cash From Operations section.
24. What is the major use of cash in the Cash From Investing
Activities section?
25. What is the major source of cash in the Cash From Investing
Activities section?
26. Are there any sources of cash in the Cash From Financing
Activities section? What are they?
27. Has the company paid cash dividends during the last three
years? How do you know?
Deliverable to the Client: Summary and Investment
Recommendation
Prepare a business memo addressed to the client summarizing
your analysis and comparison of both companies and providing
a recommendation on investing in one of the companies.
. Write 2–4 pages in a professional format appropriate for the
information you are presenting.
. Make sure you have answered all of the provided questions
and computations in your analysis. If a question or computation
does not apply, there should be a statement within your memo
stating that the aspect does not apply and why. For example:
"Based on the review of the XYZ Company, there were no
dividends paid for the year ending 20XX."

. Include support for your conclusions and investment
recommendation. Cite your own analysis and comparison of the
companies, the companies' financial statements, and other
references of your choosing.

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