BCO114 ACCOUNTING I Task brief & rubrics Task: Final Assignment (40% of the Final grade) You must answer all the questions in the proposed business case. This task assesses the following learning outcomes: • Critically understand the differences between the methods of valuation of the inventory • Knowing how to properly elaborate an income statement and determine the ending inventory balance. LAUNCH: WEEK 10 / DELIVERY: MAY 10th, 2020, 23:59HRS ON MOODLE Submission file format: Excel document with all the answers, clearly identifying all steps, results, journals and including comments besides each answer. BUSINESS CASE (100 points) Jim has recently opened a dry fruits wholesale company dedicated to the sale of peanuts, almonds and pistachios. During its first month of activity, the company has made the following transactions: February 2: Purchase of Pistachios: [email protected]$/Kg $ 25.000 Purchase of Almonds: 4.000Kg @ 5$/Kg $ 20.000 Purchas of Peanuts: 6.000Kg @ 3$/ Kg $ 18.000 February 3: Purchase of Pistachios: [email protected]$/Kg $18.000 Purchase of Almonds: 2.000Kg @ 6$/Kg $ 12.000 Purchas of Peanuts: 2.000Kg @ 4$/ Kg $ 18.000 mailto:[email protected]$/Kg mailto:[email protected]$/Kg February 6: Sold to several clients: Pistachios: [email protected] 20$/Kg $40.000 Almonds: 2.500Kg @ 11$/Kg $ 27.500 Peanuts: 3.000Kg @ 7$/ Kg $ 21.000 February 6: Sold to Fruits Lovers Inc.: Pistachios: 500Kg @20$/Kg. $ 10.000 Almonds: 1.000Kg @ 11$/Kg $ 11.000 Peanuts: 1.500Kg @ 8$/ Kg $ 12.000 February 12 Purchase of Pistachios: [email protected]$/Kg $ 21.000 Purchase of almonds: 2.000Kg @ 8$/Kg $ 16.000 February 13: Sale of peanuts to Peanuts Lovers Inc.: 3.500Kg @8$/kg $ 28.000 February 14: Purchase of Peanuts 6.000 Kg @4$/Kg $24.000 February 19: Sold to several clients: Pistachios: [email protected] 21$/Kg. $ 21.000 Almonds: 1.500Kg @ 13$/Kg $ 19.500 Peanuts: 3.000Kg @ 9$/ Kg $ 27.000 February 25: Purchased from various suppliers: Pistachios: [email protected]$/Kg. $ 13.000 mailto:[email protected]$/Kg mailto:[email protected]$/Kg Almonds: 1.000Kg @ 9$/Kg $ 9.000 Peanuts: 1.000Kg @ 4$/ Kg $ 4.000 Besides these transactions, the company has had the following expenses: Salaries: $3500 Electricity bill: $300 Renting of equipment: &800 Rent of warehouse and office: $1.500 Miscellaneous: $1.200 Jim’s accountant recommended that he should use the average cost method in order to determine the cost of the inventory sold but he is not sur e about the consequences it nay have on his financial situation Relying on your accounting knowledge, Jim asks you the following questions: 1: Why in your opinion did Jim’s accountant recommend the average cost method and what difference is there whit the three other methods? Explain the main c.

1. BCO114 ACCOUNTING I Task brief & rubrics
Task: Final Assignment (40% of the Final grade)
You must answer all the questions in the proposed business
case.
This task assesses the following learning outcomes:
• Critically understand the differences between the methods of
valuation of the inventory
• Knowing how to properly elaborate an income statement and
determine the ending inventory balance.
LAUNCH: WEEK 10 / DELIVERY: MAY 10th, 2020,
23:59HRS ON MOODLE
Submission file format: Excel document with all the answers,
clearly identifying all steps, results, journals and including
comments besides each answer.
BUSINESS CASE (100 points)
Jim has recently opened a dry fruits wholesale company
dedicated to the sale of peanuts, almonds and pistachios.
During its first month of activity, the company has made the
following transactions:

2. February 2: Purchase of Pistachios: [email protected]$/Kg $
25.000
Purchase of Almonds: 4.000Kg @ 5$/Kg $ 20.000
Purchas of Peanuts: 6.000Kg @ 3$/ Kg $ 18.000
February 3: Purchase of Pistachios: [email protected]$/Kg
$18.000
Purchase of Almonds: 2.000Kg @ 6$/Kg $ 12.000
Purchas of Peanuts: 2.000Kg @ 4$/ Kg $ 18.000
mailto:[email protected]$/Kg
mailto:[email protected]$/Kg
February 6: Sold to several clients:
Pistachios: [email protected] 20$/Kg $40.000
Almonds: 2.500Kg @ 11$/Kg $ 27.500
Peanuts: 3.000Kg @ 7$/ Kg $ 21.000
February 6: Sold to Fruits Lovers Inc.:
Pistachios: 500Kg @20$/Kg. $ 10.000

3. Almonds: 1.000Kg @ 11$/Kg $ 11.000
Peanuts: 1.500Kg @ 8$/ Kg $ 12.000
February 12 Purchase of Pistachios: [email protected]$/Kg $
21.000
Purchase of almonds: 2.000Kg @ 8$/Kg $ 16.000
February 13: Sale of peanuts to Peanuts Lovers Inc.: 3.500Kg
@8$/kg $ 28.000
February 14: Purchase of Peanuts 6.000 Kg @4$/Kg
$24.000
February 19: Sold to several clients:
Pistachios: [email protected] 21$/Kg. $ 21.000
Almonds: 1.500Kg @ 13$/Kg $ 19.500
Peanuts: 3.000Kg @ 9$/ Kg $ 27.000
February 25: Purchased from various suppliers:
Pistachios: [email protected]$/Kg. $ 13.000
mailto:[email protected]$/Kg
mailto:[email protected]$/Kg

4. Almonds: 1.000Kg @ 9$/Kg $ 9.000
Peanuts: 1.000Kg @ 4$/ Kg $ 4.000
Besides these transactions, the company has had the following
expenses:
Salaries: $3500
Electricity bill: $300
Renting of equipment: &800
Rent of warehouse and office: $1.500
Miscellaneous: $1.200
Jim’s accountant recommended that he should use the average
cost method in order to determine the cost of the inventory sold
but he is not sur e about the
consequences it nay have on his financial situation
Relying on your accounting knowledge, Jim asks you the
following questions:
1: Why in your opinion did Jim’s accountant recommend the
average cost method and what difference is there whit the three
other methods? Explain the main
characteristics of each method of valuation of the inventory and
the consequences they may have on the valuation of the

5. inventory and determination of the net
income in case of price fluctuation. (20 points)
2: Prepare an Income statement of the company at the end of
February using as method of valuation of the inventory the
average cost method, FIFO and LIFO for
each one of the products sold by Jim, and calculate the balance
of the inventory at the end of the month. Explain the
calculations. (40 points: 30 points for the
calculation and 10 for explanations)
3: In order to compare with the records made by his accountant,
Jim asks you to prepare the different journal entries for the
purchases and sales mentioned above
for each one of the 3 different methods used above. (15 points)
4: Jim’s accountant insisted that he should use a perpetual
inventory system instead of a periodic inventory system and the
average cost method for valuating the
inventory. Do you agree with this advice (justify your answer)?
Would the balance of the inventory at the end of the month be
the same? And the net income? (15
points)
5: Jim would like to know a forecast of the number of days to
sell the inventory based on the results of the month of February.
Explain your calculation and the
steps followed. (10 points: 5 for calculation and 5 for
explanation)

6. 6. Jim expects that the prices of the merchandises will
dramatically decrease in the next future as a result of the Covid
19 crisis. Which method of valuation of the
inventory would you thus recommend to Jim? Explain your
answer. (5 points)
Rubrics
Descriptor
9-10 The student demonstrates an excellent understanding of the
concepts.
8-8.9 The student demonstrates a good understanding of the
concepts.
7-7.9 The student demonstrates a fair understanding of the
concepts.
6-6.9 The student demonstrates some, but insufficient
understanding of the
concepts.
3-5.9 The student demonstrates insufficient understanding of
the concepts.
They may mention some relevant ideas or concepts, although it

7. is
clear that the relationship between them is not understood by
the
student.
1-2.9 The student demonstrates insufficient understanding of
the concepts
and does not mention any relevant ideas or concepts.
0 The student leaves the question blank or cheats.
95% of the grade based on the approach, calculations and
comments, and 5% based on the presentation and look & field of
the spreadsheet.
Points are at the end of each question.
ACC 371 Lecture 7
Statement of Cash Flows
Introduction
Generally Accepted Accounting Principles (GAAP) typically
evolves in practice, rather than being written and then followed.
An example of this evolution is the financial statement called,
the statement of cash flows. Managers and business owners
often asked why their companies were profitable but did not
have available cash, or had plenty of cash but were operating at
a loss. In response to this need, accountants developed the
statement of cash flows to explain how cash was provided to the
company or used by the company. The statement of cash flows
is now a required financial statement according to GAAP. Since
the statement of cash flows was developed long after the other
three statements—the balance sheet, income statement, and

8. statement of stockholders' equity—it does not follow the same
flow as the other statements and requires information from all
of the other statements, as well as additional information, in
order to be compiled. Today, the statement of cash flows is one
of the most significant financial statements for the potential
investor or creditor.
Usefulness of the Statement of Cash Flows
The statement of cash flows is useful because it shows an
organization's ability to produce future cash flows, provides an
indication that the organization can meet its obligations, reports
the differences between net income and net cash flows, and
identifies the cash and noncash investing and financing
activities during the period.
Profitable operations do not always ensure positive cash flow.
While net income is important, cash flow is also critical to a
company's success. Cash flow permits a company to expand
operations, replace worn assets, take advantage of new
investment opportunities, and pay dividends to its owners. Both
managers and analysts need to understand the various sources
and uses of cash that are associated with business activities.
The cash flow statement focuses attention on a firm's ability to
generate cash internally, its management of current assets and
current liabilities, and the details of its investments and its
external financing (Libby, Libby, & Short, 2004). It is designed
to help both managers and analysts answer important cash-
related questions such as these:
Will the company have enough cash to pay its short-term debts
to suppliers and other creditors without additional borrowing?
Is the company adequately managing its accounts receivable and
inventory?
Has the company made necessary investments in new productive
capacity?
Did the company generate enough cash flow internally to
finance necessary investment or did it rely on external
financing?
Is the company changing the makeup of its external financing?

9. These questions and others can be answered through the
preparation and examination of the statement of cash flows.
Operating, Investing, and Financing Activities
The statement has three main sections: (a) cash flows from
operating activities, which are related to income from normal,
recurring operations; (b) cash flows from investing activities,
which are related to the acquisition and sale of productive
assets; and (c) cash flows from financing activities, which are
related to external financing of the enterprise. The net cash
inflow or outflow for the year is the same amount as the
increase or decrease in cash and cash equivalents for the year on
the balance sheet. Cash equivalents are highly liquid
investments with original maturities of less than three months.
The operating activities section of the statement of cash flows
can be prepared using direct or indirect methods; the investing
and financing activities sections are always prepared directly.
The cash flows from operating activities section of the
statement of cash flows includes the "cash effects of
transactions that enter into the determination of net income"
(Kieso, Weygandt & Warfield, 2013, p. 1413). The cash flows
from investing activities section of the statement of cash flows
includes transactions involving long-term assets, and the cash
flows from financing activities section of the statement of cash
flows includes transactions involving liability and equity items
(Kieso, et. al., 2013).
Direct Method of Determining Cash Flows from Operating
Activities
The direct method for reporting cash flows from operating
activities accumulates all of the operating transactions that
result in either a debit or credit to cash into categories of cash
inflows and cash outflows. The most common inflows are cash
received from customers and dividends as well as interest on
investments. The most common outflows are cash paid for the
purchase of services and goods for resale, salaries and wages,
income taxes, and interest on liabilities. The statement of cash
flows from operating activities is prepared by adjusting each

10. item on the income statement from an accrual basis to a cash
basis.
Indirect Method of Determining Cash Flows from Operating
Activities
The indirect method for reporting cash flows from operating
activities includes a conversion of net income to net cash flow
from operating activities. The conversion involves additions and
subtractions for
non-cash accruals, including expenses (such as depreciation
expense) and revenues that do not affect current assets or
current liabilities, and
changes in each of the individual current assets (other than cash
and short-term investments) and current liabilities (other than
short-term debt to financial institutions and current maturities
of long-term debt, which relate to financing), which reflect
differences in the timing of accrual-basis net income and cash
flows.
The Financial Accounting Standards Board (FASB) encourages
the use of the direct method over the indirect method for
reporting the operating activities section of the statement of
cash flows, and requires supplemental disclosures of
information if the indirect method is presented (Kieso,
Weygandt, & Warfield, 2013). It is important to note that net
cash provided by operating activities on the statement of cash
flows is equivalent to cash basis net income for the company
(Kieso, et. al., 2013).
Cash Flows from Investing Activities
Investing activities reported on the cash flow statement include
cash payments to acquire fixed assets and short- and long-term
investments and cash proceeds from the sale of fixed assets and
short- and long-term investments.
Cash Flows from Financing Activities
Cash inflows from financing activities include cash proceeds
from the issuance of short- and long-term debt and common
stock. Cash outflows include cash principal payments on short-
and long-term debt, cash paid for the repurchase of the

11. company's stock, and cash dividend payments. Cash payments
associated with interest are a cash flow from operating
activities.
Significant Noncash Transactions
Any significant non-cash transactions that would not otherwise
be presented in the statement of cash flows must be disclosed so
that the user can reconcile the statement of cash flows to the
comparative balance sheets.
Analysis of Cash Flow Ratios
Cash flow ratios are highly scrutinized by present and potential
creditors. The statement of cash flows, in conjunction with ratio
analysis, can indicate whether a borrower will be able to repay
funds if borrowed. The following ratios are typically used by
present and potential creditors in analyzing cash flow potential.
Free cash flow - (cash flow from operating activities – capital
expenditures – cash dividends) measures the cash remaining
from operations after the company makes investments in new
assets and pays out the expected dividends to stockholders
(Kimmel, Weygandt, & Kieso, 2009). Free cash flow gives the
analyst a better idea of how much cash truly is available from
cash flows from operations than looking at the statement of cash
flows alone.
Quality of income ratio - (cash flow from operating activities ÷
net income) measures the portion of income that was generated
in cash. A higher quality of income ratio indicates greater
ability to finance operating and other cash needs from operating
cash inflows. A higher ratio also indicates that it is less likely
that the company is using aggressive revenue recognition
policies to increase net income.
Capital acquisition ratio - (cash flow from operating activities ÷
cash paid for property, plant, and equipment) reflects the
portion of purchases of property, plant, and equipment financed
from operating activities without the need for outside debt or
equity financing or the sale of other investments or fixed assets.
A high ratio benefits the company because it provides the
company with opportunities for strategic acquisitions (Libby et

12. al., 2004).
Impact of Additional Cash Flow Disclosures
Noncash investing and financing activities are investing and
financing activities that do not involve cash. They include, for
example, purchases of fixed assets with long-term debt or stock,
exchanges of fixed assets, and exchanges of debt for stock.
These transactions are disclosed only as supplemental
disclosures to the cash flow statement along with cash paid for
taxes and interest under the indirect method.
Relevance to Professional Accounting Examinations
The Uniform CPA (Certified Public Accountant) Exam tests
knowledge of information contained in this lecture in the
Financial Accounting and Reporting (FAR) section, according
to the Content Specific Outlines published by the AICPA
(AICPA, 2009). This content is part of the Financial Statement
Accounts: Recognition, Measurement, Valuation, Calculation,
Presentation, and Disclosures section that comprises 27 - 33%
of the FAR section of the Uniform CPA Exam (AICPA, 2009).
Conclusion
The statement of cash flows is considered by many to be the
most important of the financial statements in indicating a
company's ability to remain a going concern. Although a
company's mission, product, distribution chain, corporate
culture, and marketing strategy are all key elements of a
successful business, a company cannot survive in the short term
without available cash. To employ workers, replenish inventory,
and foster growth a company must have sufficient cash
available to pay for its current operating expenses, meet
maturing long-term debt obligations, and supply working capital
for opportunities that arise. There must exist a balance between
having enough cash on hand to meet needs and keeping funds
invested in the assets of a business. The statement of cash flows
aids users in analyzing whether a company is successful in
achieving this balance.
References
American Institute of Certified Public Accountants (AICPA).

13. (2009). Content and skill specifications for the Uniform CPA
Exam. Retrieved electronically from
http://www.aicpa.org/BecomeACPA/CPAExam/ExaminationCon
tent/ContentAndSkills/DownloadableDocuments/CSOs-SSOs-
Final-Release-Version-effective-01-01-2011.pdf.
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2013).
Intermediate accounting (15e). Hoboken, NJ: John Wiley &
Sons.
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2009).
Accounting: Tools for business decision making (3rd ed.).
Hoboken, NJ: John Wiley & Sons, Inc.
Libby, R., Libby, P., & Short, D. (2004). Financial accounting
(4th ed.). Boston: McGraw-Hill/Irwin.
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