Week 3 DQs LIFO vs. FIFO The controller of Sagehen Enterprises believes that the company should switch from the LIFO method to the FIFO method. The controller’s bonus is based on the next income. It is the controller’s belief that the switch in inventory methods would increase the net income of the company. What are the differences between the LIFO and FIFO methods? Depreciation A variety of depreciation methods are used to allocate the cost of an asset to all of the accounting periods benefited by the use of the asset. Your client has just purchased a piece of equipment for $100,000. Explain the concept of depreciation. Which of the following depreciation methods would you recommend: straight-line depreciation, double declining balance method, or an alternative method? Assignment 1. Specific identification method. Boston Galleries uses the specific identification method for inventory valuation. Inventory information for several oil paintings follows. Painting Cost 1/2 Beginning inventory Woods $21,000 4/19 Purchase Sunset 21,800 6/7 Purchase Earth 31,200 12/16 Purchase Moon 4,000 Woods and Moon were sold during the year for a total of $35,000. Determine the firm’s a. cost of goods sold. b. gross profit. c. ending inventory. 2. Inventory valuation methods: basic computations. The January beginning inventory of the White Company consisted of 300 units costing $40 each. During the first quarter, the company purchased two batches of goods: 700 Units at $44 on February 21 and 800 units at $50 on March 28. Sales during the first quarter were 1,400 units at $75 per unit. The White Company uses a periodic inventory system. Using the White Company data, fill in the following chart to compare the results obtained under the FIFO, LIFO, and weighted-average inventory methods. FIFO LIFO Weighted Average Goods available for sale $ $ $ Ending inventory, March 31 Cost of goods sold 3. Perpetual inventory system: journal entries. At the beginning of 20X3, Beehler Company implemented a computerized perpetual inventory system. The first transactions that occurred during 20X3 follow: · 1/2/20X3 Purchases on account: 500 units @ $6 = $3,000 · 1/15/20X3 Sales on account: 300 units @ $8.50 = $2,550 · 1/20/20X3 Purchases on Account: 200 units @ 5 = $1,000 · 1/25/20X3 Sales on Account: 300 units @ $8.50 = $2,550 The company president examined the computer-generated journal entries for these transactions and was confused by the absence of a Purchases account. a. Duplicate the journal entries that would have appeared on the computer printout under FIFO & LIFO b. Calculate the balance in the firm’s Inventory account under each method. c. Briefly explain the absence of the Purchases account to the company president. 4. Inventory valuation methods: computations and concepts. Wild Riders Surfboard Company began business on January 1 of the current y.

1. Week 3 DQs
LIFO vs. FIFO
The controller of Sagehen Enterprises believes that the company
should switch from the LIFO method to the FIFO method. The
controller’s bonus is based on the next income. It is the
controller’s belief that the switch in inventory methods would
increase the net income of the company. What are the
differences between the LIFO and FIFO methods?
Depreciation
A variety of depreciation methods are used to allocate the cost
of an asset to all of the accounting periods benefited by the use
of the asset. Your client has just purchased a piece of equipment
for $100,000. Explain the concept of depreciation. Which of the
following depreciation methods would you recommend:
straight-line depreciation, double declining balance method, or
an alternative method?
Assignment
1. Specific identification method. Boston Galleries uses the
specific identification method for inventory valuation.
Inventory information for several oil paintings follows.
Painting
Cost
1/2 Beginning inventory
Woods
$21,000
4/19 Purchase
Sunset
21,800
6/7 Purchase
Earth
31,200

2. 12/16 Purchase
Moon
4,000
Woods and Moon were sold during the year for a total of
$35,000. Determine the firm’s
a. cost of goods sold.
b. gross profit.
c. ending inventory.
2. Inventory valuation methods: basic computations. The
January beginning inventory of the White Company consisted of
300 units costing $40 each. During the first quarter, the
company purchased two batches of goods: 700 Units at $44 on
February 21 and 800 units at $50 on March 28. Sales during the
first quarter were 1,400 units at $75 per unit. The White
Company uses a periodic inventory system. Using the White
Company data, fill in the following chart to compare the results
obtained under the FIFO, LIFO, and weighted-average inventory
methods.
FIFO
LIFO
Weighted Average
Goods available for sale
$
$
$
Ending inventory, March 31
Cost of goods sold
3. Perpetual inventory system: journal entries. At the beginning

3. of 20X3, Beehler Company implemented a computerized
perpetual inventory system. The first transactions that occurred
during 20X3 follow:
· 1/2/20X3 Purchases on account: 500 units @ $6 = $3,000
· 1/15/20X3 Sales on account: 300 units @ $8.50 = $2,550
· 1/20/20X3 Purchases on Account: 200 units @ 5 = $1,000
· 1/25/20X3 Sales on Account: 300 units @ $8.50 = $2,550
The company president examined the computer-generated
journal entries for these transactions and was confused by the
absence of a Purchases account.
a. Duplicate the journal entries that would have appeared on the
computer printout under FIFO & LIFO
b. Calculate the balance in the firm’s Inventory account under
each method.
c. Briefly explain the absence of the Purchases account to the
company president.
4. Inventory valuation methods: computations and concepts.
Wild Riders Surfboard Company began business on January 1 of
the current year. Purchases of surfboards were as follows:
Date
Quantity
Unit Cost
Total Cost
1/3
100
$125
$12,500
4/3
200
$135
$27,000
6/3

4. 100
$145
$14,500
7/3
100
$155
$15,500
Total
500
$69,500
Wild Riders sold 400 boards at $250 per board on the dates
listed below. The company uses a perpetual inventory system.
Date
Quantity Sold
Unit Price
Total Sales
3/17
50
$250
$12,500
5/17
75
$250
$18,750
8/10
275
$250
$68,750
Total
400
$100,000

5. Instructions
a. Calculate cost of goods sold, ending inventory, and gross
profit under each of the following inventory valuation methods:
· First-in, first-out
· Last-in, first-out
· Weighted average
b. Which of the three methods would be chosen if
management’s goal is to
(1) produce an up-to-date inventory valuation on the balance
sheet?
(2) show the lowest net income for tax purposes?
5. Depreciation methods. Mike Davis Enterprises purchased a
delivery van for $40,000 in January 20X7. The van was
estimated to have a service life of 5 years and a residual value
of $6,000. The company is planning to drive the van 20,000
miles annually. Compute depreciation expense for 20X8 by
using each of the following methods:
a. Units-of-output, assuming 17,000 miles were driven during
20X8
b. Straight-line
c. Double-declining-balance
6. Depreciation computations. Alpha Alpha Alpha, a college
fraternity, purchased a new heavy-duty washing machine on
January 1, 20X3. The machine, which cost $2,000, had an
estimated residual value of $100 and an estimated service life of
4 years (1,800 washing cycles). Calculate the following:
a. The machine’s book value on December 31, 20X5, assuming
use of the straight-line depreciation method
b. Depreciation expense for 20X4, assuming use of the units-of-
output depreciation method. Actual washing cycles in 20X4
totaled 500.
c. Accumulated depreciation on December 31, 20X5, assuming
use of the double-declining-balance depreciation method.

6. 7. Depreciation computations: change in estimate. Aussie
Imports purchased a specialized piece of machinery for $50,000
on January 1, 20X3. At the time of acquisition, the machine was
estimated to have a service life of 5 years (25,000 operating
hours) and a residual value of $5,000. During the 5 years of
operations (20X3 - 20X7), the machine was used for 5,100,
4,800, 3,200, 6,000, and 5,900 hours, respectively.
Instructions
a. Compute depreciation for 20X3 - 20X7 by using the
following methods: straight line, units of output, and double-
declining-balance.
b. On January 1, 20X5, management shortened the remaining
service life of the machine to 15 months. Assuming use of the
straight-line method, compute the company’s depreciation
expense for 20X5.
c. Briefly describe what you would have done differently in part
(a) if Aussie Imports had paid $47,800 for the machinery rather
than $50,000 In addition, assume that the company incurred
$800 of freight charges $1,400 for machine setup and testing,
and $300 for insurance during the first year of use.
Week 4 Dqs
Current Liability
What is a current liability? From the perspective of a user of
financial statements, why do you believe current liabilities are
separated from long-term liabilities? Based on your current
experience as well as any additional research you may have
done provide two examples of situations where businesses
collect monies from customers and employees and reports these
amounts as a current liability.
Client Recommendations
A client comes to you thinking about starting a consulting
business. Your client is specifically interested in what type of
entity should be created for this new business. Based on your

7. readings or any additional research you may have done, discuss
the advantages and disadvantages of the following: sole
proprietorship, partnership, and corporation. Based on these
advantages and disadvantages provide a clear recommendation
to your client.
Assignment
1. Payroll accounting. Assume that the following tax rates and
payroll information pertain to Brookhaven Publishing:
· Social Security taxes: 4% on the first $55,000 earned per
employee
· Medicare taxes: 1.5% on the first $130,000 earned per
employee
· Federal income taxes withheld from wages: $7,500
· State income taxes: 4% of gross earnings
· Insurance withholdings: 1% of gross earnings
· State unemployment taxes: 5.4% on the first $7,000 earned per
employee
· Federal unemployment taxes: 0.8% on the first $7,000 earned
per employee
The company incurred a salary expense of $50,000 during
February. All employees had earned less than $5,000 by month-
end and no wages have been paid during the month.
a. Prepare the necessary entry to record Brookhaven’s February
payroll. The entry will include deductions for the following:
· Social Security taxes
· Medicare taxes
· Federal income taxes withheld
· State income taxes
· Insurance withholdings
b. Prepare the journal entry to record Brookhaven’s payroll tax
expense. The entry will include the following:
· Matching Social Security taxes

8. · Matching Medicare taxes
· State unemployment taxes
· Federal unemployment taxes
2. Current liabilities: entries and disclosure. A review of
selected financial activities of Visconti’s during 20XX
disclosed the following:
1-Dec: Borrowed $10,000 from the First City Bank by signing a
3-month, 15% note payable.
Interest and principal are due at maturity.
10-Dec: Established a warranty liability for the XY-80, a new
product. Sales are expected to
total 1,000 units during the month. Past experience with similar
products indicates
that 3% of the units will require repair, with warranty costs
averaging $27 per unit (parts only).
22-Dec: Purchased $16,000 of merchandise on account from
Oregon Company, terms 2/10, n/30.
26-Dec: Borrowed $5,000 from First City Bank; signed a 15%
note payable due in 60 days. (Assume 360 day year for interest)
31-Dec: Repaired six XY-80s during the month at a total cost of
$162
31-Dec: Accrued three days of salaries at a total cost of $1,400.
Instructions
a. Prepare journal entries to record the transactions.
b. Prepare adjusting entries on December 31 to record accrued

9. interest for each of the notes payable.
3. Notes payable. Red Bank Enterprises was involved in the
following transactions during the fiscal year ending October 31:
2-Aug: Borrowed $55,000 from the Bank of Kingsville by
signing a 90-day, 12% note.
20-Aug: Issued a $50,000 note to Harris Motors for the
purchase of a $50,000 delivery truck. The note is due in 180
days and carries a 12% interest r ate.
10-Sep: Purchased merchandise from Pans Enterprises in the
amount of $15,000. Issued
a 30-day, 12% note in settlement of the balance owed.
11-Sep: Issued a $60,000 note to Datatex Equipment in
settlement of an overdue account
payable of the same amount. The note is due in 30 days and
carries a 14% interest rate.
10-Oct: The note to Pans Enterprises was paid in full.
11-Oct: The note to Datatex Equipment was paid in full.
30-Oct: Paid note to Bank of Kingsville.
Instructions
a. Prepare journal entries to record the transactions.
b. Prepare adjusting entries on December 31 to record accrued
interest. (Daily interest is calculated utilizing the 360 day
method).
c. Prepare the Current Liability section of Red Bank’s balance
sheet as of December 31. Assume that the Accounts Payable
account totals $203,600 on this date.
Week 5 Dqs
Ratios
Ratios provide the users of financial statements with a great
deal of information about the entity. Do ratios tell the whole
story? How could liquidity ratios be used by investors to

10. determine whether or not to invest in a company?
Profit Margin
Year Ending December 2012
Year Ending December 2011
Year Ending December 2010
Revenues
40,000
35,000
33,000
Operating Expenses
Salaries
15,000
10,000
9,000
Maintenance and Repairs
6,000
9,000
10,000
Rental Expense
2,500
2,500
2,500
Depreciation
2,000
2,000
2,000
Fuel
4,000
3,500
2,500
Total Operating Expenses

11. 29,500
27,000
26,000
Operating Income
10,500
8,000
7,000
Sales and Administrative Expenses
6,000
4,000
3,000
Interest Expense
2,500
2,000
1,000
Net Income
2,000
2,000
3,000
Above is a comparative income statement for Cecil, Inc. for the
years 2010, 2011, and 2012. Calculate the net-profit margin for
each of these years. Comment on the profit margin trend.
Assignment
1. Liquidity ratios. Edison, Stagg, and Thornton have the
following financial information at the close of business on July
10:
Edison
Stagg
Thornton
Cash
$6,000
$5,000

12. $4,000
Short-term investments
3,000
2,500
2,000
Accounts receivable
2,000
2,500
3,000
Inventory
1,000
2,500
4,000
Prepaid expenses
800
800
800
Accounts payable
200
200
200
Notes payable: short-term
3,100
3,100
3,100
Accrued payables
300
300
300
Long-term liabilities
3,800
3,800
3,800
a. Compute the current and quick ratios for each of the three

13. companies. (Round calculations to two decimal places.) Which
firm is the most liquid? Why?
2. Computation and evaluation of activity ratios. The
following data relate to Alaska Products, Inc:
20X5
20X4
Net credit sales
$832,000
$760,000
Cost of goods sold
530,000
400,000
Cash, Dec. 31
125,000
110,000
Average Accounts receivable
205,000
156,000
Average Inventory
70,000
50,000
Accounts payable, Dec. 31
115,000
108,000

14. Instructions
a. Compute the accounts receivable and inventory turnover
ratios for 20X5. Alaska rounds all calculations to two decimal
places.
3. Profitability ratios, trading on the equity. Digital Relay has
both preferred and common stock outstanding. The company
reported the following information for 20X7:
Net sales
$1,750,000
Interest expense
120,000
Income tax expense
80,000
Preferred dividends
25,000
Net income
130,000
Average assets
1,200,000
Average common stockholders' equity

15. 500,000
a. Compute the profit margin on sales ratio, the return on equity
and the return on assets, rounding calculations to two decimal
places.
b. Does the firm have positive or negative financial leverage?
Briefly explain.
4. Horizontal analysis. Mary Lynn Corporation has been
operating for several years. Selected data from the 20X1 and
20X2 financial statements follow.
20X2
20X1
Current Assets
$86,000
$80,000
Property, Plant, and Equipment (net)
99,000
90,000
Intangibles
25,000
50,000
Current Liabilities
40,800
48,000
Long-Term Liabilities
153,000
160,000
Stockholders’ Equity

16. 16,200
12,000
Net Sales
500,000
500,000
Cost of Goods Sold
322,500
350,000
Operating Expenses
93,500
85,000
a. Prepare a horizontal analysis for 20X1 and 20X2. Briefly
comment on the results of your work.
5.Vertical analysis. Mary Lynn Corporation has been operating
for several years. Selected data from the 20X1 and 20X2
financial statements follow.
20X2
20X1
Current Assets
$86,000
$80,000
Property, Plant, and Equipment (net)
99,000
80,000
Intangibles
25,000
50,000
Current Liabilities

17. 40,800
48,000
Long-Term Liabilities
153,000
150,000
Stockholders’ Equity
16,200
12,000
Net Sales
500,000
500,000
Cost of Goods Sold
322,500
350,000
Operating Expenses
93,500
85,000
a. Prepare a vertical analysis for 20X1 and 20X2. Briefly
comment on the results of your work.
Final Paper
Focus of the Final Paper
Write a five-to seven-page financial statement analysis of a
public company, formatted according to APA style as outlined
in the Ashford Writing Center. In this analysis you will discuss
the financial health of this company with the ultimate goal of
making a recommendation to other investors. Your paper should
consist of the following sections: introduction, company
overview, horizontal analysis, ratio analysis, final
recommendation, and conclusions. Your paper needs to include
a minimum of two scholarly resources in addition to the
textbook as references.

18. Here is a breakdown of the sections within the body of the
assignment:
Company Overview
Provide a brief overview of your company (one to two
paragraphs at most). What industry is it in? What are its main
products or services? Who are its competitors?
Horizontal Analysis of Income Statement and Balance Sheet
Prepare a three-year horizontal analysis of the income statement
and balance sheet of your selected company. Discuss the
importance and meaning of horizontal analysis. Discuss both the
positive and negative trends presented in your company.
Ratio Analysis
Calculate the current ratio, quick ratio, cash to current
liabilities ratio, over a two-year period. Discuss and interpret
the ratios that you calculated. Discuss potential liquidity issues
based on your calculations of the current and quick ratios. Are
there any factors that could be erroneously influencing the
results of the ratios? Discuss liquidity issues of competitive
companies within the same industry.
Recommendation
Based on your analysis would you recommend an individual
invest in this company? What strengths do you see? What risks
do you see? It is perfectly acceptable to state that you would
recommend avoiding this company as long as you provide
support for your position.
Writing the Final Paper
1. Must be five to seven double-spaced pages in length, and
formatted according to APA style as outlined in the Ashford
Writing Center.
2. Must include a title page with the following:
a. Title of paper

19. b. Student’s name
c. Course name and number
d. Instructor’s name
e. Date submitted
3. Must begin with an introductory paragraph that has a succinct
thesis statement.
4. Must address the topic of the paper with critical thought.
5. Must end with a conclusion that reaffirms your thesis.
6. Must document all sources in APA style, as outlined in the
Ashford Writing Center.
7. Must include a separate reference page, formatted according
to APA style as outlined in the Ashford Writing Center.