Expert answer:14 Discussion Board questions
Expert answer:The Nature of AccountingAudited Financial Statements All publicly traded companies are required to have their financial statements audited annually by an independent certified public accountant (CPA). Do you think the CPA can maintain an independent, unbiased attitude throughout the audit engagement when their fees are paid by the company they are auditing? Do you think audits should be required of all companies, including family owned businesses?Balance Sheet and Income Statement Accounting is often called the “language of business.” Why do you think that is? Describe a business or personal scenario where a basic knowledge of accounting would be useful to make a decision Conduct internet research by finding an article or blog on a recent accounting fraud which has been perpetrated over the past decade. Briefly share with your classmates some details about the fraud. Who was responsible for the fraud and do you have any suggestions how it could have been prevented? What were the penalties imposed by civil or criminal action? 4.Adjusting Entries You have agreed to help your brother-in-law prepare financial statements for the first six months of his newly created computer repair business. He hands you a shoebox with his bank statements detailing the cash collections and cash payments during the year. You also find in the shoebox some invoices for equipment and supplies purchased during the year along with a record of services provided to customer including dates and amounts billed. Where would you begin to make sense of this mess and what steps would you take to provide him a set of financial statements using accrual accounting? 5. The Closing Process At the end of an accounting period, all businesses close their books to begin the new accounting period. Many small businesses choose the cash basis of accounting instead of the accrual basis because it simplifies the whole accounting process, as fewer adjusting entries are required. Conduct internet research on “cash vs accrual basis” of accounting and find an article that compares both of these methods. Share with your classmates some details about the article. Besides simplifying the accounting process, why do many small businesses prefer the cash basis over the accrual basis of accounting? Why do you think generally accepted accounting principles require the accrual basis to be used? 6.Value of Contra-sales Accounts Symbol Technologies was a fast-growing maker of bar-code scanners. In 2004, seven high level executives were indicted by the SEC for a variety of accounting frauds including “candy” deals and “channel stuffing” which inflated the revenue figures of the company. Read this NY Times article, Symbol Technology Accounting Fraud and please respond to the following questions: What details discussed in the article suggest that Symbol violated the revenue principle? Who was hurt by management’s unethical conduct? Share with your classmates your perspective on this article. 7. Credit Economy The economy of the United States is founded on credit terms where goods and services are purchased and sold on account. Recent estimates place the average amount of credit card debt per indebted household around $15,000. Do you think credit card companies or consumers are to blame for this situation? What happens when the full amount due is not paid monthly, but only the minimum payment? Do you have a credit card? If so, what do you use it for? Do you know what is the annual interest rate charged by the credit card company? It can be found on your statement. 8. Generally Accepted Accounting Principles (GAAP) Companies are currently allowed to choose between several methods of valuing inventory, such as FIFO, LIFO, specific identification, and average cost, although International Financial Reporting Standards prohibit LIFO. Describe a type of business where the flow of the goods sold or produced would match up with each of these types of methods. For example, a house builder would definitely want to use specific identification to cost out their houses and calculate his/her profit since houses can come in many shapes and sizes. The same would be true for a jewelry store. 9. Depreciation During this week, you learned about revenue and capital expenditures. The following situation relates directly to this concept. In 2002, WorldCom filed for bankruptcy shortly after the company announced an internal investigation which revealed $11 billion of fraudulent accounting entries. One of the things the company did was booking ‘line costs’ (interconnection expenses with other telecommunication companies) as capital on the balance sheet instead of expenses. Bernard Ebbers was Chief Executive Office at the time. How did booking “line costs” as capital distort the financial statements? Who do you think is most at fault for the conditions leading up to the company’s bankruptcy and who suffered the most as a result? Where is Bernard Ebbers now? 10. Long-term Liabilities Two close family friends, Ken and Cindy, started a business three years ago out of their kitchen making natural soaps and selling them to boutique businesses in resort areas. Their business has doubled in the past two years and they are considering taking out a $50,000 home equity loan to expand operations into nearby rented space. They also plan to buy some additional equipment to increase the number of soaps made per batch. They have asked your opinion about taking out this loan and they are both excited yet nervous about it. What are some things you would like to know about them and their business to help them with this decision? 11. Bond Issue Your 55 year old parents have been saving for retirement many years and have built up a nest egg of $1,000,000 in cash and equity investments. They are considering retiring in 10 years and are wondering whether to invest some or all of their retirement savings in the bond market because they feel it is less risky than the stock market. Bond interest rates currently are at historical lows and are expected by some financial analysts to rise in the next decade. What would you suggest they do? Do you agree that bond investments are less risky than equity investments? Please share your reasoning with your classmates. 12． Capital Structure Influences Many companies pay shareholders a regular dividend payment every quarter. For example, on April 24, 2012 the following announcements were made: Johnson and Johnson (JNJ) announced today that it will increase its dividend by 7%. This will give JNJ 50 consecutive years of dividend increases. The new annual dividend will be $2.44 per share and will help maintain the companies solid dividend yield. Exxon (XOM) announced yesterday that they will increase its quarterly dividend by 21% which will give the company a annual dividend of $2.28 per share and a dividend yield of 2.6% Other companies, like Google, have never paid a dividend. Would you purchase a stock that does not pay a dividend when there are many companies which make regular dividend payments to investors? Why else would you invest in a stock or equity security? 13.Preferred Class of Stock You are the president of an internet company that has enjoyed great success. You are considering expanding operations into the South American markets and need to raise $500 million of additional funding to do so. You are considering borrowing the money in the bond market at a 8% rate or issuing an additional public offering of common stock. The company treasurer, Chris, suggests an issuance of preferred stock instead. How is preferred stock different than bonds or common stock? What factors would you consider to decide the best way to raise $500 million? 14. Audited Financial Statements You are a student member of a business case competition. You and two other teammates are in charge of analyzing the financial position of a company and making a recommendation to a senior loan officer of Santander as to whether the company is worthy of a $10 million dollar short term loan to grow the business. You are only allowed to examine one audited financial statement to make your recommendation. Which one would you choose and what information would the statement provide that would be useful to support your recommendation?
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1. The Nature of Accounting
Accounting is often called the “language of business.” Why do you think that is?
Describe a business or personal scenario where a basic knowledge of accounting
would be useful to make a decision
2. Audited Financial Statements
All publicly traded companies are required to have their financial statements
audited annually by an independent certified public accountant (CPA). Do you
think the CPA can maintain an independent, unbiased attitude throughout the
audit engagement when their fees are paid by the company they are auditing? Do
you think audits should be required of all companies, including family owned
businesses?
3. Balance Sheet and Income Statement
Conduct internet research by finding an article or blog on a recent accounting
fraud which has been perpetrated over the past decade. Briefly share with your
classmates some details about the fraud. Who was responsible for the fraud and
do you have any suggestions how it could have been prevented? What were the
penalties imposed by civil or criminal action?
4. Adjusting Entries
You have agreed to help your brother-in-law prepare financial statements for the
first six months of his newly created computer repair business. He hands you a
shoebox with his bank statements detailing the cash collections and cash
payments during the year. You also find in the shoebox some invoices for
equipment and supplies purchased during the year along with a record of services
provided to customer including dates and amounts billed. Where would you begin
to make sense of this mess and what steps would you take to provide him a set of
financial statements using accrual accounting?
5.
The Closing Process
At the end of an accounting period, all businesses close their books to begin the
new accounting period. Many small businesses choose the cash basis of
accounting instead of the accrual basis because it simplifies the whole accounting
process, as fewer adjusting entries are required.
Conduct internet research on “cash vs accrual basis” of accounting and find an
article that compares both of these methods. Share with your classmates some
details about the article. Besides simplifying the accounting process, why do
many small businesses prefer the cash basis over the accrual basis of accounting?
Why do you think generally accepted accounting principles require the accrual
basis to be used?
6.Value of Contra-sales Accounts
Symbol Technologies was a fast-growing maker of bar-code scanners. In 2004, seven
high level executives were indicted by the SEC for a variety of accounting frauds
including “candy” deals and “channel stuffing” which inflated the revenue figures of
the company.
Read this NY Times article, Symbol Technology Accounting Fraud and please
respond to the following questions:
What details discussed in the article suggest that Symbol violated the revenue
principle? Who was hurt by management’s unethical conduct? Share with your
classmates your perspective on this article.
7. Credit Economy
The economy of the United States is founded on credit terms where goods and
services are purchased and sold on account. Recent estimates place the average
amount of credit card debt per indebted household around $15,000. Do you think
credit card companies or consumers are to blame for this situation? What happens
when the full amount due is not paid monthly, but only the minimum payment?
Do you have a credit card? If so, what do you use it for? Do you know what is the
annual interest rate charged by the credit card company? It can be found on your
statement.
8.
Generally Accepted Accounting Principles (GAAP)
Companies are currently allowed to choose between several methods of valuing
inventory, such as FIFO, LIFO, specific identification, and average cost, although
International Financial Reporting Standards prohibit LIFO. Describe a type of
business where the flow of the goods sold or produced would match up with each of
these types of methods. For example, a house builder would definitely want to use
specific identification to cost out their houses and calculate his/her profit since houses
can come in many shapes and sizes. The same would be true for a jewelry store.
9.
Depreciation
During this week, you learned about revenue and capital expenditures. The following
situation relates directly to this concept.
In 2002, WorldCom filed for bankruptcy shortly after the company announced an
internal investigation which revealed $11 billion of fraudulent accounting
entries. One of the things the company did was booking ‘line costs’ (interconnection
expenses with other telecommunication companies) as capital on the balance sheet
instead of expenses. Bernard Ebbers was Chief Executive Office at the time.
How did booking “line costs” as capital distort the financial statements? Who do you
think is most at fault for the conditions leading up to the company’s bankruptcy and
who suffered the most as a result? Where is Bernard Ebbers now?
10.
Long-term Liabilities
Two close family friends, Ken and Cindy, started a business three years ago out of
their kitchen making natural soaps and selling them to boutique businesses in resort
areas. Their business has doubled in the past two years and they are considering
taking out a $50,000 home equity loan to expand operations into nearby rented space.
They also plan to buy some additional equipment to increase the number of soaps
made per batch. They have asked your opinion about taking out this loan and they are
both excited yet nervous about it. What are some things you would like to know
about them and their business to help them with this decision?
11.
Bond Issue
Your 55 year old parents have been saving for retirement many years and have built
up a nest egg of $1,000,000 in cash and equity investments. They are considering
retiring in 10 years and are wondering whether to invest some or all of their
retirement savings in the bond market because they feel it is less risky than the stock
market. Bond interest rates currently are at historical lows and are expected by some
financial analysts to rise in the next decade. What would you suggest they do? Do you
agree that bond investments are less risky than equity investments? Please share your
reasoning with your classmates.
12．
Capital Structure Influences
Many companies pay shareholders a regular dividend payment every quarter. For
example, on April 24, 2012 the following announcements were made:
Johnson and Johnson (JNJ) announced today that it will increase its dividend by
7%. This will give JNJ 50 consecutive years of dividend increases. The new annual
dividend will be $2.44 per share and will help maintain the companies solid dividend
yield.
Exxon (XOM) announced yesterday that they will increase its quarterly dividend by
21% which will give the company a annual dividend of $2.28 per share and a
dividend yield of 2.6%
Other companies, like Google, have never paid a dividend. Would you purchase a
stock that does not pay a dividend when there are many companies which make
regular dividend payments to investors? Why else would you invest in a stock or
equity security?
13.Preferred Class of Stock
You are the president of an internet company that has enjoyed great success. You are
considering expanding operations into the South American markets and need to raise
$500 million of additional funding to do so. You are considering borrowing the
money in the bond market at a 8% rate or issuing an additional public offering of
common stock. The company treasurer, Chris, suggests an issuance of preferred stock
instead. How is preferred stock different than bonds or common stock? What factors
would you consider to decide the best way to raise $500 million?
14.
Audited Financial Statements
You are a student member of a business case competition. You and two other
teammates are in charge of analyzing the financial position of a company and making
a recommendation to a senior loan officer of Santander as to whether the company is
worthy of a $10 million dollar short term loan to grow the business.
You are only allowed to examine one audited financial statement to make your
recommendation. Which one would you choose and what information would the
statement provide that would be useful to support your recommendation?
…
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