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ACC 421 Week 4 Learning Team Assignment Week Four Textbook Problem



ACC 421 Week 4 Learning Team Assignment Week Four Textbook Problems Week 4 Team Assignment P5-3 (Balance Sheet Adjustment and Preparation) The adjusted trial balance of Eastwood Company andother related information for the year 2014 are presented as follows. Additional information: 1. The LIFO method of inventory value is used. 2. The cost and fair value of the long-term investments that consist of stocks and bonds is the same. 3. The amount of the Construction in Progress account represents the costs expended to date on a building in the process of construction. (The company rents factory space at the present time.) Theland on which the building is being constructed cost $85,000, as shown in the trial balance. 4. The patents were purchased by the company at a cost of $40,000 and are being amortized on a straight-line basis. 5. Of the discount on bonds payable, $2,000 will be amortized in 2015. 6. The notes payable represent bank loans that are secured by long-term investments carried at $120,000. These bank loans are due in 2015. 7. The bonds payable bear interest at 8% payable every December 31, and are due January 1, 2025. 8. 600,000 shares of common stock of a par value of $1 were authorized, of which 500,000 shares were issued and outstanding.   Instructions Prepare a balance sheet as of December 31, 2014, so that all important information is fully disclosed. CA24-2 (Disclosures Required in Various Situations) Ace Inc. produces electronic components for sale tomanufacturers of radios, television sets, and digital sound systems. In connection with her examination ofAce’s financial statements for the year ended December 31, 2015, Gloria Rodd, CPA, completed field work2 weeks ago. Ms. Rodd now is evaluating the significance of the following items prior to preparing her auditor’sreport. Except as noted, none of these items have been disclosed in the financial statements or notes. Instructions For each of the below items, discuss any additional disclosures in the financial statements and notes thatthe auditor should recommend to her client. (The cumulative effect of the four items should not beconsidered.) Item 1: A 10-year loan agreement, which the company entered into 3 years ago, provides that dividendpayments may not exceed net income earned after taxes subsequent to the date of the agreement. The balanceof retained earnings at the date of the loan agreement was $420,000. From that date through December31, 2015, net income after taxes has totaled $570,000 and cash dividends have totaled $320,000. On the basisof these data, the staff auditor assigned to this review concluded that there was no retained earningsrestriction at December 31, 2015. Item 2: Recently Ace interrupted its policy of paying cash dividends quarterly to its stockholders. Dividendswere paid regularly through 2014, discontinued for all of 2015 to finance purchase of equipment forthe company’s new plant, and resumed in the first quarter of 2016. In the annual report, dividend policy isto be discussed in the president’s letter to stockholders. Item 3: A major electronics firm has introduced a line of products that will compete directly with Ace’sprimary line, now being produced in the specially designed new plant. Because of manufacturing innovations,the competitor’s line will be of comparable quality but priced 50% below Ace’s line. The competitorannounced its new line during the week following completion of field work. Ms. Rodd read the announcementin the newspaper and discussed the situation by telephone with Ace executives. Ace will meet thelower prices that are high enough to cover variable manufacturing and selling expenses but will permitrecovery of only a portion of fixed costs. Item 4: The company’s new manufacturing plant building, which cost $2,400,000 and has an estimated lifeof 25 years, is leased from Wichita National Bank at an annual


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