Chapter 1: Q11DQ. (page 29)
Question: How do ethics rules affect auditors’ choice of clients?
An auditor is a person who checks and verifies the financial records of the business. Ethical rules require auditors to avoid auditing for clients in which they have invested.
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Question: Part A. Identify the following questions as most likely to be asked by an internal (I) or an external (E) user of accounting information. 1. What are reasonable payroll benefits and wages? 2. Should we make a five-year loan to that business? 3. What are the costs of our product’s ingredients? 4. Do income levels justify the current stock price? 5. Should we spend additional money for redesign of our product? 6. Which firm reports the highest sales and income? 7. What are the costs of our service to customers?
Part B. Identify the following users of accounting information as either an internal (I) or an external (E) user. 1. Research and development director 2. Human resources director 3. Politician 4. Shareholder 5. Distribution manager 6. Creditor 7. Production supervisor 8. Purchasing manager
Lita Lopez started Biz Consulting, a new business, and completed the following transactions during its first year of operations.
a. Lita Lopez invested \(70,000 cash and office equipment valued at \)10,000 in the company in exchange for its common stock.
b. The company purchased an office suite for \(40,000 cash.
c. The company purchased office equipment for \)15,000 cash.
d. The company purchased \(1,200 of office supplies and \)1,700 of office equipment on credit.
e. The company paid a local newspaper \(500 cash for printing an announcement of the office’s opening.
f. The company completed a financial plan for a client and billed that client \)2,800 for the service.
g. The company designed a financial plan for another client and immediately collected a \(4,000 cash fee.
h. The company paid \)3,275 cash in dividends to the owner (sole shareholder).
i. The company received \(1,800 cash as partial payment from the client described in transaction f.
j. The company made a partial payment of \)700 cash on the equipment purchased in transaction d.
k. The company paid $1,800 cash for the office secretary’s wages for this period.
Required 1. Create the following table similar to the one in Exhibit 1.9 Use additions and subtractions within the table to show the dollar effects of each transaction on individual items of the accounting equation. Show new balances after each transaction.
Kyzera manufactures, markets, and sells cellular telephones. The average total assets for Kyzera is \(250,000. In its most recent year, Kyzera reported net income of \)65,000 on revenues of $475,000.
Required 2. Does return on assets seem satisfactory for Kyzera given that its competitors average a 12% return on assets?
Key financial figures for Apple’s fiscal year ended September 26, 2015, follow.
Key Figure \( Millions
Liabilities + Equity . . . . . . . . . . . \)290,479
Net income . . . . . . . . . . . . . . . . . 53,394
Revenues . . . . . . . . . . . . . . . . . . 233,715
Required 2. What is Apple’s return on assets for fiscal year 2015? Its assets at September 27, 2014, equal $231,839 (in millions).
Gabi Gram started The Gram Co., a new business that began operations on May 1. The Gram Co. completed the following transactions during its first month of operations.
May 1 G. Gram invested \(40,000 cash in the company in exchange for its common stock.
1 The company rented a furnished office and paid \)2,200 cash for May’s rent.
3 The company purchased \(1,890 of office equipment on credit.
5 The company paid \)750 cash for this month’s cleaning services.
8 The company provided consulting services for a client and immediately collected \(5,400 cash.
12 The company provided \)2,500 of consulting services for a client on credit.
15 The company paid \(750 cash for an assistant’s salary for the first half of this month.
20 The company received \)2,500 cash payment for the services provided on May 12.
22 The company provided \(3,200 of consulting services on credit.
25 The company received \)3,200 cash payment for the services provided on May 22.
26 The company paid \(1,890 cash for the office equipment purchased on May 3.
27 The company purchased \)80 of advertising in this month’s (May) local paper on credit; cash payment is due June 1.
28 The company paid \(750 cash for an assistant’s salary for the second half of this month.
30 The company paid \)300 cash for this month’s telephone bill.
30 The company paid \(280 cash for this month’s utilities.
31 The company paid \)1,400 cash in dividends to the owner (sole shareholder).
Required 1. Create the following table similar to the one in Exhibit 1.9.
Enter the effects of each transaction on the accounts of the accounting equation by recording dollar increases and decreases in the appropriate columns. Do not determine new account balances after each transaction. Determine the final total for each account and verify that the equation is in balance
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