ACCT221 Intermediate Accounting
Qatar University College of Business and Economics Department of Accounting and Information Systems ACCT221– Intermediate Accounting (1)
You are required to form syndicates of 3 members and submit a syndicate form (see attachment) to your instructor by 21st March 2019. Your mark will be based on the mark that your syndicate achieves.
Assume that you are a representative of an international consultancy company and you are asked to advise the CEO of Al-Khor Corporation on several issues related to the preparation of financial statements.
Part A- Income statement issues:
In one of his discussions with you, the CEO of Al-Khor Corporation has stated that “The financial community has become increasingly concerned with the quality of reported earnings”.
- Define the term earnings quality and explain the distinction between permanent and transitory earnings as it relates to the concept of earnings quality. (1.5 Marks)
- How do earnings management practices affect the quality of earnings? (2 Marks)
- Assume that a manufacturing company’s annual income statement included a large gain from the sale of investment securities. What factors would you consider in determining whether or not this gain should be included in an assessment of the company’s permanent earnings?
Part B- Balance sheet issues:
The following balance sheet has been submitted to you for a review. List your suggestions for improvements in the format of the balance sheet. Consider both terminology deficiencies as well as classification inaccuracies. (3 Marks)
For the Period Ended 31/12/2018
Property, Plant and Equipment
Less: reserve for depreciation (40,000) $70,000
Factory supplies 22,000
Land and buildings 400,000
Less: reserve for depreciation (150,000) 250,000
Plant site held for future use 90,000 $432,000
Accounts receivable 175,000
Treasury stock (at cost) 20,000 495,000
Notes receivable 40,000
Patents 26,000 146,000
Advances to salespersons 60,000
Prepaid rent 27,000
Returnable containers 75,000 162,000
TOTAL ASSETS $1,235,000
Accounts payable $140,000
Allowance for doubtful accounts 8,000
Income taxes payable 77,000
Sales taxes payable 17,000 $242,000
Long-Term Liabilities, 5% debenture bonds, due 2024 650,000
TOTAL LIABILITIES 892,000
Capital stock, $10.00 par value, issued 10,000 shares $100,000
Capital surplus 263,000
Dividends paid (20,000)
TOTAL EQUITY 343,000
TOTAL LIABILITIES AND EQUITY $1,235,000
Part C- Cash flows statement issues:
The CEO of Al-Khor Corporation has several questions related to the statement of cash flows. Write a brief memorandum to him, answering his three questions as shown below.
- What are the objectives of the statement of cash flows? (0.5 Mark)
- What are the two types of transactions that would be disclosed in a separate schedule in the statement of cash flows although they do not affect cash during the report period? (0.5 Mark)
- Describe the potential statement of cash flows classification differences between IFRS and US GAAP. (2 Marks)
Your report should contain:
- Group assessment cover sheet. This cover sheet must include your team members’ full names and student ID numbers.
- The report should contain, immediately after the cover sheet, a paragraph that highlights the contribution of each member towards the accomplishment of the project and also the steps and procedures undertaken in order to come up with this contribution.
- The report is a joint responsibility. If there are problems within the group, which you cannot resolve, please discuss with your instructor IMMEDIATELY as no late complaints will be considered. If the problems are not resolved and it is felt there has been an unequal contribution, then, exceptionally, you should inform your instructor of the proportion of the work which has been contributed by each member.
- Please useTimesNew Roman as the font, size 12, and lines are to be 1.5 spaced NOT SINGLE SPACED, also ADJUST THE LINES IN ALL THE PARAGRAPHES.
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