Liability and Owners’ Equity
#liability and owner’s equity
Complete an assessment with two main sections, which address (1) liability and owner’s equity and (2) warranty expense and issuance of securities.
Introduction
Note: An accounting cycle requires specific steps that need to be executed in a sequence. The assessments in this course are presented in a sequence and must be completed in order.
Competencies Measured
By successfully completing this assessment, you will demonstrate your proficiency in the course competencies through the following assessment scoring guide criteria:
Competency 2: Examine the role of accounting as an information system.
- Analyze current liabilities.
- Analyze long-term debt.
- Apply accounting procedures to equity transactions.
Competency 4: Analyze the financial liabilities and equities of an enterprise.
- Describe why a company should accrue warranty expense.
- Identify the purpose of a securities offering announcement.
- Describe the entry to record the sale of a security and its impact on future interest expenses.
- Explain why security is priced at a value other than par.
Competency 5: Communicate in a manner that is professional and consistent with expectations for professionals in the field of accounting.
- Communicate in a manner that is professional and consistent with expectations for professionals in the field of accounting.
Preparation
Overview
Note: Do not proceed with this assessment until you have reviewed faculty feedback on Assessment 3.
This assessment has two sections:
- Liabilities and Owner’s Equity.
- Warranty Expense Estimate and Issuance of Securities.
Section 1: Liabilities and Owner’s Equity
This section of the assessment has three parts. Use the Assessment 4 Liabilities and Owners’ Equity Data document for the information you need to complete the three parts, and record your answers in the Assessment 4 Template. Both documents are linked in the Resources under the Required Resources heading. Submit the completed template.
Scenario
As a practitioner, your workload can vary drastically from week to week, and sometimes on a daily basis. A can-do attitude is valued, along with your knowledge and work ethic. So, you dig into a new stack of files left on your desk with a note instructing you to provide answers by end of the day.
Part 1: Current Liabilities
Complete Part 1 in the Assessment 4 Liabilities and Owners’ Equity Data document.
Part 2: Long-Term Liabilities
Complete Part 2 in the Assessment 4 Liabilities and Owners’ Equity Data document.
Part 3: Equity Transactions
Complete Part 3 in the Assessment 4 Liabilities and Owners’ Equity Data document.
Section 2: Warranty Expense Estimate and Issuance of Securities
This section has two parts. Complete both parts as described below.
Part 1: Warranty Expense Estimate
Greg Johnson, after completing the adjusting for his new company, Poly-Fix, was called to meet with the company controller to discuss his proposed entries. Greg assumed that the controller was questioning his efforts as he was asked to bring his notes, calculations, and supporting documentation. He soon learned that his assumption was incorrect and that his boss wanted him to reconsider one of the adjusting entries for an estimated expense.
Poly-Fix is a new company, specializing in commercial fasteners. Their products have a long-term warranty against manufacturing defects. Greg’s boss feels that 3 percent of sales is too high for their warranty expense estimate. This is a new product that has yet to be tested, and the company president is under pressure from their lenders to meet projected income and profit levels.
In a 2-3-page Word document, address the following:
- Should Greg change his warranty expense estimate? Why or why not?
- Why should a company accrue warranty expenses? Explain.
- Who might be impacted by a decision to revise the estimate? How might they be impacted?
- What is the impact of revising a warranty expense estimate? Explain.
Additional Requirements:
Part 1 of Section 2 should meet the following requirements:
- Written communication: Written communication should be clear, well-organized, and support a central idea, with no technical writing errors, as expected of a business professional.
- References: References and citations should be formatted using current APA guidelines for style and formatting.
- Length: 2-3 typed, double-spaced pages.
- Font and font size: Times New Roman, 12-point.
#Part 2: Issuance of Securities
The following announcement appeared in the July 15, 2018, issue of the Wall Avenue Financial Journal:
_________________________________________________________________________
This announcement is not an offer of securities for sale or an offer to buy securities.
New Issue, July 15, 2018 $950,000,00
CRUDE OIL & GAS, INC.
5.75% Debentures Due July 1, 2033
Price 99.76%
Plus accrued interest if any from the date of issuance
Copies of the prospectus and the related prospectus supplement may be obtained from such
of the undersigned as may legally offer these securities under applicable securities laws.
Kermit Jeffers & Co. Inc. / Banks Bros. & Co. \ William Stork & Co.
_________________________________________________________________________
In a 2-3-page Word document, address the following:
- What is the purpose of this announcement? Identify the purpose of a securities offering announcement.
- Why are the securities being priced at 99.76 percent? Explain why security is priced at a value other than par.
- How will Crude Oil & Gas be recorded in this sale of securities?
- How will this impact its future interest expense entries?
- How would you describe the entry to record the sale of a security and its impact on future interest expenses?
Additional Requirements
Part 2 of Section 2 should meet the following requirements:
- Written communication: Written communication should be clear, well-organized, and support a central idea, with no technical writing errors, as expected of a business professional.
- References: References and citations should be formatted using current APA guidelines for style and formatting.
- Length of paper: 2-3-typed, double-spaced pages.
- Font and font size: Times New Roman, 12-point.
Competencies Measured
By successfully completing this assessment, you will demonstrate your proficiency in the course competencies through the following assessment scoring guide criteria:
Competency 2: Examine the role of accounting as an information system.
- Analyze current liabilities.
- Analyze long-term debt.
- Apply accounting procedures to equity transactions.
Competency 4: Analyze the financial liabilities and equities of an enterprise.
- Describe why a company should accrue warranty expense.
- Identify the purpose of a securities offering announcement.
- Describe the entry to record the sale of a security and its impact on future interest expenses.
- Explain why security is priced at a value other than par.
Competency 5: Communicate in a manner that is professional and consistent with expectations for professionals in the field of accounting.
- Communicate in a manner that is professional and consistent with expectations for professionals in the field of accounting
#Assessment 4: Liabilities, Owners Equity, Warranty Expense Estimates, And Issuance Of Securities
#Jordash Company purchased Machine #573 on May 1, 2015. The following information relating to Machine #573 was gathered at the end of May:
Price $40,400
Credit terms 2/10, n/30
Freight-in costs $ 568
Preparation and installation costs $ 2,090
Labor costs during regular production operations are $ 5,775
It was expected that the machine could be used for 10 years, after which the salvage value would be zero. Jordash intends to use the machine for only 8 years, however, after which it expects to be able to sell it for $750. The invoice for Machine #573 was paid on May 5, 2018. Jordash uses the calendar year as the basis for the preparation of financial statements.
- Compute the depreciation expense for the years indicated using the following methods. (Round to the nearest dollar.)
- Straight-line method for 2018.
- Sum-of-the-years’-digits method for 2019.
- Double-declining balance method for 2018.
- Suppose Jodi Scott, the president of Jordash, tells you that because the company is a new organization, she expects it will be several years before production and sales reach optimum levels. She asks you to recommend a depreciation method that will allocate less of the company’s depreciation expense to the early years and more to the later years of the assets’ lives. What method would you recommend?
Record your answers in the Assessment 3 Template. Where appropriate, show all calculations leading to the final solution.