The Accounting Equation is Assets = Liabilities + Owners' Equity. Is the accounting equation true in all instances? Provide sample transactions from your own experiences to demonstrate the validity of the Accounting Equation.
What does the term account mean? What are the different classifications of accounts? How do the rules for debits and credits impact accounts? Please provide an example of how debits and credits impact accounts.
Financial statements are a product of the accounting cycle. Think about two different companies: a manufacturing company, and a retail company. Why would different companies have different accounting cycles? Would you expect the steps of the accounting cycle to be the same for each company? Why, or why not?
What is the purpose of a bank reconciliation? What are the reasons for differences between the cash reported in the accounting records, and the cash balance in the bank statements?
The controller of Sagehen Enterprises believes that the company should switch from the LIFO method to the FIFO method. The controller's bonus is based on the next income. It is the controller's belief that the switch in inventory methods would increase the net income of the company. What are the differences between the LIFO and FIFO methods?
A variety of depreciation methods are used to allocate the cost of an asset to all of the accounting periods benefited by the use of the asset. Your client has just purchased a piece of equipment for $100,000. Explain the concept of depreciation. Which of the following depreciation methods would you recommend: straight-line depreciation, double declining balance method, or an alternative method?
What is a current liability? From the perspective of a user of financial statements, why do you believe current liabilities are separated from long-term liabilities? Based on your current experience as well as any additional research you may have done, provide two examples of situations where businesses collect monies from customers and employees and report these amounts as a current liability.
A client comes to you thinking about starting a consulting business. Your client is specifically interested in what type of entity should be created for this new business. Based on your readings, or any additional research you may have done, discuss the advantages and disadvantages of the following: sole proprietorship, partnership, and corporation. Based on these advantages and disadvantages, provide a clear recommendation to your client.
Ratios provide the users of financial statements with a great deal of information about the entity. Do ratios tell the whole story? How could liquidity ratios be used by investors to determine whether or not to invest in a company?
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Year Ending December 2012
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Year Ending December 2011
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Year Ending December 2010
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|
Revenues
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40,000
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35,000
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33,000
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|
Operating Expenses
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|
|
|
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Salaries
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15,000
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10,000
|
9,000
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|
Maintenance and Repairs
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6,000
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9,000
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10,000
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|
Rental Expense
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2,500
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2,500
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2,500
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|
Depreciation
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2,000
|
2,000
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2,000
|
|
Fuel
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4,000
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3,500
|
2,500
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|
Total Operating Expenses
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29,500
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27,000
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26,000
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|
Operating Income
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10,500
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8,000
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7,000
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|
Sales and Administrative Expenses
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6,000
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4,000
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3,000
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|
Interest Expense
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2,500
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2,000
|
1,000
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Net Income
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2,000
|
2,000
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3,000
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Above is a comparative income statement for Cecil, Inc. for the years 2010, 2011, and 2012. Calculate the net-profit margin for each of these years. Comment on the profit margin trend.