Accounting Questions and Answers | Study

Running head: REPORT 0
ACCOUNTING
JANUARY 8, 2020
STUDENT DETAILS:

REPORT 1
Part-A
Answer 1:
After receiving the copy of the financial statements of PepsiCo for periods ending December 31,
2013 as well as 2014, I will take following decisions in the different situations -
(a) The requirement of data from the financial statement of PepsiCo in case of the
banker –
The bankers will require the financial statement to assess loan as well as abilities of the
interests payable. It will require to evaluate the debt services coverage ratios, amount of
the loan, financial strength such as debt equity ratio as well as Bankers would need
financial statements to analyze the loan and interest payable capabilities. It is required to
evaluate debt service coverage ratio, amount of other loans, financial strength like
current ratio as well as debt equity ratio. The current ratio is also considered as the
liquidity ratio. It evaluates whether the organisation has sufficient sources to fulfil the
short-term obligation. The debt equity ratio indicates the relative part of the equity and
debt utilised to finance the asset of entity.
(b) A need of data from the financial statement of PepsiCo in case of potential investor
–
The Investor will require the data such as the net profit of an organisation, proportion of
dividend paid as well as the capital structure.

REPORT 2
(c) The requirement of data from the financial statement of company In case of Labour
negotiator –
The profit and loss statement is very helpful in this matter. The main reason is that they
require data such as the operating profits of corporation. It is evident that the labour
charge paid is compared with the proportion of labour charge to the profits with business.
Additionally, it can say that in case of enhancing profit, they want rise in the wages.
Answer 2:
Following accounting assumptions are violated in the provided situations-
(a) In the provided situation, Melissa bought computer for personal utilisation. However,
Melissa recoded this asset as the asset of Missy’ Teashop instead of personal asset. In
accounting, the economic entity is best assumptions made in generally accepted
accounting principle. It is required by the Economic entity assumption that the activities
of company are to be kept individually from the different functions of owners as well as
other financial organisations. In this situation, the economic entity assumption is
violated (Wisdom, et. al, 2017).

REPORT 3
(b) It is provided that Houston Electronics bought office building $ 500,000 before some
years. It can be traded presently at $ 850,000. The accountant would present the building
as the asset on the book at $ 850,000. It can see that it is required by the consistency that
the financial statements of organisation adopt the similar accounting principles,
approaches, methodologies, as well as processes from one accounting period to the
upcoming accounting period. This accounting principle permits the reader of the financial
statement of company to create useful comparison between different periods. It also
permits the organisation to initiate the changes to the chosen accounting methods.
However, the changes as well as effects should be presented for the benefits of a reader
of the financial statements. The accounting method or principle should be changed only
when the new method in can improve the reported financial outcomes. In the provided
situation, the consistency assumption is violated.
(a) It is decided by new accountant that he will make financial statement in every 2 years.
The financial statement’s users require current as well as proper data to assess financial
performance as well as condition of organisation to take significant decision as well as
proper action. The time-period assumption enables the organisation to divide the financial
functions in the short-term. In this case, the Time-period assumption is violated. The
time-period assumption is also known as the periodicity assumption.
(b) It is stated that the Candle store has no plan to quit. However, it is decided that it will
utilize market value to report the asset since it takes decision to move on to the smaller

REPORT 4
store. It is stated by the Financial Accounting Standard Board that the consistency is a
main quality or feature that develops the accounting information. It is stated by
the consistency principle that once the company adopts the accounting principle or
accounting method, it is continually required to follow this principle on the constant basis
in the upcoming accounting periods. In this situation, the consistency assumption is
violated (Bradbury and Almulla, 2018).
Answer 5:
(a) The General Purpose of the auditor’s report –
The report of auditor is considered as the document containing the opinions of auditor
whether the financial statement of entity comply with generally accepted accounting
principles. The audit report has significant role because the bank, creditor, along with
controllers need the audit the financial statement of organisation. The general purpose of
the report of auditor is to document reasonable declaration that the financial statement of
company is free from errors. In addition of income statements as well as the balance
sheets, the auditor's report also makes up the statutory accounts of entity. It can say that it
is important for the reason that the bank as well as creditor needs the audit of financial
statements of organisation before lending to them. Additionally, the clean audit report
explains the purpose of auditor’s report that the entity adopted the accounting standards
when the unqualified report means there may be error (Yusof and Ismail, 2016).
(b) The going concern –

REPORT 5
The going concern principle is considered as the assumption that the organisation would
remain in business for upcoming period. On the other hand, it can say that the
organisation would not be forced to stop functions and liquidate the asset in an upcoming
term at what can lessen the fire-selling price. As per the going concern principle, the
accountant can be justified in submitting identification of some expenditures until the
subsequent time, while the organisation would seemingly still be in business and utilising
the assets in the most effectual way. The organisation is assumed the going concern
principle in the absence of relevant as well as important data to contrary. In this way, the
value of the organisation that is supposed to be the going concern is higher than the
breakup value, since the going concern may possibly continue to generate profit (Kolar,
2017).
(c) No, the losses, restructuring, as well as the disposal of segments are not essentially
precursors to demise of an organization. While the organisation sells the fixed asset like
properties as well as equipment, and takes proceed amounting to less than book value of
assets, then the losses on disposal of assets are noted as the non-operating losses (Prasad
and Chand, 2017).
(d) In the particular organizations, the auditor of company made the adverse opinion. As per
his opinion, the company will not remain in the business for the upcoming reason. It will
not run its operations because it has recurred the net loss, which has resulted into the

REPORT 6
accumulated deficit of 49.7 million dollars as of 31st December, 2012 (Ofori‐Sasu, Abor
and Osei, 2017).
Answer 4:
The dividend is not considered as the expenditure as it is allocation of earning. The dividend is
not regarded as loss of expenditure. It is clear that the dividend declared or dividend paid is not
part of calculation of net income, which is stated on income statement of the entity. The
dividend announced by the entity is reported in the statement of the changes in Equity of
stakeholders and changes in the retained earnings. It can say that the cash dividend means the
sum of money rewarded by the corporation to the shareholders form the reserves as well as
profits of company. It is evident that the dividend is a type of reward to shareholders (Li, Hay
and Lau, 2019). It is a reward decided by the entity to make decision related to essential outlay.
In this way, the dividend is not regarded to be the part of the cash outflows of company that is
essential to run the functions of business. The costs are not involved in the income statement of
organisation. additionally, the outlay is not the expenditure. The dividend policy of entity can be
reversed at the period. It would not show up on the financial statement of company. In addition,
the profits are generated from the money invested by shareholder. The stakeholders are known as
the owners of entity. It can say that the allocation of sharing of profit to owners cannot be
considered as the expenditure. The investments from the owner are never treated as incomes. In
the same way, the profits to the owner are never considered as the expenditures (Gejalaksmi and
Azhagaiah, 2017).
Answer 6 –

REPORT 7
The material is considered as the extent of the result of losses will not be huge as to affect the
financial condition of corporation. The material data or occasion are the events as well as aspects
that will put impact upon the judgment of the well-informed investors. The material event is
required to be publicly stated along with corresponding financial statement. In financial term, the
materiality is known as the impact of the omission or misstatement of data in the financial
statement of entity on users of the statement (Solt, 2016). When user will not have changed the
actions, in that case the misstatement (omission) is considered to be the immaterial. The
materiality concept is used frequently in accounting, especially in the following instances:
 Implementation of accounting standard - it is not required by the organisation to apply the
requirement of the accounting standards if such inactions are immaterial to company’s
financial statement.
 Capitalization limits – the entity may charge expenses to expense, which will be
capitalized as well as depreciated over period. For this reason, the expenses are smaller to
be worth tracking efforts. In this way, the capitalization will have immaterial impacts on
entity’s financial statements.
 Minor transaction – the regulator who is closing book for the accounting period may
avoid minor journal entry if conducting so would have immaterial impacts upon financial
statement of company.
In this way, it can say that the materiality permits the organisation to avoid chosen accounting
standards, when also increasing the effectiveness of the accounting functions. It can say that the
material is in a best position to decide the result of the lawsuit (Nieuwenhuis, Munzi and
Gornick, 2017).

REPORT 8
In addition, the remote is considered as the possibility of happening of occasion is lesser such as
less than ten per cent. It is considered as the subset of 'possible', at a lower end of ranges of
probabilities. It states occasions that are not expected to take place, but that may not be ruled out
totally. It is intended to be the typical examination because the contingent liability that
is remote is not stated in financial statement (Patra and Dhar, 2017).

REPORT 9
Part – b
Exercise 1:
Calculation of total liabilities balance of
Brock at the end of current year -
Particulars Amount Particulars Amount
Cash
$
25,000 Capital Stock
$
10,000
Property, plant &
equipment
$
69,000 Long-term debt
$
41,000
Accounts receivable
$
46,000 Accounts payable
$
24,000
Inventory
$
33,000 Retained earnings
$
98,000
Total
$
1,73,000.00 Total
$
1,73,000.00
Calculation of total
liabilities Amount
Accounts payable $

REPORT 10
24,000.00
Long term debt
$
41,000.00
Total liabilities
$
65,000.00
Exercise 2:
Wei Company
Income statement
for year ending 31st December, 2015
Sales $ 5,60,000.00
Less: COGS $ 4,00,000.00
Gross Profit $ 1,60,000.00
less: Salary expenditure $ 40,000.00
less: Interest expenditure $ 30,000.00
Earnings before tax $ 90,000.00
Income tax expense $ 25,000.00
PAT $ 65,000.00
Exercise 3:

REPORT 11
(a)
Calculation of net income or loss -
Micco’s Gift
Income statement
for the year ending 31st December 2014
Net sales
$
1,90,000.00
Less: Cost of sales
$
80,000.00
Gross profit $ 1,10,000.00
Less: Operating expenses
$
45,000.00
Earnings before interest
or tax
$ 65,000.00
Less: Income taxes
$
30,000.00
Net income $ 35,000.00
(b) The net income would enhance retained earnings that finally enhances the capital of owners
(Sirois, Bédard and Bera, 2018).
(c) Yes, the entity is profitable as after reducing expenditures as well as allocating dividend, it
still has profits left to invest in the functions of business (Athari, Adaoglu and Bektas, 2016).

REPORT 12
Exercise 4:
Item's number Elements Statement ?
Account's
type
1 Retained earnings Balance sheet
Owner's
Equity
2 Buildings Balance sheet Asset
3 Common stock Balance sheet
Owner's
Equity
4 Accounts payable Balance sheet Liability
5 Football ticket sales
Income
statement Revenue
6 Salaries expense
Income
statement Expense
7
Accounts
receivable Balance sheet Asset
Exercise 5:
Sales revenue
$
1,65,000.00
Cash
$
30,000.00
Accounts receivable $ Selling expenses $

REPORT 13
14,000.00 44,000.00
Equipment
$
42,000.00
Common stock
$
41,000.00
Accounts payable
$
12,000.00
Interest income
$
3,000.00
Salaries and wages
expense
$
40,000.00
Cost of sales
$
51,000.00
Inventories
$
22,000.00
Prepaid expenses
$
2,000.00
Income taxes payable
$
5,000.00
Income taxes
expense
$
18,000.00
Notes payable
$
20,000.00
Retained earnings ?
(a) Calculation of total assets -
Particulars Amount
Accounts receivable $ 14,000.00
Equipment $ 42,000.00
Inventories $ 22,000.00
Cash $ 30,000.00
Prepaid expenses $ 2,000.00
Total assets $ 1,10,000.00

REPORT 14
(b) Calculation of the total liabilities –
Particulars Amount
Common stock $ 41,000.00
Accounts payable $ 12,000.00
Notes payable $ 20,000.00
Retained earnings $ 37,000.00
Total Liabilities
$
1,10,000.00
(c ) According to the accounting equation, when the entity is liquidated, first the creditor would
be paid who lend the amount to entity from a sale of asset. In a provided case notes payable, than
income tax payable, than account payable as well as by last common stock holders (Income,
2019).

REPORT 15
References
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case of Islamic and conventional banks. Emerging Markets Review, 27, pp.100-117.
Bradbury, M.E. and Almulla, M., (2018) Auditor, Client, and Investor Consequences of the
Enhanced Auditor's Report. Available at SSRN 3165267.
Gejalaksmi, S. and Azhagaiah, R., (2017) The Impact of Dividend Policy on Shareholders'
Wealth: Evidence from Consumer Cyclical Sector in India. Pacific Business Review
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Income, N., (2019) Income. Auditing, 1(1,000), pp.1-000
Kolář, M., (2017) Relationship between Stock Returns and Net Income: Evidence from US
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Nieuwenhuis, R., Munzi, T. and Gornick, J.C., (2017) Comparative research with net and gross
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Ofori‐Sasu, D., Abor, J.Y. and Osei, A.K., (2017) Dividend policy and shareholders’ value:
evidence from listed companies in Ghana. African Development Review, 29(2), pp.293-304.

REPORT 16
Patra, A. and Dhar, P., (2017) Impact of Dividend Policy on Shareholders’ Value: A Study on
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