Charles Sturt University Assignments - Case Study - Accounting - Ethics Assessment Answers

August 17, 2017
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Question: Individual Assignments

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Task

Task 1 covers study schedule weeks 1-4 inclusive.

Presentation

  • Please read this in conjunction with the assignment requirements below.
  • Single spacing and small margins are welcome to save paper.
  • For any business report style questions a report structure is expected.
  • Provide references throughout your assignment including page references to texts, articles, CSU study materials and URL’s of websites.
  • APA is the referencing style used by the Faculty of Business but in this subject I am not too fussy about the style of referencing used, as long as you acknowledge ALL sources used.
  • Reference throughout your assignment AND at the end of your assignment include a complete Bibliography (Reference List) of resources actually used including the Internet, textbook, Study Guide, Software help files and videos supporting this subject.

Assignment task No. 1

Q1-1 Plagiarism

Search the Internet and find two definitions of plagiarism. Discuss. Why is plagiarism/collusion unfair to honest students?

Q1-2 Pasting spreadsheets in doc files

Paste simple examples of two different methods of pasting spreadsheets in a word doc file. Show row and column headings, the normal view and the formula view.

Q1-3 Accounting resources on the Internet

List four web sites relevant to accounting together with their URLs. Explain how each is relevant to accounting.

Q1-4 Second Life

Find this URL. https://www.journalofaccountancy.com/Issues/2008/Jun/AccountingforSecondLife.html

How is Second Life used by the accounting profession? 

Q1-5 Work Integrated Assessment - Describe the computing environment in your current or previous workplace or home office - equipment, software, processes etc. If this is a task you cannot undertake, explain why you cannot - and as an alternative task, describe the history and evolution of the Internet.

The above five questions are designed to assess your ability to use and evaluate digital resources for accounting and can be answered from any source including the computer sections of magazines and newspapers or by access to the Internet. If using the Internet include the URL reference. For the purposes of this subject we do not require the URL date of access.

Q1-6 ABC Learning and ethics - ABC Learning Case Study

Watch the six CPA ABC Learning movies.

Write a business report on accounting aspects of each of the movies making up this case study. Include a summary of different types of financial reports and ethical issues 

Q1-7 Understanding the accounting equation

Sources = Uses. Explain how this equation affects the relationships with increases and decreases in  

P A L E R. Refer to section 2.2 of the topics in Interact2 (or the corresponding Topic PDF’s in the Resources section).

Q1-8 Balance Sheet Equation

Spreadsheet required.

Note that Interact2 resources including the Spreadsheet Advice PDF and the worksheet video may assist in completing this assignment question.

In this case the Report section will look just like the data section but will contain only formulas. In some cases the cells in the report will be, for example  =D8. The yellow highlighted cells will contain the answers.

Q1-9 Assets, liabilities and owner’s equity

Give 3 examples each of assets, liabilities and owner’s equity (Proprietorship) accounts.

Q1-10 Chart of accounts

See your text - 6th edition page 56. What is a chart of accounts? Explain a typical account numbering system.

Q1-11 Debit and credit balances

From the following list of accounts identify those with normal debit or credit balances.

  1. Cash
  2. Accounts receivable
  3. Accumulated depreciation
  4. Prepaid rent
  5. Wages accrued
  6. Accounts Payable
  7. Commission received in advance.
  8. Drawings

Q1-12 Trial balance

A. Create a manual solution using pen and paper. Scan or take an e-photo and paste in your assignment. 

B. Create a spreadsheet solution. Paste normal and formula views.

C. Change 4 numbers such that the trial balance still balances. Paste this new normal view. There should be no need to paste a new formula view. Ensure that you choose the 4 changes yourself. Highlight the data changes with the yellow highlighter in Excel.

Note that Interact2 resources including Spreadsheet Advice and the worksheet video may assist in completing this assignment.

Q1-13 Cash and accrual accounting

What kinds of businesses might use cash accounting? Accrual accounting?

Q1-14 Adjusting entries

Why are adjusting entries needed at the end of the period? Give two examples.

Q1-15 Types of adjusting entries

List four types of adjusting entries and give sample journal entries.

Q1-16 Revenue received in advance

You pay $240 for a magazine subscription for the next 12 months. How should the magazine company account for this transaction initially? Show the journal entry. Show the magazine company's adjusting entry after 5 months.

Q1-17 Adjusted trial balance

Distinguish between the adjusted trial balance and the post-closing trial balance. Give page numbers from your text (8th edition) which show examples.

Q1-18 Current and non-current liabilities

Distinguish between current and non-current liabilities. Give your own examples of each.

Q1-19 Ratios

Explain the current ratio and the debt ratio. Create your own numerical examples.

Q1-20 Worksheet and financial reports 

Note that Interact2 resources including  the Spreadsheet Advice PDF and the worksheet video may assist in completing this assignment.

Add a ten column worksheet beneath the following data. Below that worksheet, create three financial reports. Change five numbers to create a second version of the spreadsheet. Ensure the Trial balance still balances.

Highlight the data changes in yellow. Paste the two normal views and one formula view. Use the IF function wherever appropriate.

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Solution:

Solution to Question 1-1

Plagiarism is a practice of stealing the idea of another person and presenting them as own idea (Oxforddictionaries.com, 2016). It is wrongful or inappropriate as it is unethical. Due to plagiarism the merit of a person comes into question because his ideas and thoughts are not communicated to others and they do not know of his mettle. It is unfair for students as it would hamper the unbiased grades for the students and is a setback for the honest students as undeserving candidates might be able to secure a better grade through plagiarism. /

Solution to Question 1-2

The spreadsheet can be pasted by copying it from the excel sheet (Ctrl+C) and simple pasting the content on the word document (Ctrl+V). It has been shown below: On the other hand the excel sheet can be pasted in the word document as follows:-

Solution to Question 1-3

Four websites relevant to accounting are as follows:-

  • Sleeter – Quickbooks and Beyond

This website provides information regarding the usage of quickbooks and other accounting software. This website would be very useful for the small business entities. The URL is as follows:-

  • Accounting Coach

This website is very helpful for the students and beginners as this website contains a brief description of important terminologies of accounting. The URL is as follows:-

  • IFRS Website

This website provides the detailed description of all the financial reporting principles for an entity and would therefore be helpful for the preparation of financial statements. The URL is as follows:-

  • Accounting Tools

This website provides the information regarding the basic accounting terms and also gives examples for a better understanding. The URL is as follows:-

Solution to Question 1-4

Second Life is used by accounting professionals through CPA Island. The software viewer can be installed and accessed from various countries. It provides a virtual platform for the interaction of the CPAs, educators and the students. It can be accessed from various countries. Here the conferences and other education programmes are held at on a scheduled time. At times, the island might be behind empty f it is visited at an unscheduled time. However, the main objective behind this island is interact of various accounting professionals across the globe through this virtual world and imparting knowledge and awareness of different terms related to the discipline of accounting. Second Life viewer has to be installed in order to access CPA Island. CPA Island can be searched using the search button and then the teleport button takes the viewers to the CPA Island. Therefore, this software provides a platform for interaction of accounting people around the world.

Solution to Question 1-5

The case has been described from the perspective of working as an auditor. The equipment and software to be used in the execution of the work would be the ones that are used by the client for different processes. The software might be available at the office premises of the auditor or it might be present only at the client location. The access to such records would be based upon the importance and confidentiality of the records that have to be accessed by the auditor. Generally, the accounting software to be used comprises of Tally but it might differ keeping in mind the nature of the industry in which the client is involved. The general process of all the audits would remain same but the execution would differ keeping in mind the nature of industry in which the client is involved. The basic process would be obtaining understanding regarding the business process of the client. Understanding the business process would mean enquiring about the end to end process of the business in which the client is involved and understanding the manner in which the processes are being executed. This would give the standard set of rules and principles that are involved in the execution of the business. After obtaining the information, the auditor would procure samples from the population and would test if the samples confirm to the standard rules and principles. If the samples deviate from the rules and principles the reasons for the same would be recorded. If the reasons are genuine and in the normal course of business it would be mentioned in the report else the exceptions would be highlighted in the report and the percentage would be based upon the samples that have been extracted. The audit report would be presented to the management for further actions and follow-up.

Solution to Question 1-6

Introduction

ABC Learning was a child care centre in Australia. The rise and fall of ABC learning was majorly due to the unsound accounting policies that had been adopted by the entity over a given number of years.

Fall of ABC Learning

The unsound accounting policies that were adopted by ABC Learning have been discussed hereunder:-

  • In the Balance Sheet of the company the majority of its assets comprised of the intangible assets. These assets were overvalued which showed the inflated net worth of the company and therefore, presented an incorrect picture of the financial position of the company.
  • The revenue that was recognized by the company was also not genuine. The payment received by the developers was recognized as revenue (collapse, 2009). This was incorrect as this payment had been received by the company for the subsidized lost making centres. The payment that was received by the company was not of regular nature and in the general course of the business activities therefore, it should not have been recognized as revenue. However, the company recorded it as revenue which led to overvaluation of the profits of the company.
  • Multiple acquisitions were made by the company even though 70 percent of its assets comprised of intangible assets (collapse, 2009). Therefore, it can be a scenario that the company paid a premium for these acquisitions even though it did not have ample assets to pay such consideration.
  • The company had artificially enhanced the shareholder value where a major portion of its assets were based upon the future net income generated on the basis of child care licenses which may or may not be realized in the future. Therefore, it portrayed a wrong picture of the state of affairs of the company.

Conclusion

The accounting interpretation given by the company was not accepted by Ernst & Young unlike the previous auditors Pitcher Partners. Therefore, it resulted in such a drastic change of the financial statements of the company that KPMG was brought in as a neutral third party to comment upon the grounds that had been undertaken by Ernst & Young. The audit firm Pitcher Partners accepted the financial interpretations that had been presented by the company but Ernst & Young did not accept it. This resulted in such drastic changes in the financial statements of the company that it crashed and ultimately had to be delisted from the stock exchanges. Therefore, it is important to abide by the financial principles and policies and it should be interpreted in such a manner that it should be of general acceptance.

Solution to Question 1-7

Sources=Uses means that the sources of the funds refers to the source from where the funds are procured. Fund is procured in the business for the purpose of investment therefore, the sources of funds will always be equal to the uses of the fund. The source generally comprises of the liabilities which may be short-term and long-term as well as owner’s equity while the uses comprise of the assets of the company. It will always be equal as the funds procured would be utilized for the operations of the business.

Solution to Question 1-9

Assets:

Building

Accounts Receivable

Cash

Liabilities:

Trade Payables

Outstanding Expenses

Long term Loans

Owner’s Equity:

Capital

Profit

Drawings

Solution to Question 1-10

Chart of accounts is the list of accounts that is used by the company for the preparation of its financial statements. The company has the liberty to add the accounts as per the needs of the business (AccountingCoach.com, 2016).

A typical accounting numbering system consists of all the accounts that are required for the preparation of the income statement and the balance sheet. The income statement consists of operating revenues and expenses and non-operating revenue and expenses. The balance sheet consists of assets, liabilities and owner’s equity.

Solution to Question 1-11

Assets

  1. Cash
  2. Accounts receivable
  3. Accumulated depreciation
  4. Prepaid rent

Liabilities

  1. Accumulated depreciation
  2. Wages accrued
  3. Accounts Payable
  4. Commission received in advance.
  5. Drawing

Solution to Question 1-13

Cash accounting recognizes the revenue on its receipt and not on its accrual (Fontinelle, 2003). This type of accounting can be adopted by the sole proprietorship and partnership (by mutual consent of all the partners). It is feasible to record transaction in cash accounting when the realization of the accrued income is highly uncertain and there is reasonable certainty of accrual of the revenue that has been received. On the other hand, accrual accounting has to be used by the businesses whose accounts have to be published and for the corporate form of business.

Solution to Question 1-14

Adjusting entries are the entries that are passed in order to prepare the financial statements of the entity on an accrual basis (AccountingCoach.com, 2016). The transactions recorded do not take place rather they are passed as a matter of thumb rule.

Examples of adjusting entries are as follows:-

  • Prepaid Rent Expense Debit

           Rent Expense Credit

  • Interest Expense Account Debit

            Interest Outstanding Credit

Solution to Question 1-15

Four types of adjusting entries are prepaid rent, interest expense outstanding, prepaid insurance and wages outstanding.

Examples of adjusting entries are as follows:-

  • Prepaid Rent Expense Debit

           Rent Expense Credit

  • Interest Expense Account Debit

            Interest Outstanding Credit

  • Prepaid Insurance Debit

           Insurance Expense Credit

  • Wages Expense Debit

         Wages Outstanding Credit

Solution to Question 1-16

Journal entries are as follows:-

  • Magazine Subscription Expense Debit                  240

          Cash Account Credit                                              240

  • Prepaid Magazine Subscription Debit                   140

           Magazine Subscription Expense Credit                140

Solution to Question 1-17

Adjusted trial balance refers to the trial balance which is prepared after the adjusting entries are given due effect and are incorporated in the trial balance of the company while post-closing trial balance is the trial balance where the adjusting entries are present outside the trial balance and dual accounting treatment is done at the time of preparation of financial statements.

Solution to Question 1-18

Current liabilities refer to the liabilities that have to be paid by the company within one year while non-current liabilities refer to the liabilities that have to be paid by the company after a period of one year.

Examples of current liabilities are wages outstanding, trade payables. Examples of non-current liabilities are long-term loans, debentures.

Solution to Question 1-19

Current Ratio is obtained by dividing current assets to current liabilities. It measures the financial strength of an entity to pay-off its short-term commitments. Current Ratio of 2 is considered to be ideal. Example of current ratio is as follows:-

Current Assets

Trade Receivables – 150

Cash – 200

Prepaid Expense - 50

Current Liabilities

Trade Payable – 100

Current Ratio = (200+150+50)/100 = 2

 

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