Also need assitance/ guidance on part two of the project encompassing page 2 and beyond

1 ACCT495 Capstone Project Fall 2016 Part 1 Adjusting entries & Statements Year-end Adjustment Data for Roxy and Harley Corp is as follows: 1. $300,000 in sales on account had not been recorded but were shipped FOB Shipping Point on December 31. The cost of this inventory was $140,000. Roxy and Harley uses a perpetual inventory system. 2. Employees are allowed to carry over up to 10 days of earned vacation days per year up to 40 days. Employees earn an average of $190 per day. A total of 1,000 earned vacation days will be carried over to 2017. It is probable that the employees will take the vacation days. 3. Income tax expense is 30% of income before income tax. 4. The Research and Development account includes current year costs of $380,000 and R& D Equipment with a cost of $200,000 and an estimated useful life of 10 years. 5. You discover that a product sale was made and recorded in December for $100,000; the product had not yet been shipped. The cost of the product was $58,000. 6. The Prepaid Expense account balance includes the $300,000 cost of a two year insurance policy purchased on April 1, 2016. 7. Depreciation & Amortization expense for the year is $275,000 8. Interest expense accrued on its long-term liabilities is $82,620. 9. A dividend of $147,000 was declared on December 16, to be paid on January 15, 2017 10. It is estimated that 6% of accounts receivable will be uncollectable. INSTRUCTIONS: A. Correct the trial balance by putting the accounts in the typical account number order B. Record the adjusting journal entries C. Compute the adjusted trial balance amounts D. Prepare in good form: a. Income Statement b. Balance Sheet c. Retained Earnings Statement E. Compute the following ratios: Current Ratio, Profit Margin on Sales, Debt to Assets, Earnings per Share, and Book Value per share F. Record Closing Entries 2 ACCT495 Final Project - Part 2 A. Long-Term Asset Acquisition Roxy and Harley (R & H) is considering a significant equipment replacement. R & H would like to replace some of their equipment before December 31, 2017. The equipment originally cost $840,000 and the equipment's accumulated depreciation balance at the end of 2016 is will be $790,000. At this point the equipment is depreciated to its salvage value. Your long-term asset accountant, Joe, tells you about four equipment options as follows: 1. 2. 3. 4. construct new equipment and sell the old equipment, exchange the old equipment for new equipment that is more efficient, purchase new equipment that is more efficient and sell the old equipment, or overhaul the old equipment. The estimated life of any new equipment is 7 years. R & H would like you to analyze the four options to determine the financial impact of each decision and any non-financial considerations that may result from each decision. Additional information about each option is presented below: Option 1: Construct the new equipment in-house and sell the old equipment for cash at a fair value of $60,000. R & H would take out a one-year construction loan for $900,000 at the time construction begins at a short-term borrowing rate of 10% for the construction Anticipated actual expenditures for constructing the equipment are $980,000, and on a weighted-average basis the expenditures are approximately $625,000. The bulk of the $980,000 will be financed with the construction loan, and the 3 balance will be financed through accounts payable. The interest on the short-term note is due and payable by year-end. (Note: Construction is assumed to be completed at year-end of 2017.) Option 2: Exchange the equipment for a similar piece of equipment with a fair value of $995,000. The fair value of the old equipment is $60,000. R & H can borrow $850,000 on a one-year, 10% note. the balance will be funded with an accounts payable arrangement with the supplier. (Assume the exchange has commercial substance.) Option 3: Purchase the new equipment by giving a non-interest-bearing note with five payments of $199,000 to the supplier (starting on the first day of note's term and each year thereafter) and selling the old equipment for $60,000 cash. The first $199,000 payment would be made in late December 2016. The prevailing interest rate for obligations of this nature is 10%. Option 4: Overhaul the existing equipment. The following expenses are anticipated under this approach: (1) The normal annual cost for lubrication and replacement of minor parts to maintain the integrity of the exterior body would be $55,000. (2) The cost of re-wiring interior components in an overhaul would be $250,000. (3) Replacing old worn components would cost $148,000 with associated labor costs of $310,000 for installation. The overhaul is estimated to extend the useful life of the equipment another four years. (The present equipment's original useful life was eight years, starting January 1, 2008.) The costs will be financed at the end of 2017 through a one-year loan for at 10%. Instructions (a) Prepare journal entries in general journal form for each of the four options. 4 (b) Write a brief memo on how each option affects the financial statements. Include your journal entry(ies) in the body of your memo for each option. Discuss the strengths and weaknesses of each option. (c) Since you are now in the process of analyzing the quantitative effects of this decision, you decide to also consider whether the acquisition of any new equipment will cause any employees to lose jobs. Also you wonder if there are other non-financial and/or ethical considerations you should include in your analysis. Write a memo describing other qualitative or subjective issues that you think R & H should consider in their analysis. (d) At the next management team meeting, Roxy & Harley express some concern that any new equipment acquired to replace the old equipment may become obsolete within the next three to six years. Roxy & Harley want to know how the accounting rules for impairments would apply to any new equipment. Research the accounting literature (e.g., access the FASB Codification), to determine the official guidance for information on impairments including the timing and calculation of the amount. Be sure you describe the reasons for recording impairments and how recording any impairment actually can benefit the financial statements. (e) You seem to remember that asset impairments could be used to \"manage earnings.\" Search the Internet and accounting journals for recent stories in the business press about asset impairments and earnings management. Prepare a memo explaining how earnings might be managed through asset impairments. Fall, 2016 Roxy & Harley Part 3 Group Assignment 5 In addition, Roxy & Harley have heard there have been several recent accounting changes as document in the FASB Codification. Your group will be assigned one of the accounting topics below on which to report the following: dl.) The main provisions of the new pronouncements d2.) How the accounting treatment of the new pronouncement differs from before d3.) The effective date(s) of the new pronouncement d4.) How the accounting treatment compares with IFRS The Topics are: 1. Extraordinary & Unusual Items 2. Income Taxes 3. Business Combinations 4. Leases 5. Recognition & Measurements of Financial Instruments 6. Earnings Per Share