BUSILESS LAW 45

CASE STUDY: : Home Heaters: The Effects of Accounting

Estimates

2 For this case, we are analyzing two separate companies and their accounting

processes. o this, I first recreated the journal entries corresponding with the

transactions listed in the case. I then used these journal entries to a chart of

accounts, a trial balance, and, using the information from Part B, financial statements

including an income statement, a statement of stockholders' equity, a classified balance

sheet, and a statement of cash flows. Using Excel as a medium to create the statements, I

then compared the two companies and evaluated which of the companies that I would

prefer to invest in, lend money to, or do business with. I also used these statements to

analyze the methods of estimation and adjusting used by each company and how each

method affects things like total assets, net income, and retained earnings.

Home Heaters

Trial Balance - Part A

Debits Credits

Cash $47,340

Accounts Receivable 99,400

Inventory 239,800

Land 70,000

Building 350,000

Equipment 80,000

Accounts Payable $26,440

Note Payable 380,000

Interest Payable 6,650

Common stock 160,000

Dividends 23,200

Sales 398,500

Other Operating Expenses 34,200

Interest Expense 27,650

Total $971,590 $971,590

3

The two companies, Glenwood Heating and Eads Heaters, have identical

transactions throughout the year and differ only in their estimation methods and adjusting

entries. These estimation methods are integral to the differences in the companies but are

not implemented until year end. The two companies' identical transactions during the

year are reflected in the following trial balance.

As seen in this trial balance, both Glenwood and Eads have the same amount of

debits and credits at December 31. On this date, however, the two companies begin to

differentiate on several things, including their adjusting entries and the estimations used

in the entries. The adjustments are done differently by each company, and therefore affect

net income for each company differently. These adjustments and their effects are best

reflected in the income statements for the two companies.

The adjustments deal with bad debts, cost of goods sold, depreciation expense, a

lease agreement, and income tax expense. As shown below in the income statements, the

cost of goods sold directly affects net income, as do bad debt expense and depreciation

expense. Rent expense also directly affects net income, and is only present on

Glenwood's income statement because Eads capitalized the lease as an asset.

Question 10.

1. . Since the 1980s, Wal-Mart stores have appeared in almost every community in America. Wal-Mart buys its goods in large quantities and, therefore, at cheaper prices. Wal-Mart also locates its stores where land prices are low, usually outside of the community business district. Many customers shop at Wal-Mart because of low prices. Local retailers, like the neighborhood drug store, often go out of business because they lose customers. This story demonstrates that

2. For any given price, a firm in a competitive market will maximize profit by selecting the level of output at which price intersects the

3. 8. Claudia would be willing to pay as much as $100 per week to have her house cleaned. John's opportunity cost of cleaning Claudia's house is $70 per week. Assume Claudia is required to pay a tax of $40 when she hires someone to clean her house for a week. Which of the following is correct?

4. The belief that education makes a person more productive and thereby raises his or her wage is referred to as the ________ view of education.

5. The basic economic problem leads to which one of the following key economic decisions that any economy must address?

6. Value judgements inspiration economic conclusion _________-manufacture and strategy because value decisions___________

7. Which one of the resulting is a fundamental resolve of economic movement_________? The construction of goods to_________

8. The main organizational modification __________between Financial side and the ordinary sciences is that economists____________

9. A family hereditary 15,000 from a long-lost aunt. They are advisement up whether to buy a new car or go on a trip to Australia for a month. They choose to go to Australia. The occasion cost of this conclusion is

10. The making likelihood curve can be used to demonstrate ________each of the resulting, with the exemption of________________