Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

INSTRUCTIONS: You are employed as an analyst in the credit department of a commercial bank. You are asked to analyze the financial statements of XYZ

image text in transcribed
image text in transcribed
image text in transcribed
INSTRUCTIONS: You are employed as an analyst in the credit department of a commercial bank. You are asked to analyze the financial statements of XYZ Imports, a local company that manufactures electronic components for computers. The company also maintains a small research and development staff. The company is privately owned, and its financial statements have not been audited and may not have been prepared in accordance with generally accepted accounting principles (GAAP). Your discussions with XYZ's bookkeeper reveal the following: 1. XYZ recognizes revenue when merchandise is ordered. At year-end, $200,000 of merchandise ordered during 2022 had not been shipped. The cost of this merchandise is $135,000. 2. XYZ has not established an allowance for its uncollectible accounts recefvable. Historically, 5% of the ending accounting receivable balance has been uncollectible. 3. XYZ recognizes interest expense when paid. XYZ acquired the note payable on July 1 , 2022, at an interest rate of 4% annually. Interest is paid annually on June 30th. 4. XYZ's total research and development expenditures for 2022 amounted to $1,000,000. XYZ's policy with respect to capitalized R&D costs was to begin amortization only after a commercially viable asset had been developed; to date, no viable asset had resulted from the research program represented by the currently capitalized R&D costs. REQUIRED: a. Given the information above, provide XYZ's restated balance sheet and income statement in a manner consistent with GAAP (round to the nearest dollar). Your supervisor also requests a statement of retained earnings for the year ended 12/31/2022. XYZ did not declare or pay dividends during 2022. Assume a tax rate of 20%. b. Provide supporting documentation for the restatement. That is, for each item above, provide the journal entry (or entries) if an adjustment is required, along with a clear. concise explanation of how you determined the appropriate adjustment. Any assumptions should be made explicit. e. Compare the creditworthiness of XYZ Imports as revealed by the original versus the restated financial statements. Use whatever two (2) measures of creditworthiness you view as most appropriate. (250 words maximum) d. Do you believe that the managers of XYZ Imports have made ethical financial reporting choices? Why or why not? What additional information, if any, would be useful in addressing this question? ( 150 words maximum) e. Make a recommendation as to whether you believe your bank should extend credit to XYZ. Justify your answer ( 150 words maximum) You may consult whatever books or reference materials you like, but you may not discuss the case with anyone (except Writing Center staff). YOUR WORK MUST BE YOUR OWN. Please provide a cover sheet to the case assignment with the following HANDWRITTEN statement: "I have neither given nor received unauthorized assistance on this assignment." Please SIGN and date the cover sheet. Please submit the typewritten case assignment (with handwritten cover sheet) as a pdf file. XYZ Imports Balance Slieet As of December 31,2022 Assets Current assets: Cash Accounts receivable Inventories Prepaid expenses Total current assets Noncurrent assets: Property, plant \& equipment, gross Less: Accumulated depreciation Property, plant \& equipment, net. Land Deferred research \& development cost: Total assets XYZ Imports Income Statement For the Year Ended December 31,2022 Sales revenue Less: Cost of sales Beginning inventory Cost of production Goods available for sale Less: Ending inventory. Gross margin Less: Research \& development expense Depreciation expense Selling and administrative expenses Net income before taxes 950,000(850,000) Less income taxes $760,000(190,000) Net income after taxes INSTRUCTIONS: You are employed as an analyst in the credit department of a commercial bank. You are asked to analyze the financial statements of XYZ Imports, a local company that manufactures electronic components for computers. The company also maintains a small research and development staff. The company is privately owned, and its financial statements have not been audited and may not have been prepared in accordance with generally accepted accounting principles (GAAP). Your discussions with XYZ's bookkeeper reveal the following: 1. XYZ recognizes revenue when merchandise is ordered. At year-end, $200,000 of merchandise ordered during 2022 had not been shipped. The cost of this merchandise is $135,000. 2. XYZ has not established an allowance for its uncollectible accounts recefvable. Historically, 5% of the ending accounting receivable balance has been uncollectible. 3. XYZ recognizes interest expense when paid. XYZ acquired the note payable on July 1 , 2022, at an interest rate of 4% annually. Interest is paid annually on June 30th. 4. XYZ's total research and development expenditures for 2022 amounted to $1,000,000. XYZ's policy with respect to capitalized R&D costs was to begin amortization only after a commercially viable asset had been developed; to date, no viable asset had resulted from the research program represented by the currently capitalized R&D costs. REQUIRED: a. Given the information above, provide XYZ's restated balance sheet and income statement in a manner consistent with GAAP (round to the nearest dollar). Your supervisor also requests a statement of retained earnings for the year ended 12/31/2022. XYZ did not declare or pay dividends during 2022. Assume a tax rate of 20%. b. Provide supporting documentation for the restatement. That is, for each item above, provide the journal entry (or entries) if an adjustment is required, along with a clear. concise explanation of how you determined the appropriate adjustment. Any assumptions should be made explicit. e. Compare the creditworthiness of XYZ Imports as revealed by the original versus the restated financial statements. Use whatever two (2) measures of creditworthiness you view as most appropriate. (250 words maximum) d. Do you believe that the managers of XYZ Imports have made ethical financial reporting choices? Why or why not? What additional information, if any, would be useful in addressing this question? ( 150 words maximum) e. Make a recommendation as to whether you believe your bank should extend credit to XYZ. Justify your answer ( 150 words maximum) You may consult whatever books or reference materials you like, but you may not discuss the case with anyone (except Writing Center staff). YOUR WORK MUST BE YOUR OWN. Please provide a cover sheet to the case assignment with the following HANDWRITTEN statement: "I have neither given nor received unauthorized assistance on this assignment." Please SIGN and date the cover sheet. Please submit the typewritten case assignment (with handwritten cover sheet) as a pdf file. XYZ Imports Balance Slieet As of December 31,2022 Assets Current assets: Cash Accounts receivable Inventories Prepaid expenses Total current assets Noncurrent assets: Property, plant \& equipment, gross Less: Accumulated depreciation Property, plant \& equipment, net. Land Deferred research \& development cost: Total assets XYZ Imports Income Statement For the Year Ended December 31,2022 Sales revenue Less: Cost of sales Beginning inventory Cost of production Goods available for sale Less: Ending inventory. Gross margin Less: Research \& development expense Depreciation expense Selling and administrative expenses Net income before taxes 950,000(850,000) Less income taxes $760,000(190,000) Net income after taxes

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting An Introduction

Authors: Alex Watson, Jacqui Kew

5th Edition

0190425520, 978-0190425524

More Books

Students also viewed these Accounting questions

Question

What must a person do to apply?

Answered: 1 week ago

Question

What is the break - even point in dollars?

Answered: 1 week ago