ACCOUNTING 450/550 Review Project
This is an individual assignment. You may confer with one another, but
remember that conferring does not mean allowing others to just copy your
work. Everyone should be working hard on this!
Due: Thursday July 6, 2017—at 5 pm on canvas.uoregon.edu. Part 1: Adjusting entries, 2016
adjusted trial balance and corrected 12/31/15 balance sheet.
Due: Tuesday July 11, 2017—at 5 pm on canvas.uoregon.edu. Part 2: Using the solution to part
1 which will be made available after part 1 is turned in on blackboard, you are to prepare the
income statement, statement of stockholders’ equity, statement of cash flows, balance sheet;
all in proper form You have the option of preparing a statement of comprehensive income or to
incorporate that into the statement of stockholders’ equity.
Both parts must be typed in 10 or 12 font.
NOTE: Important! Make a copy of your solution. The solution to the problem will be posted
on blackboard after you turn in the project.
Purpose of this assignment:
1. Review the adjustment/correction process including sophisticated topics from
accounting 350/351/352.
2. Prepare all of the financial statements in proper form.
These are foundational to this course and your career as accountants.
Setting:
You have been hired by Dillard to prepare adjusting entries and financial statements for 2016.
Previously Rinky Dink Accounting had been performing such tasks.
Ignore tax effects.
The trial balance at 12/31/16 before you work your magic and the balance sheet at 12/31/15 are
included in a separate excel file. 1 1. The investments account at 12/31/16 contains stocks that were all purchased during 2015.
In discussions with the CFO, you determine that they were made to invest excess cash.
The company expects that they will need the cash within the next year. Here is
information that you gather regarding that portfolio (in 000’s):
Company
DAG
GLS
HRG Initial Investment Cost
$300
50
100 Market Value at
12/31/15 Market Value at
12/31/16
$335
$330
55
42
80
94 You also discuss with the CFO the Investment in Timberside Corporation. You discover that this
Investment was first made 3 years ago on 1/1/14 and that the investment cost was $950,000. The
investment in 40% of the voting stock of Timberside was made in order to be able to have
representation on its board since Timberside is a key supplier of the inventory that Dillard sells.
Dillard wants to have a say in the quality control and other decisions that Timberside makes.
Timberside’s book value of equity on 1/1/14 was $1,800,000. Any fair value/book value
difference is attributable to a patent that had a 5 year remaining life as of 1/1/14.
You also determine that Dillard has been recording dividend revenue when it receives payment.
During 2014, Dillard received $10,000 in dividends, in 2015 $20,000 and are $25,000 in 2016.
Timberside has reported income during 2014, 2015 and 2016 of $300,000, $400,000 and
$330,000 respectively.
On 1/1/14, Dillard purchased 300, $1,000 face 8% Mickey Mouse Corporation bonds, interest
paid semi-annually on 7/1 and 12/31, with a maturity term of 10 years. The purchase price was
$262,613.
2. You discover that Dillard bought and installed equipment for $350,000 on 1/1/14. The
equipment’s use will result in environmental damage that will need to be cleaned up
when the equipment is retired. The estimated life of the equipment is 10 years on 1/1/14.
The environmental clean-up cost is estimated to be $70,000. The $70,000 will all be paid
at the end of the equipment’s life. You notice that the equipment was expensed when
originally purchased. A discount rate of 5% is reasonable discount rate for the clean-up
cost. Straight-line with no salvage value is appropriate.
3. The company uses the percentage of accounts receivable method and historically does
not collect 5% of its ending accounts receivable. 4. The company has been recording warranty expense as it has been paid. The company
first warranted its products against defects, 4 years ago, beginning 1/1/13. Warranty costs
paid by year are listed below:
Year
Warranty costs paid
2013
$15,000
2014
$20,000
2 2015
2016 $10,500
$11,000 After exploring the timing of sales during the year and what seems like the company will pay
given experience, you compute the following warranty liabilities at each year –end.
Original Sale
year Estimated liability
on 12/31/13 Estimated liability
on 12/31/14 2013
2014
2015
2016
Total $4,000 $1,000
9,000 $4,000 $10,000 Estimated
liability on
12/31/15
0
$1,000
7,000
$8,000 Estimated
liability at
12/31/16
0
0
$2,000
4,000
$6,000 5. Additional information: Dillard purchased equipment for $700,000 cash this year. This
transaction was properly recorded.
6. You discover that the reported ending inventory for 2014, 2015 and 2016 were all wrong.
This is first detected by you this year. Inventory on 12/31/14 was overstated by $50,000,
on 12/31/15 understated by $40,000 and on 12/31/16 understated by $20,000. These
appear to be independent errors.
7. The 10-year $400,000, 8% note payable was issued on 6/1/10 and pays interest on 5/31
and 11/30 each year.
8. On 1/1/15, Dillard entered into a 7-year agreement to lease equipment from Gracie Pump.
Dillard will return the equipment at the end of the lease. The equipment’s estimated life
was 8 years. The 7 annual lease payments are due on 12/31 each year except there were
two payments the first year, on 1/1 and one on 12/31. The lease payments are $25,000
each. An incremental borrowing rate of 5% would be appropriate.
9. During 2015, Dillard purchased treasury stock for $30,000 and resold it for $40,000 in
the same year. The only other treasury stock transaction through the end of 2016 was a
purchase in 2016 for $95,000.
10. On 1/1/15, Dillard’s board of directors granted Dillard’s top executives 50,000 stock
options exercisable on 1/1/17 for $10 per share. On 1/1/15 the shares were trading for
$10 per share. Using an option pricing model, the options were each valued at $2.50 per
share on 1/1/15. All the executives remain with Dillard as of 12/31/16. 3 11. Dillard recorded its contribution of $500,000 into its pension plan as Pension Expense in
2016.
In examining 2015’s financials you note the following in the footnotes (all numbers in
000’s).
12/31/15 balances
Projected Pension Benefit Obligation ($4,000) cr
Plan Assets (Fair Value)
3,700 dr
Unfunded Pension
(300)cr
* Unamortized Prior service cost
250
* 10 years remaining at 12/31/15
In discussions with the actuary you determine the following:
2016 service cost is $435,
The discount rate used to compute the PBO is 7%
At 12/31/15, 10 years remained related to the prior service cost.
The company assumes an expected return on its pension assets of 9%.
Funding is always on 12/31 of each year.
The plan asset fair value at the end of 2016 after the funding was $4,420.
Assume that the pension expense was properly recorded in 2015 and previously.
No payments were made to retirees in 2016 4

 

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