Page 193 - Accounting Principles (A Business Perspective)

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The business seemed successful from the start, as the Holts received orders from many customers. But they felt
something was wrong. They worked hard and charged competitive prices. Yet there seemed to be barely enough
cash available from the business to cover immediate personal needs. Summarized, the checkbook of the business

for 2010, their second year of operations, showed:
Balance, 2010 January 1 $ 99,200
Cash received from customers:
For work done in 2009 $ 36,000
For work done in 2010 200,000
For work to be done in 2011 48,000 284,000
$ 383,200
Cash paid out:
Two-year insurance policy dated 2010 January 1 $ 19,200
Utilities 48,000
Supplies 104,000
Other Expenses 72,000
Taxes, including sales taxes 26,400
Dividends 40,000 309,600
Balance, 2010 December 31 $ 73,600
Considering how much they worked, the Holts were concerned that the cash balance decreased by USD 25,600

even though they only received dividends of USD 40,000. Their combined income from the auto manufacturer had
been USD 45,000. They were seriously considering giving up their business and going back to work for the auto
manufacturer. They turned to you for advice. You discovered the following:
Of the supplies purchased in 2010, USD 24,000 were used on jobs billed to customers in 2010; no supplies were
used for any other work.
Work completed in 2010 and billed to customers for which cash had not yet been received by year-end
amounted to USD 40,000.
Prepare a written report for the Holts, responding to their belief that their business is not sufficiently profitable.
(Hint: Prepare an income statement for 2010 and include it in your report.)

Annual report analysis B Using the Annual report appendix, calculate the current ratios for the two years
shown for The Limited, Inc. Write a summary of the results of your calculations. Also, look at some of the other data
provided by the company in preparing your comments. For instance, look at the net income for the last three years.
Broader perspective – Writing experience C Read the "A broader perspective: Skills for the long haul".
Write a description of a career in public accounting broader perspective at each level within the firm. Discuss the
skills needed and how you could develop these skills.
Group project D In teams of two or three students, interview a management accountant. Management

accountants may have the title of chief financial officer (CFO), controller, or some other accounting title within a
company. Seek information on the advantages and disadvantages of working as a management accountant. Also
inquire about the nature of the work and any training programs offered by the company. As a team, write a
memorandum to the instructor summarizing the results of the interview. The heading of the memorandum should
contain the date, to whom it is written, from whom, and the subject matter.
Group project E With a small group of students, obtain an annual report of a company in which you have
some interest. You may obtain the annual report from your instructor, the library, the Internet, or the company.

Accounting Principles: A Business Perspective 194 A Global Text