ACCT 495 Week 11 Assignment-- I and R

Purpose

To assess your ability to research accounting issues and rules related to a start-up company.

Overview

This assignment forms the basis for the upcoming assignment, Year Four Group Paper in Week 12 of corrected financial statements. This present assignment is necessary to form the "I" (Issues) and "R" (Research) needed for preparation of the "A" (Analysis) and "C" (Conclusion) that combine to form the IRAC methodology.

Action Items

1.    Reflect upon each of the issues identified in Week 1 Auditor’s Questions with your group.

2.    Research all identified issues except start-up costs since this is covered in 3-1: Year One Group Paper with your group members.

3.    Assign an issue or issues to each member of your group to research.

4.    Develop a 1 – 2 page, double-spaced paper for each issue that does the following:

a.    States the identified accounting issue

b.    Identifies the accounting rule(s) that pertain to the issue

c.    Explains in your own words the accounting rule(s) and treatment of the issue

5.    Instructions to access the RIA Checkpoint and the FASB Accounting Standards Codification databases. Accounting research data can be accessed either through the:

a.    RIA Checkpoint database – Practice Area: Accounting, Audit and Corporate Finance located on the Franklin library website or through the

b.    American Accounting Association (AAA) FASB Codification student login. Login information for the AAA website can be obtained from your professor.

6.    Review the six (6) steps utilized in applied accounting research.

Note:

1.    Instructions to access the RIA Checkpoint and the FASB Accounting Standards Codification databases. Accounting research data can be accessed either through the:

a.    RIA Checkpoint database – Practice Area: Accounting, Audit and Corporate Finance located on the Franklin library website or through the American Accounting Association (AAA) FASB Codification student login. Login information for the AAA website can be obtained from your professor.

2.    Review the six (6) steps utilized in applied accounting research.

Submission Instructions

·         Each group member will submit their 1-2 page paper(s) to the group designated leader for this assignment.

·         The group leader will submit one copy of the combined papers to each member of the group and one copy to the professor in class.

·         Bring a copy of your completed work to the meet session for an activity.

Grading Criteria

This assignment will be assessed on the associated rubric.

8. We also noticed that your “other salaries” increased this year. Are you paying Nick’s wife Chris to help with the bookkeeping? And, are you paying Ray’s wife for anything? We were a little concerned with that arrangement when you explained it last year.

I wondered whatever happened to that idea…no, we hired a bookkeeping assistant to help me this year who is not related to anyone in the Company. And, thankfully, part of the increase you are seeing is a result of my first raise after over three years of working here.

9. Could you please provide us with a list all maintenance contracts and their terms? How much is your biggest annual contract worth now?

I gave the listing of maintenance contracts to your assistant, Pam Mason.  We picked up two more advance payment contracts.  These totaled $274,000, of which $78,000 was unearned on December 31, 20X4. All other new contracts are billed monthly. Our biggest contract remains at $196,800 annually, and all previous advance pay customers renewed their contracts this year.

16. We noticed that wages payable really increased this year. Can you provide us with some back up for this increase?

The accrued wages are for a ten day period and are higher due to the extra employees we hired to serve our new contracts. I have the time cards if you need to see them 

19. Nick told us about your new bond issue, but we didn’t get all the information we need. Will Nick’s friend be an officer on the Board of Aguamaint? We are assuming that you are paying interest semi-annually since you made a payment at the end of December. We are also assuming this is not a serial bond since there was no principal paid at year end. We see that you issued the bond at a discount and that the stated interest rate on the bond is 5.0% based on the interest payment you made. Can you tell us what the effective interest rate is?

I have the paperwork on that bond for you. The bond matures in five years and the market rate is 5.3%. The semi-annual payments are interest only. Nick’s friend may join the board, but only if he converts the bond into shares of common stock. By the way, does this bond issue affect our earnings per share calculation this year? Ray was concerned about that the other day.

20. We noted that you expensed the debt issue cost on the bond issue. We are pretty sure that cost needs to be amortized over time, and that it will also affect your effective interest rate calculation.

That is another thing that was completely new to me this year. I guess I never got around to researching that completely. Could you please do that adjustment for me?