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ACC 291 Discussion Questions and Responses ALL WEEKS 1-5

ACC 291 Discussion Questions and Responses ALL WEEKS 1-5

Week 1:

DQ1: Why would you use the percentage of sales method of calculating doubtful accounts as opposed to the percentage of receivables method? Is it appropriate to use a hybrid of the percentage of sales and the percentage of receivables methods of calculating the allowance for doubtful accounts? Why or why not? Does GAAP allow for the use of both methods at the same time? Why or Why not? If you are employed, determine which method of calculating doubtful accounts your company uses.

DQ2: What are the differences among valuation, depreciation, amortization, and depletion? Is it appropriate to calculate depreciation using two different methods? Why or why not? Which depreciation method gives you the highest depreciation expense in the first year? Why?

DQ3: Management can choose between two bases in calculating the estimated uncollectible accounts under the allowance method. One basis emphasizes an income statement viewpoint whereas the other emphasizes a balance sheet viewpoint. Identify the two bases and contrast the two approaches. How do the different points of view affect the amount recognized as Bad Debts Expense during the accounting period?

DQ4: What is the criterion for capitalizing a cost as opposed to expensing a cost? What qualifies as an intangible asset? What are natural resources, and what are their distinguishing characteristics? What are the benefits of disposing of accounts receivables?

Week 2:

DQ1: While at the water fountain one morning, you overhear two of your co-workers discussing how the market price of a bond is determined. One of them mentions that she believes that the market price of a bond is solely a function of the amount of the principal payment at the end of the term of a bond. Is she right? Discuss.

DQ 2:  An employee’s net pay consists of gross pay less mandatory and voluntary payroll deductions. Identify the mandatory payroll deductions and give two or three examples of common voluntary deductions. Are these deductions recognized as payroll expenses by the employer? What type of payroll expenses does the employer incur related to having a payroll? What types of reports are used to document to the government the payroll taxes paid by the employee and employer?

DQ3: Why do companies issue bonds? Describe the two major obligations incurred by a company when bonds are issued. As an investor, would you rather buy a bond at a discount or a premium rate? Why or why not? What is the determining factor of whether a bond is sold at a discount, face, or premium?

Assume you are the CEO of a large corporation need to raise funds. (a) As a source of long-term financing, what are the major advantages of bonds over common stock? (b) What are the major disadvantages in using bonds for long-term financing?

DQ4: What is a current liability (give examples of current liabilities)? What is liquidity? What are two measures of liquidity? What are long-term liabilities? Give three examples.

Week 3:

DQ1: The following are characteristics of a corporation: (a) separate legal existence, (b) limited liability of stockholders, and (c) transferable ownership rights. Explain these characteristics.

The R&D division of Healy Chemical Corp. has just developed a chemical for sterilizing the vicious Brazilian “killer bees” which are invading Mexico and the southern states of the United States. The president of Healy is anxious to get the chemical on the market to boost Healy’s profits. He believes his job is in jeopardy because of decreasing sales and profits. Healy has an opportunity to sell this chemical in Central American countries, where the laws are much more relaxed than in the United States.

The director of Healy’s R&D division strongly recommends further testing in the laboratory for side-effects of this chemical on other insects, birds, animals, plants, and even humans.

He cautions the president, “We could be sued from all sides if the chemical has tragic side effects that we didn’t even test for in the labs.” The president answers, “We can’t wait an additional year for your lab tests. We can avoid losses from such lawsuits by establishing a separate wholly owned corporation to shield Healy Corp. from such lawsuits. We can’t lose any more than our investment in the new corporation, and we’ll invest just the patent covering this chemical. We’ll reap the benefits if the chemical works and is safe, and avoid the losses from lawsuits if it’s a disaster.” The following week Healy creates a new wholly owned corporation called Dryden Inc., sells the chemical patent to it for $10, and watches the spraying begin.

(a) Are the president’s motives and actions ethical?

(b) Can Healy shield itself against losses of Dryden Inc.?

DQ 2: Class, the statement of cash flows is the only required financial statement that is not prepared from an adjusted trial balance. What are the sources of information for preparing a statement of cash flows? Explain how the accrual basis of accounting affects the statement of cash flows.

DQ3: What are three reasons why companies purchase investments in debt or stock securities? Why would a corporation have excess cash that it does not need for operations? What is the typical investment when investing cash for short periods of time?

DQ4: What are the typical investments when investing cash to generate earnings? Why would a company invest in securities that provide no current cash flows? What is the typical stock investment when investing cash for strategic reasons?

Week 4:

DQ 1:   What are the differences between the direct and indirect presentation of cash flows?  What are the advantages and disadvantages of the direct and indirect methods and which does the Financial Accounting Standards Board (FASB) favor and why?

DQ 2:  Why, and to whom, is the statement of cash flow useful? What is the most important section of the statement of cash flows for investors? Why?

DQ3: What are some common ratios that are used to analyze financial information? Which two ratios do you think should be of greatest interest to: (a) A pension fund considering the purchase of 20-year bonds? (b) A bank contemplating a short-term loan? (c) A common stockholder?

What is a ratio?  What are the different ways of expressing the relationship of two amounts?  What information does a ratio provide?

DQ4: What are some of the things that may limit the usefulness of financial statement analysis? Identify a ratio and explain how one or more of the limiting factors can affect the usefulness of that ratio.

Week 5:

DQ 1:  Why are companies required to prepare a statement of cash flows?  What are the three sections of the statement of cash flows and what does each section tell you about the operations of a company?

DQ 2: Class, the statement of cash flows is the only required financial statement that is not prepared from an adjusted trial balance. What are the sources of information for preparing a statement of cash flows? Explain how the accrual basis of accounting affects the statement of cash flows.

DQ3: Horizontal and vertical analyses are analytical tools frequently used to analyze financial statements. What type of information or insights can be obtained by using these two techniques?  Explain how the output of horizontal analysis and vertical analysis can be compared to industry averages and/or competitive companies.

DQ4: Now that we are nearing the end of this class, tell me what did you find the most and least interesting in this class (this could be subject matter or particular assignments, how the class was facilitated or anything else related to the class).