ACC 540 Case Study 8
Posted: August 26th, 2021
ACC 540 Case Study 8
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ACC 540 Case Study 8
Case 1
- Quarterly Reports Problems
Quarterly reports show a company’s financial statements submitted every three months. These reports are usually disclosed as Form 10-Q on the Securities Exchange Commission (SEC) for public corporations(Schroeder, et al., 2017).Besides, it is difficult to predict the annual income using the interim reports as they fluctuateperiodically and are seasonal. Equally, thecompany sales and expenses reflect a seasonal pattern of three months, which will change in the next quarters (Tsao et al., 2018). Also, the organization product that is expressed in physical units is prone to fluctuate in different patterns and seasons, which will be difficult to use in an annual forecast. Hence, large companies with diverse product lines will encounter numerous varying seasonal patterns that cannot be used in predicting yearly income.
- Repairsand Maintenance Costs
The repairs expenses can portraysignificantdisparities that are not equivalent to a company’s production or sales. Normally, a company’s machine repairs and maintenance are carried out during low production seasons, which will lead to an increase in the unit cost for that particular quarter(Schroeder, et al., 2017). However, the income effect will roll down to other quarters in the financial year, depending on the costing method and inventory levels (Tsao et al., 2018). Additionally, the predetermined overhead rates and costs will affect one quarter, but the benefits will be accrued in all quarters of the year (Tsao et al., 2018; Schroeder, et al., 2017). Therefore, in the high production seasons, the low cost will resultin lowunit costs. However, the cost effects will be spread in the other quarters.
- How Quarterly Reports Can Be Manipulated By The Management
These quarterly statements can be manipulated by managers, for example, deferringseveral expenses to magnify profits of a particular period for a specific reason. In this case, the discovery of company expenditures is delayed to present a positive image on the performance of the management (Tsao et al., 2018). Consecutively, the managers can also spend huge organizational expendituresin a previous or current quarter to signify profitable trends in the subsequent quartersof the financial year. For example, in the time of repairs and maintenance, the management can hike the costs because benefits will be spread across in the other quarters for the whole financial year.
Case 2
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Par Value Technique | Cost Technique | ||
| a | Debit the treasury company accountsbythe par value of the purchasedshares. Credit cash account with the paid cash amount. Credit the balance in the capital account. | Debit, the treasury company,accountsfor the purchase price of the purchased shares. Credit cash accounts with the cash paid. | |
| b | Debit the treasury company accounts bythe par value of the purchased shares. Credit cash account with the paid cash amount. Credit the balance in the capital account. | Debit, the treasury company, accounts for the purchase price of the purchased shares. Credit cash account with cash paid. | |
| c | Debit cash account with thecash received. Credit treasury stock with shares reissued par value. Credit the balance amount in the capital account and,incase of areminder,credit it to the company’sretained earnings. | Debit cash account by the cash received. Credit treasury stock with shares reissued purchase price Credit the balance in thecapital account andtook the reminderto the retained earnings. | |
| d | Debit cash account with cash received. Credit treasury stock accountby shares reissued par value. Credit the capital account with the balance amount. | Debit cash account cash received. Credit treasury stock account by shares reissued purchase price Credit the balance to capital account. | |
| e | No effectas income statements is not involved in the transactions | No effect as income statements is not engaged in the transactions |
Source: Tsao et al. (2018)
References
Tsao, S. M., Lu, H. T., & Keung, E. C. (2018). Interim reporting frequency and the mispricing of accruals. Accounting Horizons, 32(3), 29-47.
Schroeder, R., Clark, M., Cathey, J. & Schroeder, R. (2017). Financial accounting theory and analysis: text and cases. Hoboken, NJ: Wiley.
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