...Part A - Cash Flow Hedge of Foreign Currency Receivable 11/1/Y1 Accounts receivable (Pesos) [400,000 x $0.23] $92,000 Sales $92,000 No journal entry for the forward contract. Memo entry. 12/31/Y1 Foreign exchange loss $12,000 Accounts receivable (pesos) [400,000 x ($0.23-$0.20)] $12,000 Forward contract [400,000 x ($0.22-$0.18)] x .9610 $15,376 AOCI $15,376 AOCI $12,000 Gain on forward contract $12,000 Premium Expense [($0.22-$0.23) x 400,000]/3 $1,333.33 AOCI $1,333.33 Impact on Year 1 income: Foreign exchange loss (12,000.00) Gain on forward contract 12,000.00 Premium Expense (1,333.33) Impact on net income (1,333.33) 4/30/Y2 Cash – Foreign currency (pesos) (400,000 x $0.19) $76,000 Foreign exchange currency loss $4,000 Accounts receivable (pesos) [20,000 x ($1.12-$1.05)] $80,000 AOCI [400,000 x ($0.22-$0.19) = $12,000 – $15,376] $3,376 Forward contract $3,376 AOCI $4,000 Gain on forward contract $4,000 Premium Expense [($0.22-$0.23) x 400,000] x 2/3 $2,666.67 AOCI $2,666.67 Cash USD [400,000 x $0.22] $88,000 Forward contract $12,000 Cash - Foreign currency (pesos) $76,000 The impact on net income for Year 2 is: Foreign Exchange Loss $(4,000.00) Gain on Forward Contract $ 4,000.00 Premium Expense (2,666.67) Impact on net income (2,666.67) Notes: 1. Cash inflow...
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...Week 4: Internal Control, Cash, and Receivables - Class Activity 1. | Which one of the following is not a primary component of an internal control system? A. | Risk assessment | B. | Information and communication | C. | Monitoring | D. | Rationalization | | 2. | Which of the following is not a reason why an organization establishes a system for internal control? A. | To safeguard its assets | B. | To increase efficiency of operations | C. | To ensure compliance with laws and regulations | D. | All of these are reasons why an organization establishes a system for internal control. | | 3. | Which of the following statements is correct? A. | Control is most effective when two or three people are given responsibility for the same task. | B. | The person who has custody of assets should not perform the record keeping for the assets. | C. | The person who has custody of assets should also perform the record keeping for the assets. | D. | It is often a waste of company resources to have an employee perform independent internal verification. | | 4. | Internal auditors A. | are hired by CPA firms to audit business firms. | B. | are employees of the IRS who evaluate the internal controls of companies filing tax returns. | C. | evaluate the system of internal controls for the companies that employ them. | D. | cannot evaluate the system of internal controls of the company that employs them because they are not independent. | | 5. | Segregation...
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...Module 6 – Ethical Dilemma MarlaJean Moreno ACT 450 – Principles of Auditing Colorado State University – Global Campus Professor: Brian Weaver May 15, 2016 Auditing Ethical Dilemma The primary purpose of the audit exercises conducted by all corporate entities is to assure the related stakeholders of the financial statements and other disclosures made by the entity of presenting a true and fair view of the undertakings of the corporation. Keeping that in mind, the auditor bears a fiduciary relationship with the various users of the financial statements issued by any company. The auditors in charge of providing assurance are under a delicate relationship of trust endowed upon them by related stakeholders to the entity under auditory concern. The various stakeholders of the company define the users of the financial statements disclosed by a commercial enterprise. Employees within the organization depend on the financial depiction presented by the company in order to ascertain their relative benefit and possibility of continuing gainful employment. Beyond the actual premises of the business, the information disclosed by the entity allows people who may have interaction with the company to make educated estimates regarding the business operations and activities. These include people who are in business transactions with any organization under concern. Suppliers and other corporate entities working in unison to allow a commercial enterprise to be able to deliver on its business...
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...Expenses include R&D costs (20% of overall R&D are in UK), headquarters, sell force etc. and represent 52% of Aspen expenses. If Aspen sells its products in local currency, it’s because its clients need to plan their P&L and don’t want to see their expenses fluctuate with the currency change. Besides, Aspen grants deferred payment for 5 years, impacting heavily their working capital. They can afford to grant 5 years receivable because their clients are highly rated multinational, which cannot cancel the payment (that carry a huge financing spread) and the market’s demand is inelastic. The market is looking for high quality product: with two years development needed to get a customized software, the switching costs is very high and benefits to Aspen (90% of its clients re-conduct their contracts). However, Aspen succeed to finance its need by selling its receivables to two financial institutions - guarantying a hedge to the currency - depending on the nature of the receivable (where it comes from, the amount etc.). Aspen hedge all its receivable and do not use any natural hedge (compensating expenses and sells in a local currency). We also have to point out that the currencies have a high volatility, without being correlated, which benefits to Aspen (they diversify their risks!). 2) Calculate Aspen’s exposures by currency for the past year. What currencies is it long and...
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...Transaction Exposure When conducting business aboard, cash inflows are affected when a variety of currencies are involved. In the case of Nike’s proposal to expand in India, there are ways to migrate exchange rate risks by exposing the possible risks before they affect the company’s profit margin. One method is the transaction exposure. Transaction exposure is the degree to which the value of future cash transactions that are affected by exchange rate fluctuations. According to Madura, “Transaction exposure can have a substantial impact on a firm’s earnings. It is not unusual for a currency to change by as much as 10 percent in a given year. If an exporter denominates its exports in a foreign currency, a 10 percent decline in that currency will reduce the dollar value of its receivables by 10 percent. This effect could possibly eliminate any profits from exporting” (Thomson South-Western 2006). To assess transaction exposure, Nike will need to estimate its net cash flows in each currency and measure the potential impact of the currency exposure. According to Madura, “To measure its transaction exposure, an MNC needs to project the consolidated net amount in currency inflows or outflows for all its subsidiaries, categorized by currency….Estimating the consolidated net cash flows per currency is a useful first step when assessing an MNC’s exposure because it helps to determine the MNC’s overall position in each currency” (Thomson South-Western 2006). The standard deviation...
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...from international clients, and many of these clients using the financing that Aspen offered, Aspen needs to have a sound-proof currency hedging strategy in place to manage the risks. Aspen’s current currency hedging strategy is to hedge 100% of its booked sales. This is an unnecessary strategy, primarily because Aspen turns around and sells these receivables for cash. We would therefore recommend that Aspen only hedge the portion of receivables that they do not sell right away. They should then maintain an active strategy of hedging in the future any further sales of receivables. Also, since Aspen is selling these receivables with limited recourse, they should hedge the amount of these receivables equal to the portion of receivables held in allowance for doubtful accounts. This way they will only be risking the credit of these accounts and not currency risk on top of that. As a measure of risk, Aspen could calculate VaR for their cash flows. For each time period in the future, they could calculate the 99% VaR using historical currency data. This can give them a better idea of the safety or lack there of their cash flows. Another issue that Aspen has not been addressing is their expenses in foreign countries. They have not been adjusting hedging policies for these expenses, and they should be. A simple solution to this problem would be to set aside a portion of each country’s sales proportionate to the estimated expenses. Therefore any fluctuations in that...
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... Building C— Rent X (PV of ordinary annuity of 25 periods at 12%) = PV $7,000 X 7.84314 = PV $54,901.98 = PV Cash purchase price $650,000.00 PV of rental income – 54,901.98 Net present value $595,098.02 Building C is more advantageous E 7-2 1. $925,000.00 2. Checking account balance $600,000 Overdraft (17,000) Petty cash 300 Coin and currency 1,350 $584,650 3. Checking account balance $590,000 Certified check from customer 9,800 $599,800 4. Checking account balance $37,000 Money market mutual fund 48,000 $85,000 5. Checking account balance $700,000 Cash advance received from customer 900 $700,900 E 7-5 (a) (1) June 3 Accounts Receivable—Chester 3,000 Sales 3,000 June 12 Cash 2,940 ...
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...Punjab College of Commerce Financial Accounting ACCT3013 Prof. Hafiz Imtiaz Reg. No. 2035 – Minahil Raza Reg. No. 2030 - Ahmad Waqas Reg. No. 2001 - Syed Faizan Jaffri December 15, 2013 Difference between Accounting & Finance Accounting is an art of recording, classifying and summarizing the transaction in a significant manner, whereas finance is the management of money and other valuables, which can easily be converted into cash. Functions of Finance Department of an Organization * Preparation of Budget Plans It is duty of finance department of company to make the budget before actual providing money to any department. It helps to fulfill each department with minimum cost. * Financial Management In this function finance department gets money from capital market at very low risk and cost. Finance department analyzes all the resources of funds and create a good financial structure of company. In this structure, finance department analyze whether it will decrease the overall cost of capital on Average basis or not. * Management of Investments of Company After making financial structure, finance department invests debenture holders and shareholders money in best projects for getting highest return on investment. For this finance department takes investment decision. These investment decisions can be taken with the help of capital budgeting and investment analysis techniques. * Management of Financial Risks Financial department takes...
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...loan. An assessment of your financial health shows that your company is profitable. The shortage in cash flows regards managerial attention. Since Jones opened in 1999 the company has seen rapid growth in a highly competitive field. General contractors and electricians have preferred Jones for their business. The request for this loan also falls at the end of March, past patterns show that your company is seasonal, with most sales occurring in Spring and Summer months. Previously stated facts estimate that Sales will gradually increase. If managed properly Jones has potential to develop, grow, and add additional sites in the future. Internal and external references about Jones engineering have been beneficial in consideration for a loan. II. Problem Statement Recently the continued growth in sales has raised accounts receivable and inventories considerably. This decrease in inventory turnover has caused accounts payable to rise due to heavy reliance on credit from your suppliers. All of these have dramatically increased day’s payable out standing. In past history Jones took advantage of a 2% discount if supplies were fully paid off tens days upon purchase. With the growth of business and the decrease in Cash Flows payments for supplies have increased in time apart. The discount that is disregarded only increases the accounts payable and further decreases Cash Flow. In 2006 Metropolitan Branch Bank issued a loan of $250,000 to Jones in order to finance its growth...
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...CHAPTER 6: CASH, TEMPORARY INVESTMENTS, ACCOUNTS RECEIVABLE and NOTES RECEIVABLE PROBLEM SOLUTIONS Assessing Your Recall Cash: Probable Future Value – The probable future value in cash is the ability of the cash to be exchanged for goods and services in the future. Ownership – Ownership is evidenced by possession of currency and by the right to control bank accounts. Temporary Investments: Probable Future Value - The probable future value in temporary investments is the cash payments that will be received from the investments in the future. These payments take the form of dividends in the case of shares and interest in the case of debt as well as the ultimate sales price of the securities when they are sold. Ownership – Ownership is evidenced by share or debt certificates although sometimes these documents are not distributed to the owners but a record is kept by the brokerage house that handles the investments for the company. Account Receivable: Probable Future Value – The probable future value in accounts receivable is that they represent the right to receive cash at some (usually fixed) date in the future. The cash, in turn, has value in the ability to be exchanged for goods and services in the future. Ownership – Ownership is evidenced by contracts either written or implied between the buyer and the seller. Invoices and shipping documents usually provide the necessary evidence of proof that a receivable exits. Notes Receivable: Probable Future Value –...
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...CHAPTER 9 RECEIVABLES DISCUSSION QUESTIONS 1. Receivables are normally classified as (1) accounts receivable, (2) notes receivable, or (3) other receivables. 2. Dan’s Hardware should use the direct write-off method because it is a small business that has a relatively small number and volume of accounts receivable. 3. Contra asset, credit balance 4. The accounts receivable and allowance for doubtful accounts may be reported at a net amount of $661,500 ($673,400 – $11,900) in the Current Assets section of the balance sheet. In this case, the amount of the allowance for doubtful accounts should be shown separately in a note to the financial statements or in parentheses on the balance sheet. Alternatively, the accounts receivable may be shown at the gross amount of $673,400 less the amount of the allowance for doubtful accounts of $11,900, thus yielding net accounts receivable of $661,500. 5. (1) The percentage rate used is excessive in relationship to the accounts written off as uncollectible; hence, the balance in the allowance is excessive. (2) A substantial volume of old uncollectible accounts is still being carried in the accounts receivable account. 6. An estimate based on analysis of receivables provides the most accurate estimate of the current net realizable value. 7. a. b. 8. The interest will amount to $5,100 ($85,000 × 6%) only if the note is payable one year from the date it was created. The usual practice...
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...the cash flows (short term – cash inflows and outflows within a year or less) * Cash = LT – debt + Equity + CL - CA other than cash – Fixed Assets ⇒activities that increase cash: 1. long term debt 2. equity (selling some stock) 3. CL 4. CA other than cash (selling some inventory for cash) 5. fixed assets (selling some property). * Activities that decrease cash (opposite of above) * Operating Cycle – the period between the acquisition of inventory and the collection of cash from receivables. 1. Inventory period – the time it takes to acquire and sell inventory. 2. Accounts receivable period – The time between sale of inventory and collection of receivables. (Operating cycle = Inventory Period + Accounts Receivable Period) * The operating cycle describes how a product moves through the CA accounts moving closer to cash. * Accounts Payable Period – The time btwn receipt of inventory & payment for it. *Cash Cycle – The time btwn cash disbursement and cash collection. The Cash Cycle is the number of days that pass before we collect the cash from a sale, measured from when we actually pay for the inventory. (Cash Cycle = Operating Cycle – Accounts Payable Period) * Cash Flow Timeline - A graphical representation of the operating cycle and the cash cycle. * The operating cycle is the period from inventory purchase until the receipt of cash. It may not include the time from placement of the order until arrival of the stock. The cash cycle is the period from when the cash is paid...
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...LJB Company | Case Study #2 LJB Company | Internal Control | | This document contains information about the internal controls for LJB Company | TABLE OF CONTENTS 1. Introduction …………………………………… Pg 2 2. Six Internal Control Activities ……………….. Pg 2 3. LJB Company Positive Side ………………… Pg 2 4. Segregation of Duties ……………………..…. Pg 3 5. Petty Cash …………………………………….. Pg 3 6. Human Resources ……………………………. Pg 4 7. Conclusion ……………………………………... Pg 4 LJB Company is planning to go public in the future and before doing the president of the company would like to be made aware of any regulations required of his company if they go public, so they asked our accounting firm to evaluate their system of internal controls. In the process of the evaluation, our firm noticed several problems within the organization. Fraud is a big thing to have to watch out for when it comes to business owners. There are six principles of controls activities that help with such risks like fraud. 1. Establishment of responsibility 2. Segregation of duties 3. Documentation procedures 4. Physical controls 5. Independent internal verification 6. Human resource controls Mr. President, above is a list of internal controls that will help minimize the risk of fraud. After our evaluation we have noticed some problems that may turn into bigger problems if not addressed and addressed properly. Before we get started on talking about what we noticed that...
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...Jan 1,2012 Accounts Receivable – Sather Company 54,200 Sales Revenue 54,200 (to record sales on account) Jan 1,2012 Bad Debt Expense 3,700 Allowance for Doubtful Accounts 3,700 (adjust account to estimate uncollected monies) Jan 5,2012 Accounts Receivable – Noel Company 4,000 Sales Revenue 4,000 (record sales on account) Feb 2, 2012 Note Receivable 4,000 Accounts Receivable – Noel Company 4,000 (record acceptance of Noel Company note) Feb 12, 2012 Accounts Receivable – Lima Company 12,000 Sales Revenue 12,000 (record sales on account) Feb 12, 2012 Note Receivable 12,000 Accounts Receivable – Lima Company 12,000 (record acceptance of Lima Company note) Feb 26, 2012 Accounts Receivable – Hubbard Company 5,200 Sales Revenue 5,200 (record sales on account) April 5, 2012 Note Receivable 5,200 Accounts Receivable – Hubbard Company 5,200 (record acceptance of Hubbard Company note) April 12, 2012 Cash 12,199.20 Note receivable – Lima Company 12,000 Interest Revenue 199.20 (record collection of note and interest) June 2, 2012 Cash 4,119.88 Note receivable – Noel Company 4,000 Interest Revenue 119.88 (record collection of note and interest) June 15, 2012 Accounts Receivable 2,000 Sales Revenue 2,000 June 15, 2012 Note Receivable 2,000 Account Receivable 2,000 E9-8 ...
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...NOTES RECEIVABLE HANDLED BY A COMPANY Notes receivable is a bookkeeping account used to track debt and payments from borrowers. When a small business lends money, goods or merchandise to an individual, it expects repayment. For many types of loans, the business will record the transaction under accounts receivable. In specific situations, however, in which the company receives a signed promissory note guaranteeing repayment, the transaction is recorded under notes receivable. Companies that use notes receivable in their bookkeeping follow the accrual method of accounting. Promissory Notes and Notes Receivable In order to use the notes receivable account, the company must have a signed promissory note to back each borrower account. A promissory note stipulates the amount of debt owed by the borrower, the interest rate, if any, and the terms of payment. The note can be formal or it can be handwritten, dated and signed by the borrower. As long as there is a promissory note, the company should record the amount owed in the notes receivable account in the general journal. Any company, a sole proprietorship, a partnership or a large corporation can issue promissory notes and record the transaction in a notes receivable account. Companies that make Employee Advances If a company makes it a practice to advance wages to an employee, that company might ask for a signed promissory note that details how the employee will repay the advance. The amount of money the employee now owes qualifies...
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