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Assessment 2: balance sheet, income statement, and cash flow

 

Complete a four-part assessment in which you prepare several accounting documents, explain revenue recognition methods, and perform various computations.

Introduction

Note: An accounting cycle requires specific steps that need to be executed in a sequence. The assessments in this course are presented in sequence and must be completed in order.

Competencies Measured

By successfully completing this assessment, you will demonstrate your proficiency in the course competencies through the following assessment scoring guide criteria:

  • Competency 3: Evaluate economic resources of a business enterprise.
    • Prepare a classified balance sheet.
    • Prepare a multiple-step income statement.
    • Prepare a retained earnings statement.
    • Prepare a statement of cash flows using the indirect method.
  • Competency 4: Analyze financial liabilities and equities of an enterprise.
    • Explain multiple methods of revenue recognition.

Preparation

The following resources are required to complete the assessment.

Overview

Note: Do not proceed with this assessment until you have reviewed faculty feedback on Assessment 1.

This assessment consists of four parts. Use the following resources to complete the assessment. These documents are linked in Resources under the Required Resources heading.

  • Use the data in the Assessment 2 Information Sheet as the basis for Parts 1-4.
  • Use the Assessment 2, Parts 1, 2, and 4 Template to record your answers for Parts 1, 2, and 4.
  • Use the Assessment 2, Part 3 Template for your answers for Part 3.
  • Submit both completed templates for this assessment.

Assume your boss just assigned you four new clients, each with a pressing need for a particular financial statement:

  • Classified balance sheet.
  • Multiple-step income statement.
  • Retained earnings statement.
  • Statement of cash flows.

Use the Assessment 2 Information Sheet and the appropriate templates to complete the following four parts.

Part 1: Classified Balance Sheet

Prepare a classified balance sheet for Jordan Contracting.

Part 2: Income Statement

D. B. Stanley company decided to discontinue its wholesale operations and to retain its manufacturing operations. On September 15, D. B. Stanley sold the wholesale operations to Wyrick Company. During 2015, there were 150,000 shares of common stock outstanding.

  • Prepare a multiple-step income statement for the D. B. Stanley Company.
  • Prepare a retained earnings statement for the D. B. Stanley Company.

Part 3: Cash Flow Statement Analysis

For this part:

  • Prepare a statement of cash flows using the indirect method for Falcon Company.
  • Compute these cash-basis measures. Where appropriate, show all calculations leading to the final solution.
    • Current cash debt coverage ratio.
    • Cash debt coverage ratio.
    • Free cash flow.

Part 4: Revenue Recognition

There are a variety of methods of revenue recognition.

  • Explain the revenue recognition methods below and indicate whether each is in accordance with GAAP.
    • Point of sale.
    • Completed-contract.
    • Percentage-of-completion.
    • Installment-sales.
  • Compute the revenue to be recognized in fiscal year 2015 for the two operating divisions of Worth More Industries in accordance with GAAP. Where appropriate, show all calculations leading to the final solution.

Competencies Measured

By successfully completing this assessment, you will demonstrate your proficiency in the course competencies through the following assessment scoring guide criteria:

  • Competency 3: Evaluate economic resources of a business enterprise.
    • Prepare a classified balance sheet.
    • Prepare a multiple-step income statement.
    • Prepare a retained earnings statement.
    • Prepare a statement of cash flows using the indirect method.
  • Competency 4: Analyze financial liabilities and equities of an enterprise.
    • Explain multiple methods of revenue recognition.
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