IS 535 Assignment #2 Answer Sheet

IS/PM 535 Assignment #3 Answer Sheet

Name: Yasir Khan_________________Problem #1 I disagree, depreciation is a way of allocating the cost of the asset over time periods in which the asset would be used. The value of an asset is the price that asset may realize at any point in time and so is not related to the depreciation. As an asset depreciates, the market value of the asset would reduce, but it is quite possible that the value of the asset may increase. Thus depreciation is a cost allocation method.

Problem #2

(a) An SAP supply chain management (SCM) application project. This cost is capitalized because Software is being bought by company with cash asset which gets converted into software asset.

(b) A network system This cost is capitalized because cash asset is getting converted into equipment, which is another kind of asset.

(c) Internally developed web applications: It depends on the stage of development. In the planning stage and once the web application is complete, all costs are expensed as incurred; however, in the development stage, costs to develop any application software in the web application are capitalized, but other costs are expensed. Also, any future upgrades and enhancements to the web application may be capitalized, but only if additional functionality is added.

Problem 3ABC Company Summarized Transactions in the year of 2011 (in thousand of dollars)

No.Transaction

A = L + SECashTypeIn/Out flows

1Paid $100,000 to suppliers for amounts already owed.

-$100,000 -$100,000 (cash) (AP)Cash outflow operating

2Issued $110,000 common stock for cash. +$110,000 +$110,000 (cash) (stock holder paid in capital)Cash inflow financing

3Purchased $290,000 inventory on credit

+$290,000 +$290,000 (inventory) (AP)

4 Made $400,000 sales on credit

+$400,000 +$400,000 (AR) (sales)

5Paid $4,000 cash for interest on debt.

-$4,000 -$4,000(cash) (interest exp)Cash outflow operating

6Paid $15,000 for wages and salaries owed to employees.

-$15,000 -$15,000(cash) (wage payable)Cash outflow operating

7At end of period, found cost of goods sold during period was $150,000

-$150,000 -$150,000(inventory) (expense)

8 Incurred $22,000 of depreciation expense on fixed assets during period

-$22,000 -$22,000(accumulated) (dep. exp)Dep on fixed assets

9 Issued a $120,000 long-term debt for cash.

+$120,000 +$120,000(cash) (long term debt)Cash inflow financing

10Paid $19,000 cash for income tax.

-$19,000 -$19,000(cash) (exp)Cash outflow operating

11 Purchased $309,000 of fixed assets with cash

-$309,000 (cash)+$309,000 (fixed assets)Cash outflowInvesting

12Received $20,000 cash for sales of fixed assets with net book value of $20,000 (= $46,000 - $26,000).

+$20,000 (cash)-$46,000 (fixed assets)+$26,000 (accumulated dep.)Cash inflow investing

13Paid $21,000 dividends in cash to stockholders

-$21,000 -$21,000(cash) (RE)Cash outflow financing

14 Owed employees $40,000 for salaries and wages earned.

+$40,000 -$40,000 (wage) (expense) Payable

15 Collected $250,000 from customers for amount owed.

+$250,000 (cash)-$250,000 (AR)Cash inflowoperating

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