Continuing Case Essay

5986 Words Jul 6th, 2013 24 Pages
Chapter 1
Accounting in Action: CM Corporation (CMC)
CM Corporation (CMC) was founded in 2000 by Eric Conner and Phil Martin. The company designs, installs, and services security systems for high-tech companies. The founders, who describe themselves as "entrepreneurial geeks," met in a computer lab when they were teenagers and found they had common interests in working on security systems for critical industries. In January 2012, CMC hired you as an accounting intern. Lately Conner and Martin have been working with “radio frequency identification” (RFID) technology. They have developed a detailed system designed to track inventory items using RFID tags embedded invisibly in products. This technology has numerous inventory
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5. The Prepaid Expense account has a balance of $22,774. This balance includes $11,200 for a two-year insurance policy purchased on January 1, 2012. 6. Depreciation expense for the year is $82,620. 7. Interest expense accrued on its long-term liabilities is $7,765. 8. On December 15, CM2 declared a dividend of $110,000, to be paid on January 15, 2013. 9. Income tax expense is $201,109.
(c) After making the adjusting entries in (b), make the appropriate closing entries on the spreadsheet provided.
(d) [pic] Prepare a memo to management explaining the importance of the adjusting entries made in part (b). As part of this discussion, explain how accrual accounting improves the usefulness of the company’s financial statements.

Additional Activity: Extend your accounting knowledge
[pic] You know that CM2 is going to the market with a stock offering at the end of 2013. You have heard that investors look at certain relationships (or ratios) on the financial statements to understand the financial health of a company in which they plan to invest. You decide to examine several of these ratios to get a feel for how this company is doing. You know the following:
(1) The relationship of current assets to current liabilities is important to assess the liquidity of the company and its ability to pay its current bills.
(2) The total debt to total assets relationship describes where the money came from to acquire the assets.

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