accounting

BCO 123 ACCOUNTING II

Mid – Term Task brief & rubrics

Background
Louisville Farms, is a breeder of racehorses. The CEO John Carter needs assistance and advice
with his financials to allow him to concentrate on the horse breeding rather than trying to figure out
the best accounting approaches. You have been recruited as a consultant by the CEO as recent
graduate from EU Business school to help out.

The mid-term assignment will focus on and consolidate your knowledge developed in the first half
of the course. It should give you an opportunity to demonstrate FULLY your knowledge and
understanding.

Task

• You are required to do a report. This is an individual task
• The assignment consists of a case study which is attached below
• The task will cover the contents from week 1 to week 4.
• Please ensure your address all the points are covered in your responses
• Format to be submitted: A word document
• Include a Cover, Table of Contents, References

Formalities:

• Wordcount: 2000 – 2500 words, excluding bibliography
• Cover, Table of Contents, References and Appendix are excluded of the total wordcount.
• Font: Arial 12,5 pts.
• Text alignment: Justified.
• The in-text References and the Bibliography have to be in Harvard’s citation style.

Submission: Week 4 – Via Moodle (Turnitin). 23 August 23:59 CEST

Weight: This task is 40% of your total grade for this subject.

Tips to achieve the highest success

• The answers should be clear and well presented
• There should be no mathematical errors, you have adequate time to do this properly.
• Show real understanding in any open questions.
• There are marks for presentation

This task assesses the following learning outcomes:

• Understanding the recognition of fixed assets and purpose of depreciation
• Understanding shareholder/stockholders equity and what each element means
• Understanding Liabilities

Rubrics
Exceptional

90-100
Good
80-89

Fair
70-79

Marginal fail
60-69

Fail
<60

Knowledge
(30%)

Student
correctly
defines and
describes the
topics of each
at all levels
demonstrating
a full
understanding
of the essay
theme.

Student
defines and
describes the
topics of each
key stage,
demonstrating
a good
understanding
of the essay
theme (may
lack a key
aspect).

Student
makes a fair
attempt at
defining and
describing
the topics
however
details
regarding the
business in
question are
missing.

Student
makes an
attempt at
defining and
describing
the topics,
however
important
details
regarding
analysis of
the business
in question
are missing

Student fails to
correctly define or
describe the key
elements of the
business in
question,
demonstrating a lack
of understanding of
the topic.

Critical
evaluation
(30%)

There is very
good evidence
of critical
appraisal of
ideas and
concepts, the
insights are
outstanding.

Evidence of
critical
appraisal of
ideas and
evaluation is
good.

There is
some
evidence of
critical
appraisal of
ideas and
concepts, but
the analysis
and insights
are
rudimentary
for this level
of study.

There is
limited
evidence of
critical
appraisal of
ideas and
concepts
and/or those
that are
offered are
weak

There is no critical
appraisal of ideas
and concepts and/or
those that are
offered are weak

Application
(30%)

Applies
knowledge
and skills in
familiar
contexts with a
high degree of
effectiveness,
providing
relevant
examples that
support
points.

Applies
knowledge
and skills in
familiar
contexts with
considerable
effectiveness,
providing
some relevant
examples that
make a good
attempt at
supporting
points.

Applies
knowledge
and skills in
familiar
contexts with
limited
effectiveness,
few/
irrelevant
examples
provided.

Applies
knowledge,
but does so
incorrectly
with very
weak
examples.

No application of
knowledge. No
examples are
provided.

Communication
(10%)

Uses
conventions,
vocabulary,
and
terminology of
the discipline
with a high
effectiveness.

Uses
conventions,
vocabulary,
and
terminology of
the discipline
with
considerable
effectiveness.

Uses
conventions,
vocabulary,
and
terminology
of the
discipline
with some
effectiveness.

Uses
conventions,
vocabulary,
and
terminology
of the
discipline
with limited
effectiveness.

Work is poorly
written and/or
difficult to
understand.

QUESTION 1:
(Points 35)

Louisville Farms, a breeder of racehorses, paid $432,000 cash for a prize-winning stallion on January
1, 2013. The stallion is depreciated on a straight-line basis, with depreciation for partial years rounded
to the nearest month. Estimated useful life was nine years, with no residual value. After owning the
animal for six years and five months, Louisville Farms sold the stallion on May 31, 2019, for cash of
$85,000. Depreciation had last been recorded on December 31, 2018.

1.1. Compute to the nearest full month depreciation for the fractional period from January 1, 2019
to May 31 of 2019. $______________ (Show your calculations).

1.2. Compute the book value of the stallion at May 31, 2019, the date of sale.

$______________ (Show your calculations).

1.3. Compute the gain or loss on the sale of the stallion. $______________ [gain/loss] (Show
your calculations).

1.4. In the space provided below, prepare the journal entry to record the sale of the stallion on

May 31, 2019. [Use Breeding Stock as the title of the asset account. Assume that depreciation
to date of sale already has been recorded.] (Show your calculations).

2009 General Journal

May 31

QUESTION 2:
(Points 15)

2.1. Define bonds and explain the type of bonds you think the CEO, Mr. Carter should look at and
why?
2.2. Explain the income tax advantage of raising capital by issuing bonds rather than by selling
capital stock.
2.3. There is a business saying that “You shouldn’t be in business if your company doesn’t earn
higher than bank rates.” This means that if a company is to succeed, its return on assets should
be significantly higher than its cost of borrowing. Explain this saying to Mr. Carter and tell him why is
this so important?

QUESTION 3:
(Points 35)

3.1. Why is noncumulative preferred stock often considered an unattractive form of investment?

3.2. State the balance sheet or income statement classification (asset, liability, stockholders’ equity,
revenue, or expense) of each of the following accounts:

A. Cash (received from the issuance of capital stock).
B. Organization Costs.
C. Preferred Stock.
D. Retained Earnings.
E. Additional Paid-in Capital.
F. Income Taxes Payable.

3.3. Louisville Farms, sold 10,000 shares of common stock, which has a par value of $8, for $13 per
share. The company’s balance in retained earnings is $75,000. Prepare the stockholders’ equity
section of the company’s balance sheet.

QUESTION 4
(15 Points)

Analysing Statements

The statements of Woody Woodpecker Corp. contain the following information:
2019 2018
Cash & Cash Equivalents $ 65,000.00 $ 42,000.00
Accounts Receivable $ 44,000.00 $ 51,000.00
Inventory $ 129,000.00 $ 102,000.00
Prepaid Expenses $ 12,000.00 $ 9,200.00
Other Current Assets $ 9,500.00 $ 8,400.00
Total Assets $ 450,000.00 $ 390,000.00
Non-Current Liabilities $ 180,000.00 $ 180,000.00
Total Liabilities $ 270,000.00 $ 210,000.00
Income from Operations $ 550,000.00 $ 490,000.00
Interest Expense $ 95,000.00 $ 86,000.00

Instruction: (show your calculations and round to 2 decimal places)


From the above information calculate:
Current Ratio 2019

•
Quick Ratio 2019

•
Debt Ratio 2019

•
Working Capital 2019

•
Percentage Change in Working Capital

Percentage Change in Total Liabilities

Time-Interest-Earned Ratio 2019