COMM 311: Hydromaint Case

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Case Passwords

• Requirement 1: lucky
• Requirement 2: paradise?
• Requirement 3: gem?
• Requirement 4: meteor
• Requirement 5: mirage
• Requirement 6: crop
• Requirement 7: vapor
• Requirement 8: fraction
• Requirement 9: vault
• Requirement 10: mutiny
• Requirement 11: platoon

• Solution 2: geyser
• Solution 9: bundle
• Solution 11: turni

Requirement 1 - List of Questions

1. To date, what percentage of the 2001 A/R balance is still outstanding? What do you gauge to be the likelihood of collecting this outstanding balance?
2. What type of equipment have you purchased, and what do you expect its useable life to be? Do you expect to sell the equipment at a future date?
3. Concerning the item “deferred startup costs” and “licensing costs” – these are costs that you have not yet paid, correct? When do you expect to pay them? Are you under contract to pay these costs at a certain date?
4. When are you required to pay the “accounts payable” and “income tax payable” amounts? What are the terms of payment?
5. Did you pay income tax based on a cash or accrual based profit calculation?
6. What items comprise the cost of goods sold amount?
7. Under 'Cost of goods and services sold', how did you determine the cost of your services?
8. What items comprise the selling & administrative expenses amount?
9. How many shares of common stock are outstanding? Who owns these shares?
10. Do you have any excess supplies that were not used in this accounting period? If so, what was the value of these supplies? Why were they not listed on the balance sheet?
11. Under 'Recorded accrual and payments of S&A expense-other salaries' who else is getting compensated?
12. What kind of depreciation structure is used on the depreciation (on shop equipment) and amortization or licensing costs/start-up costs?
13. What are the other costs under 'accounts payable - suppliers'? Office supplies or inventory?
14. Do you have any prepaid expenses such as rental, building/equipment/shop?
15. Where are the statement of cash flows and earnings per share?
16. Are there any dividends issued?
17. What are the service costs 'r and m'?

Requirement 6 - list of questions

1. What is the schedule of planned depreciation and what is the total amount to be depreciated?
2. Is there any ongoing maintenance required on the trucks?
3. Shouldn’t interest expense be capitalized while the trucks were in the shop, and not producing revenues?
   1. See page 481
4. Will the depreciation schedule create deferred income tax liabilities?
5. We'll be using MACRS to record depreciation expenses for taxable income, correct? How long a MACRS schedule are we using? A period of 5 years? 7 years? 10 years? We need to know this so we can reconcile the differences between accounting income and taxable income. We need to know this so we can accurately record deferred tax liabilities and assets.
6. What materials are going into the truck that cost $31,079?
7. Are we recording the extra materials and labor cost going into the trucks as an expense immediately?

Requirement 8 - list of questions

1. What are the bank loan covenants?
2. Last year you were confident that the accounts receivable were fully collectible. Are any of those accounts still uncollected?
3. Accounts receivable has doubled in X2, are you still working with only 5 clients? Do you expect to collect all of the $80,000 X2 balance?
4. What are the terms of your service contracts this year?
5. Why are there no entries for interest expense (acct 751) in year X2? Aren't you incurring interest on the current outstanding truck loan?

Requirement 10 - list of questions

1. Do you have any confidence in collecting the Bad Debt?
2. Please list out the securities that you own and what do you expect to gain from the securities. Are they classified as "available for sale,""held to maturity,"or "trading" securities? If not held to maturity securities, what percentage of securities do you own?
3. What was the investment loss? Is it realized or unrealized?
4. Why have the rent expense changed? Has the leasing contract changed?
5. Are there any medical benefits after retirement?
6. In the journal payment of crew wages is expensed to account 561 - shouldn't this be account 551, "Service Costs - Direct - Crew Wages"
7. It appears the owners gave themselves a raise, as the Officers Salaries (605) account changed by -80,000 in X3, as opposed to -59,550 in X2.
8. Shouldn't you have deducted your payment from account 321: Short-term portion of long-term debt - instead of account 401: Long-term Debt?
9. Shouldn't you have made an adjusting entry, moving next February's principal payment out of LT Debt to ST portion of LT debt?
10. Shouldn't you have increased your DIT liability because deprecation for MACRS is higher than straight-line (MACRS: 115,932, Straight line 60,381)
11. Shouldn't you have comparative financial statements?
12. Why don't you have your statement of cash flows? Didn't we already cover this issue?