ACC 545 Week 5 Individual Assignment Lee Corporation Equity Scenario
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• Review the following information:
Lee Corporation, a U.S. company, began operations on January 1, 2004.
During its first 3 years of operations, Lee reported net income and declared dividends as follows.
Net income Dividends declared
2004 $ 40,000 $ –0–
2005 125,000 50,000
2006 160,000 50,000
The following information relates to 2007:
Income before income tax $240,000
Prior period adjustment: understatement of 2005 depreciation expense (before taxes) $ 25,000
Cumulative decrease in income from change in inventory methods (before taxes) $ 35,000
Dividends declared (of this amount, $25,000 will be paid on January 15, 2008) $100,000
Effective tax rate 40%
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ACC 545 Week 1 Individual Assignment CPA Report
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As the CPA for a large organization, you were asked by your manager to provide information to outside CPAs who are examining a subsidiary that has been set up as a corporation. As part of their review, the CPAs have asked you to provide them with the following explanations:
• The methodology used to determine deferred taxes
• The procedures for reporting accounting changes and error corrections
• The rationale behind establishing the subsidiary as a corporation
Prepare your response to the three questions. Before submitting your response, your manager would like to know a little bit more about the request. She has asked you to tell her what your professional responsibilities are as a CPA, and the difference between a review and an audit.
You should provide draft responses to...