Reference no: EM131333904

Financial Accounting Assessment one, two and three

Complete two problems in which you prepare a variety of financial documents (income statement, statement of stockholders' equity, and balance sheet), practice using T-accounts, and compute and analyze financial data for hypothetical companies.

Note: Some of the assessments in this course build upon each other, so you are strongly encouraged to complete them in the order in which they are presented.

Preparing accurate financial statements is an essential skill used as the basis for making strategic decisions. The ability to determine the financial impact of transactions is another important skill that all business professionals should possess. T-accounts provide a valuable tool for analyzing the effects of transactions.

By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:

• Competency 1: Apply theories, models, and practices of accounting in the construction and analysis of financial statements.

o Prepare a summarized income statement for a company using appropriate financial data.
o Prepare a statement of retained earnings for a company using appropriate financial data.
o Prepare a balance sheet for a company using appropriate financial data.
o Create T-accounts for a company using each account on the balance sheet.

• Accounting lies at the heart of business performance. Accounting systems classify and record the financial transactions of an organization to reflect the impact of the transactions on the organization's financial condition. Understanding the financial condition of a company, or the impact of particular transactions, requires an understanding of the accounting model and the methods used to record and analyze accounting data.

As you examine the accounting model, consider the structure and purpose of its elements as well as the approaches and methods used to discern information from it. Develop an understanding of the structure of financial statements and the important information that they communicate to the knowledgeable reader.

Assessment Instructions

Note: Some of the assessments in this course build upon each other, so you are strongly encouraged to complete them in the order in which they are presented.

For this assessment, complete Problems 1 and 2. You may use Word or Excel to complete the assessments throughout this course, but you will find Excel to be most helpful for creating spreadsheets. Tutorials for using Excel are provided in the Supplemental Resources in the left navigation menu. If you use Excel, submit the assessment in one Excel document, using separate tabs for each spreadsheet.

Templates for both problems are linked in the Suggested Resources under the Capella Resources heading.

Problem 1: Preparing an Income Statement, a Statement of Retained Earnings, and a Balance Sheet

At the end of its first year of operations (December 31, 2012), the Acme Company released the financial data shown in Table 1 below:

Table 1: Acme Company Financial Data
Account	Amount
Cash	$25,000
Receivables from customers (no allowance for doubtful accounts is needed)	$20,300
Inventory of merchandise	$81,000
Equipment owned, at cost of $60,700 net of A/depreciation of $20,000	$40,700
Accounts payable owed to supplies	$66,140
Salary payable for 2012 (to be paid on January 4, 2013)	$1,800
Total sales revenue	$126,000
Operating expenses, including the cost of the merchandise sold	$80,200
Income taxes expense at 30% of pretax income; all paid during 2012	?
Contributed capital 10,000 shares outstanding	$87,000
Dividends declared and paid during 2012	$20,000

Using knowledge from prior courses, work experience, textbooks, or Internet sources, as well as the financial data provided in Table 1, prepare the following financial statements for the Acme Company:

1. Summarized income statement for the year 2012.
2. Statement of retained earnings for the year 2012.
3. Balance sheet at December 31, 2012.
4. Liquidity ratios and an explanation of what those ratios tell us.

You may choose to use the Preparing Financial Statements Template, which is linked in the Suggested Resources under the Capella Resources heading, to complete this problem.

Problem 2: Using T-Accounts, Preparing the Balance Sheet, and Computing and Interpreting the Current Ratio

Johnson Company has been operating for several years. At December 31, 2012, the accounting records reflected the following data, shown in Table 2 below:

Table 2: Johnson Company Financial Data
Account	Amount
Cash	$9,000
Investments (short-term)	$4,000
Accounts receivable	$13,000
Inventory	$22,000
Notes receivable (long-term)	$1,000
Equipment	$48,000
Factory building	$90,000
Intangibles	$3,000
Accounts payable	$15,000
Accrued liabilities payable	$2,000
Notes payable (short-term)	$7,000
Long-term notes payable	$46,000
Contributed capital	$90,000
Retained earnings	$30,000

During the year 2013, Johnson Company had the following summarized activities:

a. Purchased short-term investments for $10,000 cash.
b. Lent $8,000 to a supplier who signed a three-year note.
c. Purchased equipment that cost $28,000; paid $4,000 cash and signed a one-year note for the balance.
d. Hired a new president at the end of the year. The contract was for $110,000 per year plus options to purchase company stock at a set price based on company performance.
e. Issued an additional 1,000 shares of capital stock for $12,000 cash.
f. Borrowed $20,000 cash from a local bank, payable in three months.
g. Purchased a patent (an intangible asset) for $4,000 cash.
h. Built an addition to the factory for $45,000; paid $10,000 in cash and signed a three-year note for the balance.
i. Returned defective equipment to the manufacturer, receiving a cash refund of $1,000.

Using knowledge from prior courses, work experience, textbooks, or Internet sources, as well as the financial data provided above, complete the following:

14. Create T-accounts for each of the accounts on a balance sheet and enter the balances at the end of 2012 as beginning balances for 2013. Prepare a trial balance for 12/31/12.

15. Record each of the events for 2013 in T-accounts and determine the ending balances. For each recording (posting), include the identifying letter (a through i). Prepare a trial balance for 12/31/12.

16. Explain why you did or did not record item d, the hiring of the president, in a T-account.

17. Prepare a balance sheet at December 31, 2013. Classify the balance sheet as appropriate (into current assets, fixed assets, and so on).

18. Compute the current ratio for 2013. The current ratio measures the ability of the organization to pay their current obligations. Interpret this ratio as it applies to Johnson Company at December 31, 2013, as compared to December 31, 2012.

To complete this problem, you may choose to use the T-Account Transactions Template, which is linked in the Resources under the Capella Resources heading.

ASSESSMENT TWO

Overview

Create T-accounts, prepare a variety of financial statements (income statement, statement of stockholders' equity, and balance sheet), and assess the results of operations based upon transactions in a hypothetical company.

Note: Some of the assessments in this course build upon each other, so you are strongly encouraged to complete them in the order in which they are presented.

The financial reporting process collects, processes, and distributes financial information to various users, such as management, creditors, and investors. It is important for users to understand the terminology and accounting process. This assessment provides you with the opportunity to analyze transactions with the use of T-accounts, interpret the information found in financial statements, and communicate those findings in a professional manner.

By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:

• Competency 1: Apply theories, models, and practices of accounting in the construction and analysis of financial statements.

o Prepare a variety of financial statements (income statement, statement of stockholders' equity, and balance sheet).
o Analyze financial information to develop conclusions regarding a company's performance.

• Competency 3: Integrate accounting theories, models, and practices across the organization.

o Analyze the effects of transactions using T-accounts for each account on a balance sheet.

• Competency 5: Communicate in a manner that is professional and consistent with expectations for members of the business professions.

o Communicate in a manner that is professional and consistent with expectations for members of the business professions.

• Assessment Instructions

Note: Some of the assessments in this course build upon each other, so you are strongly encouraged to complete them in the order in which they are presented.

For this assessment, complete the problem below. You may use Word or Excel to complete the assessments throughout this course, but you will find Excel to be most helpful for creating spreadsheets. Tutorials for using Excel are provided in the Supplemental Resources in the left navigation menu. If you use Excel, submit the assessment in one Excel document, using separate tabs for each spreadsheet.

To complete this assessment, you may choose to use the Assessment 2 Problem Template linked in the Suggested Resources under the Capella Resources heading.

Transactions

Audrey Jhingree opened an ice cream parlor in a university town. The parlor specializes in ice cream combinations named after popular professors in the business department of the university. You have been hired as a manager. Your duties include maintaining the store's financial records. The following transactions occurred in April 2012, the first month of operations:

a. Received cash of $40,000 total ($10,000 each) from four investors. Each investor received 100 shares of common stock. This took place on April 1.

b. Paid three months' rent for the store on April 1 at $2,000 per month (recorded as prepaid expenses).

c. Purchased ice cream and cones for $6,000 on account payable, due in 60 days. This took place on April 2.

d. Purchased supplies for $1,000 cash on April 2.

e. Received a two-year $11,000 loan at the bank. The note payable is dated April 2.

f. Used the money from (e) to purchase a computer for $3,000 (for record keeping and inventory tracking) and to purchase $8,000 of used furniture and fixtures for the store.

g. Placed a grand opening advertisement in the local paper for $600 cash.

h. Made sales in the first half of the month totaling $5,000: $4,250 was in cash and the rest was on accounts receivable. The cost of the ice cream sold was $2,000.

i. Made a $600 payment on accounts payable on April 18.

j. Incurred and paid employee wages of $2000 for the month of April.

k. Collected accounts receivable of $700 from customers.

l. Made a repair to one of the refrigerators for $300.

m. Made sales in the last half of the month for $6,000, all for cash. The cost of the ice cream sold was $2,400.

Recording Transactions, Posting to T-Accounts, Preparing Financial Statements, and Commenting on What Financial Statements Tell Potential Investors

Using the information provided above, complete the following for Audrey Jhingree's ice cream parlor. To complete this problem, you may choose to use the Assessment 2 Problem Template, which is linked in the Suggested Resources under the Capella Resources heading.

14. Set up appropriate T-accounts for cash, accounts receivable, supplies, inventory, prepaid expenses, equipment, furniture and fixtures, accounts payable, notes payable, contributed capital, sales revenue, cost of goods sold (expense), advertising expense, wage expense, and repair expense. All accounts begin with zero balances.

15. Record in the T-accounts the effects of each transaction for Audrey's shop in April, referencing each transaction in the accounts with the transaction letter. Show the ending balances in the T-accounts. Note that transactions (h) and (m) require two types of entries, one for sales and one for cost of goods sold. Prepare trial balances for 4/30/12.

16. Prepare financial statements at the end of the month ended April 30, 2012. Hint: Do the income statement first, followed by the statement of stockholders' equity, and then the balance sheet. Properly label each statement: Does it cover a period of time or just a point in time?

17. Write a short memo to Audrey offering your opinion on the results of operations during the first month of business.

18. After three years in business, you are being evaluated for a promotion. One measure is how efficiently you have managed the assets of the business. Using the data in the following table, compute the total asset turnover ratio for 2014 and 2013 and evaluate the results. Also compute the return on invested capital (net income divided by total stockholders' equity). Do you think you should be promoted? Why or why not?

Audrey's Ice Cream Parlor: Financial Data
Account	2014	2013	2012
Total assets	$93,000	$78,000	$61,000
Total liabilities	$23,000	$23,000	$16,500
Total contributed capital plus retained earnings	$70,000	$55,000	$44,500
Total sales	$100,000	$82,500	$57,250
Net income	$15,000	$10,500	$4,500

Financial Performance Analysis

ASSESSMENT THREE

Overview

Complete two problems in which you prepare adjusting entries for transactions in a hypothetical company and then analyze the effects of adjusting entries on the company's financial statements.

Note: Some of the assessments in this course build upon each other, so you are strongly encouraged to complete them in the order in which they are presented.

This assessment addresses the impact of adjusting entries on financial statements. You will demonstrate your understanding of deferred revenue, deferred expense, accrued revenue, and accrued expense, as well as your understanding of the accounting entries that record these items in the accounting system.

By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies:

• Competency 3: Integrate accounting theories, models, and practices across the organization

o Record adjusting entries for each transaction at the end of an annual accounting year using appropriate financial data.

o Analyze the impact of adjusting entries on financial statements.

Assessment Instructions

Note: Some of the assessments in this course build upon each other, so you are strongly encouraged to complete them in the order in which they are presented.

For this assessment, complete Problems 1 and 2. You may use Word or Excel to complete the assessments throughout this course, but you will find Excel to be most helpful for creating spreadsheets. Tutorials for using Excel are provided in the Supplemental Resources in the left navigation menu. If you use Excel, submit the assessment in one Excel document, using separate tabs for each spreadsheet.

Templates for both problems are linked in the Suggested Resources under the Capella Resources heading.

Problem 1: Adjusting the Books Using Adjusting Entries

Huntington Company's annual accounting year ends on December 31. It is December 31, 2012, and all of the 2012 entries except the following adjusting entries have been made:

a. On September 1, 2012, Huntington collected six months of rent worth $9,000 on storage space. At that date, cash was debited and unearned rent revenue was credited for $9,000.

b. On October 1, 2012, the company borrowed $30,000 from a local bank and signed a 12 percent note for that amount. The principal and interest are payable on the maturity date, September 30, 2012.

c. Depreciation of $5,000 must be recognized on a service truck purchased on July 1, 2012, at a cost of $30,000.

d. Cash of $4,800 was collected on November 1, 2012, for services to be rendered evenly over the next year beginning on November 1.

Unearned service revenue was credited when the cash was received.

e. On November 1, 2012, Huntington paid a one-year premium for fire insurance of a total of $12,000 for one year of coverage starting on that date. Cash was credited and prepaid insurance was debited for this amount.

f. The company earned service revenue of $6,000 on a special job that was completed December 24, 2012. Collection will be made during January 2012. No entry has been recorded.

g. At December 31, 2012, wages earned by employees totaled $17,500. The employees will be paid on the next payroll date, January 15, 2012.

h. On December 31, 2012, the company estimated it owed $16,000 for 2012 property taxes on land. The tax will be paid when the bill is received in January 2012.

Using the information above, prepare the adjusting entry required for each transaction at December 31, 2012.

To complete this problem, you may choose to use the Assessment 3, Problem 1 Template, which is linked in the Suggested Resources under the Capella Resources heading.

Problem 2: Analyzing the Effects of Adjusting Entries on the Accounting Model

To complete this problem, you will need to refer to Problem 1.

Indicate in a table format the effect of each adjusting entry in Problem 1 (a through h) and the amount of the effect. Use + for increase, - for decrease, and NE for no effect.

This problem is built around the following formulas and concepts:

• Assets = Liabilities + Stockholders' Equity.
• Revenues - Expenses = Net Income.
• Net Income accounts are closed to Retained Earnings, a part of Shareholders' Equity.