MC 201 Quiz: Quiz 2 Study Guide with notes on each term
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Case Study Background
Assume that Brisbane Divers (ABN 34 255 712444) operates as a partnership and you and your groupmembers are the owners of that company. Brisbane Divers specializesin selling locally manufactured diving equipment and takes studentson diving courses in its boat. The business charges GST on allinventory sales and dive lessons and pays GST on inventorypurchases and most business expenses.
Employees
Brisbane Divers employs two casual assistants. Julia Hiltonworks as a dive instructor on the boat, and Peter Ball works in theshop selling stock, and taking bookings for dive lessons. Eachemployee works between 20 to 30 hours per week, depending on theseason and demand. Payday is every second Saturday. The followinginformation is used to calculate their wages:
Page 1 of 7
Name | Role | Gross pay- Per hour ($) | PAYG tax Per hour ($) |
Julia Hilton | Dive instructor | 25 | 6 |
Peter Ball | Shop assistant | 20 | 5 |
At the end of July, Brisbane Divers owed 4 hours pay toboth Peter and Julia.
Note: Do not use the employee section of MYOB,record the wages expense and tax as a cash payment.
Goods and Services Tax
All transactions which incur GST are identified, the GST is 10%
Goods and Services Tax:
Brisbane Divers pays GST of 10% on all business expenses, exceptWages.
Merchandise Inventory:
The following is a list of closing inventory and the suppliersas at July 31 2018.
Each of the above items of inventory is quoted excludingGST.
Restocking inventory.
The required inventory is purchased on credit under the terms ofpayment required by the suppliers.
Your group members have a good relationship with each of thesuppliers once your company places an order, the suppliers willdeliver them free of charge the same day.
Lessons:
A part of Brisbane Diversâ income is earned from conductingdiving lessons.
The lessons are quoted excluding GST.
Lessons revenue must be recorded separatelyfrom sales.
Quantity on hand | Item Code | Description | Cost Price | Sale Price | Supplier |
23 | DMS | Diving Masks | $130 | $250 | Scuba Gear Ltd. |
24 | EPS | Exposure Protection Suits | $150 | $280 | Planet Dives Ltd |
38 | SNO | Snorkel | $10 | $20 | SeaWorld Ltd |
Item Code | Lesson Type | Fee Course |
DL | Diving lessons | $150 |
Suppliers account balances as at July 31, 2018:
Name | Address | ABN | Account Balance |
Planet Dives Ltd. | 400 Sydney Road, Wingy | 30 444 777 333 | $944 |
Scuba Gear Ltd. | 11, Tide Towers Williamsville. | 20 888 555 222 | $1280 |
SeaWorld Ltd. | 79 Rountree road, Spotswood | 92 000 333 666 | $2330 |
Each of the above account balances represents deliveries ofinventory received on July 28th all purchases are on terms net 30days.
Customer Information:
Brisbane Divers sells most of its inventory strictly on a cashbasis, but the business has three credit customers. Terms ofpayment for these customers are net 30 days.
Name | Address | ABN | Date Last Invoice | Account Balance |
Swimmers World | 13 Colombo Street, , VIC 3292 | 50 999 555 666 | July 26 | $2 350 |
Brisbane Academy | 47 Bloomy Road, , VIC 3292 | 92 555 888 111 | July 19 | $1 940 |
Westley Academy | 33 Departure Drive VIC 4000 | 20 888 444 999 | July 13 | $4 400 |
Trial Balance as at July 31, 2018
Ledger Account | Debit ($) | Credit ($) |
Bank | 16 096 | |
Stationery | 2 500 | |
Prepaid Insurance | 3 000 | |
Merchandise Inventory | 6 970 | |
Trade Debtors | 8 690 | |
Trade Creditors | 4 554 | |
Motor Vehicle | 22 500 | |
Accumulated Depreciation of Motor Vehicle. | 6 850 | |
Diving Equipment and Boat | 38 900 | |
Accumulated Depreciation of Dive Equip & Boat | 11 230 | |
Shop Fittings | 5 750 | |
Accumulated Depreciation of Shop Fittings | 575 | |
GST Collected | 4 198 | |
GST Paid | 2 837 | |
Capital | 53 000 | |
Loan - ANZ Bank, William Street. | 25 500 | |
PAYG Tax Payable | 540 | |
Wages Payable | 136 | |
Electricity Payable | 660 | |
$107 243 | $107 243 |
Transactions: August 2018
Date | Description |
1 | Paid rent for 2(two) months - $4,400 (GST Inclusive). [chq90] |
3 | Paid Cash for vehicle expenses- $275 â (GST Inclusive) [chq91] |
3 | Paid Scuba Gear Ltd. for July account. [chq 93] |
4 | Received payment from Swimmers World for July account. |
4 | Purchased more inventory 25 x DMS, 20 x EPS, 25 x SNO |
4 | Cash sales: Inventory sold: |
4 | Paid electricity bill for July $ 660(including GST) [chq 94] |
5 | Five cash customers paid for diving course. ($150+ GST eachperson). |
7 | Paid SeaWorld Ltd. for July account. [chq 95] |
7 | Paid advertising in the Williamsville Times - $275(GSTInclusive) [chq 96] |
8 | Sales Invoice sent to Swimmers World for the following items: 15x DMS, 18 x SNO |
9 | Pay day. Julia was paid for 30 hours and Peter was paid for 22hours, which includes wages owing from July [chq 97 and 98] |
12 | Received payment from Brisbane Academy World for Julyaccount. |
14 | Cash sales: Inventory sold: 10 x DMS, 12 EPS |
16 | Cash drawings â Cheque payable to one of your groupmembers$5000[chq 99] |
16 | Paid Planet Dives Ltd. for July accounts. [chq 100] |
19 | 10 cash customers paid for diving course. ($150+GST eachperson).( The course commences on 20th of August) |
21 | Received payment from Westley Academy for July account |
23 | Paid monthly repayment to ANZ for bank loan. |
23 | Pay day. Peter was paid for 20 hours and Julia was paid for 25hours. [chq 102 and 103] |
25 | Paid Electricity for August - $880 (GST Inclusive) [chq 104] |
29 | Swimmers World paid for items purchased on August 8. |
31 | Paid Telephone Expenses for August $660 (including GST) [chq105] |
Adjustments at 31 August 2018
Depreciation of motor vehicle 20 % per annum at cost.
Depreciation of diving equipment and boat $6000 per annum.
Depreciation of Shop Fittings 10 % per annum at written downvalue.
Accruedwages:Peterâ28hourandJulia22hours.
Accrued Cleaning expenses for August $ 1100(including GST). Atax invoice has been
received.
Stationery on hand at 31 August 2018 totaled $ 1590.
The portion of prepaid insurance expired as of 31 August 2018 is$2,500.
Water bill for August is unpaid and unrecorded $750 Plus GST. Atax invoice has been
received.
Part A: Manual Recording
IMPORTANT: Part A ManualRecording
Required:
Record the opening balances as at 1 August 2018 in theappropriate general ledger accounts.
Record August monthâs transactions in the general journal andpost these to the generalledger.
Record end of month adjustments in the general journal and postthese to the general ledger.
Prepare a Trial Balance after end of month adjustments as at 31August 2018
PrepareanIncomeStatementforAugust2018andaBalanceSheetasat31August2018.
Part B: Computerised accounts using MYOB
1.Enterthebusinessinformation,establishachartofaccounts,recordsupplierandcustomerbalances, enter inventory balances and record opening ledgeraccount balances as at 1 August 2018.
2. Record the transactions, including the adjusting entries, forthe month of August 2018.
3. Produce Trial Balance as at August 31st, 2018 (after alladjustments). (This MUST be directly printed from MYOB).
4. Produce Transaction Journal from 1 August to 31 August forall transactions. (This MUST be directly printed from MYOB).
5. Produce Income Statement for month ended August 2018 (ThisMUST be directly printed from MYOB).
6. Produce Balance Sheet as at 31st August 2018 (This MUST bedirectly printed from MYOB).
1. Apply to actual companies the basic knowledge and analytical techniques learned from our course.
2. Prepare common-size financial statements, comparative financial statements, and various profitability and risk ratios.
3. Compare the calculated results with competitors and across different years.
4. Summarize the analyses and make investment recommendations.
You will be analyzing the following firms:
Williams-Sonoma, Inc.
Pier 1 Imports, Inc.
For these firms, download the most recent annual report (10-K report) to begin your work. In 10-K reports, you can find companiesâ basic information, financial statements, footnotes to the financials, and the management discussions and analyses. Please download the 10-K reports from the following web links:
10-K reports (fiscal year 2016) for Williams-Sonoma, Inc.
https://www.sec.gov/Archives/edgar/data/719955/000119312517104341/d265187d10k.htm
10-K reports (fiscal year 2015) for Williams-Sonoma, Inc.
https://www.sec.gov/Archives/edgar/data/719955/000119312516525847/d120289d10k.htm
10-K reports (fiscal year 2014) for Williams-Sonoma, Inc.
https://www.sec.gov/Archives/edgar/data/719955/000119312515118009/d851953d10k.htm#tx851953_13
10-K reports (fiscal year 2016) for Pier 1 Imports, Inc.
https://www.sec.gov/Archives/edgar/data/278130/000119312517136345/d343458d10k.htm
10-K reports (fiscal year 2015) for Pier 1 Imports, Inc.
https://www.sec.gov/Archives/edgar/data/278130/000119312516556025/d133529d10k.htm
10-K reports (fiscal year 2014) for Pier 1 Imports, Inc.
https://www.sec.gov/Archives/edgar/data/278130/000119312515153179/d881010d10k.htm#toc881010_13
For your convenience, I also provided the balance sheet and income statement of each company for the most recent years at the end (page 5-8; Table 1-4). Please use them to prepare common-size financial statements and comparative financial statements.
Guidance
The required tasks are detailed below:
(1) Prepare common-size balance sheets and income statements for both companies. Note: Compute for the most recent THREE years.
(2) Prepare comparative analysis (i.e., change of percentage analysis) on income statement and balance sheet for both companies. You should compute for the most recent THREE years.
(3) Prepare ratio analyses (for the same THREE year time period) for both companies. At least, you should include the following ratios in your computations: (1) current ratio, (2) acid-test ratio, (3) receivables turnover, (4) inventory turnover, (5) asset turnover, (6) profit margin on sales, (7) rate of return on assets, (8) rate of return on common stock equity, (9) earnings per share, (10) payout ratio, (11) debt to total assets ratio, (12) times interest earned, (13) cash debt coverage ratio, and (14) book value per share.
(4) Comment on the analytical results of the two companies. Your comments should concentrate on the trends across the companies. In addition to contrasting the ratios between the companies, you should interpret the numbers and make suggestions as to why the ratio of one company might be higher/lower than the other.
(5) Write a conclusive summary on the firms you have studied. Based upon your conclusions, recommend the better performing firm for potential investment. Your conclusions should be based upon, and specifically reference, the analyses prepared in this report.
(6) Read sample project to get some ideas.
Report Format Requirements:
A. Report body requirements:
Cover page. List the title of the project, your names, and semester/year.
Abstract or Executive Summary. This is a separate page. It should cover the purpose of the project, the major findings, and the conclusions/recommendations, in summary form.
Table of Contents.
Main body. Use the following sequence for report content:
Introduction to the two companies and to the purpose of the report
Analytical section. This should include all your numerical analyses. This is where you will discuss the results of, comments on, and conclusions about the vertical and horizontal common-size statements, comparative analysis (i.e., change of percentage analysis), and the ratio analyses for both companies.
Comparisons of companies and all other analysis (observations and/or interpretations). (You may combine b and c if you wish, as long as both are well covered.)
Conclusions and recommendation for investment.
References. List all major reference sources.
Appendices. Include tables and graphs of your numerical analyses. For reference convenience, assign a title to each separate item, such as Table 1, Exhibit 1, etc.
B. Typesetting requirements:
Use size 12 font. Times New Roman is preferred.
Double space between lines.
Number pages in accordance with the APA style guide.
One inch on all sides.
Do not right justify text. Use left justify.
Minimum length: 8 pages. (Note: You can easily meet the minimum length requirement since you will have a lot of tables in the paper.)
The submitted work should be in ONE file with a word or pdf format. An Excel spreadsheet file is NOT acceptable.
Plagiarism
Plagiarism will not be tolerated. Evidence of plagiarism will result in a grade of âFâ to the course and be subject to appropriate disciplines.
NOTES:
A portion of your grade will be assessed based on the overall report quality, clarity, format, and cohesiveness.
A FREE RIDER in the group will not be tolerated. However, to report an alleged free rider, you should send me a formal written complaint. You should carefully manage your group over the semester to ensure that no teammate will take the chance of turning into a free rider. Try to contact/manage your teammates frequently and inform me if any member is not willing to participate the group work so we can address this issue ASAP. A free rider will receive his/her group project grades solely based on what he/she has contributed to the projects. If there is a free-rider in your group or a member drops the class, the rest of the group members are still expected to submit a COMPLETE paper.
Again, the balance sheet and income statements are provided at the end. Please use them to prepare common-size and comparative financial statements.
Table 1. Williams-Sonoma, Inc ----Balance Sheet
| Williams-Sonoma, Inc. | ||||
| BALANCE SHEET | ||||
| Fiscal Years 2016, 2015, 2014, 2013 | ||||
| (In thousands) | FY 2016 | FY 2015 | FY 2014 | FY 2013 |
| ASSETS | ||||
| Current assets | ||||
| Cash and cash equivalents | $ 213,713 | $ 193,647 | $ 222,927 | 330121 |
| Restricted cash | â | â | â | 14289 |
| Accounts receivable, net | 88,803 | 79,304 | 67,465 | 60,330 |
| Merchandise inventories, net | 977,505 | 978,138 | 887,701 | 813,160 |
| Prepaid catalog expenses | 23,625 | 28,919 | 33,942 | 33,556 |
| Prepaid expenses | 52,882 | 44,654 | 36,265 | 35,309 |
| Deferred income taxes, net | â | â | 130,618 | 121,486 |
| Other assets | 10,652 | 11,438 | 13,005 | 10,852 |
| Total current assets | 1,367,180 | 1,336,100 | 1,391,923 | 1,419,103 |
| Property and equipment, net | 923,283 | 886,813 | 883,012 | 849,293 |
| Deferred income taxes, net | 135,238 | 141,784 | 4,265 | 13,824 |
| Other assets, net | 51,178 | 52,730 | 51,077 | 54,514 |
| Total assets | $ 2,476,879 | $ 2,417,427 | $ 2,330,277 | 2,336,734 |
| LIABILITIES AND STOCKHOLDERSâ EQUITY | ||||
| Current liabilities | ||||
| Accounts payable | $ 453,710 | $ 447,412 | $ 397,037 | 404791 |
| Accrued salaries, benefits and other liabilities | 130,187 | 127,122 | 136,012 | 138,181 |
| Customer deposits | 294,276 | 296,827 | 261,679 | 228,193 |
| Income taxes payable | 23,245 | 67,052 | 32,488 | 49,365 |
| Current portion of long-term debt | â | â | 1,968 | 1,785 |
| Other liabilities | 59,838 | 58,014 | 46,764 | 38,781 |
| Total current liabilities | 961,256 | 996,427 | 875,948 | 861,096 |
| Deferred rent and lease incentives | 196,188 | 173,061 | 166,925 | 157,856 |
| Long-term debt | 1,968 | |||
| Other long-term obligations | 71,215 | 49,713 | 62,698 | 59,812 |
| Total liabilities | 1,228,659 | 1,219,201 | 1,105,571 | 1,080,732 |
| Stockholdersâ equity | ||||
| Preferred stock: $.01 par value; 7,500 shares authorized; none issued | â | â | â | 0 |
| Common stock: $.01 par value; 253,125 shares authorized; | ||||
| 87,325 and 89,563 shares issued and outstanding at | 873 | 896 | 919 | 941 |
| January 29, 2017 and January 31, 2016, respectively | ||||
| Additional paid-in capital | 556,928 | 541,307 | 527,261 | 522,595 |
| Retained earnings | 701,702 | 668,545 | 701,214 | 729,043 |
| Accumulated other comprehensive loss | (9,903) | (10,616) | (2,548) | 6524 |
| Treasury stock â at cost: 20 and 29 shares as of January 29, 2017 and January 31, 2016, respectively | (1,380) | (1,906) | (2,140) | (3,101) |
| Total stockholdersâ equity | 1,248,220 | 1,198,226 | 1,224,706 | 1,256,002 |
| Total liabilities and stockholdersâ equity | $ 2,476,879 | $ 2,417,427 | $ 2,330,277 | 2,336,734 |
Table 2. Williams-Sonoma, Inc --- Statement of Income
| Williams-Sonoma, Inc. | ||||
| STATEMENT OF INCOME | ||||
| Fiscal Years 2016, 2015, 2014,2013 | ||||
| (In thousands) | FY 2016 | FY 2015 | FY 2014 | FY 2013 |
| E-commerce net revenues | $ 2,633,602 | $ 2,522,580 | $ 2,370,694 | $ 2,115,022 |
| Retail net revenues | 2,450,210 | 2,453,510 | 2,328,025 | 2,272,867 |
| Net revenues | 5,083,812 | 4,976,090 | 4,698,719 | 4,387,889 |
| Cost of goods sold | 3,200,502 | 3,131,876 | 2,898,215 | 2,683,673 |
| Gross profit | 1,883,310 | 1,844,214 | 1,800,504 | 1,704,216 |
| Selling, general and administrative expenses | 1,410,711 | 1,355,580 | 1,298,239 | 1,252,118 |
| Operating income | 472,599 | 488,634 | 502,265 | 452,098 |
| Interest (income) expense, net | 688 | 627 | 62 | (584) |
| Earnings before income taxes | 471,911 | 488,007 | 502,203 | 452,682 |
| Income taxes | 166,524 | 177,939 | 193,349 | 173,780 |
| Net earnings | $ 305,387 | $ 310,068 | $ 308,854 | $ 278,902 |
