ACCT 1398 Lecture 18: science

Option #1: Accounting Cycle Part A Listed below are thetransactions for Ajayi Art, Inc. for the month of July: July 1Ajayi Art, Inc. is started with an investment of $250,000 cash.July 1 Ajayi purchases office equipment for $22,250 by signing a10% note (interest and principal to be paid over the next 12months). July 6 Pays rent for the art gallery in advance for thenext three months with a check for $3,000. July 8 Purchases artsupplies from Wacky Art Co. on credit for $10,300. July 9 Receiptof $3,500 from a customer who has commissioned a piece of customart to be completed by the end of the year. July 11 Paysmiscellaneous office expenses totaling $375 in cash. July 13 Billscustomers $4,300 for art classes provided in June. July 15 Pays$3,500 to Wacky Art Co. July 20 Receives $1,900 from customers onaccount. July 30 Ajayi records $3,800 in salaries for the month ofJuly. Paychecks will be disbursed to employees on August 2nd. Enterthe transactions shown above in appropriate general ledger accounts(use T-accounts). Use the following ledger accounts: Cash, AccountsReceivable, Supplies on Hand, Office Equipment, AccumulatedDepreciation, Accounts Payable, Common Stock, Service Revenue, RentExpense, Miscellaneous Office Expense, Office Salaries Expense,Supplies Expense, Depreciation Expense, and Income Summary. Preparean unadjusted trial balance. Record depreciation using a 5-yearlife on the office equipment, the straight-line method, and nosalvage value. Round to whole numbers. Also, record an adjustmentfor art supplies used in the amount of $1,510 and record interestexpense for the note. Prepare an adjusted trial balance. Prepare anincome statement, a statement of retained earnings, and anunclassified balance sheet. Prepare closing entries. Part B In aone-page memo conforming to the CSU-Global Guide to Writing andAPA, provide an explanation to the management team on July'sfinancial performance. I need both Part A And Part B. Thanks inadvance

Stellar Bright Solar (“SBS” or “the Company”) is a business that contracts to develop, construct, and operate solar power plants.

SBS entered into a contract to support the Big Desert solar power plant. According to the contract terms, SBS is responsible for the day-to-day operations of Big Desert as well as for general maintenance and repairs. Big Desert expects SBS to provide routine maintenance for continued operation of the plant and respond to equipment breakdowns and failures by providing immediate repairs. In addition, the terms of the contract require SBS to procure necessary materials to operate, maintain, and repair the plant. To comply with this requirement, the Company must maintain a certain level of materials and supplies (the “spare parts”) at all times.

On a regular basis, SBS reviews a listing provided by Big Desert of recommended spare parts for various components of the solar power plant and procures the necessary parts. Vendors deliver the parts to SBS along with a complete listing describing the quantity and cost of the parts provided. SBS maintains this listing, uses it to track expected usage of the spare parts, and to determine their expected useful lives.

The spare parts consist of customized and generic parts that vary in cost, procurement time, expected usage (i.e., emergency replacement, standard replacement), and expected useful life. The Company uses the composite depreciation method for substantially all of the plant, and it expenses all major plant maintenance.

Required:

How should SBS classify the spare parts that it expects to use within one year: as inventory or as a prepaid/other current asset?

When answering the questions, please cite the appropriate literature to support your analysis. The

FASB’s professional literature is now organized by topic. It is referred to as the “Accounting Standards

Codification (ASC).” FASB statements are no longer authoritative GAAP, and therefore, you should not

cite them (unless you are making a point regarding the history of the standards.)

On the morning of October 31st, Elaine Black, Chief InformationOfficer at Robatelli’s Pizzeria, was waiting for both Jim Saxton,database administrator, and Peter Greyton, operations manager, tocome to her office for a meeting. While waiting, Elaine wasthinking about the surge of telephone and Internet orders expectedto be received through the company’s customer order center withinthe next 12 hours. Halloween had always been the most popular dayof the year for people in the greater Pittsburgh area to orderpizza from Robatelli’s. There were 53 restaurant locations to servethese customers, but only one location to receive all of the ordersand forward them to the right restaurant. Elaine’s thoughts wereinterrupted as Jim and Peter entered her office. The followingconversation took place:

ELAINE: Well, guys, it’s here again, our biggest day of theyear. Not only is Halloween a busy day, but we have the upcomingday after Thanks- giving, the week before Christmas, and Super BowlSunday. Can our current computer system’s infrastructure and peoplekeep pace with the orders we expect?

JIM: I think our systems are all running at peak performance. Weshouldn’t have any computer concerns for today or those other busydays.

PETER: Everyone in the customer order center is focused onmaking sure that our customers get their pizzas as ordered. We haveplenty of people scheduled to work tonight, so we’re good togo.

ELAINE: Terrific. But every time we face one of these peak salesdays, I start wondering about the long-term capacity andeffectiveness of our computer systems. Jim, we need to think longterm about our com- puter system. I was just reading an articlethat I’d like you to take a look at. It’s about Anheuser-BuschCompanies and their use of data mining.

JIM: I do agree with you, Elaine; we should always be thinkingabout how newer IT systems can help us. Could you e-mail me thelink to the article?

ELAINE: Sure, and I would like you to think about how we mightuse the same approach in our business. Pete, your order centerpeople are doing a great job, but again there’s something I’d likeus to think about in the long run. As you know, we now have tomanually enter all customer order center sales and store sales intoour general ledger (GL). I think we could improve a lot of thingsif those sales fed automatically into our GL software. Why don’tyou think about any advantages you see for an automatic interface,and we’ll look at the costs compared to those advantages. How’sthat sound?

PETER: I’ll do that. I’ll give it some thought and work on areport about an automatic interface between our GL software and thepoint of sale systems in our restaurants as well as the phone andInternet sales. How soon do you want to meet again to look at theseissues?

ELAINE: Let’s say, in two weeks at the same time.

Continuing Case: Robatelli’s Pizzeria 33

As Jim and Peter left her office, Elaine continued to thinkabout the features of the company’s accounting information systemsand whether or not data extracted from these systems couldfacilitate the multiple needs of the company. The focus had alwaysbeen on providing accurate financial accounting information fromthe various locations; however, the company’s aggressive growthstrategies meant increased emphasis on the system’s ability toanalyze detailed customer information that could be translated intoincreased sales opportunities.

ability to maintain its competitive advantage. She realized thather department must continually improve the company’s informationsystems to help it achieve growth strategies. Operatingstate-of-the-art systems was imperative to position the company toexecute those growth plans. However, she was concerned about thepossibility that restrictions of the current information systemscould actu- ally prevent the company from doing what it wanted todo. Allowing restrictive systems to prevent them from achievingbusiness strategies was a risk that Elaine would not tolerate!

BACKGROUND

Robatelli’s Pizzeria is a great American success story. Startedby Dino Robatelli in the 1960s, the business impetus was a familypizza recipe. Introduced to the public at a church festival inPittsburgh’s Little Italy, Robatelli’s pizzas are now a recognizedtradition in the Greater Pittsburgh area. A full menu and localexpansion have led to its growing popularity over the years andhave helped it achieve nearly 50 percent of the area market share.Annual sales now exceed $100 million. Following is a timeline ofmilestones in the company’s history:

1962 Dino and Gloria Robatelli contributed$500 and the family pizza recipe to a partnership that opened thefirst Robatelli’s Pizzeria.

1965 The Robatellis bought out their businesspartners.

1967 The first Robatelli’s franchiseopened.

1971–77 Dozens of new Robatelli’s franchises opened throughoutthe surrounding region.

1983 Home delivery service began.1992 A central, one-number calling system for allrestaurants was launched.2003 Internet ordering began. The first “prototype pizzeria” opened.Today Atotal of 53 locations are in operation.

The company has been known for its ability to get ahead ofnational trends. For instance, in the early 1980s, Robatelli’sbegan offering delivery service; however, while the competitorswere merely delivering pizzas, Robatelli’s delivered manyadditional items from its extensive menu. The company was also onthe cutting edge when it launched its one-number telephone orderingsystem whereby a single telephone number was used to service salesorders for the entire region. Additional conveniences becameavailable about ten years later when Robatelli’s introduced onlineordering. Recently, it has expanded its menu offerings and openedprototype restaurants specially designed with new features (such asa full- service bar and a retail counter) that appeal to variouscustomer groups. Each of these advancements has propelledRobatelli’s growth over the past four decades.

Dino Robatelli’s name is also well known for its tradition ofsupporting neighborhood organizations. Robatelli’s promotesschools, amateur athletics, and other community groups.Interestingly, some local student athletes were a tremendous helpto Robatelli’s in 1971 when the business was in trouble. A fire haddestroyed much of the building containing Robatelli’s originalpizzeria and commissary. The commissary made menu ingredients forall of the Robatelli’s pizzerias, so the entire business was injeopardy when this facility became inop- erable. Area students andcoaches helped with the clean-up and rebuilding efforts that madeit possible for the facility to be reopened in a fraction of theanticipated time. Dino Robatelli thanked them by establishing ahall of fame that has become a fixture of Greater Pittsburgh highschool athletics.

Robatelli’s reputation for great Italian food and innovations inboth customer service and community service have contributed to thecompany’s ability to grow into the most popular pizzeria in theGreater Pittsburgh region. Robatelli’s sales include an average of110,000 pizzas per week. It has managed to stay ahead of thenational competitors, which is an unusual feat. In fact, manypeople in and around Pittsburgh believe that pizza can only beRobatelli’s!

MULTIPLE SYSTEMS, MULTIPLE FUNCTIONS, MULTIPLE USES OFINFORMATION

There are three ways to place an order at Robatelli’s: in-store,via telephone, or online. The order processing systems areillustrated in Figure 1. Here’s how they work:

In-store orders

In-store orders are taken by restaurant staff serving patronsdining in one of Robatelli’s restaurants or walking in to place anorder. Servers manually complete an order ticket at the tablesideand input the information into the company’s point of sales systemthrough computer terminals located in the food preparationstations. Walk-in orders are typically entered directly into thesystem by staff using the computer terminal located at thecounter.

Telephone orders

Approximately two-thirds of the company’s business is processedvia the tele- phone. Robatelli’s phone ordering system is called aone-number system, referring to the convenience of ordering througha single phone number, regardless of the restaurant locationnearest the customer.

Most phone orders are received by an operator, who enters theorder directly into a computer terminal while speaking with thecustomer. Customer phone numbers are used to present the customerwith a choice of the nearest pizzeria for preparation and carry-outor delivery. The software in the system references a streetdatabase to verify that the street address exists. Credit cardnumbers are obtained from customers paying by credit card. Thecustomer service rep- resentative verifies the order and creditcard number before ending the call.

Upon confirmation of an order, the order is sent directly to therestaurant, where it is processed through the company’s transactionprocessing system and printed at the appropriate food preparationstation(s). Credit card numbers are included in the transmission,and all credit card transactions are processed at the restaurantsat the time the order is received.

There are several advantages of handling phone orders through acustomer order center rather than at individual restaurantlocations. Above all, the reduc- tion in background noise improvesthe accuracy of the order-taking process. In addition, thecustomer’s wait time is greatly reduced. Before Robatelli’simplemented its one-number system, customers’ wait time at peakcould be up to 15 minutes. The order center’s average wait timegoal is now one minute or less.

Internet orders

To place an online order, a customer must be registered.Registration is a sim- ple process that can occur anytime duringbusiness hours. Customers are asked to provide identifyinginformation that will be retained in the system. Repeat customerswill not have to go through the registration process again.

Web-based ordering is tied to the company’s one-number system.When a customer enters an order online, customer information ispulled from the one- number system. Identifying data such as phonenumber and address do not have to be entered. Menu offerings arepresented on the screen in various drop-down boxes so that anycombination of items can be ordered with many different choices oftoppings or accompaniments. A customer must answer a series ofquestions regarding the order, similar to the questions that wouldbe asked if the customer had been speaking with a telephoneoperator.

Online orders also require confirmation of the menu items andrestaurant location before the call is ended. Credit cardinformation may be entered online, and the transaction will beprocessed at the restaurant filling the order (as is done fortelephone orders). Two firewalls protect the security of customerinfor- mation submitted online.

Customer Service

Up to 135 customer service representatives may be on hand at thecustomer order center to process orders coming in to the businessat peak times. In addition, Robatelli’s employs approximately tenhome-based agents to handle incoming orders. Home-based agents mayperform any of the customer service functions from a computerterminal located within their homes.

All operators are required to undergo a one-week trainingprogram before they begin serving customers. After the trainingprogram, operators are subject to one week of supervised on-the-jobtraining, followed by ongoing perform- ance evaluations.Supervisors at the customer order center perform order scanning,whereby orders are randomly reviewed for reasonableness. Orderscanning is performed more frequently for orders taken by newoperators. Supervisors also follow up on errors and customercomplaints, and may listen in on calls to review the operator’sperformance.

If customers are in need of customer service, they may call ore-mail the com- pany. Supervisors handle these types of calls ande-mail messages, and will respond either via telephone or replye-mail. Restaurant managers can also print customer complaints attheir respective locations.

Accounting functions

Robatelli’s ordering systems and transaction processing systemsare the source of all sales information sent to the accountingdepartment. Restaurant managers prepare daily sales summaries andsubmit them to the company’s administra- tive offices on thefollowing day. These summaries are transmitted electronically viathe intranet and are received in the accounting department.Accounting staff prepare general ledger entries based upon thesesales summaries and key the information into the company’saccounting software. The transaction processing system providessales by restaurant for call-in and Internet orders, which arereconciled to the restaurant summaries on a daily basis. Once theaccounting system is updated and the daily reconciliations areperformed, the data are stored in an on-site server.

Although a lot of accounting information comes from manydifferent loca- tions, the capacity of the system is nearly 25times its current load.

Information Technology

The information technology staff at Robatelli’s is continuouslyengaged in sys- tem maintenance activities. Because the businesschanges so frequently, systems maintenance is an ongoing process.Every time a new coupon is offered, a price is changed, or a newmenu item becomes available, the related information must beintegrated into the transaction processing system.

Each menu addition has its own level of complexity, and many ofthe items include options to customize to individual tastes in aplethora of combinations. This poses a challenge in ordering;however, the menu presentation continues to be improved toeliminate chances of an incomplete or incorrect order. The optionsare available online and to customer service representatives viadrop- down boxes on their computer screens. Most screens require anentry, even if it is “none,” in order to ensure that no part of theorder is forgotten.

Notice that only a couple of years prior to the case time frame,the management of Robatelli’s had begun an Internet order system.As management of Robatelli’s considered the advantages of theInternet order system, it should also have considered the inherentrisks of conducting business via the Internet.

Required:

1. Describe the new risks of Internet orders that Robatelli’smanagement should have considered. The risks you describe should bespecific to the Internet order system.