ACC120 Final: ACC120 Problems 4 G
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Recording Transactions (Including Adjusting and Closing Entries), Preparing Financial Statements, and Performing Ratio Analysis
Josh and Kelly McKay began operations of their furniture repair shop (Furniture Refinishers, Inc.) on January 1, 2016. The annual reporting period ends December 31. The trial balance on January 1, 2017, was as follows:
| Account Titles | Debit | Credit |
| Cash | â5,000 | |
| Accounts receivable | â4,000 | |
| Supplies | â2,000 | |
| Small tools | â6,000 | |
| Equipment | ||
| Accumulated depreciation (on equipment) | ||
| Other assets (not detailed to simplify) | â9,000 | |
| Accounts payable | â7,000 | |
| Notes payable | ||
| Wages payable | ||
| Interest payable | ||
| Income taxes payable | ||
| Unearned revenue | ||
| Common stock (60,000 shares, $0.10 par value) | â6,000 | |
| Additional paid-in capital | â9,000 | |
| Retained earnings | â4,000 | |
| Service revenue | ||
| Depreciation expense | ||
| Wages expense | ||
| Interest expense | ||
| Income tax expense | ||
| Remaining expenses (not detailed to simplify) | ||
| âTotals | 26,000 | 26,000 |
Transactions during 2017 follow:
A.Borrowed $20,000 cash on July 1, 2017, signing a one-year, 10 percent note payable.
B.Purchased equipment for $18,000 cash on July 1, 2017.
C.Sold 10,000 additional shares of capital stock for cash at $0.50 market value per share at the beginning of the year.
D.Earned $70,000 in revenues for 2017, including $14,000 on credit and the rest in cash.
E.Incurred remaining expenses of $35,000 for 2017, including $7,000 on credit and the rest paid with cash.
F.Purchased additional small tools, $3,000 cash.
G.Collected accounts receivable, $8,000.
H.Paid accounts payable, $11,000.
I..Purchased $10,000 of supplies on account.
J.Received a $3,000 deposit on work to start January 15, 2018.
K.Declared and paid a cash dividend, $10,000.
Data for adjusting entries:
L.Supplies of $4,000 and small tools of $8,000 were counted on December 31, 2017 (debit Remaining Expenses).
M.Depreciation for 2017, $2,000.
N.Interest accrued on notes payable (to be computed).
O.Wages earned since the December 24 payroll but not yet paid, $3,000.
P.Income tax expense was $4,000, payable in 2018.
Required:
1.Set up T-accounts for the accounts on the trial balance and enter beginning balances.
2.Prepare journal entries for transactions (a) through (k) and post them to the T-accounts.
3.Journalize and post the adjusting entries (l) through (p).
4.Prepare an income statement (including earnings per share rounded to two decimal places), statement of stockholdersâ equity, and balance sheet.
5.Identify the type of transaction for (a) through (k) for the statement of cash flows (O for operating, I for investing, F for financing), and the direction and amount of the effect.
6.Journalize and post the closing entry.
7.Compute the following ratios (rounded to two decimal places) for 2017 and explain what the results suggest about the company:
a,Current ratio
b,Total asset turnover
c,Net profit margin
Spreadsheet and Statement of Cash Flows
The following information was taken from Lamberson Company's accounting records:
| Account Balances | ||
| Account Titles | January 1, 2016 | December 31, 2016 |
| Debits | ||
|---|---|---|
| Cash | $ 1,400 | $ 2,400 |
| Accounts Receivable (net) | 2,800 | 2,690 |
| Marketable Securities (at cost) | 1,700 | 3,000 |
| Allowance for Change in Value | 500 | 800 |
| Inventories | 8,100 | 7,910 |
| Prepaid Items | 1,300 | 1,710 |
| Investments (long-term) | 7,000 | 5,400 |
| Land | 15,000 | 15,000 |
| Buildings and Equipment | 32,000 | 46,200 |
| Discount on Bonds Payable | â | 290 |
| $69,800 | $85,400 | |
| Credits | ||
| Accumulated Depreciation | $16,000 | $16,400 |
| Accounts Payable | 3,800 | 4,150 |
| Income Taxes Payable | 2,400 | 2,504 |
| Wages Payable | 1,100 | 650 |
| Interest Payable | â | 400 |
| Note Payable (long-term) | 3,500 | â |
| 12% Bonds Payable | â | 10,000 |
| Deferred Taxes Payable | 800 | 1,196 |
| Convertible Preferred Stock, $100 par | 9,000 | â |
| Common Stock, $10 par | 14,000 | 21,500 |
| Additional Paid-in Capital | 8,700 | 13,700 |
| Unrealized Increase in Value of Marketable Securities | 500 | 800 |
| Retained Earnings | 10,000 | 14,100 |
| $69,800 | $85,400 | |
Additional information for the year:
| Sales | $ 39,930 | |
| Cost of goods sold | (19,890) | |
| Depreciation expense | (2,100) | |
| Wages expense | (11,000) | |
| Other operating expenses | (1,000) | |
| Bond interest expense | (410) | |
| Dividend revenue | 820 | |
| Gain on sale of investments | 700 | |
| Loss on sale of equipment | (200) | |
| Income tax expense | (2,050) | |
| Net income | $ 4,800 |
Dividends declared and paid totaled $700.
On January 1, 2016, convertible preferred stock that had originally been issued at par value were converted into 500 shares of common stock. The book value method was used to account for the conversion.
Long-term nonmarketable investments that cost $1,600 were sold for $2,300.
The long-term note payable was paid by issuing 250 shares of common stock at the beginning of the year.
Equipment with a cost of $2,000 and a book value of $300 was sold for $100. The company uses one Accumulated Depreciation account for all depreciable assets.
Equipment was purchased at a cost of $16,200.
The 12% bonds payable were issued on August 31, 2016, at 97. They mature on August 31, 2026. The company uses the straight-line method to amortize the discount.
Taxable income was less than pretax accounting income, resulting in a $396 increase in deferred taxes payable.
Short-term marketable securities were purchased at a cost of $1,300. The portfolio was increased by $300 to a $3,800 fair value at year-end by adjusting the related allowance account.
Prepare the statement of cash flows.
| LAMBERSON COMPANY Statement of Cash Flows For Year Ended December 31, 2016 |
|---|
Operating Activities:
Prepare the statement of cash flows.
___________________ ____________
Adjustment for noncash income items:
___________________ ____________
___________________ ____________
___________________ ____________
___________________ ____________
___________________ ____________
Adjustments for cash flow effects from working capital items:
___________________ ____________
___________________ ____________
___________________ ____________
___________________ ____________
___________________ ____________
___________________ ____________
___________________ ____________
Net cash provided by operating activities ______________
Investing Activities:
___________________ ____________
___________________ ____________
___________________ ____________
___________________ ____________
Net cash used for investing activities ____________
Financing Activities:
___________________ ____________
___________________ ____________
Net cash provided by financing activites ____________
Cash, january 1, 2016 _____________
Cash, december 31, 2016 ____________
Compute the cash flow from operations to sales ratio and the profit margin ratio for 2016. Round your answers to one decimal place.
Cash flows from operations ratio ________:%
Profit margin:___________ %
Course Project Week 4
For this next part of the project you will build the Income Statement and Balance Sheet for the Bike Repair & Maintenance Shop (BRMS) for 2018. Use the information below and add another sheet to your Excel Workbook.
BRMS Information for 2018
In 2017, the repair shop was opened in October and ended the year with a ($10,500) operating loss.
| Supply Inventory of parts & supplies maintained | $3,000 | |
| Replacement parts are ordered as they are used. | ||
| Shop hours of operation: 52 weeks a year. | ||
| Monday - Friday 11am - 7pm | 8 hrs | |
| Saturday 9am - 7pm | 10 hrs | |
| Staff | FTEs | Salary |
| Manager | 1 | $ 40,000 |
| bookkeeper/purchaser | 0.8 | $ 20/hr |
| Repairers | 2.5 | $ 18.50/hr |
Employee benefits: 20% of salary for the manager; 17% of salary for all others.
| Supply costs | $ 65,000 |
| utility costs | $ 7,200 |
| marketing costs | $ 10,000 |
| other costs | $ 22,000 |
Services Provided:
Budgeted: Repair Services: $100 each for 2,600 repairs
New Packages being considered
Package A: Preventative maintenance service package $ 80
Package B: Basic inspection, lube, adjust & clean shifting braking system $ 90
Package C: Annual peak performance package $100
Package D: Basic inspection, + replace shifting cables & preventative maintenance package $250
Estimated Services Provided under the new options:
Package A: 25 per week
Package B: 15 per week
Package C: 10 per week
Package D: 5 per week
| Bike Repair & Maintenance Shop | |
| Budgeted Income Statement | |
| For the Year Ended December 31, 2018 | |
| Revenue | |
| Repair Fees | ? |
| Other Income | ? |
| Gross Revenues | ? |
| Expenses | |
| Salaries & Benefits | ? |
| Wages & benefits | ? |
| Utilities | 7,200 |
| Marketing costs | 10,000 |
| Supply costs | 65,000 |
| Other costs | 22,000 |
| Total Expenses | 104,200 |
| Operating Income | ? |
| Income tax | ? |
| Net Income | $(43,692) |
| Profit Margin | ? |
a) For the first full year of operations, BRMS was budgeted to lose over $40,000 performing repair services. These repairs have high fixed costs for the replacement parts in the repairs. If BRMS decided to expand their services to provide bicycle inspections and preventative maintenance, which use more employee time than supplies, what would the projected change in profit be?
b) If a decision is made to add more service oriented repairs is there a change in fixed and variable costs for repair services?
c) Complete a new ACTUAL Income Statement based on your decisions in a & b. Then complete the Balance sheet below.
| Bike Repair & Maintenance Shop | |
| Balance Sheet | |
| December 31, 2018 | |
| Assets | |
| Cash | $ 8,500 |
| Investments | - |
| Accounts Receivable (net) | 6,000 |
| Prepaid Expenses | 3,000 |
| Inventory | ? |
| Plant, Property & Equipment | 5,000 |
| Less: Accumulated Depreciation | (167) |
| Total Assets | $ 25,333 |
| Liabilities | |
| Accounts Payable | $ 4,500 |
| Accrued Liabilities | 700 |
| Salaries Payable | 4,000 |
| Long-term liabilities | - |
| Total Liabilities | $ 9,200 |
| Common Stock | ? |
| Retained Earnings | ? |
| Total Stockholders' Equity | ? |
| Total Liabilities & Stockholders' Equity | ? |
Next Steps: Financial Analysis for both BRBS & BRMS.
Using the information below for BRBS complete the financial metric analyses as indicated in Chapter 9 of the textbook for both BRMS (above) & BRBS.
The Income Statement for the Buy-Right Bike Shop is provided below for 2017 and 2018.
| BUY-RIGHT BIKE STORE | ||
| Income Statement | ||
| 2018 | 2017 | |
| Sales - Online | $ 11,080,000 | $ 6,240,000 |
| Sales - In store | 580,400 | 312,000 |
| Sales returns | 221,600 | |
| Gross Revenues | 11,438,800 | 6,552,000 |
| Cost of Goods sold | 5,540,000 | 3,276,000 |
| Contribution Margin | $ 5,898,800 | $ 3,276,000 |
| Expenses | ||
| Salaries & Benefits | $ 144,000 | $ 139,206 |
| Wages & benefits | 391,880 | 274,997 |
| Utilities | 13,200 | 13,000 |
| Marketing costs | 200,000 | 200,000 |
| Contributions & Community Involvement | 58,040 | 31,200 |
| Other costs | 1,375,000 | 1,200,000 |
| Operating Income | 3,716,680 | 1,417,597 |
| Income tax | 1,077,837 | 411,103 |
| Net Income | $ 2,638,843 | $ 1,006,494 |
| Profit Margin | 23% | 15% |
| Sales volume | ||
| Bike C - online | 95,000 | 60,000 |
| Bike A - online | 4,800 | - |
| Bike C - in store | 5,100 | 3,000 |
| Bike A - in store | 200 | - |
| total Sales volume | 100,000 | 63,000 |
The Balance Sheet for Buy-Right Bike Store is provided below:
| Buy-Right Bike Store | ||
| Balance Sheet | ||
| December 31, 2018 | ||
| Assets | ||
| Cash | $ 1,500,000 | |
| Investments | 225,000 | |
| Accounts Receivable (net) | 1,250,000 | |
| Prepaid Expenses | 30,000 | |
| Inventory | 58,280 | |
| Plant, Property & Equipment | 1,800,000 | |
| Less: Accumulated Depreciation | 60,000 | |
| Total Assets | $ 4,923,280 | |
| Liabilities | ||
| Accounts Payable | 83,250 | |
| Accrued Liabilities | 4,414 | |
| Salaries Payable | 7,913 | |
| Long-term liabilities | 30,000 | |
| Total Liabilities | $ 125,577 | |
| Common Stock | 1,152,366 | |
| Retained Earnings | 3,645,337 | |
| Total Stockholders' Equity | $ 4,797,703 | |
| Total Liabilities & Stockholders' Equity | $ 4,923,280 | |