ACC 131 Chapter Notes - Chapter 1: Retained Earnings, Financial Statement, Accounting Equation
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Now that you have reviewed information about Hi-Fi Way, you are ready to begin the first step in the accounting cycle, recording transactions. On this page of the practice set, you are asked to record transactions that occurred during the first week of June into the company's journals and post the appropriate entries to the ledger accounts. The following transactions occurred throughout the first week of June:
| Week 1 | ||
| Date | Transaction description | |
| 1 | Issued Check No. 570 for $8,400 to pay Realty Bites for two month's worth of rent in advance. | |
| 1 | Obtained a loan of $59,000 from ZNZ Bank at a simple interest rate of 6% per year. The first interest payment is due at the end of August 2017 and the principal of the loan is to be repaid on June 1, 2021. | |
| 3 | Made payment of $764 to Integer Energy for 3 months of electricity up to and including May 31, Check No. 571. | |
| 4 | Turbo Tech paid the full amount owing on their account. | |
| 4 | Paid sales staff wages of $13,224 for the week up to and including yesterday, Check No. 572. Note that $6,637 of this payment relates to the wages expense incurred during the last week of May. | |
| 5 | Paid the full amount owing to Big Telco, Check No. 573. | |
| 7 | Issued Check No. 574 to Office Supplies Warehouse for the purchase of $301 worth of office supplies. | |
After completing this practice set page, you should know how to record basic transactions in the journals provided below and understand the posting process in the manual accounting system. Note that you will record the remaining June transactions in the following sections of this practice set.
Remember, one purpose of using special journals is to make the posting process more efficient by posting the total of most columns in the special journals after all of the transactions for the period have been recorded. However, some parts of a journal entry are still required to be posted on a daily basis. View the company's accounting policies and procedures for details of what is to be posted daily or monthly.
Instructions for week 1
1)Record all week 1 transactions in the relevant journals.
Note that special journals must be used where applicable. Any transaction that cannot be recorded in a special journal should be recorded in the general journal.
2)Post entries recorded in the journals to the appropriate ledger accounts according to the company's accounting policies and procedures.
Note that the relevant totals of the special journals will be posted to the general ledger accounts at the end of the month. You will enter this before you prepare the Bank Reconciliation Statement.
Remember to enter all answers to the nearest whole dollar. When calculating a discount, if a discount is not a whole number, round the discount to the nearest whole dollar. Then, to calculate the cash amount, subtract the discount from the original amount.
Additional instructions
Displaying selected accounting records:
To save space, not all accounting records (e.g. journals and ledgers) will be displayed on every page. However, on each page you can access all accounting records necessary to answer the questions on that page.
There are several tabs representing different views of the accounting records. The active tab by default is Show All, but you may also select to view just one particular accounting record by selecting the appropriate tab.
If you fill in any accounting records and change the view on the page by selecting a different tab, the information that you have entered will remain in that accounting record and be displayed whenever you can see that accounting record.
Before submitting your answers, we recommend that you click the Show All tab and check that all relevant accounting records have been completed. You are required to complete all relevant accounting records before pressing the Submit answers button. Once submitted, you will not be able to return to the page to re-enter or alter your answers.
Journals:
Each transaction recorded in a special journal must be entered in one line. In order to receive full points, you must not split up the relevant transaction into more than one line in the special journal.
For certain transactions in special journals, some accounting textbooks do not always require an account to be chosen under the column labeled Account. In this practice set you arerequired to select an account for each transaction in the special journals. Specifically, in all special journals, under the column labeled Account, you must select the correct account name for each transaction in order to receive full points. Note that for some transactions, this will mean that the account name selected will correspond to the heading of one of the columns in that special journal.
For each journal, in the Post Ref. column you will need to correctly type the account number of the account you are posting to. In particular, in special journals, some accounting textbooks do not always require a reference to be recorded in the Post Ref. column. In this practice set, in order to receive full points, every transaction entered in a special journal requires an entry in the Post Ref. column. Note that in the special journals, if the account name selected for a transaction corresponds to the heading of one of the columns in that special journal, the post ref is to be recorded as an X. This is because these transactions are not posted on a daily basis. In order to receive full points, you must record only the letter Xin the Post Ref. column for these transactions.
Note that in special journals, the Other Accounts column should not be used to record movements of inventory.
There may be entries in the general journal that require posting to both a control account and a subsidiary ledger. In these cases, after you have posted to both ledgers, you should enter the reference for both the general ledger account and the subsidiary ledger account in the Post Ref. column to indicate that you have posted to both accounts. For example, if the reference number for the control account is 110 and the reference number for the subsidiary ledger account is 110-1, you should type '110/110-1' into the Post Ref. column.
General journal entries do NOT require a description of the journal entries.
Ledgers:
When posting a transaction to a ledger account, under the Description column, please type the description of the transaction directly into the field. The exact wording does not matterfor grading purposes. For example, it does not matter in an electricity transaction if you type 'Paid for electricity' or 'Paid electricity bill'.
For each ledger, under the Ref. column, you need to select the correct journal from a list in the drop-down box provided in order to receive full points.
If the balance of a ledger account is zero you do not need to select a debit or credit from the drop-down box.
Each transaction posted to the subsidiary ledgers must be entered in one line. In order to receive full points, you must not split up the relevant transaction into more than one line in the subsidiary ledger.
Both journals and ledgers:
Most journals and ledgers will have blank rows left at the end of the page.
Some journals and ledgers may not require any entries.
When purchases and sales are recorded in special journals, changes in inventory must not be posted to the Merchandise Inventory account in the general ledger on a daily basis.
Governmental Budgeting and Accounting
This mini-case covers a number of the major concepts that wehave covered in class this semester. Specifically, the examrequires you to perform a break-even analysis with a weightedaverage contribution margin, prepare a quarterly operating budget,and consider a capital investment using the net present valuetechnique. The answers are cumulative. You cannot skip anysection and do the next.
You may make whatever assumptions you think are necessary toanswer any question. If needed, be sure to state every assumptionexplicitly. Turn in your answers in this Word document along withthe supporting calculations in Excel spreadsheets.
All of the information that you need to answer a given questionis provided in the text that immediately precedes the question andthe answers to the questions that precede it. Read the entireproblem set before you begin. Make sure you understand thequestions before answering them!
Santa Fe Museum of Southwestern Art
The Santa Fe Museum of Southwestern Art (SFMSA) presentsrotating exhibits of the works of artists and artisans from theSouthwestern United States. Historically, the museum has derivedits support from three sources: grants, annual memberships, andvisitor revenues. For the 2017 fiscal year, SFMSA knows that itwill receive $495,000 in grants from various sources. It alsoexpects 1,375 people to be supporting members of the museum. Onaverage, supporting members give SFMSA $105.75 per year. You canthink of the support from grants and memberships as Fixed Revenues.The museum expects the following mix of visitors during 2017, eachpaying the amount shown in the right column of the schedule.
Type of Visitor | Percent of Total | Price |
Regular | 60% | $6.00 |
Group | 18% | $3.00 |
Senior Citizen | 12% | $2.00 |
Student | 10% | $1.00 |
SFMSA has $965,000 of fixed expenses each year. In addition, themuseum spends an average of $0.62 per visitor for handouts thatdescribe the exhibits on display. SFMSA estimates that it hasvariable electric costs of $0.10 per visitor. Plus, the museumoffers each visitor the option of receiving an audio recordingwhich describes the featured exhibit of the month. Visitors areallowed to keep the recording as a memento of their visit.Historically, these recordings have cost the museum $1.30 per copyto produce and replicate. On average, 25% of the people visitingthe museum have taken advantage of the free audio recordingoffer.
Problem 1. The Directorof the museum has asked you to tell her the minimum number of totalvisitors that must come to the museum each year in order for SFMSAto break even. Using the information given above, what is SFMSAâsbreak-even visitor volume? (40 points)
Because of Santa Feâs location in themountains of New Mexico, the museum tends to have a seasonalpattern to its visitor flow with proportionally more peoplevisiting SFMSA in the summer than in the winter. In addition,revenue from grants and memberships tend to flow into the museumunevenly throughout the year. The seasonal flow of visitor, grantsand membership revenues is distributed throughout the year asfollows:
P11.1021 Summer Session - Replacement Assignment Number5
Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | |
Visitors | 20% | 25% | 40% | 15% |
Membership Revenue | 40% | 20% | 20% | 20% |
Grant revenue | 25% | 50% | 10% | 15% |
Weighted Average Price per ticket = (Weight of Regularvisitor in total tickets sold x Price of ticket) + (Weight of Groupvisitors in total tickets sold x Price of ticket) + (Weight ofSenior Citizen visitor in total tickets sold x Price of ticket) +(Weight of Student visitor in total tickets sold x Price ofticket)
=> (0.6 x $6) + (0.18 x $3) + (0.12 x $2) + (0.10 x$1) = $4.48 per ticket
Variable cost per visitor = Cost of handouts + variableelectric costs + (Cost of audio recording x 25%)
=> $0.62 + $0.10 + ($1.30 x 25%) =$1.045
Contribution per ticket = Selling Price â Variable cost=> $4.48 - $1.045 = $3.435
Total Fixed Cost = $965,000
Fixed Revenues = Grant + Membership Revenue => $495,000 +($105.75 x 1,375) = $640,406.25
Remaining Fixed cost = $965,000 - $640,406.25 =$324,593.75
Break-even point = Fixed cost / Contribution perticket
=> $324,593.75 / $3.435 = 94,495.99 or94,496
So, total 94,496 tickets with stated percentage ofvisitor type are required to break-even.
Fixed expenses are distributed evenly throughout the year i.e.25% per quarter. The museumâs marketing director forecasts that82,000 people will visit the museum during fiscal year 2017.
SFMSAâs Director of Marketing has convinced the ExecutiveDirector that a museum shop can be operated profitably in a smallspace just off the main entrance. She agrees and the shop isscheduled to open on April 1, 2017, the first day of the secondquarter. The Marketing Director estimates that 5% of the people whovisit the museum will make purchases from the shop. Based on hisexperience, he expects the average purchase to be $50. SFMSAâsBusiness Manager estimates that the cost-of-goods-sold will be 75%of the museum-shopâs sales revenue. The shop will be staffed byvolunteers at no cost to SFMSA.
Problem 2. Using theinformation above, prepare a properly formatted operating budgetfor SFMSA for each of the four quarters in fiscal year 2017 andsummarize the budget for the full year. (45 points)
SFMSA has just been approached by the Curator of SpecialExhibits at the Smithsonian Museum. The Smithsonian has offered tolend SFMSA a rare collection of nineteenth century Navajo crafts.The collection would remain at the museum for a five-year periodafter which it would be returned to the Navajo nation. To house theexhibit, SFMSA will have to upgrade its environmental and securitysystems at a one-time cost of $300,000. This is the only cashoutflow associated with the decision.
Since this may be the last time that this collection will beexhibited in its entirety, the Executive Director is enthusiasticabout the impact that it will have on visitor volume and thereputation of the museum. The Marketing Director forecasts that 900incremental visitors are likely to be drawn to the museum eachmonth that the exhibit is at SFMSA.
The director wants you to tell her if the exhibit is financiallyself-sufficient or if she will need to get a grant to support it.You know that SFMSAâs cost of capital is 8%. You also know themarginal contribution generated by each incremental visitor to themuseum from your work on the break-even analysis. Do not count onany gift shop purchases from the incremental visitors.
Problem 3. What do youtell her? Can SFMSA afford to show the exhibit based solely on themarginal contribution from incremental visitors? If the exhibit isnot financially self-sufficient, how large a grant will SFMSA needto get to meet the projected shortfall? Support your recommendationand present your findings in a way that the director willunderstand. (40 points)
I have answered problem 1, the answer is in bold. I need helpanswering problem 2 and 3.
