Individual Post Course Accounting EMBA Assignment, March 2020

This accounting assignment solution addresses various aspects of financial accounting, including journal entries, revenue recognition, adjusting entries, and the statement of cash flows. The solution includes detailed journal entries for various transactions, such as investments, purchases, loans, and sales. It also covers the identification and recognition of revenues, the preparation of adjusting entries for accrued and deferred items, and the calculation of dividends and stock issuances. Furthermore, the solution presents a statement of cash flows using the indirect method, along with the calculation of free cash flow and changes in cash. Additional topics covered include the journalizing of sales transactions, the determination of the effects of transactions on financial statement components, and the recording of bad debt expense using the aging analysis method. Finally, the solution also addresses the calculation of missing amounts in an income statement.

Individual Post Course Assignment
Course: Accounting EMBA 2019 / 2020
Date: March 2020
Total Points: 240
Name:
Part 1 – INDIVIDUAL QUESTIONS
1. Journalizing transactions (10 points)
The following events occurred for Morgan Company:
a. Received investment of $52,000 cash by organizers and distributed stock to them.
b . Purchased $18,000 of land; paid $3,000 in cash and signed a mortgage note for the balance.
c. Purchased $4,000 of equipment, paying $500 in cash and signing a note for the rest.
d. Borrowed $10,000 cash from a bank.
e. Loaned $700 to an employee who signed a note.
Prepare journal entries.
Event Particulars Debit ($) Credit ($)
A Cash $52,000
Contributed Capital $52,000
(Cash received and distributed as
stock)
B Land $18,000
Cash $3,000
Mortgage Payable $15,000
(Purchased land for cash and
credit)
C Equipment $4,000
Cash $500
Note Payable $3,500
(Equipment Purchased on cash and
credit)
D Cash $10,000
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Loan Payable $10,000
(Loan taken in business)
E Loan receivable $700
Cash $700
(Loan given to employee)
2. Identifying Revenues. (13 points)
The following transactions occur in June 2019:
a. A popular food magazine company receives a total of $14,980 from subscribers. The subscriptions
begin in the next fiscal year. Answer from the magazine company’s standpoint.
b. On June 1, 2019, a bank lends $2,400 to a company; the note principal and $384 ($2,400 x 16 percent)
annual interest are due in one year. Answer from the bank’s standpoint.
c. Honda, Inc., sells a truck with a list, or “sticker,” price of $27,089 for $21,559 cash.
d. Taryt department store orders 1,000 boy’s shirts for $12 each for future delivery from T-shirt World
Corporation. The terms require payment in full within 30 days of delivery. Answer from T-shirt World’s
standpoint.
e. T-shirt World Corporation completes production of the shirts described in (d) and delivers the order.
Answer from T-shirt World’s standpoint.
f. T-shirt World Corporation receives payment from Taryt’s for the order described in (d). Answer from T-
shirt World’s standpoint.
g. A customer purchases a ticket from United Airlines for $322 cash to travel the following January.
Answer from United Airlines’ standpoint.
h. BMW issues $20 million in new common stock.
i. University of Miami receives $18,300,000 cash for 60,000 twelve-game season football tickets.
j. University of Miami plays the first football game referred to in (i).
k. Precision Builders signs a contract with a customer for the construction of a new $500,000 warehouse.
At the signing, Precision receives a check for $150,000 as a deposit on the future construction. Answer
from Precision’s standpoint.
l. A customer orders and receives 72 MP3 players from Best Buy; the customer promises to pay $9,000
within three months. Answer from Best Buy’s standpoint.
m. Delights, a retail store, sells a $45 lamp to a customer who charges the sale on his store credit card.
Answer from Delights’ standpoint.
For each of the transactions, if revenue is to be recognized in June, indicate the revenue account title and
amount. If revenue is not to be recognized in June, explain why.
a Not recognised as the revenue is not related to the current year and relates to a future
period
b Not recognised as the revenue is not related to the current year and relates to a future
period
c Yes. Sales Revenue a/c
d No. As the service has not been completed yet
e Yes. Sales Revenue a/c
f Yes. Sales Revenue a/c
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g Not recognised as the revenue is not related to the current year and relates to a future
period
h Yes. Common stock a/c
i Not recognised as the revenue is not related to the current year and relates to a future
period
j Yes. Ticket revenue a/c
k No. As the service has not been completed yet
l Yes. Sales Revenue a/c
m Yes. Sales Revenue a/c
3. Recording Adjusting Entries (10 points)
Lamar Marina repairs, stores, and cleans boats for customers. It is completing the accounting
process for the year just ended, November 30, 2019. The transactions during 2019 have been
journalized and posted. The following data with respect to adjusting entries are available:
a. Lamar borrowed $325,000 at a 12 percent annual interest rate on April 1, 2019, to expand its
boat
storage facility. The loan requires Lamar’s to pay the interest quarterly until the note is repaid in
three years. Lamar paid quarterly interest on July 1 and October 1.
b. The Young family paid Lamar $3,240 on November 1, 2019, to store its sailboat for the winter
until May 1, 2020. Lamar credited the full amount to Unearned Storage Revenue on November 1.
c. Lamar used boat-lifting equipment that cost $250,000; $25,000 was the estimated depreciation
for 2019.
d. Boat repair supplies on hand at December 1, 2018, totaled $17,500. Repair supplies purchased
and debited to Supplies during the year amounted to $44,000. The year-end count showed $10,400
of the supplies on hand.
e. Wages earned by employees during November 2019, unpaid and unrecorded at November 30,
2019, amounted to $3,950. The next payroll date will be December 5, 2019.
1. Identify each of these transactions as a deferred revenue, deferred expense, accrued revenue, or
accrued expense.
2. Prepare the adjusting entries that should be recorded for Lamar at November 30, 2019.
Event
a Deferred Expense
b Deferred Revenue
c Deferred Expense
d Accrued Expense
e Accrued Expense
Event Particulars Debit Credit
3

A Interest Expense 6500
Interest Payable 6500
(Interest accrued for October and November)
b Unearned Revenue 540
Service Revenue 540
(Revenue recorded for November)
c Depreciation 25000
Accumulated Depreciation 25000
(Depreciation added to accumulated
depreciation)
d Supplies Expense 51100
Supplies 51100
(Supplies used during the year)
e Wages expense 3950
Wages Payable 3950
(Wages earned but not paid during the year)
4

4. Inferring Stock Issuances and Cash Dividends from Changes in Stockholders’ Equity (6 points)
The Corner Co. is a large retailer that processes food. Corner reported the following January 31
balances in its stockholders’ equity accounts (dollars in millions):
Current Year Prior Year
Common stock $ 925 $ 919
Paid-in capital 3,366 3,231
Retained earnings 8,489 5,480
During the current year, Corner reported net income of $3,249.
1. How much did Corner declare in dividends for the year?
2. Assume that the only other transaction that affected stockholders’ equity during the current year
was a single stock issuance. Recreate the journal entry reflecting the stock issuance.
1 Particulars Amount Amount
Net Income during the year 3249
Change in retained earnings during the
year
3009
Dividends Declared during the year 240
2 Cash 141
Common Stock 6
Paid-in-capital 135
(Additional Stock issued during the year)
5

5. Preparing a Simple Statement of Cash Flows Using the Indirect Method (16 points)
Nancy & Donald Corp. is preparing its annual financial statements as of December 31,
2019. Listed below are Balance Sheets for 2019 and 2018 as well as the Income
Statement for 2019. Cash Flow statement is missing.
Balance Sheets 2018 2019 Income Statement 2019
$ in millions $ in millions
Assets Net revenues 610
Cash 25 55 COGS 280
Accounts receivable 160 130 Depreciation expense 50
Prepaid Expense 10 30 Earnings before interest
Inventory 220 285 and taxes (EBIT) 280
Total Current Assets 415 500 Interest expense 20
Profit before tax 260
Net PP&E 485 600 Taxes paid 60
Total Assets 900 1100 Net income 200
Liabilities and equity Dividends declared and paid 100
Accounts payable 50 80
Notes payable 70 85
Other short term debt 40 55
Total Current Liabilities 160 220
Long-term debt 105 125
Shareholders’ equity
Common stock 240 260
Retained earnings 395 495
Total Shareholder's Equity 635 755
Total liabilities and equity 900 1100
A. Prepare (show the “waterfall”) the 2019 statement of cash flows for Nancy &
Donald Corp. (10 points)
B. What is the amount of cash flow from Operations for 2019 ? (2 points)
C. What is the amount of Free Cash Flow for 2019 ? (2 points)
D. What is the change in cash for 2019 ? (2 points)
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Cash Flow Using Indirect Method:
Particulars Amount Amount
Net Income 200
Adjustments to reconcile net income to
Net cash provided by operating expenses:
Depreciation expense 50
(Increase) decrease in assets:
Decrease in accounts receivable 30
Increase in prepaid expense -20
Increase in Inventory -65
Increase (decrease) in liabilities:
Increase in Accounts Payable 30
Increase in Notes Payable 15
Increase in other short term debt 15
Increase in Long-term debt 20
Net cash provided by operating activities 275
Cash flow from investing activities:
Increase in Plant, Property and Equipment -165
Cash flow from financing activities:
Issue of common stock 20
Dividends paid during the year -100 -80
Cash at beginning 25
Changes in Cash 30
Cash at End 55
2. The cash flow from operations for the year is $275 million.
3. The amount of free cash flow for the year is $55 million.
4. The change in cash for the year is $30 million.
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6. On March 3, 2019, Gooddeal.com sold merchandise for $2,500, terms 2/10 n/30. Prepare the
journal entry. This merchandise originally cost $2,000. (5 points)
Debit and credit the accounts affected
Mar. 3 Accounts Receivable $2500
Sales Revenue $2500
Cost of Goods Sold $2000
Inventory $2000
On March 6, 2019, the customer returned $1,250 (or one-half) of the merchandise that
was purchased back on March 3. Prepare the journal entry. (5 points)
Debit and credit the accounts affected
Mar. 6 Sales returns and allowances $1,250
Accounts Receivable $1,250
Inventory $1,000
Cost of Goods Sold $1,000
The customer paid for the merchandise on March 8, 2019, taking advantage of the
permitted discount. Prepare the journal entry. (3 points)
Debit and credit the accounts affected
Mar. 8 Cash $1,225
Sales Discount $25
Accounts receivable $1,250
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7. Determine the effect of the following transactions on the identified financial statement
components and ratios. (8 points)
Code your answers as follows:
I: If the transaction results in an increase in the financial statement component or ratio.
D: If the transaction results in a decrease in the financial statement component or ratio.
N: If the transaction does not affect the financial statement component or ratio.
Transaction 1: A company issued common stock at a price in excess of par value.
Revenues ___N__
Assets ____N_
Stockholders' equity __I___
Return on assets ratio __D___
Transaction 2: A company recorded depreciation expense at year-end.
Net income _____D
Assets _____D
Stockholders' equity __N___
Total asset turnover ratio _I____
8. Recording and Reporting a Bad Debt Estimate Using Aging Analysis (6 points).
Columbia Company uses the aging approach to estimate bad debt expense. The balance of each
account receivable is aged on the basis of three time periods as follows:
(1) not yet due, $65,000,
(2) up to 180 days past due, $17,000, and
(3) more than 180 days past due, $6,000.
Experience has shown that for each age group, the average loss rate on the amount of the
receivables at year-end due to uncollectability is (1) 3 percent, (2) 12 percent, and (3) 32 percent,
respectively. At December 31, 2019 (end of the current year), the Allowance for Doubtful
Accounts balance is $300 (credit) before the end-of-period adjusting entry is made.
1. Prepare the appropriate bad debt expense adjusting entry for the year 2019.
2. Show how the various accounts related to accounts receivable should be shown on the
December 31, 2019, balance sheet.
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1 Date Particulars Debit Credit
31-12-
19
Bad Debt expense 5910
Allowance for doubtful debts 5910
2 Accounts Receivable 88000
Less: Allowance for doubtful debts 5910
Accounts Receivable, net of allowance for doubtful
debts
82090
9. Inferring Missing Amounts Based on Income Statement Relationships (10 points)
Supply the missing dollar amounts for the income statement for each of the following independent
cases:
Case Sales
Revenue
Beg.
Inven-
tory
Pur-
chases
Total
Avail-
able
Ending
Inventory
Cost of
Goods
Sold
Gross
Profit
Ex-
penses
Pretax
Income
or
(Loss)
A $ 655 $115 $800 ? $400 ? ? $130 ?
B 1,300 250 900 ? ? ? ? 150 300
C ? 105 ? ? 300 155 445 125 ?
D 1,800 ? 550 ? 300 ? ? 300 1,000
E 1,200 ? 1,000 1,200 ? ? 500 ? (75)
Case Sales Revenue
Beg.
Inven-
tory
Pur-
chases
Total
Avail-
able
Ending
Inventory
Cost of
Goods
Sold
Gross
Profit
Ex-
penses
Pretax
Income
or
(Loss)
A $655 $115 $800 $915 $400 $515 $140 $130 $10
B 1,300 250 900 $1,150 $300 850 450 150 300
C 600 105 350 $455 300 155 445 125 320
D 1,800 250 550 $800 300 500 1,300 300 1,000
E 1,200 200 1,000 1,200 500 700 500 575 -75
10. Reporting Inventory at Lower of Cost or Market (5 points)
Vargas Company is preparing the annual financial statements dated December 31, 2019. Ending
inventory information about the five major items stocked for regular sale follows:
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Ending Inventory 2019
Item Quantity Unit Cost When Acquired
(FIFO)
Replacement Cost
Market at Year end
A 57 $16 $13
B 87 31 45
C 17 49 53
D 77 26 31
E 357 11 6
Compute the valuation that should be used for the 2019 ending inventory using the LCM rule
applied
on an item-by-item basis. (Hint: Set up columns for Item, Quantity, Total Cost, Total Market, and
LCM Valuation.)
Replacement Cost
Market at Year end
Valuation for
2019
Item Quantity Unit Cost When Acquired (FIFO)
A 57 $ 16 $
13
$
13
B 87 $ 31 $
45
$
31
C 17 $ 49 $
53
$
49
D 77 $ 26 $
31
$
26
E 357 $ 11 $
6
$
6
11. Analyzing and Interpreting the Inventory Turnover Ratio (6 points)
Fontaine Inc. is a leading manufacturer of motors. In a recent year, it reported the following
information (dollars in millions):
Net sales revenue $67,101
Cost of sales 52,144
Beginning inventory 1,380
Ending inventory 967
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1. Determine the inventory turnover ratio and average days to sell inventory for the current year.
2. Explain the meaning of each number.
Particulars Formula Amount
Net Sales revenue 67101
Cost of Sales 52144
Beginning Inventory 1380
Ending Inventory 967
Average Inventory Opening inventory + closing
inventory/2
1173.5
Inventory Turnover Ratio Cost of Goods Sold/Average
Inventories
44.4346
Average Days to Sell
Inventory
365/Inventory Turnover Ratio 8.21432
The Inventory turnover ratio measures the number of times an entity is able to sell its
inventory in a particular. The higher the ratio, the more efficient is the company in a given
financial year. The average days should be lower to ensure that the entity is being more efficient
for a particular period of time.
12. Computing and Recording Cost and Depreciation of Assets (6 points)
Corrin Company bought a building for $79,000 cash and the land on which it was located for
$115,000 cash. The company paid transfer costs of $17,000 ($7,000 for the building and $10,000
for the land). Renovation costs on the building were $30,000.
1. Prepare the journal entry to record the purchase of the property, including all expenditures.
Assume that
all transactions were for cash and that all purchases occurred at the start of the year.
2. Compute straight-line depreciation at the end of one year, assuming an estimated 10-year useful
life and a $12,000 estimated residual value.
3. What will be the net book value of the property (land and building) at the end of year 2?
1 Particulars Amount Amount
Land and building 211000
Cash 211000
2 Year-end Depreciation 7400
3 Value of property at end of year
2
196200
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