Financial accounting assessment one, two and three

The financial reporting process collects, processes, and distributes financial information to various users, such as management, creditors, and investors. It is important for users to understand the terminology and accounting process. This assessment provides you with the opportunity to analyze transactions with the use of T-accounts, interpret the information found in financial statements, and communicate those findings in a professional manner.

By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:

• Competency 1: Apply theories, models, and practices of accounting in the construction and analysis of financial statements.
  • Prepare a variety of financial statements (income statement, statement of stockholders’ equity, and balance sheet).
  • Analyze financial information to develop conclusions regarding a company’s performance.
• Competency 3: Integrate accounting theories, models, and practices across the organization.
  • Analyze the effects of transactions using T-accounts for each account on a balance sheet.
• Competency 5: Communicate in a manner that is professional and consistent with expectations for members of the business professions.
  • Communicate in a manner that is professional and consistent with expectations for members of the business professions.
• Assessment Instructions

  Note: Some of the assessments in this course build upon each other, so you are strongly encouraged to complete them in the order in which they are presented.

  For this assessment, complete the problem below. You may use Word or Excel to complete the assessments throughout this course, but you will find Excel to be most helpful for creating spreadsheets. Tutorials for using Excel are provided in the Supplemental Resources in the left navigation menu. If you use Excel, submit the assessment in one Excel document, using separate tabs for each spreadsheet.

  To complete this assessment, you may choose to use the Assessment 2 Problem Template linked in the Suggested Resources under the Capella Resources heading.

  Transactions

  Audrey Jhingree opened an ice cream parlor in a university town. The parlor specializes in ice cream combinations named after popular professors in the business department of the university. You have been hired as a manager. Your duties include maintaining the store’s financial records. The following transactions occurred in April 2012, the first month of operations:

  • a. Received cash of $40,000 total ($10,000 each) from four investors. Each investor received 100 shares of common stock. This took place on April 1.
  • b. Paid three months’ rent for the store on April 1 at $2,000 per month (recorded as prepaid expenses).
  • c. Purchased ice cream and cones for $6,000 on account payable, due in 60 days. This took place on April 2.
  • d. Purchased supplies for $1,000 cash on April 2.
  • e. Received a two-year $11,000 loan at the bank. The note payable is dated April 2.
  • f. Used the money from (e) to purchase a computer for $3,000 (for record keeping and inventory tracking) and to purchase $8,000 of used furniture and fixtures for the store.
  • g. Placed a grand opening advertisement in the local paper for $600 cash.
  • h. Made sales in the first half of the month totaling $5,000: $4,250 was in cash and the rest was on accounts receivable. The cost of the ice cream sold was $2,000.
  • i. Made a $600 payment on accounts payable on April 18.
  • j. Incurred and paid employee wages of $2000 for the month of April.
  • k. Collected accounts receivable of $700 from customers.
  • l. Made a repair to one of the refrigerators for $300.
  • m. Made sales in the last half of the month for $6,000, all for cash. The cost of the ice cream sold was $2,400.

  Recording Transactions, Posting to T-Accounts, Preparing Financial Statements, and Commenting on What Financial Statements Tell Potential Investors

  Using the information provided above, complete the following for Audrey Jhingree’s ice cream parlor. To complete this problem, you may choose to use the Assessment 2 Problem Template, which is linked in the Suggested Resources under the Capella Resources heading.

  1. Set up appropriate T-accounts for cash, accounts receivable, supplies, inventory, prepaid expenses, equipment, furniture and fixtures, accounts payable, notes payable, contributed capital, sales revenue, cost of goods sold (expense), advertising expense, wage expense, and repair expense. All accounts begin with zero balances.
  2. Record in the T-accounts the effects of each transaction for Audrey’s shop in April, referencing each transaction in the accounts with the transaction letter. Show the ending balances in the T-accounts. Note that transactions (h) and (m) require two types of entries, one for sales and one for cost of goods sold. Prepare trial balances for 4/30/12.
  3. Prepare financial statements at the end of the month ended April 30, 2012. Hint: Do the income statement first, followed by the statement of stockholders’ equity, and then the balance sheet. Properly label each statement: Does it cover a period of time or just a point in time?
  4. Write a short memo to Audrey offering your opinion on the results of operations during the first month of business.
  5. After three years in business, you are being evaluated for a promotion. One measure is how efficiently you have managed the assets of the business. Using the data in the following table, compute the total asset turnover ratio for 2014 and 2013 and evaluate the results. Also compute the return on invested capital (net income divided by total stockholders’ equity). Do you think you should be promoted? Why or why not?

  Audrey’s Ice Cream Parlor: Financial Data

  Account	2014	2013	2012
  Total assets	$93,000	$78,000	$61,000
  Total liabilities	$23,000	$23,000	$16,500
  Total contributed capital plus retained earnings	$70,000	$55,000	$44,500
  Total sales	$100,000	$82,500	$57,250
  Net income	$15,000	$10,500	$4,500

  Financial Performance Analysis

This assessment addresses the impact of adjusting entries on financial statements. You will demonstrate your understanding of deferred revenue, deferred expense, accrued revenue, and accrued expense, as well as your understanding of the accounting entries that record these items in the accounting system.

By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies:

• Competency 3: Integrate accounting theories, models, and practices across the organization
  • Record adjusting entries for each transaction at the end of an annual accounting year using appropriate financial data.
  • Analyze the impact of adjusting entries on financial statements.