| KENDALL SCHOOL OF BUSINESS | ||||||||||||||||||||||||||
| ACC272 B1 – Fall 2013 | ||||||||||||||||||||||||||
| Comprehensive Accounting Project | ||||||||||||||||||||||||||
| Four students from Kendall Hospitality program, decide to start a business and open an icecream shop in the month of June. | ||||||||||||||||||||||||||
| The students names are: Victoria, Matt, Jean & Tracy. | ||||||||||||||||||||||||||
| They form a company (partnership) and name it “Chicago Summers”. They decide to use the same name for the ice cream shop. | ||||||||||||||||||||||||||
| The students divide the duties – Matt and Victoria will make the purchases needed to produce the Ice Creams. They will hire | ||||||||||||||||||||||||||
| two helpers to be at the ice cream shop during business hours, prepare and sell the ice cream. Jean will supervise the employees | ||||||||||||||||||||||||||
| She also will be in charge of counting the materials at the end of each business day and communicate to Victoria and Matt how | ||||||||||||||||||||||||||
| much more they need to purchase. Tracy is in charge of keeping the accounting records of the company as well as preparing the financial | ||||||||||||||||||||||||||
| statements for each month | ||||||||||||||||||||||||||
| Here are the transactions Chicago Summers company incurs during the month of June & July 2010: | ||||||||||||||||||||||||||
| June Transactions | ||||||||||||||||||||||||||
| Setting up the shop | ||||||||||||||||||||||||||
| 6/1 | Each of the students/owners invests $15,000 of cash in the Chicago Summer Company. | |||||||||||||||||||||||||
| The students open a business checking account with City Bank and deposit their initial investments. | ||||||||||||||||||||||||||
| 6/1 | They sign a 2-year lease to rent a space on Michigan Avenue for the Chicago Summers Ice cream shop. | |||||||||||||||||||||||||
| Monthly rent of the space is $2000, payable on the first day of each month. | ||||||||||||||||||||||||||
| 6/2 | They purchase Ice cream Equipments, on account for 12,600, payable in three equal installments, in the next three months | |||||||||||||||||||||||||
| The first installment is due for payment in July 2nd. It is estimated that the equipment has a life of 7 years with no | ||||||||||||||||||||||||||
| salvage value. | ||||||||||||||||||||||||||
| 6/2 | They purchase Furniture for the Ice Cream Shop on account for 10,000 on account, payable in 45 days. | |||||||||||||||||||||||||
| It is estimated that the furniture will be used for 5 years, with no salvage value. | ||||||||||||||||||||||||||
| 6/2 | They purchase a laptop for $1200 on account to be used exclusively in keeping track of the accounting records. | |||||||||||||||||||||||||
| Payment for the computer is due in 45 days. Estimated life of the laptop is 3 years with no salvage value. | ||||||||||||||||||||||||||
| 6/2 | They purchase a QuickBooks software, to be used in Accounting, for $1500 on account – payable in 45 days. | |||||||||||||||||||||||||
| It is estimated that the software will be used for 10 years. | ||||||||||||||||||||||||||
| 6/5 | They call a technician to install the Ice Cream equipment. Estimated bill of the technician is $700. At the end of the | |||||||||||||||||||||||||
| month, the company has not yet received the bill, however, the technician completed in full his installation work. | ||||||||||||||||||||||||||
| 6/5 | They hire two employees. Total salary cost for the two employees is $1500 a month, payable at the end of | |||||||||||||||||||||||||
| the month. | ||||||||||||||||||||||||||
| Starting the Operations | ||||||||||||||||||||||||||
| 6/5 | Victoria & Matt are in charge of purchasing the key materials to make the ice cream. At the beginning of the month | |||||||||||||||||||||||||
| they purchase the following: | ||||||||||||||||||||||||||
| Description | Quantity in LB | Price | Total Cost | |||||||||||||||||||||||
| Milk | 200 | $ 1.25 | $ 250.00 | |||||||||||||||||||||||
| Sugar | 200 | $ 0.75 | $ 150.00 | |||||||||||||||||||||||
| Vanilla | 1 | $ 500.00 | $ 500.00 | |||||||||||||||||||||||
| Cacao | 200 | $ 3.00 | $ 600.00 | |||||||||||||||||||||||
| Butter | 200 | $ 2.00 | $ 400.00 | ######## | ||||||||||||||||||||||
| 6/5 | They incur freight costs of $50, which they pay in full | |||||||||||||||||||||||||
| 6/15 | Victoria and Matt purchase additional materials. Because of market changes, they realize that prices for their key | |||||||||||||||||||||||||
| ingredients have gone up. | ||||||||||||||||||||||||||
| Description | Quantity in LB | Price | Total Cost | |||||||||||||||||||||||
| Milk | 200 | $ 1.35 | $ 270.00 | |||||||||||||||||||||||
| Sugar | 200 | $ 0.90 | $ 180.00 | |||||||||||||||||||||||
| Butter | 100 | $ 2.20 | $ 220.00 | $ 670.00 | ||||||||||||||||||||||
| 6/30 | Throughout the month, the Chicago Summers ice cream shop is able to generate a total of $6,000 in cash sales. | |||||||||||||||||||||||||
| Inventory | ||||||||||||||||||||||||||
| 6/30 | Jean is in charge of keeping track of key material quantities. She knows that most of the materials purchased | |||||||||||||||||||||||||
| during the month have been used in making ice cream. However some quantities still are left unused. These will be | ||||||||||||||||||||||||||
| used in the next month’s production of ice cream. At the end of the month, Jean performs a physical count of the | ||||||||||||||||||||||||||
| materials left. Below is the result of the count. | ||||||||||||||||||||||||||
| Description | Quantity in LB | |||||||||||||||||||||||||
| Milk | 50 | |||||||||||||||||||||||||
| Sugar | 70 | |||||||||||||||||||||||||
| Vanilla | 0.5 | |||||||||||||||||||||||||
| Cacao | 50 | |||||||||||||||||||||||||
| Butter | 90 | |||||||||||||||||||||||||
| June’s financial statement | ||||||||||||||||||||||||||
| 6/30 | Tracy is in charge of keeping the accounting records. She records all the economic events presented above by doing the following: | |||||||||||||||||||||||||
| Preparing the journal entries, | ||||||||||||||||||||||||||
| Posting the appropriate journal entries in the T accounts | ||||||||||||||||||||||||||
| Preparing the Trial balance for the month of June | ||||||||||||||||||||||||||
| Completing the Balance Sheet and Income Statement for the month of June | ||||||||||||||||||||||||||
| July Transactions | ||||||||||||||||||||||||||
| 7/1 | The company paid the monthly rent | |||||||||||||||||||||||||
| ‘7/1 | Paid on account for an ad in the local radio station for $700 | |||||||||||||||||||||||||
| 7/2 | Paid the first installment due for the purchase of the Ice Cream Equipment (total $4200) | |||||||||||||||||||||||||
| 7/5 | Purchased the following inventory items: | |||||||||||||||||||||||||
| Description | Quantity in LB | Price | Total Cost | |||||||||||||||||||||||
| Milk | 200 | $ 1.30 | $ 260.00 | |||||||||||||||||||||||
| Sugar | 200 | $ 0.90 | $ 180.00 | |||||||||||||||||||||||
| Cacao | 100 | $ 2.80 | $ 280.00 | |||||||||||||||||||||||
| Butter | 100 | $ 1.90 | $ 190.00 | $ 910.00 | ||||||||||||||||||||||
| 7/5 | Incurred $50 of freight cost, which they paid in cash | |||||||||||||||||||||||||
| All the inventory left over from June and purchased July was fully utilized in making the ice creams in July | ||||||||||||||||||||||||||
| 7/15 | Paid in full the Furniture purchased on account in June. | |||||||||||||||||||||||||
| 7/15 | Paid in full the cost of the laptop | |||||||||||||||||||||||||
| 7/15 | Paid in full the cost of the QuickBooks software | |||||||||||||||||||||||||
| 7/30 | Paid the salaries of the two employees | |||||||||||||||||||||||||
| 7/30 | Collected $7,000 in cash sales | |||||||||||||||||||||||||
| Instructions | ||||||||||||||||||||||||||
| I June Financial Statements | ||||||||||||||||||||||||||
| Assume you are doing Tracy’s job: | ||||||||||||||||||||||||||
| Analyze each of June’s transactions and prepare the journal entries | ||||||||||||||||||||||||||
| Calculate the depreciation and amortization expenses for the month of June for the tangible and intangible assets | ||||||||||||||||||||||||||
| Calculate Cost of Goods Sold assuming the company uses a periodic inventory system and FIFO for cost method | ||||||||||||||||||||||||||
| Post the appropriate journal entries in T accounts | ||||||||||||||||||||||||||
| Prepare a trial balance | ||||||||||||||||||||||||||
| Prepare the Balance Sheet and Income Statement for the month of June. | ||||||||||||||||||||||||||
| II July Financial Statements | ||||||||||||||||||||||||||
| Repeat the steps above for July: | ||||||||||||||||||||||||||
| Analyze each of July’s transactions and prepare the journal entries | ||||||||||||||||||||||||||
| Calculate the depreciation and amortization expenses for the month of July for the tangible and intangible assets | ||||||||||||||||||||||||||
| Calculate Cost of Goods Sold assuming the company uses a periodic inventory system and FIFO for cost method | ||||||||||||||||||||||||||
| Post the appropriate journal entries in T accounts | ||||||||||||||||||||||||||
| Prepare a trial balance | ||||||||||||||||||||||||||
| Prepare the Balance Sheet and Income Statement for the month of July | ||||||||||||||||||||||||||
| III Analysis of Accounting Records | ||||||||||||||||||||||||||
| Prepare a horizontal analysis by comparing June and July balance sheets | ||||||||||||||||||||||||||
| Calculate the following ratios: | ||||||||||||||||||||||||||
| 1 | Current ratio (Liquidity) | |||||||||||||||||||||||||
| 2 | Return on Assets (Profitability) | |||||||||||||||||||||||||
| 3 | Debt to Total Assets ratio (Solvency) | |||||||||||||||||||||||||
| Assume you are reviewing the Financial Statements and the analysis together with Victoria, Matt and Jean | ||||||||||||||||||||||||||
| What are some of the conclusions? What should the company do to stay in business? |
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