FINAL GROUP PROJECT ACCTG 3600 SUMMER 2012 VERSION A INSTRUCTIONS .0/msohtmlclip1/01/clip_image001.gif”> Form groups of 2 people to complete this project; alternatively you can complete the project individually. Name your company and pick the products and services that you sell Complete each of the requirements listed below in Part I and Part II PART I Record Entries and Build the Financial Statements .0/msohtmlclip1/01/clip_image002.gif”> Company Introduction and Overview Give me quick overview of your company. What is your company’s name? What products and services do you sell? Journal Entry List Record entries from the transaction and event list provided below in proper journal entry format. NOTE:You are recording entries for the fiscal year 2011 (Jan 1 – Dec 31). This list must beorganized. Make sure that I can easily identify the journal entry with the related transaction/event. Show your work if the entry requires you to make a calculation (i.e. depreciation interest expense etc.). Chart of T-Accounts Create a chart of T-Accounts and post each journal entry to the appropriate accounts. Financial Statements Build an income statement and balance sheet for the year ending December 31 2011. Create a statement of cash flows for 2011. PART II Analyze the Company .0/msohtmlclip1/01/clip_image002.gif”> Ratio Analysis Compute the following using the information from the financial statements you have produced for 2011. Show your work. Explain to me what every calculation means (i.e. explain the answer to me in non-book language). ? Earnings Per Share ? Inventory Turnover ? Price-earnings ratio ? Gross Profit ? Return on Equity ? Gross Profit Ratio ? Working Capital ? Operating Income ? Current Ratio ? Operating Margin ? Quick Ratio ? Debt-to-equity ratio ? AR Turnover ? Book value per share Page 1 of 6 Business Analysis Perform an analysis of your business using your results from the required calculations listed above and any other trend information you deem to be relevant. Use these calculations to determine how the company is doing overall. Hint: Consider creating graphs/tables to support your conclusions NOTE: Before you prepare your response to this question you need to come up to me and ask from which “point of view” you are to analyze the company. You will either be a banker an investor (stockholder) or the CEO of this company. This is not for you to choose. I will assign this (once you ask). Projected Income Statement for 2012 Build a projected income statement for next year based on forecasted sales that equal $3 250 000. Use the results of the analysis you performed in the preceding question and any other information you deem to be relevant to build this income statement. Provide a brief explanation of the method(s) your group used to determine the projected numbers. Actual vs. Predicted Earnings Per Share Evaluation Analysts predicted earnings per share (EPS) for your company to be $0.12 at the close of 2011. How does this compare to actual EPS for 2011? If actual EPS is higher than the analysts’ prediction what factors contributed to the success? If actual EPS is lower than the prediction how will you explain the shortfall to your investors? Is there anything you could have done to meet the prediction? NOTE: Assume that you are the CEO of the company when preparing your response to this question. SUBMIT THE FOLLOWING .0/msohtmlclip1/01/clip_image002.gif”> The package you submit must be in the following order: 1. Company Introduction and Overview 2. Financial Statements in the following order:? Income Statement ? Balance Sheet ? Statement of Cash Flows for 2011 3. Ratio Analysis 4. Business Analysis 5. Projected Income Statement for 2012 – Remember to include a discussion of the methods used by your group to create this income statement 6. Actual vs. Predicted Earnings Per Share Evaluation 7. Journal Entry List 8. Chart of T-Accounts I expect the package that you turn in to be professional in every way. Your project will be compared to your classmate’s projects. Good Luck! -Melissa Page 2 of 6 COMPANY INFORMATION .0/msohtmlclip1/01/clip_image001.gif”> Your company began operations on January 1 2009. Your company’s stock is traded on the NYSE with 4 000 000 common shares outstanding. At the close of December 31 2011 your company’s stock was trading at $5 per share. At the end of 2010 and 2009 the value of your stock was $3.80 and $2.90 per share respectively. .0/msohtmlclip1/01/clip_image004.jpg”> BALANCE SHEET December 31 2010 2009 Assets Cash $ 785 000 $ 675 000 Marketable securities 75 000 15 000 Accounts receivable 455 000 525 000 Allowance for Bad Debt (25 000) (105 000) Prepaid Insurance – – Prepaid Rent – – Office supplies – – Inventory 975 000 775 000 Current Assets 2 265 000 1 885 000 Office furniture – – Equipment 5 000 000 5 000 000 Accumulated depreciation (2 000 000) (1 500 000) Long-term notes receivable 285 000 – Land 1 450 000 1 450 000 Patent – – Non-current Assets 4 735 000 4 950 000 Total Assets $ 7 000 000 $ 6 835 000 Liabilities Accounts payable $ 450 000 $ 570 000 Wages payable 150 000 185 000 Interest Payable – – Short-term Note Payable – – Deferred Revenue – – Dividends payable 155 000 135 000 Current Liabilities 755 000 890 000 Long-term notes payable 1 250 000 1 250 000 Total Liabilities 2 005 000 2 140 000 Stockholders’ Equity Contributed capital 3 000 000 3 000 000 Retained earnings 1 995 000 1 695 000 Total Liabilities and SE $ 7 000 000 $ 6 835 000 .0/msohtmlclip1/01/clip_image005.jpg”>.0/msohtmlclip1/01/clip_image006.jpg”>.0/msohtmlclip1/01/clip_image005.jpg”>.0/msohtmlclip1/01/clip_image006.jpg”>.0/msohtmlclip1/01/clip_image005.jpg”> Page 3 of 6 .0/msohtmlclip1/01/clip_image008.gif”>Prior Income Statement Account Balances 2010 2009 Sales net $ 2 435 000 $ 2 500 000 Cost of goods sold 850 000 780 000 Wages expense 565 000 785 000 Interest income 52 000 56 000 Interest expense 56 250 56 250 Bad debt expense 60 750 45 000 Depreciation expense 500 000 500 000 .0/msohtmlclip1/01/clip_image005.jpg”>.0/msohtmlclip1/01/clip_image005.jpg”>.0/msohtmlclip1/01/clip_image005.jpg”> 2011 TRANSACTION AND EVENT LIST VERSION A .0/msohtmlclip1/01/clip_image002.gif”> HINT: Before booking an entry remember to evaluate the substance of each transaction/event. Do accounting standards require the event or transaction to be booked into your company’s accounting records? NOTE: All interest rates included in the transaction list are stated at an annual rate. You purchased additional inventory at a cost of $350 000. You paid half in cash and purchased the remainder on account. Wage expenses for the year through Dec. 15th were $550 000. Pay this in full but don’t forget about your beg balance in wages payable. Pay your wages payable. Wages earned between Dec. 15th and Dec 31st were $70 000. You won’t pay this until Jan 7th. You collect $250 000 of account payments from customers. You pay $315 000 cash toward your accounts payable. Your company issued 1 000 2 % bonds (face value of each bond is $1 000) at 95.4 on July 1 2011. The bonds are due on July 1 2015 with interest payable each January 1 and July 1. The market rate at the time of the bond issuance was 3 percent. Use the effective-interest method to calculate both the interest expense and the amortization of the bond discount when each interest payment is made. [Adjusting Entry Required] You calculate and book a $500 000 depreciation expense for the year for equipment purchased before January 1 2011. A customer pays you $1 250 000 for work that you will perform in January of 2012. On May 1 2011 you pay the dividends that you owe to your owners. Your customers bought some of your product (you decide what your company sells). The total sale amount was $3 000 000. This cost of this product to you was $1 250 000. Customers paid you 45% in cash and the remainder was on account. Page 4 of 6 11. A piece of land that was originally purchased for $1 450 000 was sold for $1 000 000 cash. 12. You receive interest income based on your average cash balance. For fiscal year 2011 you earn and receive $33 400 of interest revenue. 13. On December 31 2011 you declare dividends of $.25 per share to be paid at a later date. 14. Purchased $20 000 of office supplies from Super Office Supplies with cash. 15. Purchased a parcel of land on March 1 2011 for $1 000 000 by paying $400 000 in cash and signing a short-term note payable with the seller for $600 000. You must repay the $600 000 in exactly one year on March 1 2012. You agree to pay the seller 6 percent interest (annual rate) on a quarterly basis (June 1 September 1 December 1 2011 and March 1 2012). [Adjusting Entry Required] 16. Purchased a filing cabinet for $10 000 on account with California Furniture on January 1 2011. The new filing cabinet will be depreciated over a ten year period on a straight-line basis. The cabinet has an estimated salvage value of $0. [Adjusting Entry Required] 17. Purchased a two-year building insurance policy on November 1st 2011 for $120 000 cash. [Adjusting Entry Required] 18. Purchased a truck for $200 000 cash on January 1 2011. The truck will be depreciated over an 8 year period. You decide to use the declining-balance depreciation method because it is determined that the truck will be more productive when it is newer. The truck has an estimated salvage value of $20 000. [Adjusting Entry Required] 19. Leased additional warehouse space for two years on June 1 2011. $48 000 cash was paid on this date which covers the full rental fee for the two years. [Adjusting Entry Required] 20. Your top sales officer met with a new customer to discuss a potential future contract. She informs you that the customer is considering signing the $200 000 deal which would become effective next June. 21. On January 1 2011 a 5 year 5 percent $500 000 long-term note payable was taken from a local bank. Interest is payable annually on December 31st. 22. At the end of the year $150 000 cash was paid to the local bank for the long-term note payable taken out on January 1 2011. Accrued interest was paid and the remaining amount was applied towards principle. 23. $50 000 cash was paid for an investment in Company X’s marketable securities on November 1 2011. Page 5 of 6 24. On December 31 2011 the marketable (trading) securities you purchased in the preceding transaction had a fair market value of $60 000. 25. You contributed $30 000 of your own cash to the company. 26. On March 8 2011 you received a payment of $60 000 for 600 hours of service to be performed in the future. 27. By December 31 2011 200 of the service hours in the preceding transaction were completed. 28. Paid cash for $20 000 worth of radio advertising on February 1st 2011. This gives you radio advertising space for the remainder of 2011. 29. Purchased $200 000 of inventory for a new project. The purchase was made on account. 30. On December 31 2011 the utility bill was paid for the year. The amount was $50 000 and you paid in cash. 31. A piece of equipment was sold for $750 000 cash. The equipment was originally purchased for $600 000. At the time of the sale it had been depreciated by $50 000. 32. Received a $20 000 cash payment from a customer paying on their account. 33. Paid your supplier $15 000 cash for an inventory purchase made on account two months ago. 34. An employment contract is signed with a new regional manager. You have offered him $150 000 per year. He will not begin working for the company until March 2012. 35. A count of office supplies indicated that $3 000 of office supplies had been used by December 31 2011. 36. Purchased and used $800 worth of fuel for the delivery truck during the month of December. 37. Purchased a Patent (Intangible Asset) for $30 000 on August 1 2011. The patent will be amortized over a 10 year period on a straight-line basis. [Adjusting Entry Required] 38. A customer that previously bought your product on account has filed for bankruptcy. He owed you $22 000. You expect to collect $0. 39. You believe that the historical rate used to estimate bad debt expense is way too low. After careful analyses you determine that the company usually only collects 80% of outstanding accounts receivable. Based on this information adjust your allowance for bad debt account. NOTE:Use your 2011 ending accounts receivable balance to make this calculation. Page 6 of 6
