Complete three accounting exercises related to transaction analysis and financial statements using a provided worksheet.Introduction Accounting is the language used by a business to
- Complete three accounting exercises related to transaction analysis and financial statements using a provided worksheet.Introduction
Accounting is the language used by a business to communicate how well it is performing to its many stakeholders. Stockholders want to know how their money has been used and what return they will receive on their investment. Creditors want to know the business has the financial resources to continue their business relationship. Potential investors want to know if a business is a good investment. Lastly, employees of a business want to know that their hard work is paying off in continued employment. Each of these stakeholders has a vested interest in the success of the business, and financial reporting will provide them with the data needed to make sound business and investment decisions.
The Accounting Cycle
The accounting cycle begins when business events are translated to transactions, which affect the financial health of a business, and ends with the preparation of financial statements used to communicate financial health to the various stakeholders of the business.
Adjustments and Financial Statements
The annual reporting period is not always a calendar year ending on December 31. An organization can elect to adopt a fiscal year comprising any 12 consecutive months or 52 consecutive weeks. Regardless of which reporting period an organization chooses, the end of a reporting period requires adjustments that are often necessary to properly reflect revenues when earned and expenses when incurred.
Following these adjustments, an adjusted trial balance will be prepared, and it is from this adjusted trial balance that the necessary financial statements will be prepared. Lastly, certain ledger accounts will require their balances to be closed so they can begin the next accounting period with zero balances. These accounts are known as temporary or nominal accounts. When all of this work has been completed, a new accounting period will begin and the cycle will repeat itself.
Overview
This assessment consists of three accounting exercises. The exercises are provided in the Transaction Analysis and Financial Statements Worksheet. Use this worksheet to record and submit your solutions for Exercises 1-1, 1-2, and 1-3.
Preparation
In addition, practice problems for each exercise are provided in the Assessment 1 Practice Problems Worksheet. The worksheet and answer key can be found in the Capella Resources activity of this assessment and are optional.
The following resource is required to complete the assessment.
Capella Resources
Click the link provided to view the following resource:
- Transaction Analysis and Financial Statements Worksheet [DOCX].
- Submission Guidelines
Submit your completed Transaction Analysis and Financial Statements Worksheet for faculty evaluation. Please do not submit completed practice problems with your assessment.
Competencies Measured
By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria: - Competency 1: Analyze the relationship between business events and accounting.
- Comparatively analyze two companies, including asset investments, return on assets, and company expenses.
- Analyze company equity, including correct net income and debt ratio calculations.
- Competency 2: Apply accounting principles as the language of business.
- Prepare T-accounts, adjusting journal entries, and an adjusted trial balance.
Financial Accounting Principles
Assessment 1: Transaction Analysis and Financial Statements Worksheet
Use this worksheet to complete the following three exercises for Assessment 1. Refer to the instructions in the course for submitting your assessment.
Exercise 1-1
Key comparative figures ($ millions) for two companies, Alltech and SynergyXT, are presented in the following table.
|
Key Figures |
Alltech |
SynergyXT |
|
Liabilities + owners’ equity |
$11,502 |
$48,823 |
|
Net income |
3,127 |
9,276 |
|
Sales |
15,453 |
44,612 |
For this exercise, perform a comparative analysis of these two companies that answers the following five questions:
What is the total amount of assets invested in each company?
Total assets = Liabilities + Equity
Alltech:
SynergyXT:
What is the return on assets for each company? Alltech’s beginning-year assets equal $8,101 (in millions) and SynergyXT’s beginning-year assets equal $36,171 (in millions).
Revenues – Expenses = Net income
Alltech:
SynergyXT:
How much are expenses for each company?
Revenues – Expenses = Net income
Alltech:
SynergyXT:
Is return on assets satisfactory for each company? Assume competitors average an 18 percent return.
[Write your answer here.]
What can you conclude about Alltech and SynergyXT from these computations?
[Write your answer here.]
Exercise 1-2
The accounting records of Newtown Distributors show the following assets and liabilities as of December 31, 2011, and 2012.
|
December 31 |
2011 |
2012 |
|
Cash |
$49,800 |
$22,600 |
|
Accounts receivable |
27,340 |
25,960 |
|
Office supplies |
3,850 |
3,120 |
|
Office equipment |
127,000 |
139,800 |
|
Trucks |
48,000 |
48,000 |
|
Building |
0 |
195,000 |
|
Land |
0 |
45,000 |
|
Accounts payable |
6,950 |
37,500 |
|
Notes payable |
0 |
105,000 |
Late in December 2012, the business purchased a small office building and the land for $240,000. $135,000 cash was applied to the purchase with a $105,000 note payable for the balance. In exchange for stock, the owner of the company invested $40,000 cash to make the cash payment of $135,000. The business also pays $2,800 cash per month for dividends.
Use this information to complete the exercise beginning on page 4.
For this exercise, complete the following three tasks:
Prepare balance sheets for Newtown Distributors as of December 31, 2011, and 2012. Report only total equity, which equals the difference between assets and liabilities.
|
NEWTOWN DISTRIBUTORS Balance Sheet December 31, 2011 |
[Create the 2011 balance sheet here.]
|
NEWTOWN DISTRIBUTORS Balance Sheet December 31, 2012 |
[Create the 2012 balance sheet here.]
Compare the equity amounts and use the additional information provided in this problem to calculate the net income Newtown Distributors earned in 2012.
[Show the computation of 2012 net income here.]
Compute the 2012 year-end debt ratio for the business.
Debt Ratio =
Exercise 1-3
Use the following information and the table on page 8 to complete the exercise beginning on page 9.
Digital Learning, Inc. provides computer training to individuals and to off-site groups. Tuition is paid directly to the school. The school’s unadjusted trial balance for the year ending December 31, 2012, is shown in the table below. Digital Learning, Inc. initially records their prepaid expenses and unearned revenues in balance sheet accounts. Adjusting entries must be made on December 31 for each of the following items (1–8).
1. A review of the school’s insurance policies found that $2,800 of coverage has expired.
2. A 2012 year-end inventory shows available teaching supplies costing $2,450 remaining in stock.
3. The annual depreciation on the school’s equipment is $11,000.
4. The annual depreciation on the school’s professional library is $6,250.
5. At the request of a client, the school conducted a special six-month course, starting November 1. The school charged the client a monthly fee of $1,800. The first five months were paid in advance. Upon receipt of the cash payment, the school credited the Unearned Training Fees account. The school will record the sixth month’s fee upon collection in 2013.
6. The school conducted a four-month course for one student, starting October 15, for a monthly fee of $2,500, payable upon course completion. As of December 31, no payments have been received. Accruals are applied to the nearest half-month.
7. The school pays its three employees weekly. As of December 31, two days’ salaries have accrued for each employee at a daily rate of $125.
8. The Prepaid Rent account balance represents December’s rent.
|
DIGITAL LEARNING, INC. Unadjusted Trial Balance December 31, 2012 |
||
|
Debit |
Credit |
|
|
Cash |
$24,500 |
|
|
Account receivable |
0 |
|
|
Teaching supplies |
8,000 |
|
|
Prepaid insurance |
16,000 |
|
|
Prepaid rent |
2,200 |
|
|
Professional library |
28,000 |
|
|
Accumulated depreciation—Professional library |
$8,500 |
|
|
Equipment |
68,000 |
|
|
Accumulated depreciation—Equipment |
16,500 |
|
|
Accounts payable |
35,100 |
|
|
Salaries payable |
0 |
|
|
Unearned training fees |
10,500 |
|
|
Common stock |
11,000 |
|
|
Retained earnings |
52,900 |
|
|
Dividends |
42,000 |
|
|
Tuition fees earned |
103,900 |
|
|
Training fees earned |
38,500 |
|
|
Depreciation expense—Professional library |
0 |
|
|
Depreciation expense—Equipment |
0 |
|
|
Salaries expense |
52,000 |
|
|
Insurance expense |
0 |
|
|
Rent expense |
24,800 |
|
|
Teaching supplies expense |
0 |
|
|
Advertising expense |
6,000 |
|
|
Utilities expense |
5,400 |
_______ |
|
Totals |
$276,900 |
$276,900 |
For this exercise, complete the following four tasks:
Prepare T-accounts for Digital Learning, Inc. Use balances from the unadjusted trial balance.
|
Cash |
Equipment |
|||||||
|
Unadj. Bal. |
24,500 |
Unadj. Bal. |
68,000 |
|||||
|
Accounts Receivable |
Accumulated Depreciation —Equipment |
|||||||
|
Unadj. Bal. |
0 |
Unadj. Bal. |
16,500 |
|||||
|
Adj. Bal. |
||||||||
|
Teaching Supplies |
Accounts Payable |
|||||||
|
Unadj. Bal. |
8,000 |
Unadj. Bal. |
35,100 |
|||||
|
Salaries Payable |
||||||||
|
Unadj. Bal. |
0 |
|||||||
|
Prepaid Insurance |
||||||||
|
Unadj. Bal. |
16,000 |
Adj. Bal. |
||||||
|
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