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Competencies In this project, you will demonstrate your mastery of the following competencies: Record and present financial information by applying the appropriate framework and guidelines of accounting for business transactions Determine asset accounts and their disclosure in the financial statements Determine liability and equity accounts and their disclosure in the financial statements Scenario You are a certified public accountant (CPA) who is working with a small bakery to prepare their financial statements for three months of the current fiscal year. Because the company is a startup and so small, the accounting is done manually in Microsoft Excel. You have been given the accounts and information you need to prepare their financial statements, but you will need to use the accounting cycle to report accurate information to the finance department. The business owners have also asked you to summarize the company’s performance based on the financial statements. Directions Company Accounting Workbook Use accepted accounting principles to follow and record your business transactions for a three-month period from the first step of the accounting cycle through the reporting process. You will build on your work from Milestones One and Two to complete your workbook using the Company Accounting Workbook Template (linked in the What to Submit section). Your completed accounting workbook will consist of journal entries for each transaction and postings of transactions to account ledgers. You will develop a trial balance from ledger balances and adjust revenue and expense accounts, as necessary, to ensure that revenues and expenses are reported in the appropriate period under the accrual accounting method. The adjusted trial balance will be used to prepare the income statement, the statement of owner’s equity, and the balance sheet. After the preparation of the financial statements, closing entries will be entered to transfer earnings to equity and prepare temporary accounts for the new accounting period. Use the instructions below to complete your workbook. Record Financial Data: Use accepted accounting principles to accurately capture business transactions for October, November, and December using the data provided in the accounting data appendix (linked in the Supporting Materials section). You will need to address the following: Accuracy: Prepare entries that are accurate in that they fully reflect the appropriate information. Completeness: Prepare entries that are complete for each month, including transferring posted entries to T accounts. Inventory Valuation: Prepare entries for the month of December to reflect the new line of products offered by the company, which includes using the data from the “Inventory Valuation” tab of the company accounting workbook. Accrual Basis: Apply the accrual basis of accounting and prepare adjusting entries to ensure accurate accounting for expenses that lack transactions in the current period. Unadjusted Trial Balance: Prepare the unadjusted trial balance portion of the “Trial Balance” tab of the company accounting workbook, ensuring that the total debits and credits match. Adjusting Entries: Prepare the “Adjusting Entries” tab of the company accounting workbook. Adjusted Trial Balance: Prepare the adjusted trial balance on the “Trial Balance” tab, ensuring that the debit and credit totals match. Financial Statements: Create financial statements using appropriate methods based on accepted accounting principles. Be sure to prepare these financial statements in the order listed, as there are important interdependencies among them. Income Statement: Prepare the income statement using the adjusted trial balance. Statement of Owner’s Equity: Prepare the statement of owner’s equity using the adjusted trial balance. Balance Sheet: Prepare the balance sheet using the adjusted trial balance. Closing Entries: Complete the “Closing Entries” tab of the company accounting workbook by closing all temporary income statement amounts to create closing entries. Post-Closing Trial Balance: Prepare the “Post-Closing Trial Balance” tab of the company accounting workbook in preparation for the next accounting period. Summary Report After you have completed preparing all the financial statements, analyze the statements and write a short report summarizing your findings. Use the template provided in the What to Submit section to complete your report. Summary: Write a summary of what the financial statements indicate about the company’s financial health and performance. Purpose: What kind of information would these financial statements provide to various aspects of the business? Analysis: What is the company’s cash position, its net income as a percentage of sales, and its current liabilities to current assets position? What to Submit To complete this project, you must submit the following: Company Accounting Workbook Spreadsheet Your workbook should be completed and submitted as a Microsoft Excel file based on the template provided. Project Summary Report Word Document Use this template to submit a 1- to 2-page Word document summarizing the financial statements you created. Supporting Materials The following resources support your work on the project: Resource: Accounting Data Appendix Word Document This resource includes all of the existing financial information needed to complete your project. Tutorial: Infobase Microsoft Excel Tutorial This tutorial from Infobase provides helpful information on how to use the basic features of Microsoft Excel. Use the table of contents to select the tutorials that best suit your needs. Chart of Accounts This chart of accounts should help you identify the appropriate accounts to record to as you are analyzing and journaling transactions for this workbook. There is nothing to complete on this page; this is simply a resource for you. Asset Accounts Liability Accounts Equity Accounts Acct # Acct # Acct # Cash 101 Notes Payable 201 Common Stock 301 Baking Supplies 102 Accounts Payable 202 Dividends 302 Prepaid Rent 103 Wages Payable 203 Cost of Goods Sold 303 Prepaid Insurance 104 Interest Payable 204 Baking Equipment 105 Office Supplies 106 Accounts Receivable 107 Accumulated Depreciation 108 Merchandise Inventory 109 Revenue Accounts Acct # Bakery Sales 401 Merchandise Sales 402 Expense Accounts Acct # Baking Supplies Expense 501 Rent Expense 502 Insurance Expense 503 Misc. Expense 504 Business License Expense 505 Advertising Expense 506 Wages Expense 507 Telephone Expense 508 Interest Expense 509 Depreciation Expense 510 Office Supplies Expense 511 Cash Baking Supplies Prepaid Rent Prepaid Insurance Baking Equipment Office Supplies Accounts Receivable Accumulated Depreciation Merchandise Inventory Notes Payable Accounts Payable Wages Payable Interest Payable Common Stock Dividends Bakery Sales Merchandise Sales Baking Supplies Expense Rent Expense Insurance Expense Misc. Expense Business License Expense Advertising Expense Wages Expense Telephone Expense Interest Expense Depreciation Expense Office Supplies Expense Cost of Goods Sold October Journal Entries A Company General Journal Entries October, 20xx Date Accounts Debit Credit 1-Oct $ $ 1-Oct 3-Oct 7-Oct 10-Oct 11-Oct 13-Oct 13-Oct 14-Oct 30-Oct 31-Oct 31-Oct 31-Oct Total - 0 - 0 November Journal Entries A Company General Journal Entries November, 20xx Date Accounts Debit Credit Total - 0 - 0 December Journal Entries A Company General Journal Entries December, 20xx Date Accounts Debit Credit Total - 0 - 0 T-Accounts - autofill date Cash date date Notes Payable date Business License exp Common Stock 1-Oct $ - 0 3-Oct 10-Oct - 0 $ 1-Oct 3-Oct - 0 0 13-Oct - 0 7-Oct - 0 10-Oct 0 - 0 11-Oct - 0 13-Oct - 0 14-Oct - 0 31-Oct 31-Oct - 0 - 0 5-Nov 8-Nov - 0 - 0 10-Nov 18-Nov - 0 - 0 15-Nov - 0 20-Nov Accounts Rec. Insurance expense - 0 20-Nov 31-Oct - 0 - 0 22-Nov - 0 8-Nov 30-Nov - 0 - 0 18-Nov - 0 1-Dec 30-Nov - 0 - 0 5-Dec - 0 8-Dec - 0 7-Dec 31-Dec - 0 8-Dec - 0 - 0 10-Dec 0 0 - 0 13-Dec 0 - 0 15-Dec 15-Dec - 0 - 0 20-Dec - 0 20-Dec 24-Dec - 0 - 0 30-Dec 31-Dec - 0 - 0 - 0 - 0 Misc. expense Baking equipment Advertising expense 11-Oct - 0 13-Oct - 0 13-Oct - 0 Baking supplies Office supplies Rent expense 1-Oct - 0 14-Oct - 0 7-Oct - 0 15-Nov - 0 22-Nov - 0 15-Nov - 0 11-Dec - 0 15-Dec - 0 - 0 - 0 - 0 Prepaid rent Prepaid insurance Bakery Sales 7-Oct - 0 31-Oct - 0 - 0 31-Oct - 0 30-Nov - 0 31-Dec - 0 Accounts payable Salary and wages expense Salaries and wages payable - 0 1-Oct 31-Oct - 0 - 0 31-Oct - 0 31-Oct 15-Nov - 0 5-Nov - 0 10-Nov - 0 30-Nov - 0 - 0 15-Nov - 0 15-Nov 15-Dec - 0 20-Nov - 0 20-Nov - 0 31-Dec - 0 - 0 30-Nov - 0 30-Nov 5-Dec - 0 10-Dec - 0 - 0 - 0 15-Dec - 0 11-Dec 20-Dec - 0 13-Dec - 0 - 0 31-Dec - 0 - 0 - 0 Telephone expense 30-Oct - 0 - 0 - 0 30-Nov - 0 - 0 - 0 Dividends 1-Dec - 0 - 0 COGS 15-Dec - 0 24-Dec - 0 - 0 Merchandise Sales Revenue - 0 15-Dec - 0 24-Dec - 0 Merch. Inv. FIFO 7-Dec - 0 - 0 15-Dec 20-Dec - 0 - 0 24-Dec 30-Dec - 0 - 0 - 0 - 0 Inventory Valuation FIFO Purchases Sales Ending Inventory Purchases Date No. of Items Unit Price Total Price No. of Items Unit Price Total Price No. of Items Unit Price Total Price Date Dr Cr 12/7: 10 boxes purchased at $6 7-Dec 10 $ 6.00 $ 60.00 10 $ 6.00 $ 60.00 7-Dec Merchandise Inventory (10 x $6) 60.00 12/20: 20 boxes purchased at $6.10 Cash 60.00 12/30: 25 boxes purchased at $6.05 15-Dec 8 $ 6.00 $ 48.00 2 $ 6.00 $ 12.00 Purchased inventory Sales – selling price, $8.50 a box 12/15: 8 boxes 20-Dec 20 $ 6.10 $ 122.00 2 $ 6.00 $ 12.00 15-Dec Cash (8 x $8.50) 68.00 12/24: 18 boxes 20 $ 6.10 $ 122.00 Merchandise Sales Revenue 68.00 22 $ 134.00 Record sale of inventory 24-Dec 2 $ 6.00 $ 12.00 15-Dec Cost of Goods Sold (8 X $6) 48.00 16 $ 6.10 $ 97.60 4 $ 6.10 $ 24.40 Merchandise Inventory 48.00 18 $ 109.60 Recorded the cost of goods sold 30-Dec 25 $ 6.05 $ 151.25 4 $ 6.10 $ 24.40 20-Dec Merchandise Inventory (20 x $6.10 ) 122.00 25 $ 6.05 $ 151.25 Cash 122.00 29 $ 175.65 Net Inventory 55 $ 333.25 26 $ 157.60 29 $ 175.65 24-Dec Cash (18 x 8.50) 153.00 Merchandise Sales Revenue 153.00 Record sale of inventory 24-Dec Cost of Goods Sold (2 x $6)+(16 x $6.10) 109.60 Merchandise Inventory 109.60 Recorded the cost of goods sold 30-Dec Merchandise Inventory (25 x $6.05) 151.25 Cash 151.25 Trial Balance A Company Trial Balance 20xx Unadjusted trial balance Adjusting entries Adjusted trial balance Account Debit Credit Debit Credit Debit Credit Cash - 0 Baking Supplies - 0 Merchandise Inventory Prepaid Rent Prepaid Insurance - 0 Baking Equipment Accumulated Depreciation - 0 Office Supplies - 0 Accounts Receivable Notes Payable Interest Payable - 0 Accounts Payable Wages Payable Common Stock Dividends Bakery Sales Merchandise Sales Baking Supplies Expense - 0 Rent Expense Interest Expense - 0 Insurance Expense - 0 Depreciation Expense - 0 Misc. Expense Office Supplies Expense - 0 Business License Expense Advertising Expense Wages Expense Telephone Expense COGS Total: - 0 - 0 - 0 - 0 - 0 - 0 Adjusting Entries A Company Adjusting Journal Entries 20XX Date Accounts Debit Credit 31-Dec Depreciation Expense Accumulated Depreciation - 0 - 0 Income Statement A Company Income Statement For Qtr. Ending 12/31/20XX Revenues Total Revenues - 0 Gross Profit - 0 Operating Expenses: - 0 Total Operating Expenses: - 0 Net Income - 0 Statement of Stockholder Equity A Company Statement of Stockholders Equity For Qtr. Ending 12/31/20xx Common Stock Retained Earnings Total Beginning Balances, September 30 0 0 0 Issued Common Stock Net Income Dividends Ending Balances, December 31: - 0 - 0 - 0 Balance Sheet A Company Balance Sheet As of December 31, 20XX Assets Liabilities and Owners Equity Current Assets: Current Liabilities: Total Current Liabilities - 0 Long Term Liabilities: Total Current Assets - 0 Total Long Term Liabilities: - 0 Total Liabilities: - 0 Shareholders Equity: Non-Current Assets: Total Equity - 0 Baking Equipment (Net) - 0 Total Assets: - 0 Total Liabilities & Equity - 0 Closing Entries A Company Closing Entries Qtr ending 12/31/20xx Date Accounts Debit Credit 31-Dec Bakery Sales Merchandise Sales Retained Earnings 31-Dec Retained Earnings Baking Supplies Expense Rent Expense Wages Expense Office Supplies Expense Business License Expense Office Expense Depreciation Expense Insurance Expense Advertising Expense Interest Expense Telephone Expense COGS 31-Dec Retained Earnings Dividends Post-Closing Trial Balance A Company Post-Closing Trial Balance Qtr. Ending 12/31/20xx Unadjusted Trial Balance Account Debit Credit Cash Baking Supplies Merchandise Inventory Prepaid Rent Prepaid Insurance Baking Equipment Accumulated Depreciation Office Supplies Accounts Receivable Accounts Payable Wages Payable Interest Payable Notes Payable Common Stock Retained Earnings Total - 0 - 0 Summary Report: Financial Statements 2 [Note: To complete this template, replace the bracketed text with your own content. Remove this note before you submit your report.] Summary Report: Financial Statements [Your Name] Southern New Hampshire University Summary Report: Financial Statements 1 Introduction [In this section, include the purpose of the report. Describe the kind of information these financial statements provide to various aspects of the business.] Financial Statement Analysis [This section should center on your analysis of the financial performance of the company based on the statements you prepared. Illustrate the company’s cash position, its net income as a percentage of sales, and its current liabilities to current assets position. Explain what this indicates about the company’s current financial position and performance.] Accounting Data Appendix 1. The following events occurred in October: October 1: The business owner used $25,000 from their personal savings account to buy common stock in their company. October 1: Purchased $8,500 worth of baking supplies from vendor, on account. October 3: The company borrowed $10,000 in cash, in exchange for a two-year, 6\% note payable. Interest and the principal are repayable at maturity. October 7: Entered into a lease agreement for bakery space. The agreement is for one year. The rent is $1,500 per month; the last month’s rent payment of $1,500 is required at the time of the lease agreement. The payment was made in cash. Lease period is effective October 1 of this year through September 30 of the next. October 10: Paid $375 to the county for a business license. October 11: Purchased a cash register for $250 (deemed to be not material enough to qualify as depreciable equipment). October 13: The owner has baking equipment, including an oven and mixer, which they have been using for their home-based business and will now start using in the bakery. You estimate that the equipment is currently worth $5,000, and you transfer the equipment into the business in exchange for additional common stock. The equipment has a five-year useful life. October 13: Paid $200 for business cards and flyers to use for advertising. October 14: Paid $300 for office supplies. October 15: Hired a part-time helper to be paid $12 per hour. One pay period is the first of the month through the fifteenth, and the other is the sixteenth through the end of the month. Paydays are the twentieth for the first pay period and the fifth of the following month for the second pay period. (No entry required on this date—for informational purposes only.) October 30: Received telephone bill for October in amount of $75. Payment is due on November 10. October 31: Paid $1,200 for a 12-month insurance policy. Policy effective dates are November 1 through October 31. October 31: Accrued wages earned for employee for period of October 16 through October 31. (See Wage Calculation Data table at the end of this document.) October 31: Total October bakery sales were $15,000 ($5,000 of these sales on accounts receivable). 2. The following events occurred in November: November 5: Paid employee for period ending October 31. November 8: Received payments from customers toward accounts receivable in amount of $3,800. November 10: Paid October telephone bill. November 15: Purchased additional baking supplies in amount of $5,000 from vendor, on account. November 15: Accrued wages earned for employee from period of November 1 through November 15. (See Wage Calculation Data table at the end of this document.) November 15: Paid rent on bakery space. November 18: Received payments from customers toward accounts receivable in amount of $1,000. November 20: Paid $8,500 toward baking supplies vendor payable. November 20: Paid employee for period ending November 15. November 22: Purchased $300 in office supplies. November 30: Received telephone bill for November in amount of $75. Payment is due on December 10. November 30: Accrued wages earned for employee for period of November 16 through November 30. (See Wage Calculation Data table at the end of this document.) November 30: November bakery sales total was $20,000 ($7,500 of this total on accounts receivable). 3. Many customers have been asking for more allergy-friendly products, so in December the bakery started carrying a line of gluten-free products on a trial basis. The information below relates to the purchase and sales of the new products. Use the perpetual inventory method with the FIFO valuation method. Please see the “Inventory Valuation” tab in your workbook for purchase and sales information. The following events occurred in December: December 1: Paid dividends to self in amount of $10,000. December 5: Paid employee for period ending November 30. December 7: Purchased merchandise for resale. See the “Inventory Valuation” tab for details. December 8: Received payments from customers toward accounts receivable in amount of $4,000. December 10: Paid November telephone bill. December 11: Purchased baking supplies in amount of $7,000 from vendor on account. December 13: Paid on supplies vendor account in amount of $5,000. December 15: Accrued employee wages for period of December 1 through December 15. December 15: Paid rent on bakery space $1,500. December 15: Recorded merchandise sales transaction. See the “Inventory Valuation” tab for details. December 15: Recorded impact of sales transaction on COGS and the inventory asset. See the “Inventory Valuation” tab for details. December 20: Paid employee for period ending December 15. December 20: Purchased merchandise inventory for resale to customers. See the “Inventory Valuation” tab for details. December 24: Recorded sales of merchandise to customers. See the “Inventory Valuation” tab for details. December 24: Recorded impact of sales transaction on COGS and the inventory asset. See the “Inventory Valuation” tab for details. December 30: Purchased merchandise inventory for resale to customers. See the “Inventory Valuation” tab for details. December 31: Accrued employee wages for period of December 16 through December 31. December 31: Total December bakery sales were $25,000 ($6,000 of these sales on accounts receivable). 4. On December 31, the following adjustments must be made: · Depreciation of baking equipment transferred to company on October 13. Assume half month of depreciation in October using the straight-line method. · Accrue interest for note payable. Assume a full month of interest for October. (6\% annual interest on $10,000 loan) · Record insurance used for the year. · Actual baking supplies on hand as of December 31 are $1,100. · Office supplies on hand as of December 31 are $50. Wage Calculation Data Month Hours Rate Pay 31-Oct 10 12 120 15-Nov 40 12 480 30-Nov 35 12 420 15-Dec 38 12 456 31-Dec 40 12 480