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Financial Statements


AC312– Comprehensive Intermediate Accounting Project You are the owner of ERP Consultants and you have been asked to create financial statements for the below company (use your name in place of “Your Name” in the financials). You are provided with the below information from your client. This client does not have a formal accounting system in place and needs your help to create GAAP compliant statements based on the information they have maintained. A different consulting firm prepared their statements for last year. You have decided to accept this engagement which requires the completion of the below 1-7 items. This project should be completed using Excel (with formulas and linked data). The details are your Excel spreadsheet are located after the “additional information” below. The parameters of the project include: 1.      Prepare journal entries, adjusting entries and closing entries for the below additional information…none of the journal entries have been journalized or posted to the ledger. 2.      Prepare an Adjusted Trial Balance for 2014 3.      Prepare an Income Statement for the year ended 2014. This statement should be flexibly designed (formulas in cells). This should be a multi-step income statement. To the right of your dollars in this statement, show common-sized percentages based on sales (vertical analysis). 4. Prepare a Statement of Retained Earnings for the year ended 2014. This statement should be flexibly designed. 5. Prepare a Balance Sheet dated Dec. 31, 2014. Have the Balance Sheets for 12/31/13 and 12/31/14 on the same Excel sheet labeled Balance Sheets. Again, a flexible design is required so any changes will automatically update the balance sheet. 6. Prepare a Post-Close Trial Balance dates Dec. 31, 2014. Make sure only permanent accounts are listed on your post-close trial balance. 7. Prepare a Statement of Cash Flows using the indirect method for the year ended 2014. The Statement of Cash Flows (operating section) should automatically change when assumptions are changed. The ending cash as shown on the statement of cash flows will then flow to the Balance Sheet. Your Name, Inc. Balance Sheet 12/31/2013 Current Assets Cash $17,000 Marketable Securities (Short-term) 2,000 Accounts Receivable 14,000 Allowance for Bad Debt -2,000 Inventory 15,000 Prepaid Insurance 5,000 Total Current Assets $51,000 Property, Plant, and Equipment Land $30,000 Building 1,50,000 Accumulated Dep. – Building -45,000 Equipment 1,00,000 Accumulated Dep. - Equipment -20,000 Total PPE $215,000 Total Assets $266,000 Current Liabilities Accounts Payable $9,000 Unearned Revenue 3,000 Income Taxes Payable 3,000 Total Current Liabilities $15,000 Long-term Liabilities Bonds, 10%, due in 2018 $100,000 Equity Common Stock $ 50,000 (100,000 authorized, 50,000 issued) Additional Pd.-in Capital 80,000 Retained Earnings 21,000 Total Equity $151,000 Total Liabilities & Equity $266,000 Additional Information (for all entries; please see the posted Excel spreadsheet with a few journal entries already provided): 1. Sales for 2014 are $310,000. All sales are on credit. 2. Gross Margin ratio is 35 percent 3. Accounts Receivable:                                                               i.      $185,000 of the accounts receivable is paid by the end of the year (the remaining balance remains on the balance sheet).                                                             ii.      $4,000 of A/R is written off during the year.                                                           iii.      5% of Accounts Receivable (after write-off and collections) is considered to be uncollectible (% of AR- Balance Sheet approach to bad debt recognition). 4. Inventory:                                                               i.      Inventory purchases are $190,000, all on credit.                                                             ii.      All accounts payable is from inventory purchases; all but $12,000 of inventory purchased is paid by the end of the year. 5. Additional equipment is purchased on 4/1/14 for $25,000 cash. All equipment when new, including the new purchase, has/had a five year life, no salvage value, and is depreciated using the straight-line method. 6. The building depreciates at $5,000 per year. 7. Half of the marketable securities were sold for $1,200. The FMV and cost of the other half of the securities are the same, so no adjustment to FMV is required. 8. Salaries are $2,200 per month (12 months of salaries expense must be booked). It is expected that one-half month will be owed on 12/31/14 because of when payday falls (therefore, 11.5 months of salaries have been paid and ½ month is still owed to the employees at year end). 9. $60,000 in cash is borrowed on 9/30/14 by issuing a Note Payable. Interest is 7% per year. 10. The bonds are convertible and were sold at face value ($1000 face value) last December and pay interest on Dec. 31, 2014 (they are convertible into 5 shares of common stock for each bond). 11. 10,000 additional shares of stock were sold for $4 a share. 12. Insurance costing $18,000 was purchased on 5/1/14 (the same time in which the policy purchased in 2013 expired. The new policy was for 12 months). 13. On Dec. 31, 2014, ;1000 shares of stock are repurchased from the market at $2.80/share (treasury stock). 14. The tax rate is 30 percent. Income taxes for the current year are due and therefore paid during the first two months of the next year (you will have complete an entry to pay the 2013 taxes, however the 2014 taxes will not be paid until the end of January 2015). 15. Dividends of $5,000 were paid during 2014. 16. The unearned revenue has been earned during the year (classified as other revenue on the multi-step income stmt.). Required Labeled Sheets (all statements should be for 2014): 1. Data Sheet: create a trial balance based on the beginning balances for 2013 (see the balance sheet above or the trial balance below). 2. Entries: Basic and Adjusting 3. Adjusted Trial Balance for 2014 (includes the posted amounts of all entries and adjusting entries) 4. Single-step Income Statement (don’t forget EPS and diluted EPS) 5. Multi-step Income Statement (don’t forget EPS and diluted EPS) and common sized (vertical analysis) 6. Retained Earnings Statement 7. Classified Balance Sheet 8. Closing Entries 9. Cash Flow Statement 10. Post-Close Trial Balance for 2014 The Post-Close Trial Balance for 2013 is provided below (based on the above balance sheet). This can be used as a starting point or you can use the above Balance Sheet; keep in mind all debits and credits ALWAYS equal AND Assets = Liabilities + Equity: Your Name, Inc. Post Close Trial Balance 31-Dec-13 DEBITS CREDITS Cash 17,000 Marketable Securities 2,000 Accounts Rec. 14,000 Allowance for Bad Debt 2,000 Inventory 15,000 Prepaid Insurance 5,000 Land 30,000 Building 1,50,000 Accumulated Dep. - Building 45,000 Equipment 1,00,000 Accumulated Dep. - Equipment 20,000 Accounts Payable 9,000 Salaries Payable Unearned Revenue 3,000 Interest Payable Income Taxes Payable 3,000 Note Payable Bonds 1,00,000 Common Stock 50,000 Additional Pd-in-Capital 80,000 Retained Earnings 21,000 3,33,000 3,33,000