Comprehensive Problem 1

For this assessment, you may use Word or Excel to complete the
assessments throughout this course, but you will find Excel to be most
helpful for creating spreadsheets. Tutorials for using Excel are
provided in the Supplemental Resources in the left navigation menu. If
you use Excel, submit the assessment in one Excel document, using
separate tabs for each spreadsheet.
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Comprehensive Problem 1
Complete a variety of analyses of financial transactions for a hypothetical company: create Taccounts, post transactions, record adjusting and closing entries, prepare financial statements,
and compute and analyze financial ratios.
Note: Some of the assessments in this course build upon each other, so you are strongly
encouraged to complete them in the order in which they are presented.
Assessment Instructions
Note: Some of the assessments in this course build upon each other, so you are strongly
encouraged to complete them in the order in which they are presented.
For this assessment, you may use Word or Excel to complete the assessments throughout this
course, but you will find Excel to be most helpful for creating spreadsheets. Tutorials for using
Excel are provided in the Supplemental Resources in the left navigation menu. If you use Excel,
submit the assessment in one Excel document, using separate tabs for each spreadsheet.
To complete this problem, you may choose to use the Assessment 4, Comprehensive Problem
Template, which is linked in the Suggested Resources under the Capella Resources heading.
Comprehensive Problem
Patricia Allison began an engineering consulting business on January 1, 2011, organized as a
corporation (PA Engineering, Inc.) under the laws of Delaware. The annual reporting period ends
December 31, 2011. The trial balance on January 1, 2012, is provided in the following table:
PA Engineering Trial Balance, January 1, 2012
Account Titles
Cash
Debit
$10,000
Accounts Receivable
Office Supplies
$20,000
Land
Computers
$80,000
Accumulated Depreciation
(on computers)
Miscellaneous Other Assets $5,000
Accounts Payable
Salaries and Wages Payable
Interest Payable
Income Taxes Payable
Credit
Account Titles
Debit
Credit
Long-Term Notes Payable
Contributed Capital
(100,000 shares)
$115,000
Retained Earnings
Service Revenue
Depreciation Expense
Supplies Expense
Wages Expense
Interest Expense
Income Tax Expense
Remaining Expenses (not
detailed to simplify)
Totals
$115,000
$115,000
Transactions during 2012 are as follows:
•
•
•
•
•
•
•
•
•
•
•
a. Borrowed $20,000 cash on a five-year, 10 percent note payable, dated July 1, 2012.
b. Purchased land for a future building site; paid cash, $10,000.
c. Earned $200,000 in revenues for 2012, including $60,000 on credit and the rest in cash.
d. Sold 4,000 additional shares of capital stock for cash at $1.15 market value per share
on January 3, 2012.
e. Incurred $120,000 in remaining expenses for 2012, including $20,000 on credit and the
rest paid in cash.
f. Collected accounts receivable, $40,000.
g. Purchased other assets for $8,000 cash.
h. Paid accounts payable, $18,000.
i. Purchased office supplies on account for future use, $25,000.
j. Signed a three-year, $33,000 service contract to start February 1, 2013.
k. Declared and paid cash dividends, $10,000.
Data for adjusting entries:
•
•
•
•
•
l. Supplies counted on December 31, 2012, $18,000.
m. Depreciation for the year on the equipment, $21,000.
n. Interest accrued on notes payable (to be computed).
o. Wages earned by employees since the December 24 payroll but not yet paid, $15,000.
p. Income tax expense, $10,000, payable in 2013.
Complete the following for this problem:
1. Set up T-accounts for the accounts on the trial balance and enter beginning balances.
2. Prepare journal entries for transactions (a) through (k) and post them to the T-accounts.
3. Journal and post the adjusting entries (l) through (p).
4. Prepare an income statement (including earnings per share), statement of stockholders’
equity, balance sheet, and statement of cash flows.
5. Journal closing entries.
6. Compute the following ratios for 2012 and explain what the results suggest about the
company.
• Current ratio. (Industry average is 2.2 to 1.0.)
• Total asset turnover. (Industry average is 3 times a year.)
• Net profit margin. (Industry average is 5.00%.)
Comprehensive Problem 1 Scoring Guide
Criteria
Create T-accounts and post
appropriate transactions.
Record adjusting and closing
entries for each transaction at the
end of an annual accounting year
using appropriate financial data.
Prepare financial statements
(income statement, statement of
stockholders’ equity, balance
sheet, and statement of cash flows)
using appropriate financial data.
Proficient
Distinguished
Creates T-accounts and posts
appropriate transactions.
Creates T-accounts
and posts
transactions
correctly using
appropriate
computations.
Records adjusting and closing
entries for each transaction at the
end of an annual accounting year
using appropriate financial data.
Records adjusting
and closing entries
for each
transaction at the
end of an annual
accounting year
using correct
financial data and
computations.
Prepares financial statements
(income statement, statement of
stockholders’ equity, balance sheet,
and statement of cash flows) using
appropriate financial data.
Correctly prepares
financial
statements (income
statement,
statement of
stockholders’
equity, balance
sheet, and
statement of cash
flows) using
appropriate
financial data and
computations.
Criteria
Compute financial ratios using
appropriate financial data to
develop conclusions regarding a
company’s performance.
Proficient
Computes financial ratios using
appropriate financial data to
develop conclusions regarding a
company’s performance.
Distinguished
Correctly
computes financial
ratios using
appropriate
financial data and
computations to
develop
conclusions
regarding a
company’s
performance.
Worksheet 1 of 9. Template for requirement 1: Set up T-accounts for the accounts on the trial balance and enter beginning balances.
Learner:
PA Engineering, Inc.
Cash
Accounts Receivable
B. Bal


Prepaid Computers
Expenses
B. Bal
Land
Accounts Payable
Interest Payable

Income Tax Payable
Contributed Capital
115,000.00 B. Bal
115,000.00
Dividends Declared
Remaining Expenses
Salaries and Wages Payable
Accumulated Depreciation
Service Revenue
Interest Expense
Retained Earnings
End of worksheet

r beginning balances.
Prepaid Office Supplies
B. Bal

B. Bal

Miscellaneous Other Assets
5,000.00
5,000.00
Notes Payable
Supplies Expense
Wages Expense
Depreciation Expense
Income Tax Expense
Worksheet 2 of 9. Template for requirements 2 and 3, journal entries: Prepare journal entries for transactions (a)
through (k) in columns A through D. Journal the adjusting entries (l) through (p) in columns G through I.
Learner:
PA Engineering, Inc.
a.
Transactions during 2012
Debit is always first and credit is indented
Cash
Note Payable
Borrowed cash
b.
Land
Cash
Purchased land
c.
Cash
Accounts Receviable
Service Revenue
Earned revenues for 2012
d.
Cash
Contributed Capital
(4,000 shares @1.15 – market value)
e.
Remaining Expenses
Cash
Accounts Payable
Incurred remaining expenses
f.
Cash
Accounts Receivable
Collected on Accounts Receivable
g.
Other Assets
Cash
Purchased other assets
h.
Accounts Payable
Cash
Paid accounts payable
i.
Prepaid Office Supplies
Accounts Payable
Purchased office supplies
DR
CR
j.
No entry contract only
k.
Dividends Declared
Cash
Declared and paid cash dividends
Debits must equal Credits
End of worksheet


Adjusting entries
l.
Supplies expense
Prepaid Office Supplies
(20000+25000-18000)
m.
Depreciation expense
Accumulated depreciation
n.
Interest expense
Accrued Interest payable
($20,000 x .1 x (6/12))
o.
Wages expense
Salaries and Wages payable
p.
Income tax expense
Income tax payable
Debits must equal Credits
DR
CR


Worksheet 3 of 9. Template for requirements 2 and 3, T-accounts: Post transactions (a) through (k) and adjusting entries (l) through (p)
to the T-accounts.
Learner:
PA Engineering, Inc.
Cash
B. Bal
(a)
(c )
(d)
(f)
(b)
(e)
(g)
(h)
(k)

( c)
60,000.00
20,000.00
40,000.00
B. Bal
(b)
Accounts Receivable
60,000.00
40,000.00 (f)
Prepaid Computers
Expenses
80,000.00
Land
10,000.00
Accounts Payable
(h)
Interest Payable
1,000.00 (n)

(e)
25,000.00 (i)
25,000.00
25,000.00
Income Tax Payable
10,000.00 (p)
Salaries and Wages Payable
Contributed Capital
Accumulated Depreicaiton
(o)
B. Bal
(d)
(m)
Dividends Declared
Service Revenue
(k)
( c)
Remaining Expenses
(e)
Interest Expense
(n)
Retained Earnings
End of worksheet
Prepaid Office Supplies
B. Bal
(i)
(l)

B. Bal
(g)

Miscellaneous Other Assets
5,000.00
5,000.00
Notes Payable
(a)
Supplies Expense
(l)
Wages Expense
(o)
Depreciation Expense
(m)
Income Tax Expense
(p)
Worksheet 4 of 9. Template for requirement 4: Prepare an income statement (including
earnings per share).
Learner:
PA Engineering, Inc.
Income Statement
For the Year Ended December 31, 2012
Service Revenue
Less: Expenses
Depreciation expense
Supplies expense
Wages expense
Interest expense
Remaining expense
Total expense
Net Income before taxes
Less: Income Taxes
Net Income
End of worksheet
$

Worksheet 5 of 9. Template for requirement 4: Prepare a statement of stockholders’ equity.
Learner:
PA Engineering, Inc.
Statement of Stockholder’s Equity
For the Year Ended December 31, 2012
Contributed Capital: December 31, 2011, 100,000 shares
Add: January 3, 2012 issue of 4,000 shares
Total Contributed Capital at December 31, 2012

Retained Earnings:
Balance December 31, 2011
Add: Net Income
Less Dividends
Balance December 31, 2012
Total Stockholder’s Equity

$
End of worksheet
Worksheet 6 of 9. Template for requirement 4: Prepare a balance sheet.
Learner:
PA Engineering, Inc.
Balance Sheet
At December 31, 2012
Assets
Current Assets
Cash
Accounts Receivable
Prepaid Office Supplies
Total Current Assets

Long-Term Assets
Land
Computers
Less: Accumulated Depreciation (enter as -)
Miscellaneous Other Assets
Total Long-Term Assets

Total Assets
$
End of worksheet

Liabilities
Current Liabilities
Accounts Payable
Salaries and Wages Payable
Interest Payable
Income Tax Payable
Total Current Liabilities

Long-Term Notes Payable
Contributed Capital
Retained Earnings

Total Liabilities and Owners’ Equity
$

Worksheet 7 of 9. Template for requirement 4: Prepare a statement of cash flows.
Learner:
PA Engineering, Inc.
Statement of Cash Flows
For the Year Ending December 2012
Cash flows from operating activities
Cash collected from customers
Cash paid to suppliers
Cash paid for remaining expenses
Net cash flows from operating activities
Cash flows from investing activities
Cash paid for land
Cash paid for other assets
Net cash flows from investing activities
Cash flows from financing activities
Cash received from issuing stock to owners
Cash received from note payable
Cash paid for dividends
Net cash flows from financing activities
Net increase in cash during the month
Cash and cash equivalents, January 1
Cash and cash equivalents, December 31
Ending Cash balance should agree to Balance Sheet balance of $68,600. If agrees to Balance
Sheet, next cell will be zero.
$
End of worksheet
0
0
0
0
0

Worksheet 8 of 9. Template for requirement 5: Journal closing entries.
Learner:
PA Engineering, Inc.
Closing Entries
DR
CR
Service Revenue
Income Summary
Income Summary
Depreciation Expense
Supplies Expense
Wages Expense
Interest Expense
Income Tax Expense
Remaining Expense
Income Summary
Retained Earnings
Retained Earnings
Dividends Declared
Debits must equal credits
End of worksheet

Worksheet 9 of 9. Template for requirement 6: Compute the current ratio, asset turnover, and net profit margin for 2012 and explain
what the results suggest about PA Engineering, Inc.
Learner:
Ratios
Current Ratio = Current Assets ÷ Current Liabilities
Current Assets
Current Liabilities
Current ratio results compared to industry average (2.2 to 1.0):
Asset Turnover = Sales ÷ Assets
Sales
Assets
Asset turnover results compared to industry average (3 times per year):
Net Profit Margin = Net Income ÷ Sales
Net Income
Sales
Net profit margin results compared to industry average (%5.00):
End of worksheet
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