Financial Statements and T-Account Transactions

For this assessment, complete Problems 1 and 2. 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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Financial Statements and T-Account Transactions
Complete two problems in which you prepare a variety of financial documents (income
statement, statement of stockholders’ equity, and balance sheet), practice using T-accounts, and
compute and analyze financial data for hypothetical companies.
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.
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, complete Problems 1 and 2. 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.
Templates for both problems are linked in the Suggested Resources under the Capella Resources
heading.
Problem 1: Preparing an Income Statement, a Statement of Retained Earnings, and a
Balance Sheet
At the end of its first year of operations (December 31, 2012), the Acme Company released the
financial data shown in Table 1 below:
Table 1: Acme Company Financial Data
Account
Cash
Amount
$25,000
Receivables from customers (no allowance for $20,300
doubtful accounts is needed)
Inventory of merchandise
$81,000
Equipment owned, at cost of $60,700 net of
A/depreciation of $20,000
$40,700
Accounts payable owed to supplies
$66,140
Salary payable for 2012 (to be paid on January $1,800
4, 2013)
Total sales revenue
$126,000
Operating expenses, including the cost of the
merchandise sold
$80,200
Income taxes expense at 30% of pretax
income; all paid during 2012
?
Account
Amount
Contributed capital 10,000 shares outstanding
$87,000
Dividends declared and paid during 2012
$20,000
Using knowledge from prior courses, work experience, textbooks, or Internet sources, as well as
the financial data provided in Table 1, prepare the following financial statements for the Acme
Company:
1.
2.
3.
4.
Summarized income statement for the year 2012.
Statement of retained earnings for the year 2012.
Balance sheet at December 31, 2012.
Liquidity ratios and an explanation of what those ratios tell us.
You may choose to use the Preparing Financial Statements Template, which is linked in the
Suggested Resources under the Capella Resources heading, to complete this problem.
Problem 2: Using T-Accounts, Preparing the Balance Sheet, and Computing and
Interpreting the Current Ratio
Johnson Company has been operating for several years. At December 31, 2012, the accounting
records reflected the following data, shown in Table 2 below:
Table 2: Johnson Company Financial Data
Account
Amount
Cash
$9,000
Investments (short-term)
$4,000
Accounts receivable
$13,000
Inventory
$22,000
Notes receivable (long-term)
$1,000
Equipment
$48,000
Factory building
$90,000
Intangibles
$3,000
Accounts payable
$15,000
Accrued liabilities payable
$2,000
Notes payable (short-term)
$7,000
Long-term notes payable
$46,000
Contributed capital
$90,000
Retained earnings
$30,000
During the year 2013, Johnson Company had the following summarized activities:
• a. Purchased short-term investments for $10,000 cash.
• b. Lent $8,000 to a supplier who signed a three-year note.
• c. Purchased equipment that cost $28,000; paid $4,000 cash and signed a one-year note
for the balance.
• d. Hired a new president at the end of the year. The contract was for $110,000 per year
plus options to purchase company stock at a set price based on company performance.
• e. Issued an additional 1,000 shares of capital stock for $12,000 cash.
• f. Borrowed $20,000 cash from a local bank, payable in three months.
• g. Purchased a patent (an intangible asset) for $4,000 cash.
• h. Built an addition to the factory for $45,000; paid $10,000 in cash and signed a threeyear note for the balance.
• i. Returned defective equipment to the manufacturer, receiving a cash refund of $1,000.
Using knowledge from prior courses, work experience, textbooks, or Internet sources, as well as
the financial data provided above, complete the following:
1. Create T-accounts for each of the accounts on a balance sheet and enter the balances at
the end of 2012 as beginning balances for 2013. Prepare a trial balance for 12/31/12.
2. Record each of the events for 2013 in T-accounts and determine the ending balances. For
each recording (posting), include the identifying letter (a through i). Prepare a trial
balance for 12/31/12.
3. Explain why you did or did not record item d, the hiring of the president, in a T-account.
4. Prepare a balance sheet at December 31, 2013. Classify the balance sheet as appropriate
(into current assets, fixed assets, and so on).
5. Compute the current ratio for 2013. The current ratio measures the ability of the
organization to pay their current obligations. Interpret this ratio as it applies to Johnson
Company at December 31, 2013, as compared to December 31, 2012.
To complete this problem, you may choose to use the T-Account Transactions Template,
which is linked in the Resources under the Capella Resources heading.
Financial Statements and T-Account
Transactions Scoring Guide
Criteria
Prepare a summarized income
statement for a company using
appropriate financial data.
Proficient
Prepares a summarized income
statement for a company using
appropriate financial data.
Distinguished
Prepares a
summarized income
statement for a
company using the
correct financial
data and
Criteria
Proficient
Distinguished
computations.
Prepare a statement of retained
earnings for a company using
appropriate financial data.
Prepare a balance sheet for a
company using appropriate
financial data.
Prepares a statement of retained
earnings for a company using
appropriate financial data.
Prepares a
statement of
retained earnings
for a company
using the correct
financial data and
computations.
Prepares a balance sheet for a
company using appropriate
financial data.
Prepares a balance
sheet for a company
using the correct
financial data and
computations.
Create T-accounts for a company Creates T-accounts for a company
using each account on the balance using each account on the balance
sheet.
sheet.
Creates T-accounts
for a company
using each account
on the balance sheet
and entering correct
financial data and
computations.
Worksheet 1 of 4. Suggested format and template for an income
statement for Acme Company for the year ended December 31,
2012. See the assessment for amounts unless noted.
Learner:
Acme Company
For the year ended December 31, 2012
Income Statement
Sales Revenues
Operating Expenses
Income Before Taxes
Less: Income Taxes (30%)
Net Income
End of worksheet
2012
$0
$0
Worksheet 2 of 4. Suggested format and template for a statement of retained earnings
(or stockholders’ equity) for Acme Company for the year ended December 31, 2012. See
the assessment for amounts unless noted.
Learner:
Acme Company
December 31, 2012
Statement of Retained Earnings
Beginning 1/1/2012
Net Income
Dividends (declared and/or paid)
Ending 12/31/2012
End of worksheet
2012
$0
Worksheet 3 of 4. Suggested format and template for a balance sheet at December 31,
2012, for Acme Company. See the assessment for amounts unless noted.
Learner:
Acme Company
December 31, 2012
Balance Sheet
Current Assets:
Cash
Accounts Receivable
Inventories
Total Current Assets
Non-Current Assets:
Property, Plant, and Equipment (net)
Total Assets
Current Liabilities:
Accounts Payable
Salary Payable
Total Current Liabilities
Stockholders’ Equity:
Contributed Capital
Retained Earnings
Total Stockholders’ Equity
Total Liabilities and Equity
End of worksheet
$0
$0
$0
$0
$0
Worksheet 4 of 4. Suggested template for analyzing liquidity ratios. Use columns A –D to calculate the
current ratio, profitability, return on assets, and return on equity. Use column F to explain what each ratio
means.
Learner:
Liquidity:
Current Ratio:
Current Assets /
Current Liabilities
=
Profitability:
Profitability
Net Income /
Sales
=
Return on Assets
Net Income /
Total Assets
=
Return on Equity
Net Income /
Shareholders’ Equity
End of worksheet
=
Narrative about what each liquidity ratio would tell us:
Current Ratio Narrative:
Profitability Narrative:
Return on Assets Narrative:
Return on Equity Narrative:
Worksheet 1 of 4. Template for requirement 1, for Johnson Company: Create T-accounts
for each of the accounts on a balance sheet and enter the balances at the end of 2012 as
beginning balances for 2013.
Learner:
Cash
Credit
Accounts Payable
Debit
Credit
Investments (S-T)
Debit
Credit
Liabilities Payable
Debit
Credit
Accounts Receivable
Debit
Credit
$13,000
Notes Payable (S-T)
Debit
Credit
Inventory
Debit
Credit
Notes Payable (L-T)
Debit
Credit
$46,000
Notes Receivable (L-T)
Debit
Credit
$1,000
Contributed Capital
Debit
Credit
$90,000
Equipment
Debit
Credit
Retained Earnings
Debit
Credit
Debit
$9,000
Factory Building
Debit
Credit
Intangibles
Debit
Credit
End of worksheet
Prepare a trial balance for 12/31/12.
Johnson Company
Trial Balance
Cash
Investments (short-term)
Accounts receivable
Inventory
Notes receivable (long-term)
Equipment
Factory building
Intangibles
Accounts payable
Accrued liabilities payable
Notes payable (short-term)
Long-term notes payable
Contributed capital
Retained earnings
Totals
31-Dec-12
Credit
Debit
$9,000
Current Asset
Current Asset
Current Asset
Current Asset
$9,000
Current Liability
Current Liability
Current Liability
$9,000
=
$0
$0
Worksheet 2 of 4. Template for requirements 2 and 3, for Johnson Company: Record each of the events for 2013 in T-accounts and
determine the ending balances. For each recording (posting), include the identifying letter (a through i). Prepare a trial balance for
12/31/12. Then explain why you did or did not record item d, the hiring of the president, in a T-account.
Learner:
Investments (S-T)
Debit
Credit
$14,000
Contributed Capital
Debit
Credit
$90,000
$12,000
$102,000
Notes Receivable (L-T)
Debit
Credit
Notes Payable (L-T)
Debit
Credit
(a)
(b)
Intangibles
Debit
Credit
$3,000
(e)
(g)
$7,000
Factory Building
Debit
Credit
(h)
(h)
$0
$9,000
$135,000
Cash
Debit
$9,000
Credit
(e)
(f)
(i)
(a)
(b)
(c’)
(g)
(h)
Notes Payable (S-T)
Debit
Credit
(c’)
(c’)
(f)
$0
$6,000
Accounts Receivable
Debit
Credit
$13,000
Inventory
Debit
Credit
$22,000
Equipment
Debit
Credit
$1,000
Accounts Payable
Debit
Credit
Liabilities Payable
Debit
Credit
(i)
Johnson Company
Trial Balance
Cash
Investments (short-term)
Accounts receivable
Inventory
Notes receivable (long-term)
Equipment
Factory building
Intangibles
Accounts payable
Accrued liabilities payable
Notes payable (short-term)
Long-term notes payable
Contributed capital
Retained earnings
Totals
31-Dec-13
Credit
Debit
$6,000
$51,000
$6,000
=
$51,000
Explain why you did or did not record item d, the hiring of the president, in
a T-account.
Worksheet 3 of 4. Template for requirement 4: Prepare a balance sheet at December 31, 2013,
for Johnson Company. Classify the balance sheet as appropriate (into current assets, fixed
assets, and so on).
Learner:
Johnson Company
Balance Statement
31-Dec-13
Assets
Current Assets
Cash
Investments (short-term)
Accounts Receivable
Inventories
Total Current Assets
Notes Receivable (long-term)
Property, Plant, and Equipment
Equipment
Factory Building
Total Property, Plant and Equipment
Intangible Assets
Total Assets
$6,000
$22,000
$28,000
$0
$28,000
Liabilities
Current Liabilities
Accounts Payable
Accrued Liabilities Payable
Notes Payable (short-term)
Total Current Liabilities
Long-Term Debt
Long-Term Notes Payable
$0
$81,000
Stockholders’ Equity
Contributed Capital
Retained Earnings
Total Stockholders’ Equity
Total Liabilities and Equity
$30,000
$30,000
$111,000
End of worksheet
Worksheet 4 of 4. Template for requirement 5: Compute the current ratio for 2013. The current ratio
measures the ability of the organization to pay their current obligations. Interpret this ratio as it applies
to Johnson Company at December 31, 2013, as compared to December 31, 2012.
Learner:
Liquidity:
Current Ratio
2013
Current Assets /
Current Liabilities
=
#DIV/0!
=
#DIV/0!
2012
Current Assets /
Current Liabilities
Narrative about what each ratio would tell us:
End of worksheet

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