Question

BE SURE TO CREATE A FINANCIAL STATEMENTS FROM THE ADJUSTED TRIAL BALANCE
[Company Name]
Income Statement
[date]
Revenues:
List names								$         -
Expenses:
List names				0
				0
				0
				0
				0
				0
				0
Total expenses								$         -
Net income								-
[Company Name]
Statement of Stockholders' Equity
[date]
Stockholders' Equity, [date]								$       -
Plus: Additional shareholder investment						0
Net income						0
Less: Dividends								$         -
Stockholders' Equity, [date]								$       -
[Company Name]
Balance Sheet
[Date]
	Assets						Liabilities & Stockholders' Equity
			$               -								$         -
			-								-
			-								-
			-			Total Liabilities					-
			-
											$         -
											-
						Total stockholders' equity					$         -
Total Assets			$               -			Total liabilities and stockholders' equity					$         -

ACT300 Principles of Accounting I
Module 8: Portfolio Project Template Option #1, Part 2
Montana Construction Company
Montana Construction Co, Adjustments December 31, 20X7
Adjust #	Account Names		Debit	Credit
1
2
3
4
5
6
7
8
Montana Construction Co, Adjustments December 31, 20X7
		Unadjusted Trial Balance		Adjustments		Adjusted Trial Balance
Acct #	Account Names	Debit	Credit	Debit	Credit	Debit	Credit
101	Cash	$7,000
126	Supplies	$16,000
128	Prepaid insurance	$12,600
167	Equipment	$200,000
168	Accumulated depreciation - equipment		$14,000
201	Accounts payable		$6,800
251	Long-term notes payable		$30,000
301	Stockholders' equity		$86,900
302	Dividends	$12,000
401	Demolition fees earned		$187,000
623	Wage expense	$41,400
633	Interest expense	$3,300
640	Rent expense	$13,200
683	Property tax expense	$9,700
684	Repair expense	$4,700
690	Utilities expense	$4,800
	TOTALS	$324,700	$324,700	$0	$0	$0	$0

Option #1: The Accounting Cycle and Stockholders’ Equity Analysis

Portfolio Project Option #1 is for accounting students who are sensing learners, and learn best from concrete materials and examples. If this is your learning style preference, you are practical and careful with detail. For this assignment, you are required to complete all three accounting cases: Arizona Consultants Inc., Power and Demolition Company, and Warnerwood. You will then present Parts 1, 2, and 3 of the Portfolio Project in Excel as journal entries, following the exact instructions that accompany each part.

Assignment Template attached below

Part 1:

Arizona Consultants, Inc. opened in March and completed the following transactions:

March 1: Arizona Consultants Inc. issued 17,200 shares of $10 par value capital stock for $150,000 cash and equipment with fair market value of $22,000.

March 2: Arizona Consultants Inc. pre-paid $6,000 cash or six months’ rent for their office.

March 3: Arizona Consultants Inc. made credit purchases for office equipment for $3,000 and office supplies for $1,200. Payment is due within 10 days.

March 6: Arizona Consultants Inc. completed services for a client and immediately received $4,000 cash.

March 9: Arizona Consultants Inc. completed a $7,500 project for a client who must pay within 30 days.

March 12: Arizona Consultants Inc. paid $4,200 cash to settle the account payable created on March 3.

March 19: Arizona Consultants Inc. paid a $5,000 cash premium on a 12-month insurance policy.

March 22: Arizona Consultants Inc. received $3,500 cash as a partial payment for the work completed on March 9.

March 25: Arizona Consultants Inc. completed work for another client for $3,820 on credit.

March 29: Arizona Consultants Inc. declared dividends of $5,000 to its shareholders on record. Dividends were paid in cash the following day.

March 30: Arizona Consultants Inc. purchased $600 of additional office supplies on credit.

March 31: Arizona Consultants Inc. paid $500 cash for this month’s utility bill.

Instructions:

Using the following template, prepare journal entries for the above economic transactions. Enter your journals to the general ledger using the same file name. The following accounts should be used in recording your transactions: cash, accounts receivable, prepaid rent, office equipment, capital stock, prepaid insurance, office supplies, accounts payable, consulting revenue, dividends, and utility expense.

Journal Entries Template for Arizona Consultants Inc.

Part 2:

The following unadjusted trial balance is for Montana Construction Company as of year-end for the December 31, 20x7 fiscal year. The December 31, 20x6 credit balance of the stockholders’ equity account is $46,900, and the stockholders invested $40,000 cash in the company during 20x7.

NO.      Account Title                          Debit               Credit

101      Cash                                         $7,000

126      Supplies                                   $16,000

128      Pre-paid insurance                   $12,600

167      Equipment                               $200,000

168      Accumulated depreciation – equipment $14,000

201      Accounts payable $6,800

251      Long-term notes payable $30,000

301      Stockholders’ equity $86,900

302      Dividends                                 $12,000

401      Demolition fees earned $187,000

623      Wage expense $41,400

633      Interest expense                     $3,300

640     Rent expense                          $13,200

683     Property tax expense               $9,700

684      Repairs expense                      $4,700

690     Utilities expense                      $4,800

TOTALS $324,700         $324,700

Instructions:

a) Journalize the following adjusting entries as of fiscal year-end December 31, 20x7.

b) Using the worksheet, post the adjusting entries using the adjustments column and prepare the adjusted trial balance.

c) Create financial statements. Namely, i) the income statement, ii) statement of stockholders’ equity, and iii) the balance sheet for 20x7.

Adjustments needed:

The supplies available at the end of fiscal 20x7 year are at a cost of $7,900.

The cost of expired insurance for the fiscal year is $10,600.

Annual depreciation on equipment is $7,000; no other depreciation adjustment was made in 20x7.

The December utilities expense of $800 is not included in the adjusted trial balance because the bill arrived after the trial balance was prepared. The $800 amount owed needs to be recorded.

The company's employees have earned $2000 in accrued wages for the fiscal year.

The rent expense not yet paid or recorded in the fiscal year is $3000.

Additional property taxes of $550 have been assessed for the fiscal year, but have not yet been paid or recorded in the accounts.

The $300 accrued interest for December has not yet been paid and reported.

Use the following template

Montana Construction Company template

Part 3:

Assume you are the chief accountant making a presentation during the stockholders annual meeting for your corporation. Provide a brief explanation to stockholders on each of the following questions:

Shares

In what ways can shares be “preferred”? In which ways are they similar and different from common shares?   Give real-world examples.

How does the book value of shares of stock differ from the market value of shares of stock? Use a real-world example in your answer.

Dividends

Discuss at least three key issues that a board of directors considers when making a dividend declaration decision.

How does a share dividend differ from a share split?

Retained Earnings

Explain why companies place restrictions on some of their retained earnings.

ACT300 Principles of Accounting I
Module 8: Portfolio Project Template Option #1 (Part 1)
Journal Entries for Arizona Consultants Inc.
Date	Account Names	Debit	Credit
1-Mar
2-Mar
3-Mar
6-Mar
9-Mar
12-Mar
19-Mar
22-Mar
25-Mar
29-Mar
30-Mar
30-Apr

Answer 1

ACT300 Principles of Accounting I
Module 8: Portfolio Project Template Option #1 (Part 1)
Journal Entries for Arizona Consultants Inc.
Date	Account Names	Debit	Credit
01-Mar	Cash	150000
	Office Equipment	22000
	Capital Stock		172000
02-Mar	Prepaid Rent	6000
	Cash		6000
03-Mar	Office Equipment	3000
	Office Supplies	1200
	Accounts Payable		4200
06-Mar	Cash	4000
	Consulting Revenue		4000
09-Mar	Accounts Receivable	7500
	Consulting Revenue		7500
12-Mar	Accounts Payable	4200
	Cash		4200
19-Mar	Prepaid Insurance	5000
	Cash		5000
22-Mar	Cash	3500
	Accounts Receivable		3500
25-Mar	Accounts Receivable	3820
	Consulting Revenue		3820
30-Mar	Dividends	5000
	Cash		5000
30-Mar	Office Supplies	600
	Accounts Payable		600
30-Apr	Utilities	500
	Cash		500

ACT300 Principles of Accounting I
Module 8: Portfolio Project Template Option #1, Part 2
Montana Construction Company
Montana Construction Co, Adjustments December 31, 20X7
Adjust #	Account Names		Debit	Credit
1	Depreciation		7000
	Accumulated Depreciation - Equipment			7000
2	Supplies Writeoff		8100
	Supplies			8100
3	Insurance		10600
	Prepaid Insurance			10600
4	Wage expense		2000
	Accounts Payable			2000
5	Property tax expense		300
	Accounts Payable			300
6	Rent expense		3000
	Accounts Payable			3000
7	Property tax expense		550
	Accounts Payable			550
8	Utilities expense		800
	Accounts Payable			800
Montana Construction Co, Adjustments December 31, 20X7
		Unadjusted Trial Balance		Adjustments		Adjusted Trial Balance
Acct #	Account Names	Debit	Credit	Debit	Credit	Debit	Credit
101	Cash	7,000				7000
126	Supplies	16,000			8100	7900
128	Prepaid insurance	12,600			10600	2000
167	Equipment	2,00,000				200000
168	Accumulated depreciation - equipment		14,000		7000		21000
201	Accounts payable		6,800		6650		13450
251	Long-term notes payable		30,000				30000
301	Stockholders' equity		86,900				86900
302	Dividends	12,000				12000
401	Demolition fees earned		1,87,000				187000
623	Wage expense	41,400		2000		43400
633	Interest expense	3,300		300		3600
640	Rent expense	13,200		3000		16200
683	Property tax expense	9,700		550		10250
684	Repair expense	4,700				4700
690	Utilities expense	4,800		800		5600
	Depreciation			7000		7000
	Insurance			10600		10600
	Supplies Writeoff			8100		8000
	TOTALS($)	3,24,700	3,24,700	32350	32350	338250	338350

Part C:

COMMON STOCK

Common stock is the most common type of stock that is issued by companies. It entitles shareholders to share in the company’s profits through dividends and/or capital appreciation. Common stockholders are usually given voting rights, with the number of votes directly related to the number of shares owned. Of course, the company’s board of directors can decide whether or not to pay dividends, as well as how much is paid.

Owners of common stock have “preemptive rights” to maintain the same proportion of ownership in the company over time. If the company circulates another offering of stock, shareholders can purchase as much stock as it takes to keep their ownership comparable.

Common stock has the potential for profits through capital gains. The return and principal value of stocks fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. Shareholders are not assured of receiving dividend payments. Investors should consider their tolerance for investment risk before investing in common stock.

PREFERRED STOCK

Preferred stock is generally considered less volatile than common stock but typically has less potential for profit. Preferred stockholders generally do not have voting rights, as common stockholders do, but they have a greater claim to the company’s assets. Preferred stock may also be “callable,” which means that the company can purchase shares back from the shareholders at any time for any reason, although usually at a favorable price.

Preferred stock shareholders receive their dividends before common stockholders receive theirs, and these payments tend to be higher. Shareholders of preferred stock receive fixed, regular dividend payments for a specified period of time, unlike the variable dividend payments sometimes offered to common stockholders. Of course, it’s important to remember that fixed dividends depend on the company’s ability to pay as promised. In the event that a company declares bankruptcy, preferred stockholders are paid before common stockholders. Unlike preferred stock, though, common stock has the potential to return higher yields over time through capital growth. Remember that investments seeking to achieve higher rates of return also involve a higher degree of risk.

Book Value

Book value literally means the value of the business according to its "books" or financial statements. In this case, book value is calculated from the balance sheet, and it’s the difference between a company's total assets and total liabilities. On the company's balance sheet, book value is recorded as shareholders' equity.

For example, if Company XYZ has total assets of $100 million and total liabilities of $80 million, the book value of the company is $20 million. In a very broad sense, this means that if the company sold off its assets and paid down its liabilities, the equity value or net worth of the business would be $20 million.

For fundamental and value investors, book value is important to consider because a company with a higher book value than market value may indicate a buying opportunity. A stock might be considered undervalued if its book value exceeds the market value since it would be viewed by the market that the stock is trading at a cheaper price than the actual value of the company. As a result, value investors might buy the stock based on the lower market valuation with the expectation that the market will eventually catch up to the cheap valuation ultimately sending the stock price higher.

Market Value

Market value is the value of a company according to the stock market. Market value is calculated by multiplying a company's shares outstanding by its current market price. This is also known as market capitalization.

If Company XYZ has 1 million shares outstanding and each share trades for $50, then the company's market value is $50 million. Market value is most often the number analysts, newspapers and investors refer to when they mention the value of a company.

Factors :

Tax Factors

Dividends increase the taxable income of shareholders. Most dividends from U.S. corporations qualify for long-term capital gains rates. Nonetheless, some shareholders might prefer a company spend dividend money to buy back shares on the open market instead. Both alternatives tend to increase the stock’s price. However, only those who sell stocks face taxation, letting other shareholders avoid taxes on dividends. The merits of dividends vs. repurchase programs are often a hot topic among financial analysts and no doubt among corporate boards as well.

Growth Factors

Dividends reduce the amount of equity a company can invest in profit-making operations. The board must decide what new or existing projects would benefit from the cash used for payouts and whether those projects would increase the company’s return on equity. It’s the board’s job to maximize shareholder wealth. If it pays dividends instead of funding potentially profitable investments, shareholders might complain that the board is not doing its job. The investments should return an amount greater than company’s weighted average cost of capital, which is how much it pays for the money it uses for investments. When investments grow the company, the stock usually appreciates.

Cost Factors

Another set of factors for the board of directors to consider involves lowering the corporation’s cost structure. It can do this by paying down debt, restructuring operations or buying competitors that operate more efficiently. The board might better use dividend cash to improve the long-term financial health of the company, burnish its credit rating and increase its bottom line by permanently reducing costs.

Stock Dividends
Stock dividends are similar to cash dividends; however, instead of cash, a company pays out stock. As a result, a company's shares outstanding will increase, and the company's stock price will decrease. For example, suppose Newco decides to issue a 10% stock dividend. Each current stockholder will thus have 10% more shares after the dividend is issued.

Stock Splits
Stock splits occur when a company perceives that its stock price may be too high. Stock splits are usually done to increase the liquidity of the stock (more shares outstanding) and to make it more affordable for investors to buy regular lots (a regular lot = 100 shares). Companies tend to want to keep their stock price within an optimal trading range.

Restricted retained earnings refers to that amount of a company's retained earnings that are not available for distribution to shareholders as dividends. The primary reason why retained earnings are restricted is that a company is in arrears in its payment of dividends that were due in the past; if so, the amount of the restriction will match the cumulative amount of unpaid dividends. The restriction will then decline as the dividends are paid off.

It is possible that the board of directors of a business will vote to restrict other portions of retained earnings that do not relate to cumulative unpaid dividends, such as for funds to construct a building. However, these restrictions may not be legally binding if investors are determined to be paid a dividend.