Option #1: The Four Steps in the Accounting Process

You own an independent CPA firm. One client had the following transactions in January 20x7.

Issued share capital for $5,000 cash

Purchased $3,000 of equipment on credit

Paid $600 cash for this month’s rent

Purchased on credit $3,000 of supplies to be used next month

Billed $3,500 to customers for repairs made to date

Paid cash for one-half of the amount owing in Transaction 4

Collected $400 cash of the amount billed in Transaction 5

Sold one-half of the equipment purchased in Transaction 2 for $1,200 in cash.

Required:

Use the four steps in the accounting process to analyze business transactions, a) Identifying transactions and source documents, b) Analyzing transactions using the accounting equation, c) Recording the journal entry and d) Posting the entry to the ledger to complete the following:

Prepare journal entries for each of the above transactions.

Post the journal entries to T–accounts and total the accounts.

From the T–accounts, prepare an unadjusted trial balance. List expenses in alphabetical order.

Use the following chart of accounts names and the template:

Cash, Capital Stock, Equipment, Accounts Payable, Rent Expense, Supplies, Accounts Receivable, Revenue.

Decision Problem 1
Your friend, Amin Akmali, has asked your advice about the effects that certain business
transactions will have on his business. His business, Car Finders, finds the best deals on
automobiles for clients. Time is short, so you cannot journalize transactions. Instead, you
must analyze the transactions and post them directly to T-accounts. Akmali will continue in
the business only if he can expect to earn monthly net income of $8,000. The business had
the following transactions during March 2017:
a. Akmali deposited $50,000 cash in a business bank account.
b. The business borrowed $8,000 cash from the bank, which is recorded as a note payable
due within one year.
c. Purchased for cash a vehicle to drive clients to appointments, $27,000.
d. Paid $1,600 cash for supplies.
e. Paid cash for advertising in the local newspaper, $1,200.
f. Paid the following cash expenses for one month: commission, $12,400; office rent, $800;
utilities, $600; gas, $1,000; interest, $200.
g. Earned revenue on account, $20,600.
h. Earned $7,500 revenue and received cash.
i. Collected cash from customers on account, $2,400.
Required
1. Open the following T-accounts: Cash; Accounts Receivable; Supplies; Vehicle; Notes
Payable; Amin Akmali, Capital; Advising Revenue; Advertising Expense; Interest
Expense; Rent Expense; Commission Expense; Gas Expense; Utilities Expense.
2. Record the transactions directly in the T-accounts without using a journal. Identify each
transaction by its letter.
3. Prepare an unadjusted trial balance at March 31, 2017. List expenses alphabetically.
4. Compute the amount of net income or net loss for this first month of operations. Would
you recommend Akmali continue in business?

Please answer the next 6 questions based on the information provided in the table above for a profit-maximizing firm producing HD TVs. Any of the three output combinations of HD TVs can be produced for the same cost. And to produce any one of the combinations requires that the firm operate at full capacity. The profit associated with combination A is $300. The revenue generated from C is $2,180.

1. The profit generated by producing combination C is _____ dollars.
2. The revenue generated by producing combination B is _____ dollars.
3. The cost of producing combination B is ______ dollars.
4. This firm will earn a profit of_____ dollars.
5. How many Large Screen tvs will this firm produce? _______
6. If the product price of a large screen TV increases by $5, ceteris paribus, then this firm will earn a profit of _____ dollars.

Johnson Associates is a catering firm in Tucson, Arizona, with revenue of $4 million. The business began ten years ago as a one-owner bakery, but has dramatically changed in size and function during the past five years. The four partners foresee the business doubling in sales revenue within two years, and expect the firm to expand into other services including flowers, furnishings, decorations, and music. Johnson Associates employs six full-time and ten part-time employees. The four partners also work full-time, each partner managing a separate business function. The firm currently uses a volume-based costing system installed seven years ago and modified three years later.

Required: (a) With just the above information, comment on Johnson Associates changing and future costing system needs. (b) Is Johnson Associates a probable candidate for an activity-based costing system (ABC)? Why or why not?

Question 2

Scranton Motors Ltd faced the following situations.

•     The business has interest expense of $9,000 early in January 2017.
•     Interest revenue of $2,000 has been earned but not yet received.
•     When the business collected $12,000 in advance three months ago, the accountant debited

Cash and credited Unearned Revenue. The client was paying for two cars, one delivered in

December, the other to be delivered in February 2017.

•     Salary expense is $500 per day – Monday through Friday – and the business pays employees

each Friday. For example, purposes, assume that this year, December 31 falls on a Tuesday.

•     The unadjusted balance of the Supplies account is $2,100. The total cost of supplies on hand is

$800.

•     Equipment was purchased at the beginning of this year at a cost of $40,000. The equipment’s

useful life is four years. Record the depreciation for this year and then determine the equipment’s carrying amount.

1.    Journalize the adjusting entry needed at year end for each situation. Each scenario should be

considered independently.

1. Net Present Value and Internal Rate of Return. Below are the projected revenues and expenses for a new clinical nurse specialist program being established by your healthcare organization. The nurses would provide education while patients are in the hospital and home visits are on a fee-for-service basis after patients have been discharged

Should the hospital undertake the program if its required rate of return is 12%?

Note: it must be assumed that the revenues and costs in this problem represent cash flows. Present value analysis is based on cash, not revenue or expenses. Provide a response to support the findings in the table listed below. Your response should be at least a half page long in addition to the table. Please include citations.

Assume that Ocean King Products sells three varieties of canned seafood with the following prices and costs:

The sales mix (in cases) is 60 percent Variety 1, 25 percent Variety 2, and 15 percent Variety 3.

Required:

a. At what sales revenue per month does the company break even? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar.)

b. Suppose the company is subject to a 35 percent tax rate on income. At what sales revenue per month will the company earn $42,640 after taxes assuming the same sales mix? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar.)

In 2018, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for $10,000,000. The road was completed in 2020. Information related to the contract is as follows:

4. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years assuming the following costs incurred and costs to complete information. (Do not round intermediate calculations and round your final answers to the nearest whole dollar amount. Loss amounts should be indicated with a minus sign.)

Assume that Ocean King Products sells three varieties of canned seafood with the following prices and costs:

The sales mix (in cases) is 50 percent Variety 1, 25 percent Variety 2, and 25 percent Variety 3.

Required:

a. At what sales revenue per month does the company break even? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar.)

b. Suppose the company is subject to a 35 percent tax rate on income. At what sales revenue per month will the company earn $54,470 after taxes assuming the same sales mix? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar.)

Assume you work as budget analyst for City of Blue Ridge and you are preparing the budget for Fiscal Year 2020-2021. The data of tax revenue of past 10 years have been obtained as following. You are using two of the three different forecast models - 3-year moving average (with the alpha 0.4), linear regression trend project, and exponential smoothing.

(1) What would be your forecasted revenue for 2020-2021based on your forecasting models, respectively?

(2) Which model gives you the better estimate? In other words, which model would you choose? Provide a justification for your choice.