INTRODUCTORY MECHANICS QUIZ
Purpose of Quiz: This take-home quiz has been designed to help you assess your level of accounting knowledge relative to our expectations of a student entering ACTG 381. This quiz focuses on understanding T-accounts, recording basic accounting transactions/journal entries and creating a set of financial statements. It is also intended as an opportunity to practice using basic Excel functions. The accounting issues included in this quiz are assumed to have been covered in your prerequisite financial accounting course. If you need a reference, you could refer to the textbook from your prerequisite accounting course or Chapter 3 in the textbook for this class.
Students who are unable to successfully complete this quiz should at a minimum take ACTG 281 concurrent with ACTG 381.
Required:
1. Using the Excel spreadsheet "ACTG 381 - Fall 2015 Intro Mechanics Quiz (WS)", record the transactions listed below and the necessary month-end adjusting journal entries in the appropriate T-accounts (see Required A. and B. below). Please also place the number of each transaction next to T-account entry (see transaction "1" below and in the Excel T-account sheet for an example). TIP: Set up your spreadsheet to have debit and credit control totals so that you can check after each entry to see if you are in balance.
2. In Excel, prepare a "classified" balance sheet as of September 30, 2015 and a "multiple-step" income statement for the year ended September 30, 2015 (see Required C. below). You do not need to prepare a Statement of Shareholders' Equity or a Statement of Cash Flows.
Due Date: Your Excel solution must be posted to the class D2L website Dropbox by Tuesday, October 6, 2015, 7:00 AM. Late assignments will receive a score of zero as we will be going over the solution in class on Tuesday.
Background: Multi Step Running, Inc. ("MSR") was established in 2005 and is owned by Shannon and Kirk Smith. The store caters to both new and experienced runners and offers everything from running shoes, clothes and supplies to fun runs as well as a sponsored running club. The company considers its product sales to be its primary business and its annual Labor Day 10-K (run in early September) and any coaching revenue to be other non-operating revenue. The company has a handful of sales employees and one person in the office, Claudia, who handles most administrative matters including best-efforts accounting. In September 2015 MSR hires you as an accounting intern (running and accounting, your two favorite things!). The company has a September 30th year end.
Required:
A. Claudia has just provided you with the attached preliminary unadjusted trial balance for August 31, 2015. Except for any adjustments noted below, assume this trial balance has been correctly prepared. Claudia likes to work with T-accounts. She asks that you record each of the August 31, 2015 unadjusted trial balance amounts in the attached T-account worksheet as beginning balances. The first beginning balance and transaction has been recorded for you.
B. The following September 2015 transactions should be recorded in the T-accounts, using the template provided:
1) $26,000 of vendor invoices were paid during September. These invoices had already been accrued into accounts payable in August.
2) The company received a shipment of shoes on September 12th. The invoice cost totaled
$25,800 and the shipping costs were an additional $500. Both are expected to be paid in October.
3) The following invoices totaling $22,410 were also received and recorded (to be paid in October):
- $4,360 for banners and other supplies related to the 10-K run (all expenses associated with the 10-K are considered promotion expense)
- $2,200 for insurance expense for the month of September
- $3,850 for utilities expense for the month of September
- $12,000 for rent for the month of September
4) $64,913 of product was sold for cash. This product had a cost of goods sold of $31,850.
5) On September 1st Oregon City High School placed an order for shoes for cross-country season and paid a deposit of $5,000. The School will take delivery of half of the shoes in September and the other half in October. The sale had a gross margin of 50%.
6) Total September wages were $5,400 and associated payroll taxes were $415. Of the total payroll, $5,000 was paid in September and the remainder will be paid in October. All of payroll taxes were to be accrued.
Claudia also provided you the following information that she thought may be helpful in preparing the entries for September and the year-end financial statements.
7) On June 30th, the company had acquired new furniture for $3,000. It was incorrectly entered in the accounting records as office supplies expense.
8) On January 1, 2015, "We be losin' Weight Loss & Running Club" had paid MSR $12,000 advance fee to provide coaching services for all of 2015. Claudia had been properly recording the revenue to coaching revenue each month (up through August).
9) It is company's policy to follow GAAP and record sales when the product is shipped. You discover that a product which is scheduled to
be shipped on October 1, 2015 was recorded as a sale on September 30 (sale on account - no cash received). The amount of the sale and associated cost of goods sold are $2,600 and $1,350, respectively.
10) Bad debt expense has been estimated at $103 for the current year (no charge-off of old receivables at this time).
11) The Prepaid Expense account includes a two-year insurance policy purchased on January 1, 2015 for $12,000. Claudia has been properly recognizing insurance expense each month (up through August).
12) The building has a useful life of 30 years with no salvage value. The equipment has a useful life of 10 years with an estimated salvage value is $2,250. Depreciation is provided using the straight line depreciation method. Company policy requires that any equipment purchased during the first year will receive a full year of depreciation in the year of acquisition. Claudia had not recorded any depreciation expense during this fiscal year.
13) Interest expense accrued (but not yet recorded) for the month of September on its long- term debt is $895. Interest is accrued every month and is paid at the beginning of each quarter (i.e. October).
14) On September 1st MSR declared a dividend of $800, to be paid on October 15, 2015.
15) A review of the accounts at year-end revealed that fees runners had been paying throughout the fiscal year for the 2015 run had been incorrectly recorded as goodwill. A total of $36,540 of fees had been collected so far this year.
16) The company has yet to receive an invoice, but legal fees for fiscal 2015 have totaled $3,000.
17) MSR's income tax rate is 20% of pre-tax income (assume no differences between pre-tax income for tax and financial statement purposes). Claudia had not recorded any income tax expense or paid any income tax payments through August. The full amount due for the 2015 fiscal year was paid on September 30th.
C. Using the information in the T-accounts, prepare the following financial statements "in good form":
- Income statement in "multiple-step" format for the year ended September 30, 2015.
- "Classified" balance sheet at September 30, 2015.
Attachment:- ACTG 381 - Fall 2015 Intro Mechanics Quiz (WS).xlsx