Davenport University ACCT202 Practice Set Winter: 2016

Company Background & Scenario

The AC Speed Company is a well-established, publicly-held corporation, operating as a wholesaler in the auto parts industry.  Specifically, AC Speed purchases auto parts from manufacturers and sells them to large business customers.  Most purchases and sales are on account, with trade credit terms (specified below).

You’re a Davenport University student pursuing a bachelor’s degree in business and employed at the AC Speed Company this semester as an intern.  You’ve worked in various departments and on several projects so far, learning a lot about the company’s business operations.  Management seems impressed with your enthusiasm and the quality of your work.

The company’s accountant has just been called away for a family emergency and will likely be absent for a month or so.  The General Manager asks you to take over the accountant’s regular duties on an interim basis.  You’re nervous about doing so, but are confident that what you’ve learned in accounting class, plus your personal problem-solving skills, will make this a successful experience.  What a great learning opportunity, not to mention an enhancement to your resume!

Project Overview & Instructions

A. Overview

a. Part 1 is a financial accounting activity that requires you to record various business transactions during the month, close the accounting records at the end of the month, and prepare the financial statements.  These tasks relate to the steps in the accounting cycle that you learned in your first accounting course.`

b. Part 2 is an activity that requires you to analyze the company’s year-end financial statements to assist management in assessing the company’s position and making decisions about its future direction.

c. This is an individual, not a team, project.  While you may discuss this project with others, you must prepare and submit your own work.  Refer to the academic integrity statement in the project workbook.

d. Before starting work, review the entire project:  all instructions, business transactions descriptions, workbook sections, check figures, due dates, and submission requirements.

B. General Instructions

a. The parts of this project, including specific business transactions and steps in the accounting cycle, must be completed in sequence.  This is particularly important with business transactions relating to purchases and sales of inventory.

b. You are encouraged to use your textbook’s table of contents (front) or index (back) to locate helpful references.

c. These project instructions will not address every detail of every task.  If you have questions, ask your instructor.

d. Most of your work for this project will be accomplished in Excel.  A basic skill level in this application is expected.  That is, you should be able to such things as move around in a workbook, enter data in cells, use the sum function, compose basic formulas, and save your work.

e. If rounding is required, round to the nearest cent.  For example, $96.835 would be entered as $96.84.

f. Use the check figures provided to check your work as you progress through the project.  Investigate any discrepancies and correct them as you go along.

g. Refer to the project rubric to determine how components of the project will be assessed.

h. Appearance counts!  Pay attention to the format, to spelling, and to other details of appearance.  This reflects on management’s perception of you as a professional.

C. Submission Requirements

a. Final submission of all parts of this project must be in electronic (not paper) form.  That is, you will submit your completed work via an assignment link in a Blackboard course site or via an email attachment.  Follow your instructor’s directions.

b. Save backup copies of your work.  If you have multiple versions of the project, clearly label them for your own reference and to ensure that you submit the appropriate version to your instructor.

c. You must read the academic integrity statement in the project workbook and enter your student ID number on the form to signify your agreement with and adherence to that statement.  Final project submissions will not be accepted without this.

d. Due dates for the parts of this project will be provided by your instructor in the course syllabus, in the Blackboard course site, or in a designated handout.  Be sure to enter these on your personal calendar and plan your work on this project accordingly.

D. Credit Terms & Inventory Accounting

a. When AC Speed purchases merchandise from a supplier or vendor on account, they receive credit terms of 2/15, net 30.

b. When AC Speed sells merchandise to a customer on account, they offer that customer credit terms of 2/20, net 30

c. AC Speed accounts for the specific types of merchandise in their inventory with a set of subsidiary ledgers (inventory control cards).  The balances in these subsidiary ledger records, in total, must equal the balance in the Merchandise Inventory account in the general ledger.

d. AC Speed uses a perpetual inventory accounting system and a last-in, first-out (LIFO) inventory costing method.

E. Financial Accounting Steps:

a. Record each business transaction, in sequence by date, in the appropriate special journal or the general journal.  Also, immediately record any transaction involving inventory, a customer, or a vendor in the appropriate subsidiary ledger record.

b. At the end of the month, post each entry in the general journal to the general ledger.

c. At the end of the month, total each column in each special journal and post that total to the general ledger.  EXCEPT for entries in the “Other” columns, which must be posted individually to the general ledger.

d. When posting is completed, bring the balance in each general ledger account up to date.

e. When posting is completed, bring the balance in each subsidiary ledger account up to date.

f. At this point in the closing process, the balances of all subsidiary ledger accounts would be totaled and that total compared to the balance of the corresponding control account in the general ledger.  That is, the total of inventory control cards would be compared to the Merchandise Inventory balance; the customer subsidiary ledger total to the Accounts Receivable balance; and the vendor subsidiary ledger total to the Accounts Payable balance.  Any discrepancies would be investigated and corrected.  Given the limited scope of this project scenario, reconciliation between subsidiary ledgers and control accounts is not possible.

g. List all general ledger account balances in the unadjusted trial balance columns of the worksheet.  Use the sum function in Excel to total the debit and credit columns.  These totals should be equal.

h. Prepare the end-of-month adjusting entries.  Record these entries in the general journal and post them to the general ledger.  Also record the adjusting entries in the designated columns in the worksheet and total the debit and credit columns.  These totals should be equal.

i. Update general ledger account balances after posting adjusting journal entries.  

j. Complete the unadjusted trial balance columns on the worksheet.  Use Excel formulas to carry balances from the unadjusted trial balance columns, adjusting as necessary by entries in the adjustments columns.  Check your results against the balances recorded in the general ledger.

k. Sort the dollars recorded in the adjusted trial balance columns into either the income statement or the balance sheet columns.  Total these columns.  The entry of net income should cause the debit and credit columns to equal one another.  

l. Use the income statement information on the worksheet to prepare a multi-step income statement in good form.   Look at examples of this income statement format in your textbook.

m. Prepare a statement of retained earnings in good form.   Look at examples of this statement in your textbook.  Remember that net income from your just-completed income statement is a necessary component of this statement.

n. Use the balance sheet information on the worksheet to prepare a classified balance sheet.  Remember that the ending retained earnings balance from the just-completed statement is a necessary component of the equity section of the balance sheet.

o. Prepare the end-of-month closing entries.  Record these entries in the general journal and post them to the general ledger.   Update balances in the general ledger accounts.

p. List the general ledger accounts that have balances other than zero on the post-closing trial balance.  The totals of the debit column and the credit column should be equal.

F. Part 2 of this project requires you to analyze the company’s year-end financial statements to assist the management of AC Speed in assessing the company’s financial position and making decisions about its future direction.

a. Before beginning this part of the project, you will find it helpful to review Chapter 17 on financial statement analysis.  Page 707, a summary of ratios, will be particularly useful.

b. Tabs in the project workbook provide trial balance data for the current and two preceding years for AC Speed and a location to calculation a selection of ratios.  Use the trial balance data and the formulas in Chapter 17 to compute the ratios listed for each of the three years.  YOU MUST STRUCTURE YOUR RATIO CALCULATIONS AS FORMULAS AND LINKS TO APPROPRIATE CELLS ON THE TRIAL BALANCE TAB.  You will lose points by simply typing the final ratio numbers or percentages.

c. After you calculate the ratios, consider whether there is a trend over the three-year period.  Also compare the ratios you calculated for AC Speed with those listed as industry averages.  Review the information in Chapter 17 to help you determine what the ratios are telling you about various aspects of AC Speed’s business operations.

d. Use Word to prepare a memo (minimum 500 words) to AC Speed’s general manager, addressing the three questions listed at the bottom of the ratios tab.  This should be formatted as a business memo, not an APA paper.  Be sure to include a brief introduction and conclusion in the memo.  Each question should be addressed in one or two paragraphs in the body of the memo.  Remember that the general manager will expect details/facts/ratios to support statements you may make about the status of the business.  Your writing should be concise, clear, and readable, with a fairly formal tone (since it’s addressed to AC Speed’s general manager, who is likely to share it with other members of management).   Your instructor will provide the due date and submission requirements for this part of the project.  



June 1
Signed a 3 year 7.1% , $210000 note payable with First Bank.


June 1
Purchased 3100 GPS units on credit from Navistar for $35.5 per unit. 


June 1
Issued 5,000 shares of common stock for $10 per share (Refer to General ledger for description of common stock). 


June 1
Sold 1983 DVD players on account to Toyota for $75 per unit, Invoice #5555 


June 2
Sold 3400 GPS units on account to Kia for $58 per unit, Invoice #5556. 


June 2
Purchased office supplies from Office Max on credit for $1150    


June 2
Sold 975 docking stations for $66 per unit and 1925  GPS units for $82 per unit on account to Nissan, Invoice #5557.


June 3
The Board of Directors declared a cash dividend of $5 per share for shareholders of record on June 5th, payable on June 12th. 


June 4
Received payment from Toyota for May 11th sale.        


June 4
Rented part of the warehouse to a new tenant and received $5400 for three months rent starting in June


June 5
Paid $2,100 to Michigan Utility Co. for utilities bill that was recorded in May as an Account Payable, Check #5278. 


June 7
Received and paid expense reports for travel and entertainment totaling  $900 , Check #5279.      


June 8
Paid for office supplies purchased on June 2nd, Check #5280.        


June 11
Paid in full for the June 1 purchase from Navistar, Check #5281.        


June 11
Received a bill from the law firm of Larry, Moe & Curly for  $5400 , payable upon receipt, for bond consulting fees, Check #5282.      


June 12
Paid the dividend that was declared on June 3, Check #5283.


June 13
Took advantage of a special deal to purchase  3250 DVD players on account from JVC for  $48 per unit.    


June 13
Purchased 850 GPS units on credit from Magellan for $33 per unit.    


June 15
Sold 2000 DVD players on credit to Ford Motor Co. for  $89 per unit, Invoice 5558.     


June 15
Check # 5284 was issued for payroll:  $14500 for salaried and $4750 for wages (wage expense)    


June 16
Purchased  1800 docking stations on credit from Samsung for  $42 per unit.    


June 17
Issued a credit to Kia for the return of 350 defective units from the June 2nd sale. These units has a cost basis of $36 per unit.


June 17
Returned the 350 defective units received from Kia to Navistar.


June 18
Received  payment in full from Toyota for the June 1st sale.        


June 20
While inspecting the June 13th purchase, it was discovered that the GPS units were programmed for South America instead of North America. AC Speed returned the entire order to Magellan.


June 20
A bankruptcy judge disallowed AC Speed's claim for $5,000 due from General Motors. Management Decided to write off this accounts receivable. 


June 22
Sold  1650 docking stations on credit to Kia for 64.5 per unit, Invoice #5559.    


June 23
Paid $75000 of the $162500 owed to JVC from May 25, Check #5285.    


June 23
Received payment from Ford Motor Co. for $175000 of the $300000 owed from May 5.    


June 24
Purchased a $100 international phone card for one of the sales representative's upcoming European business trip, Check #5286.      


June 25
Paid in full for the purchase from JVC on June 13, Check #5287        


June 26
Purchased 1250 docking station from Samsung for $41 per unit paying in cash, Check #5288    


June 27
Sold 1500 docking stations on credit to Honda for $61 per unit, Invoice 5560.    


June 27
Hired and paid a consultant $75000 to devise a marketing plan. AC Speed's management felt this was necessary to develop brand awareness. Check #5289.      


June 28
AC Speed is behind in its mortgage payments to Bank of America. Paid a total of $10000 ( $2000 principal and $8000 interest), Check #5290.   


June 29
Received payment in full from Honda for the June 27th transaction.        


June 29
Paid in full for the purchase from Magellan on May 31st, Check #5291.        


June 29
Check # 5292 was issued for payroll:  $14500 for salaried and $4750 for wages (wage expense)    


June 30
Paid the first month's principal payment of $15,000 on the note payable.  In addition, paid one month's interest, Check #5293 


June 30
Issued bonds payable at face value for $450,000 


*All purchases on account terms of 2/15, n/30


**All credit sales have terms of 2/20, n/30


June Month-end Adjustments:


( A )
AC Speed has earned one month of the prepaid rent received from their tenant at the beginning of June. 


( B )
The Company took a physical count of Office Supplies on June 30 and found the following to be on hand: Office Supplies -  $2500


( C )
AC Speed estimates bad debt expense on a monthly basis rather than waiting until year-end. The company uses the allowance method. Based on recent industry estimates, AC Speed estimates that the allowance account should be 2%  of accounts receivable. 


( D )
The Company took a physical inventory count on June 30 and found the following inventory on hand: Merchandise Inventory -  $120000



( E )
The Balance in the prepaid insurance account at the beginning of June represents  4 months of coverage. Record the amount of insurance for June. 


( F )
Depreciation on the company's fixed assets for the month of June is as follows:

 1. The furniture and equipment for the warehouse was purchased a few years ago for  10000. These assets have a 4-year life, an expected salvage value of 1000 and are depreciated using the straight-line method. 

 2. The furniture and equipment for the office was purchased last year for  8500. these assets have a 7 year life, an expected salvage value of 1500 and are depreicated using stright-line method.  

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