Business Finance - Accounting assignment

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BCOR 3010 Assignment 2 - The Accounting Cycle Version B You have been hired by Gnomeo, Inc., a company that buys and resells miniature garden gnomes. The company started business on January 1, 2019. The chief accountant has asked you to compile a set of financial statements that can be presented to current and potential investors. She hands you a list of transactions that need to be recorded in the accounting records before the financial statements for the year ended December 31, 2022, can be prepared. Your job is to record the transactions with journal entries, prepare the necessary adjusting entries, post all entries and prepare the financial statements for the year 2022. RECORD ENTRIES AND BUILD THE FINANCIAL STATEMENTS

1. Journal Entry List

Record entries from the transaction and event list provided below in proper journal entry format. NOTE: You are recording entries for the fiscal year 2022 (Jan 1 – Dec 31). This list must be organized. Make sure that I can easily identify the journal entry or adjusting journal entry with the related transaction/event. Show your work if the entry requires you to make a calculation (i.e. depreciation, interest expense, etc.).

2. Chart of T-Accounts Create a chart of T-Accounts and post each journal entry to the appropriate accounts.

3. Financial Statements

Build a multi-step income statement, a statement of retained earnings, and a classified balance sheet for the year ending December 31, 2022 (include all three years of data for 2022, 2021 and 2020 on all financial statements). Create a statement of cash flows for 2022 and 2021 using the indirect method for operating cash flows.

SUBMIT THE FOLLOWING

Ø You will turn in a physical copy of your work in the following order:

1. A cover page with the names of the members of your group. 2. Financial Statements (in the following order):

- Income Statement (2022, 2021, and 2020) - Statement of Retained Earnings (2022, 2021, and 2020) - Balance Sheet (2022, 2021, and 2020) - Statement of Cash Flows (2022 and 2021)

3. Include the following supporting documentation: Journal Entry List, Chart of T- Accounts, and Inventory Tracking Schedule.

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IMPORTANT COMPANY INFORMATION

Your company began operations on January 1, 2019.

Ø The company’s stock is traded on the NYSE. As of December 31, 2021, your company had 2,000,000 common shares outstanding with a par value of $0.70.

Ø At the close of the market on December 31, 2022, your company’s stock was trading at $4.80 per share. On November 1, 2022, the stock was trading at $3.15. At the end of 2021 the value of your stock was $3.90 per share.

Ø Use the Cost Method for treatment of Treasury Stock. Ø Use the Allowance Method in accounting for Bad Debts, specifically the Percentage of Accounts

Receivable Method. Ø The inventory valuation used by your company is FIFO (perpetual). Ø The company’s inventory on January 1st, 2022 consists of 13,000 units.

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2022 TRANSACTION AND EVENT LIST

HINT: Before booking an entry, remember to evaluate the substance of each transaction/event. Do accounting standards require the event or transaction to be booked into your company’s accounting records? NOTE: All interest rates included in the transaction list are stated at an annual rate.

January

1. On January 1st, The Board of Directors issued 220,000 additional shares (par of $0.70) to raise capital for the New Year. Assume no change in price from December 31, 2021.

2. Purchased new office equipment for $98,000 with cash from California Furniture on January 1,

2022. The equipment will be depreciated over a ten-year period on a straight-line basis. The office equipment has an estimated salvage value of $5,000. [Adjusting Entry Required]

3. On January 1st, a 5-year, $150,000 long-term note payable was taken from a local bank. The company plans on making a payment on this note at the end of the year.

4. On January 22nd the company purchased 8,500 units of inventory (garden gnomes) at a cost of $77 per unit. The company paid 45% in cash and purchased the remainder on account.

5. On January 25th the company paid $265,000 cash toward accounts payable.

February

6. Paid cash for $43,500 worth of radio advertising on February 1st. This gives the company radio advertising space until January 31st, 2023. [Adjusting Entry Required]

7. February 13th the company collects $358,000 of account payments from customers.

March

8. Purchased a parcel of land on March 1, 2022 for $950,000 by paying $490,000 in cash and signing a short-term note payable with the seller for $460,000. The company must repay the $460,000 in exactly one year on March 1, 2023. The company agreed to pay the seller 5 percent interest (annual rate) on a quarterly basis (June 1, September 1, December 1, 2022, and March 1, 2023). [Adjusting Entry Required]

9. On March 19th the company purchased $28,000 of office supplies from Super Office Supplies with cash.

10. On March 20th the company received a payment of $36,000 for 200 hours of service to be performed in the future.

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April

11. April 21st, customers bought 15,000 garden gnomes for $148 per unit. The cost of goods sold is determined by the method of inventory valuation used by the company (Hint: Your company has beginning inventory). Customers paid the company 55% in cash and the remainder was on account.

12. On April 27nd the company purchased 9,250 units of inventory at a cost of $79 per unit. The company paid 70% in cash and purchased the remainder on account.

13. On April 29th the company paid $530,000 cash toward its accounts payable.

May

14. On May 1st the company paid all dividends owed to its owners.

June

15. Leased additional warehouse space from Leasing Solutions for two years on June 1st due to expiration of the previous rental contract. $78,000 cash was paid for the new contract on this date which covers the rental fee for two years. There is no value left in the previous contract (Hint: the balance in prepaid rent at the beginning of the year has been “used” and should be recorded as an expense). [Adjusting Entry Required]

16. Wage expenses from January 1 – June 30 $494,000. This was paid in full, including the beginning balance in wages payable.

July

17. On July 1st, $128,000 of prepaid insurance was used.

August

18. Purchased a Patent (Intangible Asset) for $76,000 on August 1st with cash. The patent will be amortized over a 10 year period on a straight-line basis. [Adjusting Entry Required]

19. On August 6th, a piece of land that was originally purchased for $1,300,000 was sold for $1,240,000 cash.

20. August 15th, customers bought 9,000 garden gnomes at $148 per unit. The cost of goods sold is determined by the method of inventory valuation used by the company. Customers paid 45% in cash and the remainder was on account.

21. Received on August 25th a $129,000 cash payment from a customer paying on their account.

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September

22. On September 12th, a piece of equipment was sold for $510,000 cash. The equipment was

originally purchased for $570,000. At the time of the sale, it had been depreciated by $70,000.

October

23. The company’s top sales officer met with a new customer to discuss a potential future contract. She informs the company that the customer is considering signing the $250,000 deal, which would become effective February 2023.

24. On October 1st, the company purchased 11,250 units of inventory at a cost of $78.50 per unit. The purchase was made on account.

25. On October 10th, the company paid its supplier $92,000 cash for inventory that had been purchased on account.

November

26. November 1st, the CEO, in an effort to adjust ratios, ordered the repurchasing of the company’s own stock. The quantity of stock repurchased was 180,000 shares.

27. Purchased a two-year building insurance policy on November 1st for $335,000 cash. [Adjusting Entry Required]

28. On November 17th a customer paid $561,000 for work that the company will finish in January of 2023.

29. November 19th, customers bought 8,650 garden gnomes at $148 per unit. The cost of goods sold is determined by the method of inventory valuation used by the company. Customers paid 45% in cash and the remainder was on account.

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December

30. Wages earned from July 1st through December 31st was $542,000. Wages earned between December 15th and December 31st amounting to $48,000 will not be paid until January 7, 2023.

31. At the end of the year, $50,000 cash was paid to the local bank for the long-term note payable taken out on January 1, 2022. $42,000 of this was applied to the loan principal. The remaining amount was the accumulated interest due for 2022.

32. On December 31st, $517,000 depreciation expense for the year was calculated for equipment purchased before January 1, 2022.

33. On December 31st, the company declared dividends of $0.22 per share to be paid at a later date.

34. On December 31st, the utility bill was paid for the year. The amount was $52,000 and the company paid in cash.

35. On December 31st, the company paid in cash recurring interest on the long-term note acquired prior to the year 2020. HINT: See prior year financial statements.

36. By December 31st, 135 of the prepaid service hours from March 20, 2022 were completed.

37. A count of office supplies indicated that $14,600 of office supplies had been used by December 31st.

38. Since its inception, the company has been able to collect 88% of its ending accounts receivable balance from customers that bought its product on account. Based on this information, adjust the allowance for bad debt account. NOTE: Use the 2022 ending accounts receivable balance to make this calculation.