| Case Study Introduction |
| | Transferable Skills are a set of essential abilities that will position students for success as they develop and build their careers. College faculty and staff believe it is important that all Rasmussen graduates develop these skill sets, as having expertise in these areas will be beneficial throughout one's life. Employers have also identified these skills as being essential in well-rounded employees.
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| | In this course, you will have the opportunity to learn and demonstrate each of these skills. These skills will be measured as a portion of our course project that has been designed to replicate an authentic workplace project. These skills are the following: Communication, Critical Thinking, Digital Fluency, Diversity and Teamwork, Ethics and Professional Responsibility, and Information Literacy. |
| | How can I learn more about the Transferrable Skills? Rasmussen College faculty and staff have worked together to create a visual guide to each of the Transferable Skills. You are able to view the entire set of six guides at the following location: http://guides.rasmussen.edu/transferableskills |
| | This Case Study is the major lesson material for this course and incorporates the use of transferable skills. |
| | Case Study |
| | Company Name: GolfPro Center |
| | Introduction |
| | Millions of people every day must make informed decisions about organizations. To make the decisions these people need information. Accountants measure the activities of an organization and communicate those measurements to others. Accounting information provided for internal users, such as managers, is referred to as managerial accounting; accounting information provided to external users is referred to as financial accounting. The two functions of financial accounting are to measure business activities of a company and then to communicate those measurements to external parties for decision-making purposes. |
| | GolfPro Center |
| | Let’s say you are ready to begin your new venture of working as the Accounting Manager for a new start-up golf center called GolfPro Center. The purpose of the golf center is to provide PGA-certified golf instruction and essentials to customers, such as junior players to develop their opportunity for top university programs. By using the base network of customers, the company intends to expand to sell nationwide as an integrated multi-channel retailer. The target market of junior league will be to individual golf pro shops, golf teams and eventually lead to selling through an online store. In additional to future new store openings, a significant part of the company's strategy is to continue to enhance the internet aspects of the direct to customer channel. The plan also entails the ongoing development of their own brand portfolio as they continue to grow. |
| | Golf Industry |
| | The golf retail industry is highly fragmented among mass merchants, off course specialty retailers, Internet merchants, warehouse type merchants and on course pro shops. The off course specialty golf retail industry has become extremely competitive as general sporting goods or their golf specialty retails have expanded their markets. The company will face competition as competitors enter the marketplace in the existing markets. |
| | Company Information |
| | Steve Smith is the owner and Chief Executive Officer of the company. He has appointed a close family member, Mike Smith as the Chief Financial Officer. You were recently hired by Mike Smith as the Accounting Manager. Your first main function is to set up the accounting department structure and financial statements. The corporate office is located in Chandler, Arizona. Let’s look at some initial activities of functions within the new company. The company opened business on December 1, 2016. You also started employment on this same date. You have been tasked with setting up the accounting department and internal control process. The financial statements, which you will prepare, will be the first set of financials for the company. You will also be tasked with setting up the financial notes and management's discussion and analysis portion of the financial statements. This will include company information, accounting policies, revenue recognition and inventory components. You will also encounter a few ethical situations along the way which will define your accounting educational activities. |
| | Let’s talk about how the company developed the investment for opening the business. The company needed about $35,000 to get the business up and going. Since the company did not have that amount of money to start the business, they began looking for investors. With their money, investors buy ownership in the company and have the right to share in the organizations profits. Each share of ownership is typically referred to as a share of common stock. For GolfPro Center they sell 1,000 shares of common stock for $25 each, receiving cash of $25,000 from investors. The 1,000 shares include 300 sold to family for $7,500, giving them 30% (= 300/1,000) ownership in the company. The company also offered you 100 shares for $2,500, giving you 10% ownership. The remaining 600 shares include 300 to extended partners, 200 to a friend, and 100 to the owners childhood golf coach. The company now has $25,000 from investors. |
| | To raise the remaining cash needed, the company will borrow $10,000 from a local bank, which is agreed to repay within three years. Thus, the bank is the creditor. Now, with the $35,000 of cash obtained from investors and creditors, the company buys equipment. This equipment costs $24,000, leaving $11,000 cash for future use. At this point, the company has the following resources that can be used for operations. |
| | The investors and creditors has the claims to the company’s resources. Creditors have claims equal to the amount loaned to the company, $10,000. In other words, $10,000 of the company’s resources are promised to the local bank. Investors have claims to all remaining resources, $25,000. |
| | You manage the resources of the company on behalf of the owners (stockholders, in this case), while the owner is also an investor this will help in aligning the interests with the other investors in the company. This is common in many start-up businesses. |
| | Formally defined, a corporation is a company that is legally separate from its owners. The advantage of being legally separate is that the stockholders have limited liability. Limited liability prevents stockholders from being held personally responsible for the financial obligations of the corporation. Stockholders of GolfPro Center can lose their investment of $25,000 if the company fails, but they cannot lose any of their personal assets (such as homes, cars, computers, and furniture). |
| | Other common business forms include sole proprietorships and partnerships. A sole proprietorship is a business owned by one person; a partnership is a business owned by two or more persons. If the owner had decided to start GolfPro Center without outside investors, he would have formed a sole proprietorship. However, because he did not have the necessary resources to start the business, being a sole proprietorship (or even one member of a partnership) was not a viable option. Thus, a disadvantage of selecting the sole proprietorship or partnership form of business is that owners must have sufficient personal funds to finance the business in addition to the ability to borrow money. Another disadvantage of being a sole proprietorship or partnership is that neither offers limited liability. Owners (and partners) are held personally responsible for the activities of the business. |
| | Sole proprietorships and partnerships do offer the advantage of lower taxes compared to corporations. Sole proprietorships and partnerships are taxed at the owner’s personal income tax rate, which is typically lower than the corporate income tax rate. In addition, a corporation’s income is taxed twice (known as double taxation): (1) the company first pays corporate income taxes on income it earns and (2) stockholders then pay personal income taxes when the company distributes that income as dividends to them. |
| | What information would GolfPro Center’s investors and creditors be interested in knowing to determine whether their investment in the company was a good decision? Ultimately, investors and creditors want to know about the company’s resources and their claims to those resources. Accounting uses some conventional names to describe such resources and claims. |
| | GolfPro Center has a liability of $10,000 to the local bank. Other examples of liabilities would be amounts owed to suppliers, employees, utility companies, and the government (in the form of taxes). Liabilities are claims that must be paid by a specified date. |
| | Investors, or owners, have claims to any resources of the company not owed to creditors. Therefore GolfPro Center, this amount is $25,000. We refer to owners’ claims to resources as stockholders’ equity, because stockholders are the owners. |
| | The relationship among the three measurement categories is called the accounting equation. GolfPo Center has assets of $35,000 and liabilities of $10,000. The stockholder equity is $25,000. |
| | Of course, all owners hope their claims to the company’s resources increase over time. This increase occurs when the company makes a profit. Stockholders claim all resources in excess of amounts owed to creditors; thus, profits of the company are claimed solely by stockholders. |
| | You will calculate the company’s profits by comparing its revenues and expenses. Revenues are the amounts recorded when the company sells products or provides services to customers. For example, when you or one of your employees provides golf training to a customer, the company records revenue. However, as you’ve probably heard, “It takes money to make money.” To operate the academy, you’ll encounter many costs. For example, you’ll have costs related to salaries, rent, supplies, and utilities. |
| | You’ll notice the use of the term net to describe a company’s profitability. In business, the term net is used often to describe the difference between two amounts. Here, we measure revenues net of (or minus) expenses, to calculate the net income or net loss. If we assume that by the end of the first month of operations GolfPro Center has total revenues of $7,200 and total expenses of $6,000, then we would say that the company has net income of $1,200 for the month. This amount of profit increases stockholders’ claims to resources but has no effect on creditors’ claims. |
| | When the company has positive net income, it will either distribute those profits back to its stockholders or retain those profits to pay for future operations. For example, suppose you decide that because GolfPro Center has net income of $1,200, a cash payment of $200 should be returned to stockholders at the end of the month. These cash payments to stockholders are called dividends. |
| | The other $1,000 of net income adds to stockholders’ equity of the company. Thus, when GolfPro Center has net income of $1,200, stockholders receive a total benefit of $1,200, equal to $200 of dividends received plus $1,000 increase in stockholders’ equity in the company they own. |
| | Let's now proceed to the your new journey in accounting with GolfPro Center. |
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