semester project requires students to record and post transactions & adjusting entries, complete the accounting cycle, and prepare financial statements for (a hypothetical corporation) the Vairam Company,

The semester project requires students to record and post transactions & adjusting entries, complete the

accounting cycle, and prepare financial statements for (a hypothetical corporation) the Vairam Company, for one calendar year. Students will also present “footnotes” although not traditional GAAP financial statement footnotes. Instead, the footnote section of this project will be a place to document lengthy calculations used for journal entries (for example amortization and depreciation schedules) and/or other information (for example computations for the earnings per share presented on the Income Statement).

 

The project may be completed individually or with a partner. If working with a partner, the work can be divided in any manner, however, both students receive the same grade on the project (e.g. if student A does a fabulous job on the journal entries and student B does a sloppy job on the financial statements, both students receive the same grade for the overall project).

 

Deliverables for this project are to be professionally presented in ONE COHESIVE document. Thus, you may use excel as a convenient means of computing (for example) net income, However the project’s Income Statement, should look like a financial statement, not a spreadsheet.

 

Information provided to you:

 

1. A beginning balance sheet (dated December 31, 2012).

 

2. A set of 25 transactions that occurred in 2013, & need to be recorded.

The first 17 transactions have dates associated with them. For some of these transactions, the

dates will be useful in also assisting you in preparing necessary end-of-year adjusting entries

(NOTE: not all transactions require adjusting entries – you need to rely on knowledge from prior

& current accounting courses to determine the accounts that require adjusting entries).

 

The remaining entries are listed as ‘summary’ entries (just put “sum” in the date column). Rather than have you prepare duplicate entries for transactions that occur more than once during a typical year (such as sales, payroll, etc.) one ‘summary’ transaction for the entire year is presented. This will provide you with sufficient (representative) transactions to ‘operate’ the business while eliminating redundancies in recording.

 

The transactions provided cover material from ACCTG 230, 330 and 331. For ACCTG 331, the project only covers material through Chapter 17 to insure timely ability to complete the project.

 

3. Supplemental information.

While some adjusting entries can be determined from the information provided in the transaction,

others require additional information (for example, life and salvage for the equipment on the beginning balance sheet, or the method used to compute bad debt expense).

 

 

 

Deliverables to be turned in (in one cohesive document):

 

1. Cover page with names of student(s) on project.

 

 

 

2. A numbered chart of accounts, in appropriate account order

Every account has its own unique number & the numbers are assigned to accounts in the

following order – assets (current before long term), liabilities (current before long-term), owners’ equity, revenue, expenses. The Chart of Accounts is merely a list of all of the company’s accounts and their account numbers, in numerical order.

 

There can be gaps between numbers (for example, all assets might be numbered in the 100s, all liabilities in the 200s, etc.). I also recommend leaving gaps within categories when setting up the chart of accounts for the beginning balance sheet – as you add new accounts through journal entries, they will need to go in their appropriate place in the ordering.

 

3. A general journal (suggested format below): TRANSACTIONS

Date	Acct #	Account Title	Debit	Credit

 

Be sure to indicate where transactions end and adjusting entries begin, and where adjusting entries end and closing entries begin.

 

 

 

4. A general ledger

Each account has its own “ledger” where all debits and credits are posted and account balances

computed. T-Accounts are an acceptable, although not required, ledger format. Don’t forget to post the beginning balances from the Balance Sheet to the relevant ledger accounts and be sure unadjusted, adjusted and post-closing balances can be easily identified.

 

 

 

5. Trial balances (in good form)

These can be presented on a spread sheet (if you choose) as they are internal, rather than

published, documents. The spreadsheet still needs to be incorporated into the project, not submitted as a separate file. Good form refers to listing the accounts in Chart of Accounts order and having debit and credit columns (that balance). You will need the following trial balances:

* Unadjusted trial balance

* Adjusted trial balance

* Post-closing trial balance.

 

 

 

6. End of year financial statements (in good form):

Good form for financial statements includes good accounting form – such as labeling and placing accounts in appropriate sections (e.g. current assets, current liabilities) and including all required

information (such as earnings per share on income statements), and in good ‘professional’ form –

not having visible gridlines from spreadsheets, not having account titles and amounts on different pages, etc.

 

 

 

Remember – financial statements DO NOT have debit & credit columns – internal columns on financial statement are for intermediate calculations (such as subtracting Accumulated Depreciation from Equipment).

 

Financial Statements to include:

 

• Income Statement (multi-step)

 

• Balance Sheet (classified),

 

• Cash Flow Statement (I recommend using your cash T-Account to prepare a direct method cash flow statement similar to what was presented in ACCTG 330. Attempting to follow the format in Chapter 23 is not recommended, as you will not have completed the chapter prior to handing in the project. I will discuss the Cash Flow Statement further on the discussion board).

 

• Statement of Owners’ Equity (NOT a statement of retained earnings).

 

 

 

NOTE: Unlike ‘real’ financial statements that combine similar accounts and/or provide net amounts for accounts & their related contra-accounts, these financial statements represent both the company’s financial information AND demonstrate your knowledge of accounting, which requires presentation that enables me to see where your numbers come from. Therefore, present all accounts individually (e.g. do not have one line for “operating expenses” on your income statement – list ALL expenses individually; similarly, do not present “net A/R”, but include A/R less Allowance for Doubtful Accounts, etc.). See Beginning Balance Sheet provided as an example.

 

7. ‘Footnotes’

This is really, just a section to document ‘complicated’ computations for which I need a little

more information to understand where your numbers come from in order to grade the project. It is

not a traditional footnote section as you would see in a real company’s financial statements.

 

 

 

Vairam Company

Balance Sheet

For the Period Ending 12/31/12

 

Assets Current Cash		$    277,400
Accounts Receivable	$800,000
Allowance for Doubtful Accounts	16,000	784,000
Inventory		500,000
Office Supplies		21,300
Property, Plant & Equipment Equipment	$400,000
Accumulated Depreciation	(240,000)	160,000
Intangible

Patent                                                                                             150,000

 

Total Assets                                                                            $  1,892,700

==========

Liabilities and Owners’ Equity

Current Liabilities

Accounts Payable                                                                    $     200,000

Short-Term Notes Payable                                                              125,000

 

Total Liabilities                                                                      $     325,000

 

Owners’ Equity

 

Common Stock, $3 par, 400,000 shares authorized,

100,000 issued and outstanding                                   $      300,000

Additional Paid-in-Capital, Common Stock                                     500,000

Retained Earnings                                                                           767,700

 

Total Liabilities & Owners’ Equity                                       $   1,892,700

==========

 

 

 

 

DATE	TRANSACTIONS
Jan 1	Issued 50,000 shares of $3 par value common stock at a price of $18 per share.
Jan 1	Issued 10,000 shares of $10 par value, 6% preferred stock at a price of $50 per share.
Jan 1	Traded old equipment plus $5,000 cash for new, updated equipment. It was determined that the trade had commercial substance. The old equipment had an original cost of $40,000 and accumulated depreciation of $24,000 and the new equipment had a fair value of $18,000. The new equipment has an expected life of 6 years and no salvage value.
Jan 1	Paid $8,000 cash successfully defending their existing patent. Due to the successful defense, life of the patent is expected to be 10 years from the date of defense.
April 1	Declared a 10% common stock dividend. The dividend is payable on May 1st to stockholders of record on April 25th. The market price of the common stock on the date of declaration was $20 per share.
May 1	Issued the common stock to settle the dividend declared on April 1st.
July 1	Issued $400,000 par value, 6%, 10 year bonds payable. The bonds pay interest semi- annually on June 30th and December 31st. At the time of issuance, the market rate of interest for bonds of similar risk was 4%.
July 1	Purchased land and a building for $500,000 by paying $50,000 down and taking out a note for $450,000. The fair value of the land was estimated at $250,000 and the fair value of the building was estimated at $280,000. The expected life of the building is 20 years, and expected salvage value is $40,000.
July 1	Paid $5,000 cash for a one year insurance policy on the building.
July 1	Purchased 5,000 shares of the company’s own common stock, for treasury stock purposes, at $20 per share. The company uses the COST method to account for treasury stock purchases.
July 1	Paid the short term note (see beginning balance sheet) plus 6 months of interest (stated annual rate of 5%)
Sept 15	A customer who owed the company $1,500 declared bankruptcy. The company wrote the customer’s account off.
Oct 1	Purchased 5,000 shares of XYZ company for $20 per share. The securities are classified as Trading securities. No dividends were declared or paid by XYZ during the year. The XYZ stock was trading at $23 per share on December 31st.
Dec 1	Reissued 2,000 shares of the treasury stock purchased on July 1st for $25 per share.
Dec 31	Declared a $.25 dividend per common share and the required dividend on the preferred shares. The dividend will be paid on February 25th to stockholders of record on February 20th
Dec 31	Paid interest on the bonds issued on July 1st. (Be sure to amortize the premium as well.

 

 

 

 

Dec 31	Paid $33,750 on the note issued on July 1st. Of the amount paid, $11,250 was interest and $22,500 reduced the principal.
Summary	Inventory purchases during the year were $1,300,000 and all were on account.
Summary	Sales for the year were $2,350,000, with $400,000 for cash and the remainder on account. The cost of the goods sold was $1,010,000.   NOTE: Argyle uses the perpetual method of accounting for inventory. Therefore, the inventory account is debited whenever inventory is purchase and credited whenever inventory is sold.
Summary	Cash collections on accounts receivable for the year were $1,200,000.
Summary	Cash payments for inventory purchased on account were $825,000.
Summary	Total (gross) payroll for the year was $125,000. Assume a federal income tax rate of 25%, a FICA rate of 7.65%, and a federal unemployment tax rate (net of state tax credit) is .8% and the state unemployment tax rate is 3%. Assume all wages owed to employees were paid in cash, NONE of the payroll taxes have been paid yet.
Summary	Customers returned merchandise, with a sales price of $73,000 and a cost of $31,390, for full credit. As there was no damage to the returned merchandise, the goods were returned to inventory.
Summary	Purchased office supplies for $9,000 cash. As of the end of the year, the company did a count and had $8,000 of office supplies remaining in the store room.
Summary	Paid cash for $43,000 utilities for the year’s utilities.

 

SUPPLEMENTARY INFORMATION

Much of the information needed to prepare adjusting entries is included in the transaction information (for

example when trading old equipment for new, the life and salvage value of the new equipment is provided in the transaction information). However, additional information is necessary for some adjusting entries.

This is provided below:

 

1. The company uses the straight line method to depreciate (and/or amortize) all long term assets.
2. The company uses the percentage of receivables method to estimate bad debt expense. The estimated bad debts are 2% of ending accounts receivable.
3. The company took a physical inventory of office supplies at the end of the year, and determined

$6,000 remained.

4. The remaining ‘old’ equipment (original equipment on the balance sheet that was not traded-in on

January 1st) has a remaining life of 10 years and $0 salvage value.

5. Assume, for simplicity, there are no differences between financial and taxable income. Assume a

35% income tax rate and taxes will be paid sometime in 2014 (after computing income taxes and

income taxes payable, don’t forget to post the amounts to the general ledger before closing

revenue and expense accounts).

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