Accounting Question

Module 05 Content

Using the information that you have compiled over the past four modules, prepare your summary recommendation for Gentry Inc. and its plan to expand internationally. Remember that the company is trying to raise $50 million to expand via an IPO and debt issuance.

Create a 10-15 slide presentation detailing your findings. Your recommendation should be 1-2 slides. Note that the title slide and reference slides are not included in the 10-15 total. Be sure to include academic references in your presentation as well as any charts or graphs to convey your financial information.

Include a summary the deliverable from Modules 02-04 in the presentation.

1
Module 04 Course Project – Risk Identification
Sadie Nonweiler
Rasmussen College
SPR24T2-ONP-GEB3020-02 Advanced Principles of Financial Management
Edward Strafaci
May 26, 2024
Module 4
2
Risk Analysis and Recommendations for Gentry Inc.’s IPO and Global Expansion
Introduction
Expanding into international markets and undertaking an initial public offering (IPO)
introduce risks that can impact Gentry Inc.’s financial performance and strategic objectives.
These three risks are generally referred to as canonical or fundamental risks, including
transaction, translation, and economic risks (Deng et al., 2022). It is imperative to undertake
careful planning, realistic scenario creation, and sensitivity analysis to minimize these threats and
achieve successful international expansion.
Risk Exposures Affecting International Expansion
Transaction Risk
Transaction risk arises from fluctuations in exchange rates, the time a transaction is
initiated, and the time of payment of the agreed amount. This risk is especially significant to
entities operating in sectors involving transacting in multiple currencies. For such businesses, the
exchange rate fluctuations can slow down the inflow of cash from overseas ventures
(Felzensztein et al., 2022). For Gentry Inc., transaction risk affects the cost of imported
materials, the income for exported goods, and the profits that can be sent from subsidiaries. For
example, if the Euro is devalued against the U.S. dollar, the company’s revenues earned in
Europe will be lower when converted back to dollars. This will eventually have a detrimental
impact on the company’s profits. To minimize such risk, Gentry should adopt hedging strategies
like futures, forwards, and options to fix the rates for future operations. Additionally,
diversifying foreign transactions across at least two currencies would help minimize the
probability of unfavorable fluctuation in exchange rates.
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Translation Risk
Translation risk, also known as accounting exposure, arises when foreign subsidiaries’
accounts are integrated into the parent companies. Falling and rising exchange rates are some of
the reasons that have the potential to cause volatility in reported earnings and equity (Dang et al.,
2020). Now, in Gentry Inc., the translation risk will likely impact the financial results, which in
turn changes the earnings per share and investors’ reactions, which results in a change in stock
prices. The other issue is related to currency translation. For instance, if the Yen strengthens
against the dollar, then the operations of Japanese organizations are reported to have higher
earnings. To control this risk, Gentry should carry out natural hedging whereby operations
performed in separate currencies will help cancel out fluctuations in different currencies, as seen
in the operation. Gentry should also reduce dependence on foreign operations and identify the
currency in which the operations are primarily conducted as a functional currency. This will help
minimize the effect of exchange rate changes on financial statements.
Economic Risk
This type of risk is the influence of fluctuations in exchange rates on the company’s
future cash flows and market value. It also captures the nuances of economic trends like
inflation, recession, and shifts in economic policy (Felzensztein et al., 2022). Gentry Inc. may
experience poor exchange rates that diminish the competitiveness of its products in foreign
markets, affecting its share and margins. For instance, by depreciating the dollar, continued
appreciation of the Euro means Gentry’s products will be expensive in this region. This will
automatically reduce the demand for their products. To overcome this risk, Gentry must
undertake market analysis and match some strategies with certain economic situations.
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Establishing flexible production and sourcing strategies can also help the company quickly adapt
to economic changes, ensuring resilience against potential market volatility.
Scenario and Sensitivity Analysis
Sensitivity Analysis
Sensitivity analysis focuses on how one risk factor influences the NPV/IRR of the
investment proposal by varying such factors at a time. It supports identifying its strength and
flexibility for investment management in different situations (Deng et al., 2022). In Gentry Inc.’s
context, it is possible to decide how the exchange rate alteration impacts profitability using
sensitivity analysis. For instance, one may evaluate the effects of fluctuation in the value of any
currency, say the Yen, by 10%, either on the appreciation side or the depreciation side on the
planned revenues. The strengths of sensitivity analysis include isolating the key variables that
affect the likelihood of delivering project success. This method is also easy to use. However, this
approach is limited in that it examines one factor at a time, which may not be the case in realworld real-world scenarios. Further, it does not consider the correlation between two variables,
hampering its effectiveness.
Scenario Analysis
Scenario analysis evaluates the impact of simultaneous changes in multiple variables by
creating different scenarios (best case, worst case, base case). It gives one an additional
perspective that can be wider in the sense that it gives one an idea of a broader range of
possibilities (Felzensztein et al., 2022). For Gentry Inc., the possible outcomes of analyzing the
given economic conditions can be for international expansion. For example, environments where
the Euro gains by 15 percent alongside different growth rates in Germany will be the best-case
scenario. A primary benefit of conducting a scenario analysis is that the analyst can factor in
Module 4
5
several variables and their interdependencies and consider the probabilities of several outcomes
to help develop adequate decisions (Dang et al., 2020). However, this approach is more
comprehensive and often takes longer than sensitivity analysis. It also involves working with a
lot of data and necessary assumptions.
Conclusion
Adverse, transaction, translation, and economic risks will likely impact Gentry Inc.’s
cross-border expansion and IPO. Applying sensitivity and scenario analysis is essential as it
helps the organization assess the effect of different risk drivers and develop more constructive
plans (Deng et al., 2022). Managing currency risk through derivatives, adopting natural currency
risk hedging, and undertaking extensive market research is essential. Gentry Inc. is poised to go
through the international markets without compromising its financial strength to realize its
expansion objectives.
Module 4
6
References
Dang, Q. T., Jasovska, P., & Rammal, H. G. (2020). International business-government relations:
The risk management strategies of MNEs in emerging economies. Journal of World
Business, 55(1), 101042. https://doi.org/10.1016/j.jwb.2019.101042
Deng, Z., Zhu, Z., Johanson, M., & Hilmersson, M. (2022). Rapid internationalization and exit of
exporters: The role of digital platforms. International Business Review, 31(1), 101896.
https://doi.org/10.1016/j.ibusrev.2021.101896
Felzensztein, C., Saridakis, G., Idris, B., & Elizondo, G. P. (2022). Do economic freedom,
business experience, and firm size affect internationalization speed? Evidence from small
firms in Chile, Colombia, and Peru. Journal of International Entrepreneurship, 20(1),
115-156. https://doi.org/10.1007/s10843-021-00303-w
1
Deliverable 2 – Deliverable 2 – Interpreting Supply and Demand Curves
Sadie Nonweiler
Rasmussen College
ECO3250CBE Section 01CBE Managerial Economics
Robert Anderson
April 10, 2024
Module 4
2
Lightning Volt has access to capital and the most advanced technology to manufacture its
electric vehicles. Due to the novelty of Lightning Volt’s electric vehicles, the firm is
overwhelmed with orders.
Explain the shifts in the supply and demand curves.
With the overwhelming demands experienced by the lightning bolt in regard to electric
vehicles as a result of the advancement and novelty in technology, this leads to a considerable
change in the curve of demand to the right. This implies the increase in electric vehicle demand.
The increases in the demand leading to the shift to the right for the demand curve contribute to the
substantial shift of the supply to the right with the aim of meeting the demand, leading to the ability
of the company to ramp up its production.
Describe the determinants of demand and supply that would cause the curves to initially
shift.
The determinant regarding the changes in the demand and supply curve might lean on the
different approaches. On the side of demand, the preferences of customers serve a critical role due
to their affinity for advanced technology, which leads to increased demand. In addition, the
increased expectations in regard to the performance of the vehicles in the future lead to changing
the curves (Kittner et al., 2020). The other determinant is advanced technology, which leads to the
demand for advancement and, thus, influences the supply curve through the advancement in
production.
Module 4
3
Identify the new equilibrium price and equilibrium quantity.
For the equilibrium prices, there is an increase as a result of heightened demand, thus
signifying the dedication of customers to paying more for premium products. On the other hand,
the equilibrium quantity experiences an increment, which reflects the capacity of the company for
effective production.
The U.S. federal government is offering tax rebates to consumers who purchase electric
vehicles. Subsidies are given to U.S. electric vehicle manufacturers to fight climate change.
Explain the shifts in the supply and demand curves.
The emergence of subsidies and tax rebates in regard to electric vehicles for customers and
manufacturers led to a shift on the demand curve to the right due to the increased demand as
customers are mainly enticed through the cost savings protest, leading to increased demand. With
the increased demand, the supply curve will also tend to move towards more right due to increased
supply that aims to meet the demand of the customers. However, the supply curve might have less
shift than the demand curve.
Describe the determinants of demand and supply that would cause the curves to initially
shift.
There are different factors that determine the shift of the curve to the rights, such as the
changes in the disposable income for the customers, the increased urge of the government in regard
to the adoption of electric vehicles and the increased consciousness of environmental sustainability
for the customers (Kittner et al., 2020). For the supply shift, there will be a comparative response,
Module 4
4
but the increased demand for the customers is the determinant that leads to increased supply despite
the unmatched demand surge.
Identify the new equilibrium price and equilibrium quantity.
Therefore, the new price of equilibrium highlights the increased prices as a result of the
increased demand, thus the increases in the equilibrium price. On the other hand, there will be an
increase in the equilibrium quantity as a result of increased supply. However, the main changes in
the new scales of price and quantity of equilibrium are determined by the scale changes in the
curves, highlighting the complex relation of market forces impacted by the policies and behaviors
of customers when purchasing.
Consumers now have more disposable income compared than in previous years. The United
States is faced with higher price levels.
Explain the shifts in the supply and demand curves.
Based on the case, the increased disposable income for the customers, which results in
significant implications, mainly for the market of electric vehicles, contributes primarily to the
shift in the demand curve to the right due to the increased power of purchasing for the customers.
Therefore, the change highlights the increased capability and desires of the customers to purchase
the vehicles, leading to the shift of the supply curve to the slight right as a result of a rise in demand.
Describe the determinants of demand and supply that would cause the curves to initially
shift.
The main determinant factor based on the right shift of the demand curve includes the
changes in the levels of income for the customers, reflecting the significant connection between
Module 4
5
demand and customer income. The increased financial resources for customers at disposable levels
lead to an incline in the investment for electric vehicles (Kittner et al., 2020). On the other hand,
the supply curve is determined by different factors, such as the increased demand for the
customers, despite the constraints by different determinants, such as the capacity of production,
which implies the struggle of the manufacturers to meet the demand.
Identify the new equilibrium price and equilibrium quantity.
The new price will increase as a result of a rise in demand while the quantity of equilibrium
faces an increase. However, the changes will be based on the underlying magnitude of the changes
for the curves.
The cost of intermediate goods has decreased in price. Most consumers now prefer electric
vehicles over gasoline vehicles.
Explain the shifts in the supply and demand curves.
The decrease in the prices of intermediate products, such as the use of electric vehicles,
leads to the rigger on the significant influence of the dynamism of the market, which leads to the
right change in the supply curve. On the other hand, the preferences of the customers and levels of
income lead to increased demand for electric cars rather than gasoline ones.
Describe the determinants of demand and supply that would cause the curves to initially
shift.
The changes in the supply to the right are due to the cost-effectiveness of the production
of electric cars. Therefore, with the decreased costs of production, manufacturers are more
incentivized to rise the supply of vehicles (Kittner et al., 2020). In addition, the change in demand
Module 4
6
is led by the preferences of customers and levels of income. However, the decline in the prices of
the goods has an indirect impact on the supply, thus promoting increased effectiveness and
capacity in production.
Identify the new equilibrium price and equilibrium quantity.
Therefore, the new price of equilibrium will decline as a result of the increase in the supply
of vehicles, thus increasing the accessibility for the customers, while the quantity will increase,
highlighting the increased levels of production and demands of customers.
Part 2.
Identify and explain external shocks to the macroeconomy that could affect Lightning Volt’s
domestic and international sales.
The sales in the local and international setting of the company are significantly influenced
by external shocks such as the recession of the economy, which pose significant risks that lead to
the risks due to the reduced confidence of the customers and power of purchase. This leads to a
diminish in the demand for the vehicles, domestically and internationally (Yu et al., 2024). In
addition, fluctuations in exchange rates lead to the emergence of a layer of threats due to changes
in the value of the currency, which influence product competitiveness in global markets.
Furthermore, the barriers of trade and tariffs lead to increased complications, which limit
the accessibility to critical markets and increase production costs, which impact sales. In addition,
the increased advancement in technology by the competitors erodes the market share of the
company, which affects the sales as it doesn’t meet the pace of advancement. Furthermore, natural
disasters lead to tangible threats that lead to disruption of the supply chain, leading to delays in
Module 4
7
production and issues in marketing or distribution. Therefore, there is a need for Lightning Volt to
implement effective strategies that take into consideration the market nature of the environment.
Module 4
8
References
Kittner, N., Tsiropoulos, I., Tarvydas, D., Schmidt, O., Staffell, I., & Kammen, D. M. (2020).
Electric vehicles. Technological Learning in the Transition to a Low-Carbon Energy System,
145–163. https://doi.org/10.1016/b978-0-12-818762-3.00009-1
Yu, C., Fu, C., & Xu, P. (2024). Energy shock, industrial transformation and macroeconomic
fluctuations.
International
Review
https://doi.org/10.1016/j.irfa.2024.103069
of
Financial
Analysis,
92,
103069.
Module 05 Assignment Inventory
Use the information below to complete the tasks. (HINT: under view use “freeze panes” so it is easier to scroll through
Model Airplane kits sell for $50 each
Hobbies Galore
Item: Model Airplane kits
Date
Item
1-Aug Balance
5-Aug Purchase
12-Aug Sale
15-Aug Purchase
28-Aug Sale
Quantity
5
7
8
13
9
Unit Cost
$20
$21
$22
50
1
Prepare a perpetual inventory costing record using FIFO and journalize the purchase and sales transactio
Purchases
Cost of Goods Sold
Date
Quantity
Unit Cost Total Cost
Quantity
Unit Cost Total Cost
1-Aug
5-Aug
7
$21
$147
$0
12-Aug
5
$20
$100
3
$21
$63
15-Aug
13
$22
$286
$0
$0
28-Aug
4
$21
$84
5
$22
$110
Total
$433
17
$357
2
Prepare a perpetual inventory costing record using LIFO and prepare the purchase and sales transaction
Purchases
Cost of Goods Sold
Date
Quantity
Unit Cost Total Cost
Quantity
Unit Cost Total Cost
1-Aug
5-Aug
7
$21
$147
$0
12-Aug
$0
7
$21
$147
$0
1
$20
$20
15-Aug
13
$22
$286
$0
$0
$0
28-Aug
$0
4
$22
$88
$0
5
$20
$100
Total
$433
17
$355
3
Prepare a perpetual inventory costing record using weighted average cost and prepare the purchase and
Purchases
Cost of Goods Sold
Date
Quantity
Unit Cost Total Cost
Quantity
Unit Cost Total Cost
1-Aug
5-Aug
7
$21.00
$147.00
12-Aug
$0.00
8
$20.58
$164.67
15-Aug
13
$22.00
$286.00
$0.00
28-Aug
$0.00
9
$21.67
$195.00
Total
$433.00
17
$359.67
4
Using the information above, complete the table for FIFO, LIFO and Weighed Average Cost and answer t
FIFO
LIFO
Weighted Average Cost
Revenue
Cost of Goods Sold
Gross Profit
$
850.00 $
357.00
493.00
850.00 $
355.00
495.00
850.00
359.6
490.3
During inflation, which costing method gives the highest profit before operating expenses? Which meth
inventory on hand?
During inflation, the FIFO (First-In, First-Out) method typically results in the highest profit before operatin
lower-cost inventory first, leading to lower cost of goods sold and higher profits. Conversely, FIFO also sho
on hand since it leaves more expensive, recently purchased items in inventory, reflecting higher current m
Out), on the other hand, results in higher costs of goods sold by using newer, costlier inventory first, redu
5
Estimate the August 1 inventory for Hobbies Galore using the gross profit method.
Hobbies Galore lost inventory in one of its storage units last month, July. Over the last five years, gross profit
following records were recovered.
Beginning Inventory
Net Purchases
Sales
Sales returns and allowances
Sales discounts
$
Estimate the August 1 inventory using the gross profit method.
Beginning Inventory
Net purchases
Goods Available for Sale
Sales
Less: Retirns and Allowances
Sales Discounts
Net Sales
Estimated Gross Profit
42,500
341,900
530,400
12,300
6,500
$
12,300
6,500
Estimated Cost of Goods Sold
Estimated ending inventory
Give an example of a time when a business would estimate its ending inventory using the gross profit
A time when a business would estimate the ending inventory through use of gross profit method is when
experiencess a loss of inventory due o unforeseen circumstances such as a fire accident. This method is pa
inventory records are unavailable or unreliable due to the loss. By applying the historical gross profit perc
business can estimate the cost of goods sold, allowing for the calculation of ending inventory. This approa
inventory levels and financial position despite the absence of accurate inventory data resulting from unfo
easier to scroll through the information)
ase and sales transactions. (Aassume all purchases and sales are on account)
Remaining Inventory on Hand
Quantity
Unit Cost Total Cost
Date
5
$20
$100
Aug
5
Inventory
5
$20
$100
Accounts Payable
7
$21
$147
12
Accounts Receivable
$0
Sales
4
$21
$84
Cost of Goods Sold
4
$21
$84
Inventory
13
$22
$286
22
Inventory
$0
Accounts Payable
8
$22
$176
30
Accounts Receivable
8
$22
$977
Sales
Cost of Goods Sold
Inventory
e and sales transactions.
Remaining Inventory on Hand
Quantity
Unit Cost Total Cost
5
$20
$100
5
$20
$100
7
$21
$147
$0
4
$20
$80
4
$20
$80
13
$22
$286
$0
8
$20
$160
8
$20
$953
Journal
Accounts
Journal
Date
Aug
Accounts
5
12
22
30
Inventory
Accounts Payable
Accounts Receivable
Sales
Cost of Goods Sold
Inventory
Inventory
Accounts Payable
Accounts Receivable
Sales
Cost of Goods Sold
Inventory
epare the purchase and sales transactions.
Remaining Inventory on Hand
Quantity
Unit Cost Total Cost
5
$20.00
$100.00
12
$20.58
$247.00
4
$20.58
$82.33
17
$21.67
$368.33
8
$21.67
$173.33
$0.00
$0.00
$0.00
$0.00
$971
Journal
Date
Aug
22
30
850.00
359.67
490.33
expenses? Which method gives the highest cost of
st profit before operating expenses because it uses older,
Conversely, FIFO also shows the highest cost of inventory
flecting higher current market prices. LIFO (Last-In, Firstlier inventory first, reducing profits and showing lower
od.
ve years, gross profit has averaged 35%. The
$
$
$
530,400
12,300
6,500
18,800
511,600
179,060
5
12
rage Cost and answer the question.
Weighted Average Cost
$
Accounts
42,500
341,900
384,400
Inventory
Accounts Payable
Accounts Receivable
Sales
Cost of Goods Sold
Inventory
Inventory
Accounts Payable
Inventory Receivable
Sales
Cost of Goods Sold
Inventory
y using the gross profit method.
s profit method is when the retailer than a a retailer
This method is particularly useful when detailed
storical gross profit percentage to the remaining sales, the
g inventory. This approach provides a practical way to assess
data resulting from unfortunate events.
332,540
$51,860
Journal
Post.
Accounts
Debit
Credit
$147
$147
400
400
163
163
286
286
450
450
194
194
Journal
Accounts
Post.
Debit
Credit
$147
$147
400
400
167
167
286
286
450
450
188
188
Journal
Accounts
Post.
Debit
$147.00
Credit
$147.00
400.00
400.00
164.67
164.67
286.00
286.00
450.00
450.00
195.00
195.00
Module 3 Assignment Accounting Cycle Part 2
Use this worksheet as REFERENCE ONLY. There is nothing to complete or change, but you will need to know what accoun
to be added, and by the end of Part 2 of the problem, all accounts will have been used at least once.
Assets
100
110
120
130
140
150
155
100
Cash
Accounts Receivable
Supplies
Prepaid Photo Subscriptions
Prepaid Advertising
Equipment
Accumulated Depreciation-Equipment
Liabilities
200
210
200
Accounts Payable
Unearned Revenue
eed to know what accounts are used in Taylor’s Creative Design business. No new accounts will need
Stockholders’
Equity
300
310
320
300
Common Stock
Dividends
Retained Earnings
Revenue
400
400
Service Revenue
Expense
500
510
520
530
500
Advertising Expense
Supplies Expense
Photo Expense
Depreciation Expense
PART 2
Taylor’s Creative Design
T-Account Ledger These beginning balances are the ending balances from Part 1. It is a continuation
Bal.
Cash
13448
100
Bal.
30
Adj Bal
Cl Bal
Bal.
Adj Bal
Cl Bal
13448
13448
Adj Bal
Cl Bal
Equipment
5325
150
Accounts Receivable 110
1625
1,000
2,625
2,625
Accumulated Depreciation-Equipment 155
Bal.
30
5325
5325
Adj Bal
Cl Bal
Common Stock
Bal.
Adj Bal
Cl Bal
300
15000
15000
15000
CL
CL
Retained Earnings
605 Bal.
1,200 CL
Adj Bal
Cl Bal
320
es from Part 1. It is a continuation of Part 1.
s Receivable 110
Bal.
Adj Bal
Cl Bal
epreciation-Equipment 155
d Earnings
Supplies
250
30
Prepaid Photo Subscriptio
90
160
160
Bal.
120
120
Adj Bal
Cl Bal
440
440
0
4105
Bal.
Dividends
1200 CL
0
2,300
Adj Bal
Cl Bal
Bal.
Adj Bal
Cl Bal
Prepaid Advertising 140
480
30
0
120
320
120
Service Revenue
40
CL
1,200
Bal.
310
Depreciation Expense
30
1200
0
Adj Bal
Cl Bal
4
Prepaid Photo Subscriptions 130
300
30
55
Bal.
30
245
245
Adj Bal
Cl Bal
Service Revenue 400
4105 Bal.
30
Adj Bal
Cl Bal
Depreciation Expense
0 CL
120
120
0
2905
1,200
Bal.
4,105
0
Adj Bal
Cl Bal
120
Bal.
30
530
30
Adj Bal
Cl Bal
Advertising Expense
300 CL
40
500
340
340
0
Supplies Expense
0 CL
90
510
90
90
0
Photo Expense
0 CL
55
55
0
520
55
Accounts Payable
30
200
Bal.
4823
Adj Bal
Cl Bal
4,823
4,823
Unearned Revenue
200 Bal.
Adj Bal
Cl Bal
210
200
0
0
PART 2
Complete the adjusting entries for Taylor’s Creative Design for April 30 and post them to the t-accounts.
Journal Adjusting Entries
Accounts
Date
April
30
30
30
30
30
Depreciation Expense
AccumulatedDeprecreciation_Equipment
Supplies Expense
Supplies
Photo Expense
Prepaid Photo Subscriptions
Advertising Expense
Prepaid Advertising
Unearned Revenue
Accounts Receivable
Service Revenue
Totals
Post. Ref
530 $
155
510
120
520
130
500
140
210
110
400
$
Debit
120
90
55
40
200
1,000
1,505
Credit
$
120
90
55
40
$
1,200
1,505
PART 2
Complete the adjusted trial balance for Taylor’s Creative Design.
You will use the information from this trial balance to
create your financial statements.
Taylor’s Creative Design
Adjusted Trial Balance
April 30, 20XX
Account
100 Cash
110 Accounts Receivable
120 Supplies
130 Prepaid Photo Subscriptions
140 Prepaid Advertising
150 Equipment
155 Accumulated Depreciation
200 Accounts Payable
210 Unearned Revenue
300 Common Stock
310 Dividends
400 Service Revenue
500 Advertising Expense
510 Supplies Expense
520 Photo Expense
530 Depreciation Expense
Totals
$
Credit
Debit
13,448
2,625
160
245
440
5,325
$
120
4,823
15,000
1,200
4,105
$
340
90
55
120
24,048 $
24,048
PART 2
Prepare the financial statements for the month of April for Taylor’s Creative Design.
Taylor’s Creative Design
Income Statement
For the Month Ended April 30, 20XX
Revenues:
Service Revenue
4,105
Total Revenue
$
4,105
Expenses:
Advertising Expense
$
340
Depreciation Expense
120
Supplies Expense
90
Photo Expense
55
Total Expenses
605.00
Net Income
$
3,500
Taylor’s Creative Design
Statement of Retained Earnings
For the Month Ended April 30, 20XX
Retained Earnings, April 1
Net Income
Less: Dividends
Net Increase in Retained Earnings
Retained Earnings, April 30
Creative Design
of Retained Earnings
h Ended April 30, 20XX
Taylor’s Creative Design
Balance Sheet
April 30, 20XX
$0
$
3,500
1,200
$
2,300
2,300
Current Assets:
Cash
Accounts Receivable
Supplies
Prepaid Photo Subscriptions
Prepaid Advertising
Total Current Assets
Property Plant & Equipment:
Equipment
Less: Accumulated Depreciation-Equip
Net Property Plant & Equipment
Total Assets
$13,448
2,625
160
245
440
$16,918
5,325
120
5,205
$22,123
Taylor’s Creative Design
Balance Sheet
April 30, 20XX
Current Liabilities:
Accounts Payable
Total Liabilities
Stockholders’ Equity:
Common Stock
Retained Earnings
Total Stockholders’ Equity
Total Liabilities & Stockholders’ Equity
$4,823
4,823
15,000
2,300
17,300
$22,123
PART 2
Prepare the closing entries for Taylor’s Creative Design and post them to the t-accounts.
Journal Closing Entries
Accounts
Date
April
30
30
30
Service Revenue
Retained Earnings
Retained Earnings
Advertising Expense
Supplies Expense
Photo Expense
Depreciation Expense
Retained Earnings
Dividends
Totals
Post. Ref
400 $
320
320
500
510
520
530
320
310
$
Debit
4,105
605
1,200
5,910
Credit
$
4,105
340
90
55
120
$
1,200
5,910
PART 2
Prepare the post closing trial balance for Taylor’s Creative Design.
Taylor’s Creative Design
Post Closing Trial Balance
April 30, 20XX
Account
100 Cash
110 Accounts Receivable
120 Supplies
130 Prepaid Photo Subscriptions
140 Prepaid Advertising
150 Equipment
155 Accumulated Depreciation
200 Accounts Payable
300 Common Stock
320 Retained Earnings
Totals
$
Credit
Debit
13,448
2,625
160
245
440
5,325
$
$
22,243
$
120
4,823
15,000
2,300
22,243
Module 1 Assignment Accounting Equation_Financial Statements
John Block opened Block Construction on May 1 of the current year. The following amounts summarize the transactions and financial position of Block Construction as of May 31.
During May the following transactions occurred:
1-May Block purchased $20,000 of stock in the company.
2-May The company purchased $4,000 of equipment for the company with cash.
7-May The company purchased supplies for $1,000 on account.
15-May The company replaced some windows for a client and received $10,000 cash as payment in full at the time of service.
17-May The company sent an invoice to a customer for work performed, $3,800.
20-May The company paid $700 of his accounts payable balance as of May 20th.
24-May The company collected a partial payment of $1,000 from the customer for the work done and billed (invoice) on May 17.
25-May The company sold $5,000 of company stock to an investor.
28-May The company paid wages of $2,500.
30-May The company paid office rent of $1,500.
30-May The company paid dividends of $1,800 to investors.
Requirements:
1
Use the date line to enter the transactions for May into the accounting equation. The spreadsheet will automatically calculate the new balances after each entry.
Assets
=
Liabilities
+
Stockholders’ Equity
Cash
1-May
2-May
$20,000.00
$20,000.00
-$4,000.00
$16,000.00
+
Accounts
Receivable
+
+
+
+
+
+
+
24-May
25-May
28-May
30-May
30-May
Bal.
Equipment
+
+
$26,000.00
-$700.00
$25,300.00
$1,000.00
$26,300.00
$5,000.00
$31,300.00
-$2,500.00
$28,800.00
-$1,500.00
$27,300.00
-$1,800.00
$25,500.00
Accounts
Payable
+
Common
Stock
+
+
$20,000.00
$20,000.00
+
+
$20,000.00
+
+
$20,000.00
+
=
+
=
+
=
$1,000.00
$16,000.00
$10,000.00
$26,000.00
Service
Revenue
–
Wages
Expense
–
Office Rent
Expense
–
–
–
–
$1,000.00
$1,000.00
–
–
–
–
–
–
–
–
–
–
–
–
+
+
=
$1,000.00
+
$20,000.00
+
+
+
=
+
$20,000.00
+
+
+
=
+
$20,000.00
+
$13,800.00
–
–
–
+
$3,800.00
-$1,000.00
$2,800.00
$1,000.00
-$700.00
$300.00
$10,000.00
$10,000.00
$3,800.00
$13,800.00
+
+
=
$300.00
+
+
$13,800.00
–
–
–
+
$2,800.00
+
+
=
$300.00
+
$20,000.00
$5,000.00
$25,000.00
+
$13,800.00
–
+
17-May
20-May
+
Dividends
$4,000.00
7-May
15-May
Supplies
+
+
+
$3,800.00
$3,800.00
$2,800.00
+
+
$2,800.00
+
+
$2,800.00
+
+
=
+
$1,000.00
+
$4,000.00
$300.00
+
$25,000.00
+
$13,800.00
–
$2,500.00
$2,500.00
–
–
–
=
$300.00
+
$25,000.00
+
$13,800.00
–
$2,500.00
–
$1,500.00
$1,500.00
=
$300.00
+
$25,000.00
+
$13,800.00
–
$2,500.00
–
$1,500.00
–
$1,800.00
$1,800.00
2
Prepare the Income Statement for the month of May for Block Construction by completing the gray cells, using information from the spreadsheet above or calculating values as appropriate.
Block Construction
Income Statement
For the Month Ended May 31, 20XX
Revenues:
Service Revenue
$13,800.00
Expenses:
Wages Expense
$2,500.00
Office Rent Expense
1,500.00
Total Expenses
4,000.00
Net Income
$9,800.00
3
Prepare the Statement of Retained Earnings for Block Construction for the Month of May by completing the gray cells, using information from the spreadsheet above or calculating values as appropriate.
Block Construction
Statement of Retained Earnings
For the Month Ended May 31, 20XX
Retained Earnings, May 1
$
Net Income
$9,800.00
Less Dividends
$1,800.00
Increase in Retained Earnings
$8,000.00
Retained Earnings, May 31
$
8,000.00
4
Prepare the Balance Sheet for Block Construction as of May 31, by completing the gray cells, using information from the spreadsheet above or calculating values as appropriate.
Block Construction
Balance Sheet
May 31, 20XX
ASSETS
LIABILITIES
Cash
$25,500.00 Accounts Payable
$300.00
Accounts Receivable
$2,800.00 Total Liabilities
$
300.00
Supplies
$1,000.00
Equipment
$4,000.00
STOCKHOLDER’S EQUITY
Common Stock
25,000.00
Retained Earnings
8,000.00
Total Stockholder’s Equity
33,000.00
Total Assets
5
$33,300.00 Total Liabilities & Stockholders Equity
$
33,300.00
Address the following four questions for Block Construction. Use full sentences and write in good form.
Question 1: How much is net income? What is the formula to arrive at net income?
The net income is $9800.00. The formula used is service revenue $13,800.00 minus the total expenses $4000.00
Question 2: How much is beginning retained earnings? How much is ending retained earnings? What items contribute to
ending retained earnings?
The beginning retained earnings are 0.00. The ending retained earnings are are $8000.00. Beginning retained earnings
plus increase in retained earnings giving a total of $8000.00.
Question 3: Define Assets. How much are Total Assets for Block Construction?
Assets is anything in a business tangible or intangible that can be used to create a positive value.
The total assets for Block Construction is $33,300.00
Question 4: Today’s accountant does not sit a back office and crunch numbers all day long. They are part of the business
team. Accounting is called the language of business because it communicates information to help people make better
decisions. Give two examples of how accountants work with other business teams to contribute to the growth and
success of a business.
They are able to monitor the business financial outlook to determine different strategies.