ACCT 322

Financial Statement Project

Autumn 2020

Imagine that you are a financial accountant in a large corporation and its the end of December 2019. Your CFO emailed you the following excel file which contains the current chart of accounts. However, there are a few more transactions (listed below) that have not been entered into the general journal. Your team has been assigned to 1) enter in the remaining transactions into the general journal and 2) prepare the 2019 financial statements for fiscal year December 31, 2019. These statements include the Consolidated Statements of Income and Comprehensive Income, Statement of Shareholders Equity, and Balance Sheet. Before you make the financial statements, confirm that the general journal is in balance by completing a trial balance.

Use the attached excel file and the sheets indicated within to create the financial statements. Enter journal entries into the General Journal. After making necessary adjustments confirm that the books are in balance by preparing an updated trial balance. Once you confirm the books are in balance prepare the financial statements. I recommend starting with the Consolidated Statements of Income and Comprehensive Income. Then Statement of Shareholders Equity. Finally, the Balance Sheet.

The goal of this assignment is to test your accounting and excel skills. After entering the journal entries, you should rarely hand-type another number. Use equations to link the journal entries to the trial balance and the trial balance to the financial statements. Also link the financial statements to each other as appropriate (For example link the balance sheet to the Consolidated Statements of Income and Comprehensive Income where appropriate instead of constantly referring back to the trial balance). I have provided a sample November journal entry and the first line of the trial balance. Use these examples to apply VLOOKUP and SUMIF functions to the General Journal and Trial Balance pages. Those functions arent necessary on the other financial statement pages. You have some freedom in creating the financial statements as long as you follow GAAP guidelines (see the book chapters for presentation examples or find other sources of financial statement samples). Once again, please link every possible number you can using equations. Some numbers may need to be hand-typed. But do your best to limit that practice.

Each team of two will need to email me back their excel file to receive credit. I recommend separating out the missing transactions to individual team members, then combining each others work to create the financial statements. A suggested separation of duties is listed below.

Missing transactions and other information.

1. On 12/1/19 Choice leased a new machine. The machine normally sells for $23,500. The applicable interest rate is 8%. The lease term is 5 years and the machine has a useful life of 6 years. Annual payments begin December 1 2019, and due each subsequent year annually. There is no BPO; there is no transfer of ownership. Record the new capital lease and first payment made on 12/1/19. Round to the nearest dollar. (Chapter 15)

2. Regarding the above lease transaction, you do not need to do a complete amortization table. However, you do need to accrue the interest for 1 month (the month of December) in an adjusting entry dated 12/31/19. Also, do not worry about amortization expense. Lets just assume its included in the current expenses already. (Chapter 15)

3. On 12/1/19 Choice decides to issue a bond to raise cash. Choice issues $100,000 of 10% bonds. Interest is payable annually on November 30. They mature in five years. The market rate is 8%. All bonds were sold for cash. (Chapter 14)

4. Regarding the above bond issuance, you do not need to do a complete amortization table. However, you do need to accrue the interest for 1 month (the month of December) in an adjusting entry dated 12/31/19. (Chapter 14)

5. Choice issues a new category of preferred stock on 12/15/19. They are authorized 10,000 shares issue and sell 5,000 shares. The par value is $0.001 and the stock was sold for $5 a share. (Chapter 18)

6. Choice decides to issue a $200,000 dividend on 12/31/19. The dividend will be paid to all owners on record 1/15/20. The payment date will be 1/31/20. (Chapter 18)

7. Choice owns 34% of Banfield, Inc. as an investment. Banfield reports net income of $51,250. There is no FMV adjustments that need to be made. Make the entry as of 12/31/19. (Chapter 12)

8. The final payroll entry (on 12/31/19) has wages of $25,000. There is $5,000 in federal withholding and $1,300 in state withholding. The social security tax rate is 12.4% and Medicare tax rate is 2.9% (These are total tax rates not just the employee or employer tax rates). FUTA has a 0.6% tax rate and SUTA has a 5.4% tax rate. There are no fringe benefits associated with this payroll. The wages are not paid in 2019, they will be paid January 2020. Round to nearest dollar. (Chapter 13)

9. No pension expense related adjustments have been made. Service costs for the year is $16,000. The interest charged is $8,500. The expected return was $6,000. There was no prior service costs. The unamortized gain fell within the corridor so no entry is needed. Record the pension expense in an adjusting entry dated 12/31/19. (Chapter 17)

10. In November you pre-paid $8,000 of December rent. Make an adjusting journal entry dated 12/31/19 recording rent expense as you have used this pre-paid expense. (See the sample November general journal entry for pre-paid creation)

11. Choice Communications has a 40% tax rate. After recording the above entries, use pretax income to find Choices tax expense and make an adjusting entry dated 12/31/19 to record the tax expense. Also notice that there is tax-exempt interest income listed in the chart of accounts. There are no temporary differences this year. Taxes will not be paid until March of 2020. (Chapter 16)

12. $66,887 of the Lease Payable is expected to be paid within one years time.

13. There are 625,000 shares of common stock authorized. 170,000 shares issued. 102,000 shares outstanding. All treasury stock is common stock held internally. Treasury stock is recorded at cost. Number 5 lists preferred stock details.

14. This is not an item, more of a direction. Please include Equity Income from Banfield before income tax expense is calculated. Dont separately calculate its tax effect. Assume 100% of income is taxable in a similar manner as other revenue accounts.

15. This is not an item, just an explanation of the chart of accounts. Many times financial statements summarize the Operating, General, and Administrative expense into one line. Every item with an account number in the 6000s is considered Operating, General, and Administrative. You can present them summed together or individually in your financial statements. However, some accounts must be netted together. Go through the chart of accounts (mainly balance sheet accounts) and make sure you present accounts correctly. Finally, account numbers in the 8000s are Other Comprehensive Income related items.

Recommend assignment of transactions:

Person A: # 1, 2, 5, 6, 8

Person B: # 3, 4, 7, 9, 10

Come together for 11, 12, 13

Make sure you read 14 & 15 before you begin for additional information and tips.

Please fill out a team survey on the efforts of team members in the spreadsheet template for a two point credit.