American Physical and Social Programs for Children, Inc.

Required

In addition to the requirements following each paragraph of information below you need to:

1.Discuss the company's selection of June 30 as its fiscal year-end and the apparent implications of such a decision. For example, do corporations have required year ends?

2.Be prepared to give the definition of an asset and a liability and the appropriate citation to support that definition. No, your intermediate textbook is not an appropriate source!

3.Any place where research is required you must be prepared to supply an authoritative source and demonstrate that you understand what the source says. Quoting verbatim sources without being able to explain what they mean is not sufficient. Furthermore, you can expect to be rigorously questioned concerning your understanding of your research by Professor Clifton and Professor Snyder.

4.Complete the worksheet provided (Exhibit 1) by inputting the necessary journal entries to put the financial statements on the accrual basis.

Harvey Acker and Jane Clemens, child psychologists, have started and are operating American Physical and Social Programs for Children, Inc, a sport-oriented school-year and summer camp program for children. The program was started 1 year ago and has four operating locations. With assistance from their bookkeeper, Harvey and Jane have prepared a balance sheet as of June 30, 20X2 and an income statement for the year then ended, on a modified cash basis. (Exhibit 1)

Harvey and Jane have decided to seek the advice of an accountant and revealed the following about their operation:

1.Harvey and Jane are sole shareholders. On incorporation, each paid $20,000 for no-par common stock.

oNo Journal Entry Required

oNo Research Required

2.The school-year programs run from mid-September to mid-June for 10-week periods and most customers prepay for each 10-week period. As of June 30, 20X2, customers owed $28,800, of which a $4,000 allowance would be adequate to cover uncollected accounts.

oJournal Entries are required to accrue the accounts receivable and bad debt expense. (These entries have been made for you in the spreadsheet template as an example of what to do in the spreadsheet.)

oNo Research is Required

3.The corporation borrowed $100,000 at 12% from a local bank with interest and principal payments due monthly for five years.

oNo Journal Entry Required

oResearch the required disclosures for Notes Payables

4.The corporation then executed an agreement, effective July 1, 20X1, through which it purchased the operating assets of Fun Time Programs, Inc., an organization that ran similar programs for many years. The agreement provided for an immediate payment of $30,000 for furniture and fixtures and $50,000 for sports equipment. These values were determined by an outside appraiser and agreed to by all parties. American then negotiated new leases, purchased additional fixed assets and expanded operations.

oNo Journal Entry Required

oNo Research Required

5.The agreement further provided for an additional payment of $80,000 due on July 1, 20X3, and that as consideration for such payment, Fun Time Properties and/or its shareholders would not compete in a similar business for five years within a distance of 200 miles of any American operating location.

Harvey and Jane believe that they made a fantastic deal with Fun Time Programs. It is their opinion that Fun Time mismanaged their business affairs and then sold out to them for practically nothing. They have been able to use basically the same programs and expand on them, enabling the company to be profitable immediately. They anticipate that the business will be very profitable for many years, and that the major money maker is from the operation of summer camps.

oJournal Entry may be required

Research to determine if you have an asset or not.

Determine the value of the asset

Record the journal entry if necessary

6.The organization costs to incorporate were $15,120 and were primarily for legal services.

oJournal Entry may be required

Research to determine if you have an asset or not.

Record the journal entry if necessary

7.The summer camp program runs from the last week of June through the last week of August. Each camper pays in advance. Camp deposits started coming in about the beginning of March and as of June 30, 20X2, camp receipts collected in advance but not earned totaled $224,000.

oJournal Entry is required to adjust for the Unearned Revenue

8.All operating facilities are leased. Summer camp programs are operated on local college campuses. The summer rents are 20% of the gross camp receipts and become due and payable to the lessor the month following the month that the facilities are actually used. Camp revenues collected and earned the last several days of June 20X2 totaled $85,400.

oJournal Entry is required to accrue the payable.

9.Depreciation for financial reporting and income taxes are the same.

oNo Journal Entry Required

oNo Research Required

10.The combined federal and state income tax rate is 30% and the company has made no estimated tax payments as of year-end.

oJournal entry is required to accrue the income tax.

11.Program supplies on hand as of June 30, 20X2, total $17,700.

oJournal Entry may be required

Research to determine if you have an asset or not.

Record the journal entry if necessary

12.The only significant unpaid liabilities as of June 30, 20X2 are salaries of $16,000, employee payroll taxes of $3,500, and utilities of $2,000.

oJournal entries are required to accrue the above liabilities.

oNo research is required

13.Advertising costs paid during the year were incurred to gain market recognition, and normal advertising costs are expected to be approximately $30,000 per year.

oResearch whether advertising costs should be expensed or capitalized.

oRecord a journal entry if necessary

14.American is presently being sued for gross negligence due to injuries sustained by a child while participating in a gymnastics program. It is the opinion of American's legal counsel that the case be settled out of court at a cost of anywhere between $10,000 to $50,000 to the company. Harvey and Jane are worried about the unfavorable publicity that the suit could bring and would like to settle the matter as quickly as possible.

oResearch is required to determine what to do with this information, if anything.

oRecord a journal entry if necessary

EXHIBIT 1 American Physical and Social Programs for Children, Inc Balance Sheet June 30, 20X2 ASSETS Current Assets Cash Money market funds Accounts Receivable Allowance for Doubtful Accounts Supplies Fixed Assets Furniture and Fixtures Sports equipment Less Accumulated depreciation Other Assets Intangible Assets Deposits Total assets $ 28,292.00 288,177.00 316,469.00 $ (2) 28,800.00 (2) $ $ 33,509.00 65,047.00 (9,856.00) 88,700.00 8,500.00 413,669.00 28,292.00 288,177.00 316,469.00 28,800.00 (4,000.00) - 4,000.00 $ $ 33,509.00 65,047.00 (9,856.00) 88,700.00 8,500.00 438,469.00 LIABILITIES AND STOCKHOLDER'S EQUITY Current Liabilities Rent Payable Contingent Liability Accrued Liabilities Unearned Revenue Notes payable (Short Term Portion) $ $ 20,000.00 20,000.00 Note Payable - Intangible Payroll taxes withheld 14,196.00 34,196.00 14,196.00 34,196.00 Long-term Liabilities Notes payable (Long Term Portion) 61,663.00 61,663.00 Total Liabilities 95,859.00 95,859.00 40,000.00 277,810.00 317,810.00 40,000.00 302,610.00 342,610.00 Stockholder's Equity Common stock, no-par Retained earnings Tota Liabilities and Stockholder's Equity $ 413,669.00 - $ 2,052,620.00 11,395.00 2,064,015.00 $ 438,469.00 - 28,800.00 $ 2,081,420.00 11,395.00 2,092,815.00 Receipts Program fees Interest Disbursements Salaries Amortization Expense Bad Debt Expense Rent Program supplies Payroll Taxes Interest Advertising Organization costs Utilities Insurance Miscellaneous (2) 1,073,142.00 (2) 342,026.00 95,897.00 89,387.00 10,918.00 40,958.00 15,120.00 20,575.00 73,405.00 14,921.00 4,000.00 1,073,142.00 4,000.00 342,026.00 95,897.00 89,387.00 10,918.00 40,958.00 15,120.00 20,575.00 73,405.00 14,921.00 Total Disbursements Excess receipts over disbursements Loss due to lawsuit Income Tax Expense Depreciation Net Income $ 1,776,349.00 287,666.00 1,780,349.00 312,466.00 - 9,856.00 9,856.00 277,810.00 32,800.00 32,800.00 $ - 302,610.00 American Physical and Social Programs for Children, Inc. Required In addition to the requirements following each paragraph of information below you need to: 1. Discuss the company's selection of June 30 as its fiscal year-end and the apparent implications of such a decision. For example, do corporations have required year ends? 2. Be prepared to give the definition of an asset and a liability and the appropriate citation to support that definition. No, your intermediate textbook is not an appropriate source! 3. Any place where research is required you must be prepared to supply an authoritative source and demonstrate that you understand what the source says. Quoting verbatim sources without being able to explain what they mean is not sufficient. Furthermore, you can expect to be rigorously questioned concerning your understanding of your research by Professor Clifton and Professor Snyder. 4. Complete the worksheet provided (Exhibit 1) by inputting the necessary journal entries to put the financial statements on the accrual basis. Harvey Acker and Jane Clemens, child psychologists, have started and are operating American Physical and Social Programs for Children, Inc, a sport-oriented school-year and summer camp program for children. The program was started 1 year ago and has four operating locations. With assistance from their bookkeeper, Harvey and Jane have prepared a balance sheet as of June 30, 20X2 and an income statement for the year then ended, on a modified cash basis. (Exhibit 1) Harvey and Jane have decided to seek the advice of an accountant and revealed the following about their operation: 1. Harvey and Jane are sole shareholders. On incorporation, each paid $20,000 for no-par common stock. o No Journal Entry Required o No Research Required 2. The school-year programs run from mid-September to mid-June for 10-week periods and most customers prepay for each 10-week period. As of June 30, 20X2, customers owed $28,800, of which a $4,000 allowance would be adequate to cover uncollected accounts. o Journal Entries are required to accrue the accounts receivable and bad debt expense. (These entries have been made for you in the spreadsheet template as an example of what to do in the spreadsheet.) o No Research is Required 3. The corporation borrowed $100,000 at 12% from a local bank with interest and principal payments due monthly for five years. o No Journal Entry Required o Research the required disclosures for Notes Payables 4. The corporation then executed an agreement, effective July 1, 20X1, through which it purchased the operating assets of Fun Time Programs, Inc., an organization that ran similar programs for many years. The agreement provided for an immediate payment of $30,000 for furniture and fixtures and $50,000 for sports equipment. These values were determined by an outside appraiser and agreed to by all parties. American then negotiated new leases, purchased additional fixed assets and expanded operations. o No Journal Entry Required o No Research Required 5. The agreement further provided for an additional payment of $80,000 due on July 1, 20X3, and that as consideration for such payment, Fun Time Properties and/or its shareholders would not compete in a similar business for five years within a distance of 200 miles of any American operating location. Harvey and Jane believe that they made a fantastic deal with Fun Time Programs. It is their opinion that Fun Time mismanaged their business affairs and then sold out to them for practically nothing. They have been able to use basically the same programs and expand on them, enabling the company to be profitable immediately. They anticipate that the business will be very profitable for many years, and that the major money maker is from the operation of summer camps. o Journal Entry may be required Research to determine if you have an asset or not. Determine the value of the asset Record the journal entry if necessary 6. The organization costs to incorporate were $15,120 and were primarily for legal services. o Journal Entry may be required Research to determine if you have an asset or not. Record the journal entry if necessary 7. The summer camp program runs from the last week of June through the last week of August. Each camper pays in advance. Camp deposits started coming in about the beginning of March and as of June 30, 20X2, camp receipts collected in advance but not earned totaled $224,000. o Journal Entry is required to adjust for the Unearned Revenue 8. All operating facilities are leased. Summer camp programs are operated on local college campuses. The summer rents are 20% of the gross camp receipts and become due and payable to the lessor the month following the month that the facilities are actually used. Camp revenues collected and earned the last several days of June 20X2 totaled $85,400. o Journal Entry is required to accrue the payable. 9. Depreciation for financial reporting and income taxes are the same. o No Journal Entry Required o No Research Required 10. The combined federal and state income tax rate is 30% and the company has made no estimated tax payments as of year-end. o Journal entry is required to accrue the income tax. 11. Program supplies on hand as of June 30, 20X2, total $17,700. o Journal Entry may be required Research to determine if you have an asset or not. Record the journal entry if necessary 12. The only significant unpaid liabilities as of June 30, 20X2 are salaries of $16,000, employee payroll taxes of $3,500, and utilities of $2,000. o Journal entries are required to accrue the above liabilities. o No research is required 13. Advertising costs paid during the year were incurred to gain market recognition, and normal advertising costs are expected to be approximately $30,000 per year. o Research whether advertising costs should be expensed or capitalized. o Record a journal entry if necessary 14. American is presently being sued for gross negligence due to injuries sustained by a child while participating in a gymnastics program. It is the opinion of American's legal counsel that the case be settled out of court at a cost of anywhere between $10,000 to $50,000 to the company. Harvey and Jane are worried about the unfavorable publicity that the suit could bring and would like to settle the matter as quickly as possible. o Research is required to determine what to do with this information, if anything. o Record a journal entry if necessary