BEACON LUMBER, MONTH OF NOVEMBER

Nov 4 On this day an entrepreneur (Investor #1) created the Beacon Lumber corporation and purchased 20,000 shares of its common stock for $20,000. The corporation will operate a lumberyard and building materials business in a medium sized city not far from your school. The business will prepare financial statements on a monthly basis.

Nov 4 Later in the day two other investors purchase shares. Investor #2 purchases 2,000 shares for $2,000 and investor #3 purchases 3,000 shares for $3,000.

Nov 4 Later that afternoon the lawyer who performed the incorporation submits a bill for $500 fee and $37.18 in expenses.

Nov 6 The investors (and, at present, the sole owners) of the Beacon Lumber Corporation elect three prominent businesspersons to the company's Board of Directors. The board will meet once every quarter to review operations and set overall policy for the company, but it will not be involved in the day to day operations. The company's founder is appointed CEO of the corporation. The board appoints a clerk-secretary.

Nov 15 An investor supplies 20 acres of land in exchange for stock and a mortgage note. The land has been appraised at $70,000 and the investor receives 15,000 shares of stock and a note with a face value of $55,000. The note requires Beacon to pay interest at the rate of 10% per year and the principal (face amount) is due in 5 years.

Nov 15 Investor #2 sells 500 shares of Beacon stock to a younger sister for $500.

Nov 17 Beacon agrees to rent a trailer which it will use as a temporary office. The rental cost, as determined by AZCO, the lessor, will be $200 per month. AZCO will pro-rate this month's rent, using a

Nov18th start date. Beacon pays the rent. In the future, rent will be due the first of the month. Copyright 2010 by John Wiley & Sons, Inc. 4

Nov 17 Beacon applies for credit to the Big Wholesale Lumber Company (BWLC). Since Beacon is a brand new business and has no history of operations the credit manager for the BWLC is at first reluctant to approve the request. Eventually, after heated discussions, she agrees to a $10,000 limit, provided that the company's ratio of Debt to Total Assets does not rise above .70, and that its Current Ratio does not fall below 2.45.

Nov 17 Beacon purchases 20,000 board feet (bd. ft.) of framing lumber from BWLC at a cost of $.90/bd. ft., (ninety cents per board foot). After reaching its credit limit, it paid cash for the balance of the purchase.

Nov 17 Beacon hires an Office Manager and two yard personnel. The yard personnel will each earn $12.00 per hour and the manager will earn $17.00 per hour. All employees will work an eight-hour day.

Nov 18 The Solid Construction Company purchases 3,000 bd. ft. of lumber on account for $4,800.00. (Hint: remember to make an entry for Cost of Goods Sold (COGS) 3,000 board feet at $.90 per board foot. COGS is an expense, so you will debit this account and credit inventory, an asset.)

Nov 18 The Strong Construction Company purchases 6,000 bd. ft. of lumber on account for $9,600.00.

Nov 18 The Reliable Construction Company purchases 4,000 bd. ft. of lumber on account for $6,400.00. Copyright 2010 by John Wiley & Sons, Inc. 5

Nov 20 The Nocturnal Departures Home Improvement Co. applies for a trade credit account. Nocturnal provides the following financial information in its credit application: Cash 12,000 Short-term Liabilities 2,000 Total Assets 15,500 Total Liabilities 5,000 Based upon the preceding, What is the ratio of cash to short-term liabilities? What is the ratio of Assets to Total Liabilities? Using the same credit standards that BWLC applied to Beacon, does it appear that Nocturnal meets Beacons standards for trade credit? Before approving credit the office manager calls the bank reference provided by Nocturnal, and learns that the company currently has a cash balance of $200. When she asks Nocturnal about the $11,800 discrepancy Nocturnal explains that the financial information includes the anticipated (but as yet unrealized) profit of $11,800 on a job under bid. Nocturnals accountant explains that the company keeps its books according to Contingent Reality Accounting Principles (CRAP). The office manager reviews financial statements for the company and adjusts them to GAAP: Cash 200 Short-term Liabilities 2,000 Total Assets 3,700 Total Liabilities 5,000 What is the ratio of cash to short-term liabilities? What is the ratio of Debt to Total Assets? Does it still appear that Nocturnal meets Beacons standards for trade credit? What would stockholders equity be? Do lenders or owners appear to have greater interest in the assets of Nocturnal?

Nov 20 The Nocturnal Departures Home Improvement Co. purchases 1,000 bd. ft. of lumber for $1,600, paying cash.

Nov 22 John Q. Homeowner purchases 2,000 bd. ft. of lumber for $3,500, paying cash. He does not have a sales tax exemption certificate. By law, Beacon must collect 8.25% sales tax and remit this to the state at the end of each quarter. (Hint: your entry should include a credit to Sales Taxes Payable of $288.75 ($3,500 x .0825).) Copyright 2010 by John Wiley & Sons, Inc. 6

Nov 26 The Solid, Strong & Reliable Construction Companies all send checks totaling $18,000 for payment on account.

Nov 26 Beacon writes a check for $10,000 to the Big Wholesale Lumber Company for payment on account.

Nov 30 Beacon pays a total wage expense of $3,608 to its workers for the month of November. (Debit the store wages expense account when you make this entry.)

You are to complete the November transactions for Beacon Lumber using the general journal and special journals provided, including the end of the November activities. You can use the excel file to prepare your Financial Statements and Trial Balances. Post reference accounts

Sales, Purchases, Cash Receipt, Cash Payment, General Journal, General Ledger