BUS 285 - Fall 2018

Course Project

Requirements: Read the attached case study carefully. Complete any of the questions or requirements noted in each part. Upon completion, organize the various components into a single package and submit using the link on UR Courses. The project is due by 7:00PM on November 29.

There are 9 parts to this case. Each part will have its own unique requirements. Be sure to complete the parts in sequence as one part may have an impact on subsequent sections.

The grade distribution for each part will be as follows:

Part 1 - 6

Part 2 - 5

Part 3 - 7

Part 4 - 11

Part 5 - 28

Part 6 - 8

Part 7 - 8

Part 8 - 4

Part 9 - 23

Total - 100

Note: The written sections for parts 6 and 9 will have marks dedicated to grammar, spelling and proper formatting. As a general guide, section 6 should take no more than 1-2 pages and section 9 should be anywhere from 2-5 pages (1.5 spacing, 12pt font).

No outside research is required to complete this project. All the required information to answer all parts can be found in the case. Refer to the textbook, class slides or lectures for proper methods of analysis and completion.

Items that include GST will be noted. For all other items, assume there are no GST impacts.

Case Study - Rhy's Fries

Part 1

May 1, 20X1

Ronald Rhy is the head fry cook and bottle washer at a local chain restaurant. Although his choice of career hasn't been the most financially rewarding he has always had a passion for providing great food to customers particularly his special triple fried Belgian style fries. Lately he's been growing tired of the tedium of his position and is thinking about starting his own business and even has a name picked out; Rhy's Fries. However, he is hesitant to take the plunge and leave the security of his current job. He was intrigued by a recent advertisment he saw about an upcoming event; The LadLard Food Fair. He feels this is could be an excellent way to see if striking out on his own can work.

The LadLard Food Fair is a two day convention that takes place May 29 and 30, 20X1. The event allows deep fry masters to showcase their skills and sell food to swarms of hungry customers. For a one time fee, vendors get access to a booth and are provided with a cooking oil, disposable plates and cutlery for patrons. The food and other products they wish to sell are not provided. Vendors can bring in their own equipment or rent a deep fryer for an additonal fee.

The fee for the convention is $1,000 plus an additional $500 for the deep fryer rental but Ronald is currently short on cash. He is able to put $1,200 of his own cash towards the fees but will have to borrow the remainder from a family member. He also will have to borrow money to buy the potatoes he needs for his fries. Ronald is unsure how big this event will be but estimates that he will need 40 bags of potatoes that cost $50 each. To cover off these costs and have a small contingency fund he will need to borrow $3,500 from his family.

Ronald approached his uncle, Bob, for a loan and also some advice as Bob is a CPA and has been running a successful accounting firm for many years. Bob provides the loan to Ronald and also offers some free accounting advice; Keep all your receipts and keep track of everything you can because this is now a business. Bob also told Ronald to register the business as a corporation, as it can help limit the personal liability in case something happens. Ronald takes the loan from Bob, immediately pays the entry fees and then buys the potatoes he needs. He also went to the city and registered his business as Rhy's Fries Inc. a private corporation where he is the primary shareholder. The registration cost $105 and included GST. He's declared his fiscal year to run from May 1^st to April 30.

1.)Complete the journal entries required for Rhy's Fries up to this point.

2.)Create T-accounts for the accounts used and show the ending balance of each account after journalizing the transactions from (1) above.

Rhy's Fries - Part 2

May 31, 20X1

The convention was a huge success! Ronald's special fries were extremely popular and drew attention from local media and deep fry superstars. This unexpected boost provided a near non stop flow of customers to his booth. It was hard work but it paid off.

At the end of the convention, Ronald added up all of his sales tickets and was pleased with the results. He had total revenues of $8,925 (including GST of $425) but he didn't read all of the fine print in the convention contract he signed. He found out at the end of the event that there was a cleanup and oil disposal fee charged for every barrel of oil used. The fee was $60 (plus GST) per barrel and Ronald used 5 barrels of oil over the course of the weekend.He used the cash he generated from sales to pay the cleanup fee at the end of the convention. He also had 4 bags of potatoes left that he is going to keep in storage.

3.)What journal entries are required for the events that occurred up to this point? Assume FIFO costing under a perpetual inventory system.

Case Study

Rhy's Fries - Part 3

June 1, 20X1

After the success of his first convention Ronald was convinced that he can make this business become his career. A patron from the LadLard event mentioned to him during the show that there is an even bigger event coming up at the end of the month; the Oilmaggedon. This 5 day outdoor event (June 20-24) brings together hundreds of vendors and many thousands of hungry patrons. On top of that there are often cooking celebrities and famous food critics wandering around. Ronald is convinced this is the exposure he needs to give his business a boost. However, the event only has a limited amount of spots and it's only for those with food trucks.

A bigger event also means higher entrance fees. The cost to get a spot at Oilmaggedon is $3,000. There are no options to rent a deep fryer and no amenities are provided. Ronald decides it's worth the risk. He quits his job to dedicate his full attention to Rhy's Fries.

June 10, 20X1

His first task is to find a suitable food truck. Luckily, he noticed at the end of the LadLard convention that a fellow vendor had a "FOR SALE" sign on his food truck. The vendor was asking $15,000 for the truck but Ronald was able to negotiate him down to $12,000. It's a used truck, but Ronald estimates it has a remaining useful life of 4 years. To purchase the truck he put down $1,000 cash and took out a secured loan from the bank for the remainder. The loan is due in full in four months carries a 6% interest charge (interest due at maturity). After picking up the food truck he pays the $3,000 entry fee. Ronald also paid the trucks required insurance that cost $1,200 for the year.

June 18, 20X1

Two days before the event starts he heads over to the local mega-mart to buy 100 bags of potatoes at $35 each, 20 pails of oil at $25 each and $300 worth of amenities (plates, napkins, and utensils). To cover off these costs, Ronald takes out a short term business operating loan from the bank for $4500. The loan is due in full by June 30, 20X1 and has a 10% interest charge due upon payment.

4.)Complete any required journal entries for these events.

Hint: Consider the amenities and oil to be supplies and not inventory.

Case Study

Rhy's Fries - Part 4

June 30, 20X1

Oilmaggedon was another success for Rhy's Fries but not without some significant challenges. The event showcased Ronald's popular product as he was able to bring in $23,625 (including GST of $1,125) in cash receipts but it could have been higher. He sold 3,750 servings of food but underestimated how far his inventory would go and ran out of potatoes part way through the last day. He also needed to hire a temporary helper to handle the demanding prep work. The assistant worked 3 hours a day at $15/hour for each of the 5 days. The employee was hired through a local hiring agency and the total wages for the employee are due to the hiring agency 10 days after the end of the event. He had 5 pails of oil left and $25 worth of amenities at the end of the 5^th day.

The biggest challenge was with his food truck however. Being unfamiliar with the equipment proved to be a costly error. After the first day Ronald left some of his equipment running overnight causing it to overheat and breakdown. The mistake not only cost him a few hours of precious selling time but resulted in $1,000 worth of repairs. He paid for the repairs using the cash generated from the first day of the sales.

Since he had no product left to sell for part of the last day, he took some time to check out the other vendors. He noticed a several things during his wandering. One was that his selling price seemed to be lower than many other competitors and also most vendors offered several different products and product variations rather than just the single option offered at Rhy's Fries. He wondered if it would have perhaps been more profitable to sell fewer items but at a higher price.

Having now rested and recovered, Ronald took the cash generated from the event and repaid the bank operating loan, the loan from Bob and made the first of 4 monthly payments on the balance owing on his food truck loan.

5.)Complete any journal entries required up to June 30, 20X1 including any adjusting entries needed. (Assume a full month of insurance, interest, and depreciation for the food truck)

Case Study

Rhy's Fries - Part 5

July 2, 20X1

After seeing an advertisement on a local billboard about an upcoming county carnival Ronald got an idea about what to do next. He'll take his food truck on the summer carnival circuit. He's done some quick research and estimates that he will be able to attend at least 10 different events between now and the end of September. He knows this will be difficult work, more difficult than he can do on his own, so he sets out to find some help.

On July 4^th, he posted a help wanted ad on a local job website. The cost was only $50 plus GST for a weekend posting (paid by cash). The response wasn't overly great, but he did find a passionate and experienced individual that knows the carnival circuit; Peter Crandle. Ronald has agreed to pay Peter a $3,500 per month salary as well as cover off any necessary travel expenses that come up during their tour of the circuit. Peter starts work on July 8^th but because of the short notice Ronald has agreed to pay Peter his full monthly salary for the month of July. Ronald also paid the hiring agency the amounts owing from the worker required for Oilmaggedon.

July 12, 20X1

The adventure begins! Having only a couple of days to prepare, Ronald and Peter set off on the fair circuit. Though a little unprepared for the challenges that may lie ahead Ronald soothed his nerves with an informative conversation with Uncle Bob who provided a handy spreadsheet to help keep track of the revenues and expenses. The spreadsheet allowed Ronald to list out the dates and locations of his sales as well as the related expenses for those events. Bob told Ronald to come back at the end of the month to get his financial statements prepared.

July 31, 20X1

It's been a whirlwind couple of weeks for Ronald and Peter. Though there were many long days of selling followed by even longer nights travelling to the next destination, Ronald did manage to find time to complete the spreadsheet that Bob gave him (Appendix 1). With the spreadsheet in hand, Ronald went to see his uncle. On the way he stopped in at the bank to make the second payment on the loan for his truck. He also declared and paid himself a dividend of $5,000 for his hard work over the past couple of months.

7.) Complete any journal and/or adjusting entries required for the month of July 20X1.

8.) Using the year to date balances in the various accounts utilized up to this point, complete an adjusted trial balance, multi-step income statement, statement of changes in equity and statement of financial position for the quarter ended July 31, 20X1.

Case Study

Rhy's Fries - Part 6

September 30, 20X1

It's been a crazy ride for Ronald and Rhy's Fries. He and Peter travelled around the carnival circuit all summer and into early fall stopping at every fair, exhibition, convention, carnival and rodeo they could make it to. Some locations were better than others, and there certainly were some minor issues including a few truck breakdowns, inventory spoilage and some wrong turns that they had to contend with, but overall it was a successful season. Ronald was also surprised to discover how popular his new product was; poutine.

It was so popular that Ronald has decided to pursue this as the next avenue in this business; a fry and poutine restaurant. There is a perfect location that is available to buy but since this is completely different than a food truck he's a little nervous about what it's going to take to make it work. The location was previously a clothing retail store, and as such it's going to require some extensive renovations to turn it into a functioning restaurant. On top of that, it will need kitchen equipment (deep fryers, stoves, cooking utensils, etc.) as well as tables, chairs and other restaurant amenities before it would be able to open.

Alternatively there is a less desirable location that is available to lease. The location was previously a restaurant and has old, but still functioning equipment (deep fryer, stove, cooler, ovens etc.) though it's unclear how long it will remain functional. The lessor has also indicated that any of the restaurant amenities (tables, chairs, utensils, etc.) that are on the property can be purchased at a deeply discounted rate.

Ronald once again seeks out the advice of Uncle Bob to get some clarity on the risks and advantages of each option (Lease vs Buy). He also wants to get some more information about something he recalls Bob talking about at a previous meeting; Internal Controls.

9.) As Bob, what would you tell Ronald regarding the two options (Lease or Buy)? What are some of the important internal controls that Ronald will have to consider in this situation regardless of which option is chosen?

Case Study

Rhy's Fries - Part 7

May 1, 20X2

It seems strange to Ronald that it was only one year ago that he decided to start this adventure. In early November, he opened up the first Rhy's Fries location and while sales initially were less than stellar, word quickly spread about the quality of the product and patrons started coming from all over the city to try it out. As the hectic demands of the business grew, Ronald realized he couldn't handle everything on his own and has had to hire extra staff to manage the workload. One of the hires is a part time accountant, Sarah, whose primary function is to help him keep track of the day to day operations.

Since this is the end of his first full year of operations he's going to need to go see Uncle Bob soon to get his year-end statements prepared. Ronald is a little concerned though. The amount of cash in the corporate bank account doesn't match with the cash balance that is listed in the general ledger. The April 30 bank statement indicated there is $81,483.17 but the ledger indicated there is only $73,547.94 as of April 30. Sarah tells him that there weren't any month end adjustments made yet and it simply needs to be reconciled. She goes to work to identify the transactions required to bring the two into balance.

May 2, 20X2

Sarah has identified the following transactions:

The April 30 bank statement noted bank and credit card processing fees of $1,240.14

Since April 29^th and 30^th fell on the weekend, Sarah made the deposits for those days in the afternoon of Monday, May 1^st. The amount of the deposit was $987.29 for April 29^th and $1,154.57 for April 30^th.

The were 3 outstanding cheques; Chq #54 for $4,309.68, Chq#58 for $7,434.50 and Chq#61 for $421.12

A cheque for $808.07 from a customer was returned NSF. The bank charged a $40 fee for this item (not included as part of the fees noted above)

10.) Complete a bank reconciliation for April 30, 20X2 using the information provided above.

Case Study

Rhy's Fries - Part 8

January 31, 20X3

And then there were two. The success of the first Rhy's Fries restaurant could not be contained within a single location. Ronald realized several months ago that the business was outgrowing its current location and needed to expand. A second location not only would allow for the demand to be met easier, it also provided a space for Ronald's latest venture; A catering segment that provided multi-course meals to corporate or private events.

Ronald has not forgotten his roots however. In addition to the restaurants, and the recently started catering segment, Ronald still maintained the food truck line of the business that gave him his start. His first employee, Peter, was now the director of the food truck and catering division. During the summer, Peter took to the road and for winter months when there were limited events to utilize the food truck, Peter transitioned to the catering segment full time.

Although Peter was great on the carnival circuit, and was an exceptional people person he had some initial struggles with the catering segment, particularly when it came to the administrative side. He often kept poor records of when and who he sent out invoices to. In some cases he sent out invoices to the wrong patrons or to the correct patron but with incorrect amounts, while in other cases the same patron was sent multiple invoices. This led to some significant delays in collection and required a lot of work to reconcile.

Given these struggles, Sarah suggested that Rhy's Fries setup an allowance for doubtful accounts. She has prepared an aging schedule of the accounts receivable and estimated the percentage expected to be uncollectable.

11.) Using the aging schedule in Appendix 2, determine the amount required for the allowance for doubtful accounts and complete the required journal entry to set it up.

Case Study

Rhy's Fries - Part 9

May 15, 20X5

Over three years have passed by since Ronald made the choice to start up Rhy's Fries. His humble start on the food convention and carnival scene has now led him to being the operator of three restaurants, a food truck and a catering segment. The success is not without challenges though, and Ronald is facing one of his most difficult to date.

Approximately a year ago, Ronald's long time employee and director of the food truck and catering segments abruptly left the company. When asked why he was leaving, Peter simply indicated that he felt there were better opportunities elsewhere. What Ronald did not know at the time was the Peter had been planning to open his own restaurant using many of the same techniques and products that he learned about during his tenure at Rhy's Fries. About two months after his departure Peter opened his restaurant aptly named "Peter's Poutines".

In less than one year Peter's Poutines has proven itself to be a significant competitor to Rhy's Fries. Although they offered similar menu items Peter's prices were generally slightly higher. Peter did have one advantage however; his location was in a high traffic area in an upscale area of the city. On top of that, Peter appears to have started construction on a second restaurant that will be opening soon. Ronald wonders what this extra competition will mean for him. He has already noticed that some days the business is just not as busy as it once was and is starting to seriously contemplate what he should do to counter this growing competitive threat.

He's tasked Sarah to go work with Uncle Bob to take a serious look at his financial statements and provide him with some insight into his operations. Maybe they can see something in the numbers that he can't.

12.) Analyze the statements in Appendix 3 and 4 for any trends, issues or items of note. Prepare a management report for Ronald with your findings and any recommendations you have. Include any calculations or working papers along with the report.

Appendix 1 - Sales, Cost of Sales and Expenses related to July 14 - July 29, 20X1

Note: Assume all inventory purchases and travel expenses were paid in cash.

Appendix 2 - Accounts Receivable aging as at January 31, 20X3

Appendix 3 - Profit and Loss Statement for the years 20X3, 20X4 and 20X5

Appendix 4 - Balance Sheet