Case Study 1 (Part A)

(Learning Objectives 4, 5, 6: Analyze the impact of business transactions on accounts; record (journalize and post) transactions in the books; construct and use a trial balance) During the first month of operation of Gordon Construction, Inc., completed the following transactions:

June 2	Gordon received $55,000 cash and issued common stock to the stockholders.
3	Purchased supplies, $3,000, and equipment, $5,200, on account.
4	Performed services for a client and received cash, $6,300.
7	Paid cash to acquire land, $37,000.
11	Performed services for a customer and billed the customer, $1,200. Johnson expects to collect within one month.
16	Paid partial for the equipment purchased June 3 on account $2,800.
17	Paid the telephone bill, $230.
18	Received partial payment from customer on account, $700.
22	Paid the water and electricity bills, $400.
29	Received $5,000 cash for repairing the pipes of a customer.
30	Paid employee salary, $4,300.
30	Declared and paid dividends of $3,000.

?Requirements

• 1. Record each transaction in the journal. Key each transaction by date. Explanations are not required.
• 2. Post the transactions to the T-accounts, using transaction dates as posting references.
• 3. Prepare the trial balance of Gordon Construction, Inc., at June 30, 20xx.
• 4. The manager asks you how much in total resources the business has to work with and, how much it owes.

Case Study 1 (Part B)

Requirement 1

(Learning Objectives 3, 4: Adjust the accounts; construct the financial statements) Record the following month end adjusting entries for Gordon Construction, Inc. at June 30, 20xx

Month end accruals at June 30, 20xx:

• a. Accrued advertising revenue at June 30, $3,100.
• b. Supplies used during June, $2,300.
• c. Accrued salary expense at June 30 for Monday, Tuesday, and Wednesday. The five-day weekly payroll is $6,100 and will be paid on Friday.

Requirement 2

Prepare adjusted trial balance for Gordon Construction at June 30, 20xx.

Case Study 1 (Part A) (Learning Objectives 4, 5, 6: Analyze the impact of business transactions on accounts; record (journalize and post) transactions in the books; construct and use a trial balance) During the first month of operation of Gordon Construction, Inc., completed the following transactions: June 2 Gordon received $55,000 cash and issued common stock to the stockholders. 3 Purchased supplies, $3,000, and equipment, $5,200, on account. 4 Performed services for a client and received cash, $6,300. 7 Paid cash to acquire land, $37,000. 11 Performed services for a customer and billed the customer, $1,200. Johnson expects to collect within one month. 16 Paid partial for the equipment purchased June 3 on account $2,800. 17 Paid the telephone bill, $230. 18 Received partial payment from customer on account, $700. 22 Paid the water and electricity bills, $400. 29 Received $5,000 cash for repairing the pipes of a customer. 30 Paid employee salary, $4,300. 30 Declared and paid dividends of $3,000. Requirements 1. Record each transaction in the journal. Key each transaction by date. Explanations are not required. 2. Post the transactions to the T-accounts, using transaction dates as posting references. 3. Prepare the trial balance of Gordon Construction, Inc., at June 30, 20xx. 4. The manager asks you how much in total resources the business has to work with and, how much it owes. Case Study 1 (Part B) Requirement 1 (Learning Objectives 3, 4: Adjust the accounts; construct the financial statements) Record the following month end adjusting entries for Gordon Construction, Inc. at June 30, 20xx Month end accruals at June 30, 20xx: a. Accrued advertising revenue at June 30, $3,100. b. Supplies used during June, $2,300. c. Accrued salary expense at June 30 for Monday, Tuesday, and Wednesday. The five-day weekly payroll is $6,100 and will be paid on Friday. Requirement 2 Prepare adjusted trial balance for Gordon Construction at June 30, 20xx. . (TCOs A, B, and C) Shareholders want answers to all of the following questions except for? (Points : 3) How does the company compare in profitability with competitors? Did the company meet its operating expense budget? Will the company be able to pay its liabilities as they come due? Is the company earning a satisfactory return? Question 2.2. (TCO C) Paying back long-term debt is an example of a(n) (Points : 3) non-cash investing activity. investing activity. financing activity. operating activity. Question 3.3. (TCO A) Resources owned by a business are referred to as (Points : 3) revenues. dividends. liabilities. assets. Question 4.4. (TCO A) In a classified balance sheet, assets are usually classified as (Points : 3) current assets, long-term assets, property, plant, and equipment, and tangible assets. current assets, long-term investments, property, plant, and equipment, and intangible assets. current assets, long-term investments, and tangible assets. current assets, long-term investments, property, plant, and equipment, and common stocks. Question 5.5. (TCO B) For 2012, LBJ Corporation reported net income of $75,000; net sales $750,000; and weighted average shares outstanding of 7,500. There were no preferred stock dividends. What was the 2012 earnings per share? (Points : 3) $100.00 $50.00 $10.00 $110.00 Question 6.6. (TCO D) Which of the following describes the normal balance and classification of the unearned revenue account? (Points : 3) Debit, Expense Credit, Liability Credit, Stockholders' equity Debit, Liability Question 7.7. (TCO E) Which of the following statements is correct? (Points : 3) Cash-basis accounting records revenue when earned. Cash-basis accounting records expenses when incurred. Accrual accounting records expenses when incurred. Accrual accounting records revenue when the payment is received in cash. Question 8.8. (TCOs A and B) A periodic inventory system would most likely be used by a(n) _____ (Points : 3) automobile dealership. jewelry store. furniture store. local neighborhood restaurant. Question 9.9. (TCOs A and B) LBJ Company recorded the following events involving a recent purchase of merchandise. - Received goods for $100,000, terms 2/10, n/30 - Returned $5,000 of the shipment for a credit due to damaged goods - Paid $1,500 for freight in - Paid the invoice within the discount period As a result of these events, the company's merchandise inventory (Points : 3) increased by $96,500. increased by $95,000. increased by $94,500. increased by $94,600. Question 10.10. (TCO A) In a period of declining prices, which of the following inventory methods generally results in the lowest gross profit figure? (Points : 3) FIFO method LIFO method Average cost method None of the above Question 11.11. (TCO D) Describe the process of preparing a trial balance. What is the purpose of preparing a trial balance? If a trial balance does not balance, identify what might be the reasons why it does not balance. If the trial balance does balance, does that ensure that the ledger accounts are correct? Explain. (Points : 30) Question 12.12. (TCOs B and E) The adjusted trial balance of Gertz Company included the following selected accounts. Debit Sales Credit $575,000 Sales returns and allowances $ 50,000 Sales discounts 9,500 Cost of goods sold 347,000 Freight-out 2,000 Advertising expense 15,000 Interest expense 19,000 Store salaries expense 74,000 Utilities expense 18,000 Depreciation expense 3,500 Interest revenue 25,000 Instructions: Use the above information to prepare a multiple-step income statement for the year ended December 31, 2010. Calculate the profit margin ratio and gross profit rate. To qualify for full credit, you must state the formula you are using, show your computations, and explain your findings. (Points : 30) Question 13.13. (TCOs D and E) Please prepare the following journal entries. Indicate which account should be debited and which account should be credited, along with the dollar amount of the debit and credit. Investors invest $50,000 in exchange for 1,000 shares of common stock. Company purchased equipment for $10,000 on credit. Company received $5,000 for services performed. Company made payment on account for $2,000. Company received $7,000 for services not yet performed. (Points : 30) Question 14.14. (TCO D) Your friend Sally has hired you to evaluate the following internal control procedures. Explain to your friend whether each of the numbered items below is an internal control strength or weakness. You must also state which principle relates to each of the internal controls. For the weaknesses, you also need to state a recommendation for improvement. Invoices are pre-numbered. The controller approves of the purchases and makes the payment since he or she is familiar with the purchases. The office manager is in charge of the petty cash fund. Blank checks are stored in the safe. At the end of the day, the total receipts are counted by the cashier on duty and reconciled to the cash register total. (Points : 30) . (TCOs A, B, and C) Shareholders want answers to all of the following questions except for? (Points : 3) How does the company compare in profitability with competitors? Did the company meet its operating expense budget? Will the company be able to pay its liabilities as they come due? Is the company earning a satisfactory return? Question 2.2. (TCO C) Paying back long-term debt is an example of a(n) (Points : 3) non-cash investing activity. investing activity. financing activity. operating activity. Question 3.3. (TCO A) Resources owned by a business are referred to as (Points : 3) revenues. dividends. liabilities. assets. Question 4.4. (TCO A) In a classified balance sheet, assets are usually classified as (Points : 3) current assets, long-term assets, property, plant, and equipment, and tangible assets. current assets, long-term investments, property, plant, and equipment, and intangible assets. current assets, long-term investments, and tangible assets. current assets, long-term investments, property, plant, and equipment, and common stocks. Question 5.5. (TCO B) For 2012, LBJ Corporation reported net income of $75,000; net sales $750,000; and weighted average shares outstanding of 7,500. There were no preferred stock dividends. What was the 2012 earnings per share? (Points : 3) $100.00 $50.00 $10.00 $110.00 Question 6.6. (TCO D) Which of the following describes the normal balance and classification of the unearned revenue account? (Points : 3) Debit, Expense Credit, Liability Credit, Stockholders' equity Debit, Liability Question 7.7. (TCO E) Which of the following statements is correct? (Points : 3) Cash-basis accounting records revenue when earned. Cash-basis accounting records expenses when incurred. Accrual accounting records expenses when incurred. Accrual accounting records revenue when the payment is received in cash. Question 8.8. (TCOs A and B) A periodic inventory system would most likely be used by a(n) _____ (Points : 3) automobile dealership. jewelry store. furniture store. local neighborhood restaurant. Question 9.9. (TCOs A and B) LBJ Company recorded the following events involving a recent purchase of merchandise. - Received goods for $100,000, terms 2/10, n/30 - Returned $5,000 of the shipment for a credit due to damaged goods - Paid $1,500 for freight in - Paid the invoice within the discount period As a result of these events, the company's merchandise inventory (Points : 3) increased by $96,500. increased by $95,000. increased by $94,500. increased by $94,600. Question 10.10. (TCO A) In a period of declining prices, which of the following inventory methods generally results in the lowest gross profit figure? (Points : 3) FIFO method LIFO method Average cost method None of the above Question 11.11. (TCO D) Describe the process of preparing a trial balance. What is the purpose of preparing a trial balance? If a trial balance does not balance, identify what might be the reasons why it does not balance. If the trial balance does balance, does that ensure that the ledger accounts are correct? Explain. (Points : 30) Question 12.12. (TCOs B and E) The adjusted trial balance of Gertz Company included the following selected accounts. Debit Sales Credit $575,000 Sales returns and allowances $ 50,000 Sales discounts 9,500 Cost of goods sold 347,000 Freight-out 2,000 Advertising expense 15,000 Interest expense 19,000 Store salaries expense 74,000 Utilities expense 18,000 Depreciation expense 3,500 Interest revenue 25,000 Instructions: Use the above information to prepare a multiple-step income statement for the year ended December 31, 2010. Calculate the profit margin ratio and gross profit rate. To qualify for full credit, you must state the formula you are using, show your computations, and explain your findings. (Points : 30) Question 13.13. (TCOs D and E) Please prepare the following journal entries. Indicate which account should be debited and which account should be credited, along with the dollar amount of the debit and credit. Investors invest $50,000 in exchange for 1,000 shares of common stock. Company purchased equipment for $10,000 on credit. Company received $5,000 for services performed. Company made payment on account for $2,000. Company received $7,000 for services not yet performed. (Points : 30) Question 14.14. (TCO D) Your friend Sally has hired you to evaluate the following internal control procedures. Explain to your friend whether each of the numbered items below is an internal control strength or weakness. You must also state which principle relates to each of the internal controls. For the weaknesses, you also need to state a recommendation for improvement. Invoices are pre-numbered. The controller approves of the purchases and makes the payment since he or she is familiar with the purchases. The office manager is in charge of the petty cash fund. Blank checks are stored in the safe. At the end of the day, the total receipts are counted by the cashier on duty and reconciled to the cash register total. (Points : 30) . (TCOs A, B, and C) Shareholders want answers to all of the following questions except for? (Points : 3) How does the company compare in profitability with competitors? Did the company meet its operating expense budget? Will the company be able to pay its liabilities as they come due? Is the company earning a satisfactory return? Question 2.2. (TCO C) Paying back long-term debt is an example of a(n) (Points : 3) non-cash investing activity. investing activity. financing activity. operating activity. Question 3.3. (TCO A) Resources owned by a business are referred to as (Points : 3) revenues. dividends. liabilities. assets. Question 4.4. (TCO A) In a classified balance sheet, assets are usually classified as (Points : 3) current assets, long-term assets, property, plant, and equipment, and tangible assets. current assets, long-term investments, property, plant, and equipment, and intangible assets. current assets, long-term investments, and tangible assets. current assets, long-term investments, property, plant, and equipment, and common stocks. Question 5.5. (TCO B) For 2012, LBJ Corporation reported net income of $75,000; net sales $750,000; and weighted average shares outstanding of 7,500. There were no preferred stock dividends. What was the 2012 earnings per share? (Points : 3) $100.00 $50.00 $10.00 $110.00 Question 6.6. (TCO D) Which of the following describes the normal balance and classification of the unearned revenue account? (Points : 3) Debit, Expense Credit, Liability Credit, Stockholders' equity Debit, Liability Question 7.7. (TCO E) Which of the following statements is correct? (Points : 3) Cash-basis accounting records revenue when earned. Cash-basis accounting records expenses when incurred. Accrual accounting records expenses when incurred. Accrual accounting records revenue when the payment is received in cash. Question 8.8. (TCOs A and B) A periodic inventory system would most likely be used by a(n) _____ (Points : 3) automobile dealership. jewelry store. furniture store. local neighborhood restaurant. Question 9.9. (TCOs A and B) LBJ Company recorded the following events involving a recent purchase of merchandise. - Received goods for $100,000, terms 2/10, n/30 - Returned $5,000 of the shipment for a credit due to damaged goods - Paid $1,500 for freight in - Paid the invoice within the discount period As a result of these events, the company's merchandise inventory (Points : 3) increased by $96,500. increased by $95,000. increased by $94,500. increased by $94,600. Question 10.10. (TCO A) In a period of declining prices, which of the following inventory methods generally results in the lowest gross profit figure? (Points : 3) FIFO method LIFO method Average cost method None of the above Question 11.11. (TCO D) Describe the process of preparing a trial balance. What is the purpose of preparing a trial balance? If a trial balance does not balance, identify what might be the reasons why it does not balance. If the trial balance does balance, does that ensure that the ledger accounts are correct? Explain. (Points : 30) Question 12.12. (TCOs B and E) The adjusted trial balance of Gertz Company included the following selected accounts. Debit Sales Credit $575,000 Sales returns and allowances $ 50,000 Sales discounts 9,500 Cost of goods sold 347,000 Freight-out 2,000 Advertising expense 15,000 Interest expense 19,000 Store salaries expense 74,000 Utilities expense 18,000 Depreciation expense 3,500 Interest revenue 25,000 Instructions: Use the above information to prepare a multiple-step income statement for the year ended December 31, 2010. Calculate the profit margin ratio and gross profit rate. To qualify for full credit, you must state the formula you are using, show your computations, and explain your findings. (Points : 30) Question 13.13. (TCOs D and E) Please prepare the following journal entries. Indicate which account should be debited and which account should be credited, along with the dollar amount of the debit and credit. Investors invest $50,000 in exchange for 1,000 shares of common stock. Company purchased equipment for $10,000 on credit. Company received $5,000 for services performed. Company made payment on account for $2,000. Company received $7,000 for services not yet performed. (Points : 30) Question 14.14. (TCO D) Your friend Sally has hired you to evaluate the following internal control procedures. Explain to your friend whether each of the numbered items below is an internal control strength or weakness. You must also state which principle relates to each of the internal controls. For the weaknesses, you also need to state a recommendation for improvement. Invoices are pre-numbered. The controller approves of the purchases and makes the payment since he or she is familiar with the purchases. The office manager is in charge of the petty cash fund. Blank checks are stored in the safe. At the end of the day, the total receipts are counted by the cashier on duty and reconciled to the cash register total. (Points : 30) . (TCOs A, B, and C) Shareholders want answers to all of the following questions except for? (Points : 3) How does the company compare in profitability with competitors? Did the company meet its operating expense budget? Will the company be able to pay its liabilities as they come due? Is the company earning a satisfactory return? Question 2.2. (TCO C) Paying back long-term debt is an example of a(n) (Points : 3) non-cash investing activity. investing activity. financing activity. operating activity. Question 3.3. (TCO A) Resources owned by a business are referred to as (Points : 3) revenues. dividends. liabilities. assets. Question 4.4. (TCO A) In a classified balance sheet, assets are usually classified as (Points : 3) current assets, long-term assets, property, plant, and equipment, and tangible assets. current assets, long-term investments, property, plant, and equipment, and intangible assets. current assets, long-term investments, and tangible assets. current assets, long-term investments, property, plant, and equipment, and common stocks. Question 5.5. (TCO B) For 2012, LBJ Corporation reported net income of $75,000; net sales $750,000; and weighted average shares outstanding of 7,500. There were no preferred stock dividends. What was the 2012 earnings per share? (Points : 3) $100.00 $50.00 $10.00 $110.00 Question 6.6. (TCO D) Which of the following describes the normal balance and classification of the unearned revenue account? (Points : 3) Debit, Expense Credit, Liability Credit, Stockholders' equity Debit, Liability Question 7.7. (TCO E) Which of the following statements is correct? (Points : 3) Cash-basis accounting records revenue when earned. Cash-basis accounting records expenses when incurred. Accrual accounting records expenses when incurred. Accrual accounting records revenue when the payment is received in cash. Question 8.8. (TCOs A and B) A periodic inventory system would most likely be used by a(n) _____ (Points : 3) automobile dealership. jewelry store. furniture store. local neighborhood restaurant. Question 9.9. (TCOs A and B) LBJ Company recorded the following events involving a recent purchase of merchandise. - Received goods for $100,000, terms 2/10, n/30 - Returned $5,000 of the shipment for a credit due to damaged goods - Paid $1,500 for freight in - Paid the invoice within the discount period As a result of these events, the company's merchandise inventory (Points : 3) increased by $96,500. increased by $95,000. increased by $94,500. increased by $94,600. Question 10.10. (TCO A) In a period of declining prices, which of the following inventory methods generally results in the lowest gross profit figure? (Points : 3) FIFO method LIFO method Average cost method None of the above Question 11.11. (TCO D) Describe the process of preparing a trial balance. What is the purpose of preparing a trial balance? If a trial balance does not balance, identify what might be the reasons why it does not balance. If the trial balance does balance, does that ensure that the ledger accounts are correct? Explain. (Points : 30) Question 12.12. (TCOs B and E) The adjusted trial balance of Gertz Company included the following selected accounts. Debit Sales Credit $575,000 Sales returns and allowances $ 50,000 Sales discounts 9,500 Cost of goods sold 347,000 Freight-out 2,000 Advertising expense 15,000 Interest expense 19,000 Store salaries expense 74,000 Utilities expense 18,000 Depreciation expense 3,500 Interest revenue 25,000 Instructions: Use the above information to prepare a multiple-step income statement for the year ended December 31, 2010. Calculate the profit margin ratio and gross profit rate. To qualify for full credit, you must state the formula you are using, show your computations, and explain your findings. (Points : 30) Question 13.13. (TCOs D and E) Please prepare the following journal entries. Indicate which account should be debited and which account should be credited, along with the dollar amount of the debit and credit. Investors invest $50,000 in exchange for 1,000 shares of common stock. Company purchased equipment for $10,000 on credit. Company received $5,000 for services performed. Company made payment on account for $2,000. Company received $7,000 for services not yet performed. (Points : 30) Question 14.14. (TCO D) Your friend Sally has hired you to evaluate the following internal control procedures. Explain to your friend whether each of the numbered items below is an internal control strength or weakness. You must also state which principle relates to each of the internal controls. For the weaknesses, you also need to state a recommendation for improvement. Invoices are pre-numbered. The controller approves of the purchases and makes the payment since he or she is familiar with the purchases. The office manager is in charge of the petty cash fund. Blank checks are stored in the safe. At the end of the day, the total receipts are counted by the cashier on duty and reconciled to the cash register total. (Points : 30)