Company Background & Scenario

The AC Speed Company is a well-established, publicly-held corporation, operating as a wholesaler in the auto parts industry. Specifically, AC Speed purchases auto parts from manufacturers and sells them to large business customers. Most purchases and sales are on account, with trade credit terms (specified below).

Youre a Davenport University student pursuing a bachelors degree in business and employed at the AC Speed Company this semester as an intern. Youve worked in various departments and on several projects so far, learning a lot about the companys business operations. Management seems impressed with your enthusiasm and the quality of your work.

The companys accountant has just been called away for a family emergency and will likely be absent for a month or so. The General Manager asks you to take over the accountants regular duties on an interim basis. Youre nervous about doing so, but are confident that what youve learned in accounting class, plus your personal problem-solving skills, will make this a successful experience. What a great learning opportunity, not to mention an enhancement to your resume!

Project Overview & Instructions

A. Overview

a. Part 1 is a financial accounting activity that requires you to record various business transactions during the month, close the accounting records at the end of the month, and prepare the financial statements. These tasks relate to the steps in the accounting cycle that you learned in your first accounting course.`

b. Part 2 is an activity that requires you to analyze the companys year-end financial statements to assist management in assessing the companys position and making decisions about its future direction.

c. This is an individual, not a team, project. While you may discuss this project with others, you must prepare and submit your own work. Refer to the academic integrity statement in the project workbook.

d. Before starting work, review the entire project: all instructions, business transactions descriptions, workbook sections, check figures, due dates, and submission requirements.

B. General Instructions

a. The parts of this project, including specific business transactions and steps in the accounting cycle, must be completed in sequence. This is particularly important with business transactions relating to purchases and sales of inventory.

b. You are also encouraged to use your textbooks table of contents (front) or index (back) to locate helpful references.

c. These project instructions will not address every detail of every task. If you have questions, ask your instructor.

d. Most of your work for this project will be accomplished in Excel. A basic skill level in this application is expected. That is, you should be able to such things as move around in a workbook, enter data in cells, use the sum function, compose basic formulas, and save your work.

e. If rounding is required, round to the nearest cent. For example, $96.835 would be entered as $96.84.

f. Use the check figures provided to check your work as you progress through the project. Investigate any discrepancies and correct them as you go along.

g. Refer to the project rubric to determine how components of the project will be assessed.

h. Appearance counts! Pay attention to the format, to spelling, and to other details of appearance. This reflects on managements perception of you as a professional.

C. Submission Requirements

a. Final submission of all parts of this project must be in electronic (not paper) form. That is, you will submit your completed work via an assignment link in a Blackboard course site or via an email attachment. Follow your instructors directions.

b. Save backup copies of your work. If you have multiple versions of the project, clearly label them for your own reference and to ensure that you submit the appropriate version to your instructor.

c. You must read the academic integrity statement in the project workbook and enter your student ID number on the form to signify your agreement with and adherence to that statement. Final project submissions will not be accepted without this.

d. Due dates for the parts of this project will be provided by your instructor in the course syllabus, in the Blackboard course site, or in a designated handout. Be sure to enter these on your personal calendar and plan your work on this project accordingly.

D. Credit Terms & Inventory Accounting

a. When AC Speed purchases merchandise (inventory only) from a supplier or vendor on account, they receive credit terms of 2/15, net 30.

b. When AC Speed sells merchandise to a customer on account, they offer that customer credit terms of 2/30, net 45.

c. AC Speed accounts for the specific types of merchandise in their inventory with a set of subsidiary ledgers (inventory control cards). The balances in these subsidiary ledger records, in total, must equal the balance in the Merchandise Inventory account in the general ledger.

d. AC Speed uses a perpetual inventory accounting system and a last-in, first-out (LIFO) inventory costing method.

e. Subsidiary ledger records are kept for each customer and for each vendor. The balances in the customer subsidiary ledger records, in total, must equal the Accounts Receivable account balance in the general ledger. The balances in the vendor subsidiary ledger records, in total, must equal the Accounts Payable account balance in the general ledger.

E. Financial Accounting Steps:

a. Record each business transaction, in sequence by date, in the appropriate special journal or the general journal. Also, immediately record any transaction involving inventory, a customer, or a vendor in the appropriate subsidiary ledger record.

b. At the end of the month, post each entry in the general journal to the general ledger.

c. At the end of the month, total each column in each special journal and post that total to the general ledger. EXCEPT for entries in the Other columns, which must be posted individually to the general ledger.

d. When posting is completed, bring the balance in each general ledger account up to date.

e. When posting is completed, bring the balance in each subsidiary ledger account up to date.

f. At this point in the closing process, the balances of all subsidiary ledger accounts would be totaled and that total compared to the balance of the corresponding control account in the general ledger. That is, the total of inventory control cards would be compared to the Merchandise Inventory balance; the customer subsidiary ledger total to the Accounts Receivable balance; and the vendor subsidiary ledger total to the Accounts Payable balance. Any discrepancies would be investigated and corrected. Given the limited scope of this project scenario, reconciliation between subsidiary ledgers and control accounts is not possible.

g. List all general ledger account balances in the unadjusted trial balance columns of the worksheet. Use the sum function in Excel to total the debit and credit columns. These totals should be equal.

h. Prepare the end-of-month adjusting entries. Record these entries in the general journal and post them to the general ledger. Also record the adjusting entries in the designated columns in the worksheet and total the debit and credit columns. These totals should be equal.

i. Update general ledger account balances after posting adjusting journal entries.

j. Complete the unadjusted trial balance columns on the worksheet. Use Excel formulas to carry balances from the unadjusted trial balance columns, adjusting as necessary by entries in the adjustments columns. Check your results against the balances recorded in the general ledger.

k. Sort the dollars recorded in the adjusted trial balance columns into either the income statement or the balance sheet columns. Total these columns. The entry of net income should cause the debit and credit columns to equal one another.

l. Use the income statement information on the worksheet to prepare a multi-step income statement in good form. Look at examples of this income statement format in your textbook, such as the one on page 220.

m. Prepare a statement of retained earnings in good form. Look at examples of this statement in your textbook. Remember that net income from your just-completed income statement is a necessary component of this statement.

n. Use the balance sheet information on the worksheet to prepare a classified balance sheet, similar in format to the example on page 711. Remember that the ending retained earnings balance from the just-completed statement is a necessary component of the equity section of the balance sheet.

o. Prepare the end-of-month closing entries. Record these entries in the general journal and post them to the general ledger. Update balances in the general ledger accounts.

p. List the general ledger accounts that have balances other than zero on the post-closing trial balance. The totals of the debit column and the credit column should be equal.

F. Part 2 of this project requires you to analyze the companys year-end financial statements to assist the management of AC Speed in assessing the companys financial position and making decisions about its future direction.

a. Before beginning this part of the project, you will find it helpful to review Chapter 18 on financial statement analysis. Page 809, a summary of ratios, will be particularly useful.

b. Tabs in the project workbook provide trial balance data for the current and two preceding years for AC Speed and a location to calculation a selection of ratios. Use the trial balance data and the formulas in Chapter 18 to compute the ratios listed for each of the three years. YOU MUST STRUCTURE YOUR RATIO CALCULATIONS AS FORMULAS AND LINKS TO APPROPRIATE CELLS ON THE TRIAL BALANCE TAB. You will lose points by simply typing the final ratio numbers or percentages.

c. After you calculate the ratios, consider whether there is a trend over the three-year period. Also compare the ratios you calculated for AC Speed with those listed as industry averages. Review the information in Chapter 18 to help you determine what the ratios are telling you about various aspects of AC Speeds business operations.

d. Use Word to prepare a memo (minimum 500 words) to AC Speeds general manager, addressing the three questions listed at the bottom of the ratios tab. This should be formatted as a business memo, not an APA paper. Be sure to include a brief introduction and conclusion in the memo. Each question should be addressed in one or two paragraphs in the body of the memo. Remember that the general manager will expect details/facts/ratios to support statements you may make about the status of the business. Your writing should be concise, clear, and readable, with a fairly formal tone (since its addressed to AC Speeds general manager, who is likely to share it with other members of management). Your instructor will provide the due date and submission requirements for this part of the project.

June 1	Signed a one-year 18.5%, $180,000 note payable with First Bank.
June 1	Purchased 3,000 GPS units on Credit from Navistar for $35.00 per unit.
June 1	Issued 5,500 shares of common stock for $11 per share (Refer to General ledger for description of common stock).
June 1	Sold 2,000 DVD players on account to Toyota for $75 per units, Invoice #5555.
June 2	Sold 3,500 GPS units on account to Kia for $52 per unit, Invoice #5556.
June 2	Purchases office supplies from Office Max on credit for $1,200.
June 2	Sold 900 docking stations for $64 per unit and 1950 GPS units for $83 per unit on account to Nissan, Invoice #5560.
June 3	The Board of Directors declared a cash dividend of $5 per share for shareholders of record on June 5th, payable on June 12th.
June 4	Received payment from Toyota for May 11th sale
June 4	Rented part of the warehouse to a new tenant and received $4,900 for three months rent (June, July, August).
June 5	Paid $2,100 to Michigan Utility Co. for utilities bill that was recorded in May as an Account Payable, Check #5278.
June 7	Received and paid expense reports for travel and entertainment totaling $925, Check #5279.
June 8	Paid for office supplies purchased on June 2nd, Check #5280.
June 11	Paid in full for the June 1 purchase from Navistar, Check #5281.
June 11	Received a bill from the law firm of Larry, Moe & Curly for $5,400, payable upon receipt, for bond consulting fees, Check #5282.
June 12	Paid the dividend that was declared on June 3, Check #5283.
June 13	Took advantage of a special deal to purchase 3,250 DVD players on account from JVC for $48 per unit.
June 13	Purchased 850 GPS units on credit from Magellan for $33 per unit.
June 15	Sold 2,000 DVD players on credit to Fort Motor Co. for $89.00 per unit, Invoice 5557.
June 15	Check # 5284 was issued for payroll: $14,500 for salaried and $4,750 for wages.
June 16	Purchased 1,800 docking stations on credit from Samsung for $42 per unit.
June 17	Issued a credit to Kia for the return of 350 defective units from the June 2nd sale. These units has a cost basis of $35 per unit.
June 17	Returned the 350 defective units received from Kia to Navistar.
June 18	Received payment in full from Toyota for the June 1st sale.
June 20	While inspecting the June 13th purchase, it was discovered that the GPS units were programmed for South America instead of North America. AC Speed returned the entire order to Magellan.
June 20	A bankruptcy judge disallowed AC Speed's claim for $5,000 due from General Motors. Management Decided to write off this accounts receivable.
June 22	Sold 1,650 docking stations on credit to Kia for $64.50 per unit, Invoice #5559.
June 23	Paid $75,000 of the $162,500 owed to JVC from May 25, Check #5285.
June 23	Received payment from Ford Motor Co. for $175,000 of the $300,000 owed from May 5.
June 24	Purchased a $100 international phone card for one of the sales representative's upcoming European business trip, Check #5286.
June 25	Paid in full for the purchase from JVC on June 13, Check #5287
June 26	Purchased 1,250 docking station from Samsung for $41 per unit paying in cash, Check #5288
June 27	Sold 1,500 docking stations on credit to Honda for $61 per unit, Invoice 5558.
June 27	Hired and paid a consultant $75,000 to devise a marketing plan. AC Speed's management felt this was necessary to develop brand awareness. Check #5289.
June 28	AC Speed is behind in its mortgage payments to Bank of America. Paid a total of $10,000 ($2,000 principal and $8,000 interest), Check #5290.
June 29	Received payment in full from Honda for the June 27th transaction.
June 29	Paid in full for the purchase from Magellan on May 31st, Check #5291.
June 29	Check #5292 was issued for payroll: $14,500 for salaries and $4,750 for wages.
June 30	Paid the first month's principal payment of $15,000 on the note payable. In addition, paid one month's interest, Check #5293
June 30	Issued bonds payable at face value for $350,000
*All purchases of inventory on account terms of 2/15, n/30
**All credit sales have terms of 2/30, n/45
June Month-end Adjustments:
( A )	AC Speed has earned one month of the prepaid rent received from their tenant at the beginning of June.
( B )	The Company took a physical count of Office Supplies on June 30 and found the following to be on hand:
	Office Supplies - $2,465
( C )	AC Speed estimates bad debt expense on a monthly basis rather than waiting until year-end. The company uses the allowance method. Based on recent industry estimates, AC Speed estimates that the allowance account should be 2.5% of accounts receivable.
( D )	The Company took a physical inventory count on June 30 and found the following inventory on hand:
	Merchandise Inventory - $122,221
( E )	The Balance in the prepaid insurance account at the beginning of June represents 4 months of coverage. Record the amount of insurance for June.
( F )	Depreciation on the company's fixed assets for the month of June is as follows:
	1. The furniture and equipment for the warehouse was purchased a few years ago for $10,000. These assets have a 5-year life, an expected salvage value of $1,000, and are depreciated using the straight-line method.
	2. The furniture and equipment for the office was purchased last year for $8,500. these assets have a 7 year life, an expected salvage value of $1,500, and are depreicated using stright-line method.

Product Name	Description
GPS	In vehicle GPS unit
DVD Player	In vehicle DVD player
Docking Station	Cell phone / Mobile Communications Docking Station

AC Speed Corporation
Chart of Accounts - General Ledger
BALANCE SHEET ACCOUNTS
Assets
Current Assets
Acct #	Account Name
100	Cash
102	Accounts Receivable
103	Allowance for Doubtful Accounts
104	Merchandise Inventory
105	Office Supplies
106	Prepaid Insurance
Property, Plant and Equipment
140	Land
145	Building
146	Accumulated Depreciation - Building
151	Equipment & Furniture - Warehouse
152	Accumulated Depreciation - Equip & Furn. - Warehouse
153	Equipment & Furniture - Office
154	Accumulated Depreciation - Equip & Furn. - Office
Liabilities
Current Liabilities
201	Accounts Payable
202	Wages Payable
203	Interest Payable
204	Dividends Payable
205	Unearned Rent
Long-Term Liabilities
250	Notes Payable
251	Bonds Payable
252	Mortgage (Warehouse) Payable
Capital (Equity)
300	Common Stock, $1 Par, 100,000 Authorized; 60,000 shares Issued/Outstanding
301	Paid In Capital - Excess of Par
330	Retained Earnings
340	Treasury Stock
INCOME STATEMENT ACCOUNTS
Revenue
500	Sales
510	Sales Discounts
511	Sales Returns & Allowances
Cost of Goods Sold
600	Cost of Goods Sold
Operating Expenses
700	Wage Expense (hourly workers)
701	Salaries Expense (Exempt Staff)
702	Marketing Expense
703	Travel and Entertainment Expense
704	Bad Debt Expense
705	Property Tax Expense
706	Office Maintenance & Repair Expense
707	Legal Expenses
708	Insurance Expense
709	Utilities Expense
710	Office Supplies Expense
711	Telecommunications Expense
712	Depreciation Expense - Equip & Furniture - Warehouse
713	Depreciation Expense - Equip & Furniture - Office
Other Income
800	Rent Income
Other Expenses
900	Interest Expense
Other
1000	Income Summary

Account Name

General Motors

Ford Motor Co.

Toyota

Honda

Kia

Nissan

Account Name

Garmin

JVC

Magellan

Michigan Utility Company

Motorola

Navistar

Samsung

AC Speed Corporation

Sales Journal

Date

Invoice No.

A/R Account Debited

Post Ref

A/R - DR Sales - CR

CGS - DR Inv - CR

Date

Creditors Account Credited

Other Account - Debited

Post Ref

A/P - CR

Inventory - DR

Office Supplies - DR

Other - DR

AC Speed Corporation
Cash Receipts Journal
Date	Acct - CR Customer Acct Other Acct	Post Ref	Sales - CR	A/R - CR	Other - CR	Sale Discount - DR	Cash - DR	CGS - DR Inv - CR

AC Speed Corporation
Cash Payments Journal
Date	Check #	Payee	Account Debited	Post Ref	Cash - CR	Inventory - CR	Other - DR	A/P - DR

AC Speed Corporation
General Journal
Date	Accounts	Post Ref	DEBIT	CREDIT

AC Speed Corporation
General Journal
Date		Accounts	Post Ref	DEBIT	CREDIT