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Question 4 On the March Balance Sheet for Gotham, what it the balance in Retained Earnings? TRANSACTIONS - February This is not the firm's first month of business; that is why there are beginning balances in the T-Accounts on the General Ledger. Gotham is a retailer of T-shirts, typically bought by vacationers, visiting the mid-Missouri area. February has 28 days. 2/3/20X1 Gotham issues $5,000 in stock to increase capital in its company. 2/5/20x160 Gotham purchases more T-shirts for inventory on credit. Gotham is able to negotiate a deal to purchase 800 T-shirts for $2/each from its supplier. 2/6/20X10 120x1 Gotham purchases a new building for its warehouse for $60,000. A note is signed for the whole balance. 2/9/20X1 Supplies of $5,000 cash are purchased for the year. 2/11/20X1 Gotham receives a bill for accounting services that it received on 2/1/20X1 worth $1,500. Gotham pays cash immediately. 2/15/20X1 y Gotham makes its first T-shirt sale on credit! It sells 1,000 T-shirts for $35/each. Gotham uses the LIFO perpetual assumption for inventory. Gotham purchases a piece of land for $200,000 that it plans to use in the 2/20/20X1 future for another warehouse development. Right now, it will remain as land. Gotham increases its loan balance with the bank for this purchase. It's payday for Gotham's employees; the total amount in wages is $3,000 for the month, and it is paid in cash immediately. It's the end of the month of February for Gotham. What adjustments need to be made? TRANSACTIONS - March This is that start of March for Gotham -- make sure you begin March where you ended February for all of the permanent accounts. 3/1/20X1 Gotham needs cash and issues a $100,000,5-year, 5% coupon bond when market rates are 6%. 3/3/20X1 Gotham purchases 500 T-shirts from its supplier for $2.50/each on credit. 3/6/20X1 Gotham makes another sale! Gotham Sells 601 shirts for $35/each on credit. 3/9/20X1 Legal Experts Inc. is hired by Gotham to perform legal services that might come up during the year. Gotham signs a contract to use Legal Experts. Estimated legal costs for the year are $2,500. 3/15/20X1 Gotham receives $25,000 cash from its customers from previous purchases. 3/19/20X1 Gotham makes another sale! Gotham sells 50 shirts for $40/each for cash. 3/25/20X1 It's payday for Gotham's employees. The total wages is $2,500 and is paid in cash immediately. Gotham records interest related to the bank loan and pays the bank all interest owed as of 3/31. 3/31/20X1 Gotham records depreciation for the month of March related to the Building. Later in the day, Gotham sells the building for $55,000 cash. It's the end of the month of March for Gotham. What adjustments need to be made? Transactions: Debits & Credits ADDITIONAL INFO Inventory at Gotham Gotham has been purchasing Inventory from its wooller for many months. The following shows the inventory still in Gotham's Inventory account 100 Purchase Date 12/14/2010 12/15/200 12/20/200 12/31/20X0 1/14/20/1 Units Purchase Price 260 $ 250 $ 1.25 300 $ 130 400 $ 250 $ 1.75 Depreciation at Gotham Gotham uses Double Declining Balance for all assets requiring depreciation. For the building, the estimated residual value is $5,000 at the end of the building's 10-year life. Show your depreciation calculation here. Other Information for February Interest should be calculated as 2% of all outstanding loans at the end of the month (this is not an annual rate -- it's the monthly rate, so you don't need to divide it by 12. Interest is not paid at the end of February There are $3,000 in supplies remaining at the end of February Other information for March Interest should be calculated as 2% of all outstanding loans at the end of the month (this is not an annual rate - It's the monthly rate, so you don't need to divide it by 12. Interest is paid at the end of March There are $1,000 in supplies remaining at the end of March Transactions: Debits & Credits ADDITIONAL INFO Resources You Might Need Teaching assistants will not be responding to questions on this project. The resources you have are 1) your textbook 2) your notes and course packet, 3) your one friend in the class whose name is put on the beginning of this packet. You should use The Accounting Process steps 1-6 from your Course Packet for this project (you will not be preparing a Cash Flow Statement on this project. Why do I need to know Gotham uses LIFO7 Gotham has purchased many T-Shirts in the past 2 months. You need to know which T-Shirts are sold for accounting purposes. You use UFO perpetual for both February and March How will I calculate Depreciation? Note, you're given the information on Gotham's asset purchases, and you must use your knowledge of depreciation methods to calculate depreciation for the month of February. Remember, your depreciation formulas will give you annual depreciation, you must make an adjustment to that to get depreciation for the month of February (hint, you can assume all months are equal in length for simplicity). Does the simple signing of a contract require recording an asset or liability? No. A firm can contractually agree to use the services of another firm, but there is no obligation to pay anything until services are actually performed. How will I figure out how to record the Bond? Remember, you must first calculate the issue price of the bond by finding the present value of the annuity and lump sum payments associated with the bond. Once you know that issue price, you know how much cash Gotham will receive. The Bond Payable account (a liability) is increased by the face value of the bond. Remember also that a bond will be issued at a discount if the market is paying a higher return than the coupon on the bond. A Discount account is a contra-liability, and offsets Bond Payable the same way we use Accumulated Depreciation to offset our Equipment account. You may round the issue price and the other numbers related to the Bond to the nearest dollar. Because Gotham isn't going to make any coupon payment on this bond until the end of the first year, you can slip recording any interest or anything related to this bond as an adjustment at the end of March. (In the real world, an adjustment would be made at the end of March for a partial year's worth of interest. - We are skipping this for simplicity.) What should happen when a Building is sold? Remember, you must first figure out the Book Value of the asset at the time of sale. Then you compare the Book Value to the Proceeds from the sale. That tells you what the gain or loss will be. To record the gain or loss in the accounting system, you must remove the asset and associated accumulated depreciation from the company's books and record the receipt of cash. You will be in need of either a debit or a credit to make that entry balance if you need a debit, that is a loss. If you need a credit, that is a Gain. You already know what the outcome should be based on what you figured out above when comparing the Book Value to the Proceeds. Loss accounts are Owner's Equity accounts that decrease Owners Equity (like expenses): Gains are also Owner's Equity accounts, but they increase Owner's Equity (like revenues). You can record the gain or loss o the income statement as a separate line item under gross profit. The gain and loss accounts are closed at the end of the eporting period in the same way as revenue and expense accounts are closed. Question 4 On the March Balance Sheet for Gotham, what it the balance in Retained Earnings? TRANSACTIONS - February This is not the firm's first month of business; that is why there are beginning balances in the T-Accounts on the General Ledger. Gotham is a retailer of T-shirts, typically bought by vacationers, visiting the mid-Missouri area. February has 28 days. 2/3/20X1 Gotham issues $5,000 in stock to increase capital in its company. 2/5/20x160 Gotham purchases more T-shirts for inventory on credit. Gotham is able to negotiate a deal to purchase 800 T-shirts for $2/each from its supplier. 2/6/20X10 120x1 Gotham purchases a new building for its warehouse for $60,000. A note is signed for the whole balance. 2/9/20X1 Supplies of $5,000 cash are purchased for the year. 2/11/20X1 Gotham receives a bill for accounting services that it received on 2/1/20X1 worth $1,500. Gotham pays cash immediately. 2/15/20X1 y Gotham makes its first T-shirt sale on credit! It sells 1,000 T-shirts for $35/each. Gotham uses the LIFO perpetual assumption for inventory. Gotham purchases a piece of land for $200,000 that it plans to use in the 2/20/20X1 future for another warehouse development. Right now, it will remain as land. Gotham increases its loan balance with the bank for this purchase. It's payday for Gotham's employees; the total amount in wages is $3,000 for the month, and it is paid in cash immediately. It's the end of the month of February for Gotham. What adjustments need to be made? TRANSACTIONS - March This is that start of March for Gotham -- make sure you begin March where you ended February for all of the permanent accounts. 3/1/20X1 Gotham needs cash and issues a $100,000,5-year, 5% coupon bond when market rates are 6%. 3/3/20X1 Gotham purchases 500 T-shirts from its supplier for $2.50/each on credit. 3/6/20X1 Gotham makes another sale! Gotham Sells 601 shirts for $35/each on credit. 3/9/20X1 Legal Experts Inc. is hired by Gotham to perform legal services that might come up during the year. Gotham signs a contract to use Legal Experts. Estimated legal costs for the year are $2,500. 3/15/20X1 Gotham receives $25,000 cash from its customers from previous purchases. 3/19/20X1 Gotham makes another sale! Gotham sells 50 shirts for $40/each for cash. 3/25/20X1 It's payday for Gotham's employees. The total wages is $2,500 and is paid in cash immediately. Gotham records interest related to the bank loan and pays the bank all interest owed as of 3/31. 3/31/20X1 Gotham records depreciation for the month of March related to the Building. Later in the day, Gotham sells the building for $55,000 cash. It's the end of the month of March for Gotham. What adjustments need to be made? Transactions: Debits & Credits ADDITIONAL INFO Inventory at Gotham Gotham has been purchasing Inventory from its wooller for many months. The following shows the inventory still in Gotham's Inventory account 100 Purchase Date 12/14/2010 12/15/200 12/20/200 12/31/20X0 1/14/20/1 Units Purchase Price 260 $ 250 $ 1.25 300 $ 130 400 $ 250 $ 1.75 Depreciation at Gotham Gotham uses Double Declining Balance for all assets requiring depreciation. For the building, the estimated residual value is $5,000 at the end of the building's 10-year life. Show your depreciation calculation here. Other Information for February Interest should be calculated as 2% of all outstanding loans at the end of the month (this is not an annual rate -- it's the monthly rate, so you don't need to divide it by 12. Interest is not paid at the end of February There are $3,000 in supplies remaining at the end of February Other information for March Interest should be calculated as 2% of all outstanding loans at the end of the month (this is not an annual rate - It's the monthly rate, so you don't need to divide it by 12. Interest is paid at the end of March There are $1,000 in supplies remaining at the end of March Transactions: Debits & Credits ADDITIONAL INFO Resources You Might Need Teaching assistants will not be responding to questions on this project. The resources you have are 1) your textbook 2) your notes and course packet, 3) your one friend in the class whose name is put on the beginning of this packet. You should use The Accounting Process steps 1-6 from your Course Packet for this project (you will not be preparing a Cash Flow Statement on this project. Why do I need to know Gotham uses LIFO7 Gotham has purchased many T-Shirts in the past 2 months. You need to know which T-Shirts are sold for accounting purposes. You use UFO perpetual for both February and March How will I calculate Depreciation? Note, you're given the information on Gotham's asset purchases, and you must use your knowledge of depreciation methods to calculate depreciation for the month of February. Remember, your depreciation formulas will give you annual depreciation, you must make an adjustment to that to get depreciation for the month of February (hint, you can assume all months are equal in length for simplicity). Does the simple signing of a contract require recording an asset or liability? No. A firm can contractually agree to use the services of another firm, but there is no obligation to pay anything until services are actually performed. How will I figure out how to record the Bond? Remember, you must first calculate the issue price of the bond by finding the present value of the annuity and lump sum payments associated with the bond. Once you know that issue price, you know how much cash Gotham will receive. The Bond Payable account (a liability) is increased by the face value of the bond. Remember also that a bond will be issued at a discount if the market is paying a higher return than the coupon on the bond. A Discount account is a contra-liability, and offsets Bond Payable the same way we use Accumulated Depreciation to offset our Equipment account. You may round the issue price and the other numbers related to the Bond to the nearest dollar. Because Gotham isn't going to make any coupon payment on this bond until the end of the first year, you can slip recording any interest or anything related to this bond as an adjustment at the end of March. (In the real world, an adjustment would be made at the end of March for a partial year's worth of interest. - We are skipping this for simplicity.) What should happen when a Building is sold? Remember, you must first figure out the Book Value of the asset at the time of sale. Then you compare the Book Value to the Proceeds from the sale. That tells you what the gain or loss will be. To record the gain or loss in the accounting system, you must remove the asset and associated accumulated depreciation from the company's books and record the receipt of cash. You will be in need of either a debit or a credit to make that entry balance if you need a debit, that is a loss. If you need a credit, that is a Gain. You already know what the outcome should be based on what you figured out above when comparing the Book Value to the Proceeds. Loss accounts are Owner's Equity accounts that decrease Owners Equity (like expenses): Gains are also Owner's Equity accounts, but they increase Owner's Equity (like revenues). You can record the gain or loss o the income statement as a separate line item under gross profit. The gain and loss accounts are closed at the end of the eporting period in the same way as revenue and expense accounts are closed