It is January 2020 and you have just been hired as the Controller for Delta Therapy Supply (DTS), a corporation that began as a distributor of general purpose physical therapy equipment for hospitals and physical therapy centers. DTS has just finished an eventful year in which it launched a new software product and a new training service. DTS also entered into a therapy center construction venture. Your predecessor left the firm in a hurry. Your primary responsibility is to finish the 2019 year-end financial statements. Specifically, you must complete: 1) any necessary correcting journal entries 2) all the adjusting journal entries 3) the trial balances 4) the closing journal entries 5) a complete multi-step Income Statement for the year ended Dec. 31, 2019 6) a classified Balance Sheet as of December 31, 2019.
b) a classified Balance Sheet as of December 31, 2019. You, of course, will include supporting documentation, including a brief description of the issue. For each issue, you must provide: a brief description of the issue and your actionthat is, identify whether: 1) if an incorrect entry was made, what was the incorrect entry, why was it incorrect, and how did you correct it; or 2) if a normal adjusting entry is needed, why the adjustment is needed; or 3) if no change or adjustment is needed detailed calculations to support any values you use in your journal entries The Unadjusted Trial Balance has been prepared (it is included in the 3401 Excel Project workbook.xlsx"), showing only those accounts with a non-zero balance. You have gathered the following information that will be helpful in preparing any necessary journal entries (add any accounts necessary). Good luck! Additional Information About Normal Operations: a. Cost of Goods Sold: DTS uses a periodic FIFO inventory system for its normal restaurant equipment operations. A physical inventory count indicated 40,000 units on hand at the end of 2019. PURCHASES FOR 2019 (normal operations) Beginning units: 14,000 units @ $640.00 each Purchases: Apr - May 15,000 units @ $646.40 each Jun - Jul 20,000 units @ $649.60 each Aug - Sep 18,000 units @ $652.80 each Oct 12,000 units @ $656.00 each Nov - Dec 14,000 units @ $659.20 each b. DTS uses straight-line depreciation and all fixed assets were purchased at the beginning of 2017 and have a 5-year useful life. No depreciation entries have been recorded yet during 2019. Page 1 of 3 ACCTNG-3401 Excel Project Must be submitted online via Canvas Assignment by 11:59pm on the due date. c. Bad debt for Accounts Receivable: DTS management does not expect there to be any change in the collectability of its credit sales related to its regular restaurant equipment operations. DTS uses the Accounts Receivable approach to estimate bad debts, and the aging schedule at 12/31/2019 is summarized below: Days outstanding % of Accts Rec 0-30 days 58% 30-60 days 26% 60-90 days 14% >90 days 2% Estimated % Uncollectible 0.50% 1.50% 10.00% 40.00% d. In addition to its physical therapy equipment products, DTS's management entered into a long-term agreement on September 1, 2019 to begin supplying its internally developed web-based commercial therapy tracking software, PROGRESS- TRACKER, along with maintenance support, to a regional chain of therapy centers. The details of the agreement called for DTS to be paid $3,600,000 up front for the software and 3 years of maintenance support (beginning on the agreement date). The therapy center chain could have bought just the software for $2,870,300 with no support, and they could have independently contracted for the maintenance support for $1,116,200 for the three-year period. DTS determines the sales price, and directs the customization of the software. The cost of the software sold to the therapy center chain was $2,160,000. DTS considers this software part of its normal operations, and has recorded this sale as a point-of-sale transaction. e. In October, 2019 DTS also launched a new service through its website (called PT CONT ED on the trial balance worksheet). PT CONT ED offers online continuing education to Physical Therapist and Assistant PT's through contracted independent instructors. Each instructor sets her own price for a training session. DTS connects interested individuals with the instructors but does not directly provide any of the training. For its services and per the contract, DTS is entitled to 20% of the total per session fee. DTS also considers this service part of its normal operations. DTS recorded the entire amount of the fee collected as revenue and recognized its cost associated with PT CONT ED as 80% of the fee. f. Finally, in addition to its normal operations, DTS also has launched a division that builds physical therapy centers. At the end of 2018, there was one building project in process: the $3,800,000 Bradshaw Clinic (BC) projecta state-of-the-art physical therapy facility. This project, which was started in June, 2018, qualifies as a single performance obligation with revenue recognized over the period of the project according to the percentage-of-completion method based on a cost-to-cost approach. The original estimated cost for the PC project was $2,720,800 at the end of 2018. But there have been substantial increases in the cost of materials resulting, as of the end of 2019, in a total actual and estimated cost of $3,040,000. The contract does not allow for renegotiation of the contracted price. DTS has a legally binding, enforceable contract with the customer and all parties are expected to be able to perform under the contract. The general ledger accounts Construction-in-Progress and Billings-on- Contract show the following before any 2019 year-end adjusting entries. Billings-on-Contract 1,414,360 2018 Construction-in-Progress 2018 cost 1,224,360 2018 AJE 485,640 2019 cost 1,329,240 Unadj. 3,039,240 2019 1,663,640 3,078,000 Unadj. g. DTSs effective tax rate is 25%. Ignore all other taxes. h. There are 400,000 shares of common stock outstanding for 2019. Note: You must format your Excel solution so that I can print entire workbook and display your name in the header and follow your solution without dangling blank pages. b) a classified Balance Sheet as of December 31, 2019. You, of course, will include supporting documentation, including a brief description of the issue. For each issue, you must provide: a brief description of the issue and your actionthat is, identify whether: 1) if an incorrect entry was made, what was the incorrect entry, why was it incorrect, and how did you correct it; or 2) if a normal adjusting entry is needed, why the adjustment is needed; or 3) if no change or adjustment is needed detailed calculations to support any values you use in your journal entries The Unadjusted Trial Balance has been prepared (it is included in the 3401 Excel Project workbook.xlsx"), showing only those accounts with a non-zero balance. You have gathered the following information that will be helpful in preparing any necessary journal entries (add any accounts necessary). Good luck! Additional Information About Normal Operations: a. Cost of Goods Sold: DTS uses a periodic FIFO inventory system for its normal restaurant equipment operations. A physical inventory count indicated 40,000 units on hand at the end of 2019. PURCHASES FOR 2019 (normal operations) Beginning units: 14,000 units @ $640.00 each Purchases: Apr - May 15,000 units @ $646.40 each Jun - Jul 20,000 units @ $649.60 each Aug - Sep 18,000 units @ $652.80 each Oct 12,000 units @ $656.00 each Nov - Dec 14,000 units @ $659.20 each b. DTS uses straight-line depreciation and all fixed assets were purchased at the beginning of 2017 and have a 5-year useful life. No depreciation entries have been recorded yet during 2019. Page 1 of 3 ACCTNG-3401 Excel Project Must be submitted online via Canvas Assignment by 11:59pm on the due date. c. Bad debt for Accounts Receivable: DTS management does not expect there to be any change in the collectability of its credit sales related to its regular restaurant equipment operations. DTS uses the Accounts Receivable approach to estimate bad debts, and the aging schedule at 12/31/2019 is summarized below: Days outstanding % of Accts Rec 0-30 days 58% 30-60 days 26% 60-90 days 14% >90 days 2% Estimated % Uncollectible 0.50% 1.50% 10.00% 40.00% d. In addition to its physical therapy equipment products, DTS's management entered into a long-term agreement on September 1, 2019 to begin supplying its internally developed web-based commercial therapy tracking software, PROGRESS- TRACKER, along with maintenance support, to a regional chain of therapy centers. The details of the agreement called for DTS to be paid $3,600,000 up front for the software and 3 years of maintenance support (beginning on the agreement date). The therapy center chain could have bought just the software for $2,870,300 with no support, and they could have independently contracted for the maintenance support for $1,116,200 for the three-year period. DTS determines the sales price, and directs the customization of the software. The cost of the software sold to the therapy center chain was $2,160,000. DTS considers this software part of its normal operations, and has recorded this sale as a point-of-sale transaction. e. In October, 2019 DTS also launched a new service through its website (called PT CONT ED on the trial balance worksheet). PT CONT ED offers online continuing education to Physical Therapist and Assistant PT's through contracted independent instructors. Each instructor sets her own price for a training session. DTS connects interested individuals with the instructors but does not directly provide any of the training. For its services and per the contract, DTS is entitled to 20% of the total per session fee. DTS also considers this service part of its normal operations. DTS recorded the entire amount of the fee collected as revenue and recognized its cost associated with PT CONT ED as 80% of the fee. f. Finally, in addition to its normal operations, DTS also has launched a division that builds physical therapy centers. At the end of 2018, there was one building project in process: the $3,800,000 Bradshaw Clinic (BC) projecta state-of-the-art physical therapy facility. This project, which was started in June, 2018, qualifies as a single performance obligation with revenue recognized over the period of the project according to the percentage-of-completion method based on a cost-to-cost approach. The original estimated cost for the PC project was $2,720,800 at the end of 2018. But there have been substantial increases in the cost of materials resulting, as of the end of 2019, in a total actual and estimated cost of $3,040,000. The contract does not allow for renegotiation of the contracted price. DTS has a legally binding, enforceable contract with the customer and all parties are expected to be able to perform under the contract. The general ledger accounts Construction-in-Progress and Billings-on- Contract show the following before any 2019 year-end adjusting entries. Billings-on-Contract 1,414,360 2018 Construction-in-Progress 2018 cost 1,224,360 2018 AJE 485,640 2019 cost 1,329,240 Unadj. 3,039,240 2019 1,663,640 3,078,000 Unadj. g. DTSs effective tax rate is 25%. Ignore all other taxes. h. There are 400,000 shares of common stock outstanding for 2019. Note: You must format your Excel solution so that I can print entire workbook and display your name in the header and follow your solution without dangling blank pages
