Question
Question 1 Prepare the journal entries for the Company for the year ended June 30, 2020 (fiscal 2020) based on the following information: June Transactions
Question 1
Prepare the journal entries for the Company for the year ended June 30, 2020 ("fiscal 2020") based on the following information:
June Transactions
1. $26,000 of vendor invoices were paid during June. These invoices had already been accrued
into accounts payable in May.
2. The Company received a shipment of shoes on June 12th. The invoice cost totaled $25,800
and the shipping costs were an additional $500. Both are expected to be paid in July.
3. The following invoices totaling $22,410 were also received and recorded (to be paid in July): 3
- $4,360 for banners and other supplies related to the 10-K run (all expenses associated
with the 10-K are considered promotion expense).
- $2,200 for liability insurance expense for the month of June.
- $3,850 for utilities expense for the month of June.
- $12,000 for rent for the month of June.
4. June sales records indicate that $64,913 of products (e.g., running shoes, workout clothes,
etc.) were sold. These products had a cost of goods sold of $31,850. Of the sales, $54,913
were cash sales and $10,000 were sales on account.
5. On June 1st Oregon City High School placed an order for shoes for cross-country season and
made full payment of $5,000. The sale had a gross margin of 50%. The School will take
delivery of half of the shoes in June and the other half in July.
6. Total June wages were $6,400 and associated payroll taxes were $415. Of the total payroll,
$5,000 was paid in June and the remainder will be paid in July. All of payroll taxes are to be
paid in July.
7. On June 15th, the Company paid an estimated federal income tax payment of $15,000.
Adjustments
Claudia also provided you the following information that she thought may be helpful in preparing
the year-end financial statements.
8. On April 30th, the Company had acquired new furniture for $3,000. It was incorrectly
entered in books as office supplies expense.
9. On October 1, 2019, "We be losin' Weight Loss & Running Club" had paid MSR $12,000
advance fee to provide coaching services for the end of 2019 and the first nine months of
2020. Claudia had been properly recording coaching revenue each month.
10. It is Company's policy to follow GAAP and record sales when the product is shipped. You
discover that a product which is scheduled to be shipped on July 1, 2020 was recorded as a
sale on June 30 (sale on account - no cash received). The amount of the sale and associated
cost of goods sold are $2,700 and $1,300, respectively.
11. The Company has determined that 100% of the receivables in its allowance for doubtful
accounts at May 31, 2020 will never be collected. In addition, bad debt expense has been
estimated at $403 for the current year.
12. The Prepaid Expense account includes a two-year renter's insurance policy purchased on
January 1, 2020 for $12,000. Claudia has been properly recognizing insurance expense each
month.
13. The building has a useful life of 30 years with no salvage value. The equipment has a useful
life of 10 years with an estimated salvage value is $2,250. Depreciation is provided using the
straight line depreciation method. Company policy requires that any equipment purchased
during the first year will receive a full year of depreciation in the year of acquisition. Claudia
has not recorded any depreciation expense during this fiscal year.4
14. Interest expense accrued for the month of June on its long-term debt is $895. Interest is
accrued every month and is paid at the beginning of each quarter (i.e. July). The company
also makes a principle payment at the beginning of each quarter in the amount of $3,200
(and has since the inception of the loan in 2016). All principle payments have been properly
paid.
15. On June 1st MSR declared a dividend of $800, to be paid on July 15, 2020.
16. A review of the accounts at year end revealed that fees runners had been paying throughout
the fiscal year for the 2020 run had been incorrectly recorded as goodwill. A total of $36,540
of fees had been collected so far this year.
17. The Company has yet to receive an invoice, but legal fees for fiscal 2020 have totaled
$3,000.
18. Claudia admittedly knows little about income taxes and has not recorded income tax expense
in fiscal 2020. She does know that prior years' taxes were properly paid and the CPA has
mentioned that the Company should use a tax rate of 30% for financial statement purposes.
Question 2: Trial Balance
Record the May 31, 2020 balances (see Appendix D below)
Question3: Financial Statements
Required
Using the amounts from Appendix B (for June 30, 2018), Appendix C (for June 30, 2019) and
the trial balance prepared in Problem 2, prepare classified Balance Sheets for MSR as of June 30,
2018, June 30, 2019 and June 30, 2020, respectively, and multiple-step Income Statements and
Statements of Retained Earnings for the years then ended in good form.
Using the amounts from Appendix A (for June 30, 2017), Appendix B (for June 30, 2018),
Appendix C (for June 30, 2019), the trial balance prepared in Problem 2 and the Additional
Information found in Appendix E, prepare Statements of Cash Flow for the years ended June 30,
2018, June 30, 2019 and June 30, 2020, respectively, in good form.
Question 4: Ratio Analysis
After preparing the financial statements in Problem 3, compute the following:
? Common size balance sheets as of June 30, 2018, June 30, 2019 and June 30, 2020 and
common-size income statements for the years then ended.
Explain the trends you see in terms of revenue, expenses and profitability.
? All of the ratios from the class list of Commonly Used Ratios for the years ended June 30,
2018, June 30, 2019 and June 30, 2020.
For each ratio, discuss the trend (time-series analysis) and compare the Company's results to
the following industry statistics (cross-sectional analysis). Explain what each ratio indicates
about the financial "health" and performance of the Company.
Asset turnover 1.25
- Net operating profit after tax ("NOPAT") margin 8.65%
- Return on assets 10.81%
- Common earnings ratio .96
- Capital structure leverage 2.04
- Return on common equity 10.79%
- Accounts receivable turnover (days) 24.4
- Inventory turnover (days) 30.9
- Gross operating cycle (days) 55.3
- Accounts payable turnover (days) 36.1
- Deferred revenue turnover (days) 3.2
- Net operating cycle (days) 16.0
- Ability of cash flow from operations to cover current debt and dividends 2.40
- Current ratio 1.36
- Quick ratio 0.76
- Total debt to equity 1.08
- Financing debt to equity 0.53
- Long term ability of cash flow from operations to cover
debt and dividends 3.89
Attached are the Appendixes. A, B, C, and D
Appendix E - Additional Information (for use in preparing the Statements of Cash Flow)
Year ended June 30, 2020
? No sales of building, furniture and equipment or land during fiscal 2020
? No new loans during fiscal 2020
? The Company sold common stock for $10,100 in cash during fiscal 2020
? No cash dividends were paid during fiscal 2020
Year ended June 30, 2019
? No sales of building, furniture and equipment or land during fiscal 2019
? No new loans during fiscal 2019
? The Company repurchased $2,000 of its own common stock (no additional common stock was
sold) during fiscal 2019
? No cash dividends were paid during fiscal 2019
Year ended June 30, 2018
? No sales of building, furniture and equipment or land during fiscal 2018
? $20,000 of furniture and equipment was purchased and was 100% financed by a new loan (no
other new loans)
? The Company sold common stock for $4,900 in cash during fiscal 2018
? The Company paid a $1,200 cash dividend during fiscal 2018
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