Reference no: EM13337672
Four students from Kendall Hospitality program, decide to start a business and open an icecream shop in the month of June.
The students names are: Victoria, Matt, Jean & Tracy.
They form a company (partnership) and name it "Chicago Summers". They decide to use the same name for the ice cream shop.
The students divide the duties - Matt and Victoria will make the purchases needed to produce the Ice Creams. They will hire two helpers to be at the ice cream shop during business hours, prepare and sell the ice cream. Jean will supervise the employees She also will be in charge of counting the materials at the end of each business day and communicate to Victoria and Matt how much more they need to purchase. Tracy is in charge of keeping the accounting records of the company as well as preparing the financial statements for each month
Here are the transactions Chicago Summers company incurs during the month of June & July 2010:
June Transactions
Setting up the shop
6/1 Each of the students/owners invests $15,000 of cash in the Chicago Summer Company.
The students open a business checking account with City Bank and deposit their initial investments.
6/1 They sign a 2-year lease to rent a space on Michigan Avenue for the Chicago Summers Ice cream shop.
Monthly rent of the space is $2000, payable on the first day of each month.
6/2 They purchase Ice cream Equipments, on account for 12,600, payable in three equal installments, in the next three months
The first installment is due for payment in July 2nd. It is estimated that the equipment has a life of 7 years with no salvage value.
6/2 They purchase Furniture for the Ice Cream Shop on account for 10,000 on account, payable in 45 days.
It is estimated that the furniture will be used for 5 years, with no salvage value.
6/2 They purchase a laptop for $1200 on account to be used exclusively in keeping track of the accounting records.
Payment for the computer is due in 45 days. Estimated life of the laptop is 3 years with no salvage value.
6/2 They purchase a QuickBooks software, to be used in Accounting, for $1500 on account - payable in 45 days. It is estimated that the software will be used for 10 years.
6/5 They call a technician to install the Ice Cream equipment. Estimated bill of the technician is $700. At the end of the month, the company has not yet received the bill, however, the technician completed in full his installation work.
6/5 They hire two employees. Total salary cost for the two employees is $1500 a month, payable at the end of the month.
Starting the Operations
6/5 Victoria & Matt are in charge of purchasing the key materials to make the ice cream. At the beginning of the month they purchase the following:
6/5 They incur freight costs of $50, which they pay in full
| Description |
Quantity in LB |
Price |
Total Cost |
| Milk |
200 |
$ 1.25 |
$ 250.00 |
| Sugar |
200 |
$ 0.75 |
$ 150.00 |
| Vanilla |
1 |
$ 500.00 |
$ 500.00 |
| Cacao |
200 |
$ 3.00 |
$ 600.00 |
| Butter |
200 |
$ 2.00 |
$ 400.00 |
6/15 Victoria and Matt purchase additional materials. Because of market changes, they realize that prices for their key
ingredients have gone up.
| Description |
Quantity in LB |
Price |
Total Cost |
| Milk |
200 |
$ 1.35 |
$ 270.00 |
| Sugar |
200 |
$ 0.90 |
$ 180.00 |
| Butter |
100 |
$ 2.20 |
$ 220.00 |
Inventory
6/30 Jean is in charge of keeping track of key material quantities. She knows that most of the materials purchased during the month have been used in making ice cream. However some quantities still are left unused. These will be used in the next month's production of ice cream. At the end of the month, Jean performs a physical count of the materials left. Below is the result of the count.
| Description |
Quantity in LB |
| Milk |
50 |
| Sugar |
70 |
| Vanilla |
0.5 |
| Cacao |
50 |
| Butter |
90 |
June's financial statement
6/30 Tracy is in charge of keeping the accounting records. She records all the economic events presented above by doing the following:
Preparing the journal entries,
Posting the appropriate journal entries in the T accounts
Preparing the Trial balance for the month of June
Completing the Balance Sheet and Income Statement for the month of June
July Transactions
7/1 The company paid the monthly rent
'7/1 Paid on account for an ad in the local radio station for $700
7/2 Paid the first installment due for the purchase of the Ice Cream Equipment (total $4200)
7/5 Purchased the following inventory items:
| Description |
Quantity in LB |
Price |
Total Cost |
| Milk |
200 |
$ 1.30 |
$ 260.00 |
| Sugar |
200 |
$ 0.90 |
$ 180.00 |
| Cacao |
100 |
$ 2.80 |
$ 280.00 |
| Butter |
100 |
$ 1.90 |
$ 190.00 |
7/5 Incurred $50 of freight cost, which they paid in cash
All the inventory left over from June and purchased July was fully utilized in making the ice creams in July
7/15 Paid in full the Furniture purchased on account in June.
7/15 Paid in full the cost of the laptop
7/15 Paid in full the cost of the QuickBooks software
7/30 Paid the salaries of the two employees
7/30 Collected $7,000 in cash sales
Instructions
June Financial Statements
Assume you are doing Tracy's job:
Analyze each of June's transactions and prepare the journal entries
Calculate the depreciation and amortization expenses for the month of June for the tangible and intangible assets
Calculate Cost of Goods Sold assuming the company uses a periodic inventory system and FIFO for cost method
Post the appropriate journal entries in T accounts
Prepare a trial balance
Prepare the Balance Sheet and Income Statement for the month of June.
July Financial Statements
Repeat the steps above for July:
Analyze each of July's transactions and prepare the journal entries
Calculate the depreciation and amortization expenses for the month of July for the tangible and intangible assets
Calculate Cost of Goods Sold assuming the company uses a periodic inventory system and FIFO for cost method
Post the appropriate journal entries in T accounts
Prepare a trial balance
Prepare the Balance Sheet and Income Statement for the month of July
III Analysis of Accounting Records
Prepare a horizontal analysis by comparing June and July balance sheets
Calculate the following ratios:
1 Current ratio (Liquidity)
2 Return on Assets (Profitability)
3 Debt to Total Assets ratio (Solvency)
Assume you are reviewing the Financial Statements and the analysis together with Victoria, Matt and Jean
What are some of the conclusions? What should the company do to stay in business?
Attachment:- AccountingProject.xls