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The submission is to be one Excel file including text submission on current ratio and a memo.  You can type your text submission in Word and copy it into your Excel spreadsheet or type the text submission directly into a text box in Excel.  All parts should be included on one sheet.  

  • If any calculations are required, they must be shown.  I will be able to review the Excel formulas in your worksheet.
  • Utilize Excel formulas to the fullest extent possible.
  • Formatting counts.  Use the examples provided in Chapters 1 through 4 for correct formats.
  • The case study answers must be clearly marked and easy to follow.
  • Please title your excel file with your last name & "Case Study 1".

 

 

 

 

MBA 5850 Spring 2017 Block 2

 

 

 

 

 

 

Case Study 1

 

 

 

You have been hired by a company that offers design services and sells household goods, My Best

 

 

 

 

 

Friend’s House. The company has been in business for several years but does not have a good

 

 

 

 

 

accounting system in place. The owner of the company, Mr. Erie, has provided you with the following

 

 

 

account balances as of January 31, 2017. Income and expense amounts are for the month of January

 

 

 

2017.

 

 

 

Cash 8,350

 

 

 

Accounts payable 900

 

 

 

Accounts receivable 3,500

 

 

 

Accumulation depreciation 2,700

 

 

 

Additional paid-in capital 6,000

 

 

 

Common stock 1,200

 

 

 

Depreciation expense 900

 

 

 

Income tax expense 700

 

 

 

Income tax payable 250

 

 

 

Insurance expense 1,800

 

 

 

Interest expense 600

 

 

 

Interest payable 700

 

 

 

Inventory 12,000

 

 

 

Land 17,000

 

 

 

Note payable - current portion 3,000

 

 

 

Note payable - long-term 8,000

 

 

 

Office equipment 4,500

 

 

 

Rent expense 6,000

 

 

 

Retained earnings 7,875

 

 

 

Salary expense 12,000

 

 

 

Salaries payable 800

 

 

 

Service revenue 35,000

 

 

 

Travel expense 1,275

 

 

 

Unearned revenue 2,200

 

 

 

The president has told you that although the accounts are shown with a positive balance, they have the

 

 

 

 

normal debit or credit balance that accounts in their account type have (e.g. assets have a debit

 

 

 

 

 

 

balance, liabilities have a credit balance).

 

 

 

There are six shareholders and Mr. Erie reports financial information to them on a monthly basis.

 

 

 

Required:

 

 

 

(1) Prepare a trial balance, income statement and balance sheet using the account balances

 

 

 

provided to you. Set up your financial statements so that going forward, the president can enter

 

 

 

the account balances in the trial balance and the amounts flow to the correct financial

 

 

 

statements.

 

 

 

 

(2) Calculate the current ratio for My Best Friend’s House. What does this tell you about the

 

 

 

 

 

 

company?

 

 

 

(3) After you have completed your financial statements, Mr. Erie tells you that he believes a couple

 

 

 

 

of mistakes have been made but he is not certain and doesn’t want to change any amounts on

 

the trial balance because “eventually it will all wash out.$500 of the $1,275 travel expenses

 

 

 

 

 

 

are for a sales trip that he has planned for March 2017. A utility bill in the amount of $650 was

 

 

 

 

received on February 10th for January usage. Mr. Erie received a deposit of $5,000 in January

 

 

 

 

 

 

2017 for an engagement scheduled for February 2017. He recorded this amount as Service

 

 

 

Revenue when he received the deposit.

 

 

 

Prepare a memo to Mr. Erie detailing what journal entries, if any, need to be recorded for these

 

 

 

items and include the total effect of any adjustments on the income statement. Include a brief

 

 

 

explanation of why it is important to report accurate financial amounts.

 

 

 

    • 4 years ago
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