MGMT200 Section1 Team22

MGMT 200 Project DJ: Case 1-2
Case 1-2 tabs begin after the Case 1-1 tabs on the bottom of the exc
1 answers are entered into the tabs so your team can start Case 2-2
is recommended to read through the Case 1-1 tabs to assure your ar
AFTER YOU READ THROUGH THE CASE 1-1 TABS, PLEASE START WIT
FURTHER CASE 1-2 INSTRUCTIONS.
For any questions, please contact Robert Bauters and David Valensi
dvalensi@purdue.edu.
Start Date: 10/14/2013

Due Date: 10/24/2013
Project DJ: Case 1-2
bottom of the excel document (14th tab over). Case 1-
can start Case 2-2 with the correct amounts. Your team
bs to assure your are familiar with the correct answers.
PLEASE START WITH THE FIRST YELLOW TAB FOR
and David Valensi at rbauters@purdue.edu and
10/14/2013
10/24/2013
Case 1-1: Instructions
1. Assume the role of accountant Justin Phillips and complete the requirements 1 - 9.
2. You MUST use the tabs below to complete the requirements.
3. ANY CHANGES TO THE LAYOUT OF THE TABS WILL RESULT IN A DEDUCTION

OF POINTS. Do not change formulas already in place.
You are encouraged to enter in your own formulas where there aren't any formulas
already in place. (e.g. using the Sumation/Addition/Subtraction Formula(s) to
total a T-Account).
4. The TA's leading Case 1-1 will not be answering questions the day before and the
day the case is due.
5. If a member on your team is not participating equally and/or fairly, it is All team
members' responsibility to report this person to the TA's in charge of the case.
Students who do not fully participate in the case will receive a deduction in the team's
final case grade.
The TA's in charge of the case projects are Robert Bauters (rbauters@purdue.edu)
and David Valensi (dvalensi@purdue.com).
6. Submission:
When you finish the case, please save the document with the correct Section and
Group number ("MGMT200_Section1_Group1") and upload it into blackboard.
Only one person per group should upload the case into blackboard.
Please enter the names of everyone on your team below.
Name: Purdue Career Acct:

Example: Drew Brees dbrees15
Case 1-1: Grade Rubric
Requirement 1 - Journal Entries 14 pts.

Requirement 2 - T-Accounts 10
Requirement 3 - Unadjusted Trial Balance 5
Requirement 4 - Identification/Abnormality 4
Requirement 5 - Account Balances 4
Requirement 6 - Account Balances 4
Requirement 7 - Accounts Receivable 2
Requirement 8 - Liability 3
Requirement 9 - Holiday Gift 4
Total 50
Case 1-1: Requirement 1
Instructions:
Using the account titles provided for you in Exhibit 1.1 and referring back to the Narrative as needed, please prepare
journal entries (using good form) as necessary for the transactions and events described in the accompanying exhibits for
this case. That is, you should prepare only those specific entries required to record the transactions described in these
materials. You are not to consider adjusting entries that would be recorded after the events described in these exhibits.
Some dates will not require an entry and not all entries will use all of the lines available. For dates that do not require
any entries, enter "No Entry Required". PLEASE USE EXHIBIT 1.1 FOR NAMES OF THE ACCOUNTS.
Date Account Title Debit Credit

EXAMPLE:
Jan 1 Office Equipment $ 10,000
Cash $ 10,000
Nov 15 No Entry Required.
Nov 30 No Entry Required.
Dec 1 (i) Cash $ 35,000

Common Stock $ 35,000
Dec 1 (ii) Cash $ 25,000

Note Payable $ 25,000
Dec 1 (iii) Music Equipment $ 35,000

Music Library $ 5,000
Accounts Receivable $ 4,000
Customer Deposit $ 2,950
Rent Payable $ 2,200
Cash $ 38,850
Dec 5 (i) Prepaid Advertising $ 4,500

Cash $ 4,500
Dec 5 (ii) Cash $ 600

Service Fees Earned $ 600
Dec 6 (i) Customer Deposits $ 200

Accounts Receivable $ 700
Dec 6 (ii) No Entry Required.
Dec 6 (iii) No Entry Required.

Dec 7 Cash $ 300
Dec 8 (i) Customer Deposits $ 400

Service Fees Earned $ 2,300
Dec 8 (ii) Prepaid Insurance $ 2,730

Cash $ 2,730
Dec 8 (iii) Rent Payable $ 2,200

Cash $ 2,200
Dec 9 (i) Advertising Expense $ 300

Cash $ 300
Dec 9 (ii) Cash $ 2,800

Customer Deposits $ 1,300
Dec 10 (i) Professional Fees $ 1,300
Accounts Payable $ 1,300
Dec 10 (ii) Other Receivable $ 750

Cash $ 750
Dec 11 (i) Music Library $ 600

Cash $ 600
Dec 11 (ii) No Entry Required.
Dec 12 (i) Cash $ 600

Customer Deposits $ 600
Dec 12 (ii) Cash $ 1,400

Dec 13 No Entry Required.

Dec 15 (i) Accounts Receivable $ 700
Dec 15 (ii) Repair & Maintenance $ 650

Cash $ 650
Dec 15 (iii) Supplies $ 800

Accounts Payable $ 800
Dec 16 Cash $ 400

Dec 22 Cash $ 9,000

Dec 23 Dividend Paid To Owner $ 2,500

Cash $ 2,500
Dec 26 (i) Accounts Receivable $ 825
Cash $ 825
Dec 26 (ii) Accounts Payable $ 1,800

Cash $ 1,800
Dec 26 (iii) Cash $ 700

Dec 29 Vehicles $ 30,000

Cash $ 7,500
Dec 31 Accounts Receivable $ 3,000

Cash $ 3,000
eded, please prepare
accompanying exhibits for
ons described in these
cribed in these exhibits.
ates that do not require

TS.
Points Earned
Total Points For Req. 1 (For Grading Purposes):
14 pts. 14 pts.
0.44 pts. pts.
0.44 pts. pts.
0.44 pts. pts.
0.44 pts. pts.

0.44 pts. pts.
0.44 pts. pts.
0.44 pts. pts.
0.44 pts. pts.
0.44 pts. pts.
0.44 pts. pts.

0.44 pts. pts.
0.44 pts. pts.
0.44 pts. pts.
0.44 pts. pts.
0.44 pts. pts.
0.44 pts. pts.

0.44 pts. pts.
0.44 pts. pts.
0.44 pts. pts.
0.44 pts. pts.
0.44 pts. pts.
0.44 pts. pts.
0.44 pts. pts.

0.44 pts. pts.
0.44 pts. pts.
0.44 pts. pts.
0.44 pts. pts.
0.44 pts. pts.
0.44 pts. pts.

0.44 pts. pts.
0.44 pts. pts.
0.44 pts. pts.
0.44 pts. pts.
0.44 pts. pts.

Example: C
Cash
11/1 Debit Amt. Instructions:
1/2 Credit Amt. Using the journal entries that you prepared in requirem
T-Accounts and calculate the overall account balances
1/10 $ 50,000
1/11 $ 25,000 <-- To the left is an example of how you should set up
1/15 $ 10,000 dates on all entries added to the T-Accounts. Please n
1/16 $ 5,000 each T-Account and NOT ALL T-ACCOUNTS WILL BE US
1/18 $ 15,000
$ 25,000
(Ending Balance)
Cash Accounts Receivable

11/30 $ - 11/30 $ -
Dec 1 (i) $ 35,000 Dec 1 (iii) $ 4,000
Dec 1 (ii) $ 25,000 Dec 6 (i) $ 700
Dec 1 (iii) $ 38,850 Dec 8 (i) $ 1,900
Dec 5 (i) $ 4,500 Dec 9 (ii)
Dec 5 (ii) $ 600 Dec 12 (ii)
Dec 7 $ 300 Dec 15 (i) $ 700
Dec 8 (ii) $ 2,730 Dec 16
Dec 8 (iii) $ 2,200 Dec 22 $ 3,800
Dec 9 (i) $ 300 Dec 26 (i) $ 825
Dec 9 (ii) $ 2,800 Dec 26 (iii)
Dec 10 (ii) $ 750 Dec 31 $ 3,000
Dec 11 (i) $ 600
Dec 12 (i) $ 600
Dec 12 (ii) $ 1,400
Dec 15 (ii) $ 650
Dec 16 $ 400
Dec 22 $ 9,000
Dec 23 $ 2,500
Dec 26 (i) $ 825
Dec 26 (ii) $ 1,800
Dec 26 (iii) $ 700
Dec 29 $ 7,500
Dec 31 $ 3,000
$ 15,595 $ 10,925
Other Receivable Supplies
11/30 $ - 11/30 $ -
Dec 10 (ii) $ 750 Dec 16 $ 800
$ 750 $ 800
Prepaid Interest Prepaid Rent

11/30 $ - 11/30 $ -
Vehicles Accumulated Depreciation

11/30 $ - 11/30
Dec 29 $ 30,000
$ 30,000
Accounts Payable Due To Owner

11/30 $ - 11/30
Dec 10 (i) $ 1,300
Dec 16 $ 800
Dec 26 (ii) $ 1,800
$ 300
Rent Payable Salaries Payable

11/30 $ - 11/30
Dec 1 (iii) $ 2,200
Dec 8 (iii) $ 2,200
Note Payable Long-Term Investments

11/30 $ - 11/30
Dec 1 (ii) $ 25,000
Dec 29 $ 22,500
$ 47,500
STOCK
Common Stock Dividend Paid To Owner

11/30 $ - 11/30 $ -
Dec 1 (i) $ 35,000 Dec 23 $ 2,500
$ 35,000 $ 2,500
Service Fees Earned Dividend Income

11/30 $ - 11/30
Dec 5 (ii) $ 600
Dec 6 (i) $ 900
Dec 7 $ 300
Dec 8 (i) $ 2,300
Dec 15 (i) $ 700
Dec 22 $ 14,000
Dec 31 $ 6,500
$ 25,300
Advertising Expense Amortization Expense

11/30 $ - 11/30 $ -
Dec 9 (i) $ 300
$ 300
Interest Expense Miscellaneous Expenses

11/30 $ - 11/30 $ -
Rent Expense Repair & Maintenance

11/30 $ - 11/30 $ -
Dec 15 (ii) $ 650
$ 650
Training & Development Expense Travel Expense

11/30 $ - 11/30 $ -
you prepared in requirement (1), post the entries to the

overall account balances as of 12/31/2008.
of how you should set up your T-Accounts. Make sure you include
the T-Accounts. Please note, NOT ALL LINES WILL BE USED under
T-ACCOUNTS WILL BE USED.
ASSETS
Receivable Due From Owner Interest Receivab
11/30 $ - 11/30
$ 1,500
$ 1,400
$ 400
$ 700
plies Prepaid Advertisement Prepaid Insuranc
11/30 $ - 11/30
Dec 5 (i) $ 4,500 Dec 8 (ii)
$ 4,500
d Rent Music Equipment Office Equipmen

11/30 $ - 11/30
Dec 1 (iii) $ 35,000
$ 35,000
Depreciation Music Library

$ - 11/30 $ -
Dec 1 (iii) $ 5,000
Dec 11 (i) $ 600
$ 5,600
LIABILITIES
Owner Insurance Payable Interest Payable

$ - 11/30 $ -
Payable Utilities Payable Customer Deposi
$ - 11/30 $ -
Dec 6 (i)
Dec 8 (i)
Dec 22
Dec 31
nvestments
$ -
STOCKHOLDER'S EQUITY
d To Owner Retained Earnings

11/30 $ -
REVENUES
Income Interest Revenue

$ - 11/30 $ -
EXPENSES
on Expense Depreciation Expense Insurance Expens

11/30 $ - 11/30
us Expenses Music Expenses Professional Fee

11/30 $ - 11/30
Dec 10 (i)
aintenance Salaries Expense Supplies Expense

11/30 $ - 11/30
xpense Utilities Expense
11/30 $ -
Total Points Points Earned
For Req. 2 (For Grading Purposes):
10 pts. 10 pts.
Interest Receivable 0.870 pts. pts.

$ -
Prepaid Insurance 0.870 pts. pts.
$ -
$ 2,730
$ 2,730
Office Equipment 0.870 pts. pts.

$ -
0.652 pts. pts.
Interest Payable 0.870 pts. pts.

11/30 $ -
Customer Deposits 0.870 pts. pts.
11/30 $ -
Dec 1 (iii) $ 2,950
$ 200
$ 400
Dec 9 (ii) $ 1,300
Dec 12 (i) $ 600
$ 1,200
$ 500
$ 2,550
0.652 pts. pts.
0.652 pts. pts.

0.652 pts. pts.
Insurance Expense 0.870 pts. pts.

$ -
Professional Fees 0.870 pts. pts.

$ -
$ 1,300
$ 1,300
Supplies Expense 0.870 pts. pts.

$ -
0.652 pts. pts.
Instructions:
Using the ending balances in the T-Accounts from requirement (2), prepare a 12/31/08
unadjusted trial balance for Music Express (ME).
Please use the template below to prepare the unadjusted trial balance. NOT ALL LINES
ACCOUNTS WILL BE USED.
Music Express
Unadjusted Trial Balance
12/31/2008
Debit Credit
Cash $ 15,595
Accounts Recievable $ 10,925
Due From Owner
Interest Receivable
Other Receivables $ 750
Supplies $ 800
Prepaid Advertising $ 4,500
Prepaid Insurance $ 2,730
Prepaid Interest
Prepaid Rent
Music Equipment $ 35,000
Office Equipment
Vehicles $ 30,000
Accumulated Depreciation
Due to Owner
Insurance Payable
Interest Payable
Rent Payable
Salaries Payable
Utilities Payable
Long-Term Investments
Dividend Paid to Owner $ 2,500
Retained Earnings
Dividend Income
Interest Revenue
Advertising Expense $ 300
Amortization Expense
Depreciation Expense
Insurance Expense
Interest Expense
Miscellaneous Expense
Music Expense
Professional Fees $ 1,300
Rent Expense
Repair & Maintenance $ 650
Salaries Expense
Supplies Expense
Training & Development Expenses
Travel Expense
Utilities Expense
$ 110,650.00 $ 110,650.00
Points Earned
5 pts. 5 pts.
1 pts. pts.
2 pts. pts.
2 pts. pts.
Instructions:
For each account listed on the unadjusted trial balance prepared in requirement (3), identify the type of account (asset, liab
revenue, expense), and indicate whether it would be reported on the balance sheet or on the income statement. Consider
account balance is abnormal. (That is, determine whether an account balance that is expected to carry a debit balance but
and vice versa). If you determine that a particular account balance is abnormal, label it as such and explain what the abnorm
communicates.
If your team completed Requirement 3 correctly, the Unadjusted Trial Balance should be pulled from the Requirement 3 t
into the red box below. For each account on the Unadjusted Trial Balance, FILL IN AND COMPLETE THE TABLE TO THE RIGH
for each account as instructed above (if the account holds a value on the Unadjusted Trial Balance).
DO NOT Change Formulas Below. The numbers will be pulled from the Unadjusted Trial Balance in Req. 3
Music Express
Unadjusted Trial Balance
39813
Debit Credit
Cash $ 15,595
Accounts Recievable $ 10,925
Due From Owner
Interest Receivable
Other Receivables $ 750
Supplies $ 800
Prepaid Interest
Prepaid Rent
Office Equipment
Vehicles $ 30,000
Accumulated Depreciation
Due to Owner
Insurance Payable
Interest Payable
Rent Payable
Salaries Payable
Utilities Payable
Dividend Paid to Owner $ 2,500
Retained Earnings
Dividend Income
Interest Revenue
Depreciation Expense
Insurance Expense
Interest Expense
Music Expense
Rent Expense
Salaries Expense
Supplies Expense
Travel Expense
Utilities Expense
$ 110,650 $ 110,650
4
tify the type of account (asset, liability, equity,

n the income statement. Consider also whether any
ected to carry a debit balance but has a credit
such and explain what the abnormal balance
e pulled from the Requirement 3 tab Total Points For Req. 4

COMPLETE THE TABLE TO THE RIGHT OF THE RED BOX 4 pts.
al Balance).
Balance in Req. 3
Complete Requirement 4 on the table below.
Asset, Liability, Equity, Balance Sheet or

Abnormal Abnormal Explaination (if listed as yes)
Revenue, or Expense Income Statement
Asset Balance Sheet Normal None.


Liability Balance Sheet Normal None.

Equity Balance Sheet Normal None.

Equity (temporary to RE) Balance Sheet Normal None.
Revenue Income Statement Normal None.
Expense Income Statement Normal None.

Points Earned
(For Grading Purposes):
4 pts.
ormal Explaination (if listed as yes)

Instructions:
Using your unadjusted balances from requirement (3), calculate the following items as of 12/31/08:
a. Total dollar amount of ME's assets.
b. Total dollar amount of ME's liabilities.
c. Total equity (using the balance sheet equation).
d. The unadjusted net income (or net loss).
In order to earn credit, you must provide the name and dollar amount of the underlying accounts that
make up your answer (show all work in the boxes provided below).
a. Total dollar amount of ME's assets (show all work):
Cash $ 15,595
Other Receivable $ 750
Supplies $ 800
Vehicles $ 30,000
Total ME's Assets $ 105,900
b. Total dollar amount of ME's liabilities (show all work):

Total ME's Liabilities $ 50,350
c. Total equity (using the balance sheet equation):

Assets $ 105,900
Less: Liabilities $ (50,350)
Total Equity $ 55,550
d. Unadjusted net income (or net loss):
Revenue $ 25,300
Less Expense:
$ 2,250
Unadjusted Net Income $ 23,050
s of 12/31/08:
Points Earned
ying accounts that Total Points For Req. 5 (For Grading Purposes):
4 pts. 4 pts.
1 pts. pts.
1 pts. pts.
1 pts. pts.
1 pts. pts.
Instructions:
Using the balance you computed for total equity in requirement 5c, determine how much
of this balance is:
a. Total contributed capital.
b. Total retained earnings (there may be more than one approach).
In order to earn credit, you must provide the name and dollar amount of the underlying accounts that
make up your answer (show all work in the boxes provided below).
a. Total contributed capital:
Common Stock = $ 35,000 (Unadjusted Trial Balance from Requirement #3)
b. Total retained earnings (show all work):
Approach 1: Use the balance sheet equation.
Assets - Liabilities = Owners Equity

$ 105,900 - $ 50,350 = $ 55,550
Contributed Capital + Retained Earnings = Total Equity

$ 35,000 + X = $ 55,550
(Requirement 6(a)) (Requirement 5c)
Solve for X = $ 20,550
Approach 2: Statement of Retained Earnings
Beginning Retained Earnings $ -

Plus: Net Income $ 23,050
Less: Dividends Paid $ (2,500)
Ending Retained Earnings $ 20,550
Proof:
Assets = Liabilities + Owners Equity

Contributed + Earned
$ 105,900 = $ 50,350 + $35,000 + $25,000
Points Earned
4 pts. 4 pts.
unts that
1.33333333 pts. pts.
2.66666667 pts. pts.
ted + Earned
Instructions:
As of 12/31/08, how much money is owed to ME by its customers? On which financial
statement would this balance be reported?
Answer:
Accounts Receivable $ 10,925 Balance Sheet
(from Requirement 3)
Points Earned
2 pts. 2 pts.
2 pts. pts.
Instructions:
Consider each of the liabilities identified in requirement 5(b) and comment on how the
liability will eventually be settled.
Answer (add lines as needed):
Accounts Payable and Note Payable:

These liabilities will be reduced by ME when it makes a cash payment for the amount
owed. Further, the Note Payable account balance, which is compriseed of the business
start-up loan (Exhibit 1.4) and the loan with the auto dealership (Exhibit 1.2, Monday,
December 29), will be reduced through monthly payments that will be applied towards
both interest and principal.
Customer Deposits:
In order to secure an event date, customers pay Ted a portion of the total event price up
front. Upon receiving this payment, Ted is obligated to the customer to either (i) return
the deposit, or (ii) provide DJ services on the date requested. Eventually, when Ted
performs his services he keeps the deposit and reduces the amount the customer owes
him for the event. Unlike the previous liabilities, this particular one will not be settled
with a cash payment, but with the performance of services.
Points Earned
3 pts. 3 pts.
3 pts. pts.
Instructions:
Consider the holiday gift that Ted treated himself to on 12/23 (Exhibit 1.2). Using the
accounts listed in Exhibit 1.1, provide at least two possible alternatives for the debit portions
of the resulting journal entry and explain how the economic entity assumption impacts your
choices. Given your two options, please clarify what additional information you would need
from Ted in order to determine which specific classification best captures the economic
reality of this situation.
Answer (add lines as needed):
The economic entity assumption is the notion that economic events should be identified with
a particular business entity. Further, the economic events of one entity should be kept separat
ee and not commingled with the economic events of another entity. Implicit in this
assumption is that the business owner is a separate entity from the business.
Here we have Ted, the owner of the business, using $2,500 of cash that belongs to the
business for personal purposes. Students often misunderstand the economic entity
assumption and believe they should ignore this event (as it involves a separate entity). Given
that $2,500 of business assets are now gone, clearly something must be recorded! Some
introductory students will jump to the conclusion that Ted is stealing or breaking the law. In
the small business context, situations such as this happen quite frequently as the sole owner
does not see a difference betwen himself and the business. What is important is that the
economic event is recorded accurately on the books so that it faithfully represents the
underlying transaction that occurs between the two separate entities. For starters, even
though this is an economic outflow, it should not be recorded as a "business expense" on
ME's books. If it were recorded in this manner, the economic entity assumption would be
violated!
There are two possiblities for how this cost could be classified given that the owner is
personally using assets belonging to the business. Specifically:
a. Ted will pay back the busness the $2,500, in which case it should increase the receivable
"due from owner".
b. (Our choice): Ted will not pay back the $2,500, in which case it should increase "dividend
paid to owner". This is no different than if Ted had been paid a $2,500 cash dividend and
then used the money to personally pay for the cruise.
Points Earned
4 pts. 4 pts.
4 pts. pts.
Grading Sheet - For Administration Use ONLY
Points Per Requirement:

Req. 1 14
Req. 2 10
Req. 3 5
Req. 4 4
Req. 5 4
Req. 6 4
Req. 7 2
Req. 8 3
Req. 9 4
50
Reduction - Change Layout of Tabs 0

Total 50
Grade for Case 1.1 100%

Team Information:
Names: Purdue Career Account:

Example: Drew Brees dbrees15
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
Case 1-2: Instructions
1. Assume the role of accountant Justin Phillips and complete the requirements 1 - 6. To date, accountant Justin Phillips
He is now ready to prepare the December adjusting entries.
2. Your team is recommended to read through Case 1-1 tabs/answers before you begin Case 1-2. You MUST use the Gre
3. Your team are asked to refer to Exhibit 1.3, Exhibit 1.4, and Exhibit TN 1.1. Exhibit 1.3 and Exhibit 1.4 are included in t
given in Requirement 2.
4. ANY CHANGES TO THE LAYOUT OF THE TABS WILL RESULT IN A DEDUCTION OF POINTS. Do not change formulas alre
formulas to calculate your answers where formulas are not already in place. (e.g. using the Sumation/Addition/Subtracti
5. Questions: The TA's leading Case 1-2 will not be answering questions the day before and the day the case is due. Last
6. Participation: If a member on your team is not participating equally and/or fairly, it is ALL of the team members respo
case. Students who do not fully participate in the case will receive a deduction in the team's final case grade. Those who
7. The TA's In Charge: Robert Bauters (rbauters@purdue.edu) and David Valensi (dvalensi@purdue.com)
8. Submission: When you finish the case, please save the document with the proper Section and Group number. Pleas
Groups who do not save the file with the correct file name will receive a reduction in points.
structions
te, accountant Justin Phillips has assisted Ted by recording ME's December transactions.
e 1-2. You MUST use the Green Tabs below to complete the requirements.
d Exhibit 1.4 are included in the Case File (PDF). Exhibit TN 1.1 account balances are
Do not change formulas already in place but you are encouraged to enter your own
Sumation/Addition/Subtraction Formula(s) to total a T-Account).
the day the case is due. Last day for questions will be 10/22.
L of the team members responsibility to report this person to the TA's in charge of the
's final case grade. Those who do not participate at all will receive a zero for Case 1-2.
alensi@purdue.com)
on and Group number. Please refer to this example: "MGMT200_Section1_Group1".

nts.
Please enter your Group # and the names of everyone on your team below.
Group #: 22
Name: Purdue Career Acct:

Joseph Toney toneyj
Drew Dennis ddennis
Tianzhao Wu wu393
Case 1-2: Grade Rubric
Requirement 1: Adjusting Journal Entries 12 pts.

Requirement 2: T-Accounts 12
Requirement 3: Unadjusted Trial Balance 5
Requirement 4: Cash-Basis - 2008/2009 7
Requirement 5: Accrual vs. Cash-Basis 7
Requirement 6: Technical Adjusting Entry 7
Total 50 pts.
Instructions:
Determine which 12/31/08 account balances (Exhibit TN 1.1) require adjustment and prepare required adjusting entries. Pl
make all adjustments that are necessary in order to produce proper accrual basis financial statements.
Please use the account titles listed in Exhibit 1.1 for purposes for your entries. Do not create a new account.
Some dates will not require an entry and not all entries will use all of the lines available. For dates that do not require
any entries, enter "No Entry Required".

EXAMPLE:
Jan 1 Office Equipment $ 10,000
Cash $ 10,000
Jan 1 (i) Interest Expense $ 115

Interest Payable $ 115
Accrue Interest Expense
Jan 1 (ii) Supplies Expense $ 600

Supplies $ 600
Record a change to supplies
Jan 1 (iii)
No Entry Required
Jan 1 (iv) Insurance Expense $ 6

Insurance Payable $ 6
Accrue Insurance Expense
Jan 2 (i) Salary Expense $ 2,220

Salaries Payable $ 2,220
Accrue Salary Expense
Jan 2 (ii) Cash $ 1,400

Record Services Performed in December
Jan 3 Office Equipment $ 275

Cash $ 275
Record Equipment that was purchased in December
Jan 5 (i) a
No entry required
Jan 5 (i) b Utility Expense $ 525

Utilities Payable $ 525
Accrue Utility Expense
Jan 5 (i) c Utility Expense $ 250

Utilityies Payable $ 250
Accrue Utility Expense
Jan 5 (i) d
No entry required
Jan 6 Rent Expense $ 2,200

Rent Payable $ 2,200
Accrue Rent Expense
Jan 8 (i) Depreciation Expense $ 1,306

Accumulated Depreciation $ 1,085
Music Library $ 221
Accrue Accumulated Deprecation Expense
Jan 8 (ii)
No entry required
Jan 8 (iii) Travel Expense $ 35

Due to Owner $ 35
Record an expense owed to owner.
Jan 9
No entry required
Other adjustments not specifically mentioned:
Dec 31 Advertising Expense $ 850
Insurance Expense $ 185
Prepaid Advertising $ 850
Prepaid Insurance $ 185
Record the usage of Prepaid Assets
e required adjusting entries. Please
atements.
e a new account.
r dates that do not require
Points Earned
12 pts. 0.00 pts.
0.71 pts. 0.00 pts.
0.71 pts. 0.00 pts.
0.71 pts. 0.00 pts.

0.71 pts. 0.00 pts.
0.71 pts. 0.00 pts.
0.71 pts. 0.00 pts.
0.71 pts. 0.00 pts.
0.71 pts. 0.00 pts.
0.71 pts. 0.00 pts.

0.71 pts. 0.00 pts.
0.71 pts. 0.00 pts.
0.71 pts. 0.00 pts.
0.71 pts. 0.00 pts.
0.71 pts. 0.00 pts.
0.71 pts. 0.00 pts.
0.71 pts. 0.00 pts.

0.71 pts. 0.00 pts.
Example: C
Cash
11/1 Debit Amt. Instructions:
1/2 Credit Amt. Post the adjusting journal entries from requirement (1
12/31/08.
1/10 $ 50,000
1/11 $ 25,000 Exhibit TN 1.1 - The 12/31/08 adjusted account balan
1/15 $ 10,000
1/16 $ 5,000 <-- To the left is an example of how you should set up
1/18 $ 15,000 dates on all entries added to the T-Accounts. Please n
$ 25,000 each T-Account and NOT ALL T-ACCOUNTS WILL BE US
(Ending Balance)
Cash Accounts Receivable

Dec 31 $ 15,595 Dec 31 $ 10,925
Jan 2 (ii) $ 1,400 Jan 2 (ii) $ 3,350
Jan 3 $ 275
$ 16,720 $ 14,275
Other Receivable Supplies

Dec 31 $ 750 Dec 31 $ 800
Jan 1 (ii)
$ 750 $ 200
Prepaid Interest Prepaid Rent

Dec 31 $ - Dec 31 $ -
Vehicles Accumulated Depreciation
Dec 31 $ 30,000 Dec 31
Jan 8 (i)
$ 30,000
Accounts Payable Due To Owner

Dec 31 $ 300 Dec 31
Jan 8 (iii)
$ 300
Rent Payable Salaries Payable

Dec 31 $ - Dec 31
Jan 6 $ 2,200 Jan 2 (i)
$ 2,200
Note Payable Long-Term Investments

Dec 31 $ 47,500 Dec 31
$ 47,500
STOCK
Common Stock Dividend Paid To Owner

Dec 31 $ 35,000 Dec 31 $ 2,500
$ 35,000 $ 2,500
Service Fees Earned Dividend Income

Dec 31 $ 25,300 Dec 31
Jan 2 (ii) $ 5,400
$ 30,700
Advertising Expense Amortization Expense

Dec 31 $ 300 Dec 31 $ -
Dec 31 $ 850
$ 1,150
Interest Expense Miscellaneous Expenses
Dec 31 $ - Dec 31 $ -
Jan 1 (i) $ 115
$ 115
Rent Expense Repair & Maintenance

Dec 31 $ - Dec 31 $ 650
Jan 6 $ 2,200
$ 2,200 $ 650
Training & Development Expense Travel Expense

Dec 31 $ - Dec 31 $ -
Jan 8 (iii) $ 35
$ 35
ries from requirement (1) to "T" accounts and calculate the overall account balances as of
8 adjusted account balances for ME are given below as the beginning account balances.
of how you should set up your T-Accounts. Make sure you include
the T-Accounts. Please note, NOT ALL LINES WILL BE USED under
T-ACCOUNTS WILL BE USED.
ASSETS
Receivable Due From Owner Interest Receivab
Dec 31 $ - Dec 31
plies Prepaid Advertisement Prepaid Insuranc

Dec 31 $ 4,500 Dec 31
$ 600 Dec 31 $ 850
$ 3,650
d Rent Music Equipment Office Equipmen

Dec 31 $ 35,000 Dec 31
Jan 3
$ 35,000
Depreciation Music Library

$ - Dec 31 $ 5,600
$ 1,085 Jan 8 (i) $ 221
$ 1,085 $ 5,379
LIABILITIES
Owner Insurance Payable Interest Payable

$ - Dec 31 $ -
$ 35 Jan 1 (iv) $ 6
$ 35 $ 6
Payable Utilities Payable Customer Deposi

$ - Dec 31 $ -
$ 2,220 Jan 5 (i) b $ 525 Jan 2 (ii)
Jan 5 (i) c $ 250
$ 2,220 $ 775
nvestments
$ -
STOCKHOLDER'S EQUITY
d To Owner Retained Earnings

Dec 31 $ -
REVENUES
Income Interest Revenue

$ - Dec 31 $ -
EXPENSES
on Expense Depreciation Expense Insurance Expens

Dec 31 $ - Dec 31
Jan 8 (i) $ 1,306 Jan 1 (iv)
Dec 31
$ 1,306
us Expenses Music Expenses Professional Fee
Dec 31 $ - Dec 31
aintenance Salaries Expense Supplies Expense

Dec 31 $ - Dec 31
Jan 2 (i) $ 2,220 Jan 1 (ii)
$ 2,220
xpense Utilities Expense

Dec 31 $ -
Jan 5 (i) b $ 525
Jan 5 (i) c $ 250
$ 775
Total Points
For Req. 2
###pts.
Points Earned
(For Grading Purposes):
pts.
###
Interest Receivable 1.04 pts. 0.00 pts.

$ -
Prepaid Insurance 1.04 pts. 0.00 pts.

$ 2,730
Dec 31 $ 185
$ 2,545
Office Equipment 1.04 pts. 0.00 pts.

$ -
$ 275
$ 275
0.78 pts. 0.00 pts.
Interest Payable 1.04 pts. 0.00 pts.

Dec 31 $ -
Jan 1 (i) $ 115
$ 115
Customer Deposits 1.04 pts. 0.00 pts.

Dec 31 $ 2,550
$ 650
$ 1,900
0.78 pts. 0.00 pts.

0.78 pts. 0.00 pts.
0.78 pts. 0.00 pts.
Insurance Expense 1.04 pts. 0.00 pts.

$ -
$ 6
$ 185
$ 191
Professional Fees 1.04 pts. 0.00 pts.
$ 1,300
$ 1,300
Supplies Expense 1.04 pts. 0.00 pts.

$ -
$ 600
$ 600
0.78 pts. 0.00 pts.

Instructions:
Use the ending balances in the "T" accounts from requirement (2) to prepare a 12/31/08 adjusted
trial balance for ME.
Please use the template below to prepare the unadjusted trial balance. NOT ALL
LINES/ACCOUNTS WILL BE USED.
Music Express (ME)

Adjusted Trial Balance
12/31/2008
Debit Credit
Cash $16,720
Accounts Recievable $14,275
Due From Owner
Interest Receivable
Other Receivables $750
Supplies $200
Prepaid Advertising $3,650
Prepaid Insurance $2,545
Prepaid Interest
Prepaid Rent
Music Equipment $35,000
Office Equipment $275
Vehicles $30,000
Accumulated Depreciation $1,085
Music Library $5,379
Accounts Payable $300
Due to Owner $35
Insurance Payable $6
Interest Payable $115
Rent Payable $2,200
Salaries Payable $2,220
Utilities Payable $775
Customer Deposits $1,900
Note Payable $47,500
Common Stock $35,000
Dividend Paid to Owner $2,500
Retained Earnings
Service Fees Earned $30,700
Dividend Income
Interest Revenue
Advertising Expense $1,150
Depreciation Expense $1,306
Insurance Expense $191
Interest Expense $115
Music Expense
Professional Fees $1,300
Rent Expense $2,200
Repair & Maintenance $650
Salaries Expense $2,220
Supplies Expense $600
Travel Expense $35
Utilities Expense $775
$121,836 $121,836
Points Earned
5 pts. 0.00 pts.
1 pts. 0.00 pts.
2 pts. 0.00 pts.

2 pts. 0.00 pts.
Instructions:
How would the 2008 and 2009 financial statements be different if Ted had instead chosen to use the cash-basis method of
accounting?
NOTE: Do not submit a complete set of cash-basis finanical statements. We want you to identify the differences between
methods (in general) and the key differences in certain accounts on Musical Express's Financial Statements. Please list at
account differences.
Please use the box below to answer the question above. If you need more space, please add more lines inside the box.
Cash Basis accounting only records transactions when cash is exchanged. That is, a company records its revenues when the
paid, and records its expenses when it pays for them. This way, a company's books will match the amount in its bank accoun
Accrual Basis accounting, on the other hand, records transactions in the time period that they occurred. Revenues are reco
when they are earned, and expenses are recorded when they are incurred or used up. This allows businesses to better estim
their net income by matching revenues to the expenses that occurred in the same time period. It is important to a using Ac
Based Accounting to separate its transactions into time periods, and accurately record the earning and expenses at the exac
of the exchange. The time period concept is not important in a Cash Basis system, and consequently would have created se
differences in the 2008 and 2009 financial statements if it was used by ME. For example, the balance sheet would look diffe
because certain accounts would not exist. Assets like prepaid insurance would never be opened because the entire cost of t
insurance would be expensed when purchased under Cash Basis Accounting. Under Accrual Basis Accounting, insurance is
expensed in increments, month by month, until the insurance has been used up. The income statement would also look diff
the coverage of the insurance had not been used up by the end of the period. Also, receivables and payables are not record
under cash basis accounting. 1) On Jan. 1st, we shall not record the insurance expense, if we use the ca
financial statements 2) On Jan. 2nd, we shall record $2760 salary expense rather than $2200, if we use the cash-basis fi
statements 3) On Jan. 5th, the utility bills of $525 and $250 would be expensed as a part of January, rather than Decemb
For Jan. 8th, Music Equipment, Music Library, and Vehicle would be recorded as assets purchased in December, and would
depreciated over their useful life.
he cash-basis method of
he differences between the two Points Earned

atements. Please list at least 4
7 pts. 0.00 pts.
e lines inside the box.
ds its revenues when they are

mount in its bank account.
urred. Revenues are recorded
businesses to better estimate
s important to a using Accrual
and expenses at the exact price
y would have created several
ce sheet would look different
cause the entire cost of the
Accounting, insurance is
ment would also look different if
d payables are not recorded
expense, if we use the cash-basis
we use the cash-basis financial
uary, rather than December. 4)
n December, and would not be
Instructions:
Which method (that is, accrual or cash-basis) provides a more meaningful and relevant picture for financial statement users
Explain using specific examples from ME to support your opinion.
Please use the box below to answer the question above. If you need more space, please add more lines inside the box.
Accrual Basis Accounting provides a more meaningful picture for financial statement users because it makes a more relevan
connection between revenues earned and expenses. For example, Jan. 8 describes an adjustment that accounts for the
depreciation of ME's Music Equipment and Vehicle and the Amortization of ME's Music Library under Accrual Basis Accoun
Cash Basis would not accrue those assets over time, despite the fact that ME is using them to earn revenue over many mon
to 36 months for the Music Equipment. The revenue will not be attached to the Depreciation expense. However, an Accrua
will accurately place the usage of those assets in the same time period that the assets were used to generate revenue, such
Dec. 13. This creates a more accurate Net income. Another example is the advertising purchased on Dec. 5. Cash Basis wou
record the transaction as an Advertising expense on Dec.5, but Accrual Basis would accrue the advertising as a Prepaid Adv
account, to be used up over the entire 90 day period that ME will use the advertising to generate revenue. Again, the Net in
distorted because expenses do not fully cover the time periods where revenue was earned from those expenses. Finally, M
salaries to its employees on Jan. 2, which included two days of work on Jan. 1 and 2. The work done on these two days cont
to revenue earned in January, while the rest of the days contriubte to revenue earned in December. Cash Basis Accounting w
record the transaction as a salary expense completely in January, which skews the income as it does not account for the sal
most of the month of December. In fact, Cash Basis Accounting is much worse at describing Net income, because expenses
may not be incurred at the same time as Revenue.
financial statement users?
e lines inside the box. Points Earned

7 pts. 0.00 pts.
e it makes a more relevant
that accounts for the
der Accrual Basis Accounting. A
revenue over many months, up
nse. However, an Accrual Basis
o generate revenue, such as on
n Dec. 5. Cash Basis would
ertising as a Prepaid Advertising
evenue. Again, the Net income is
ose expenses. Finally, ME paid
e on these two days contributes
r. Cash Basis Accounting would
s not account for the salary of
ome, because expenses may or
Instructions:
Please consider the 12/31/08 adjusting entries you proposed in requirement (1) related to the interest incurred
on the $25,000 start-up loan and the insurance coverage for the new van. Taking into account your 12/31/08
adjustments for these two items, propose the entries that would be recorded by ME in January of 2009 at the
time of the cash payments. (Exhibit 1.3, Jan. 1, (i) and (iv)).
Please use the boxes below to answer the question above. Not all Adjusting Entry boxes may be needed to
answer the question.
Adjusting Entry:
1/1/2009 Note Payable $ 363
Interest Expense $ 115
Cash $ 478
Explanation and calculation the above adjusting entry:

Make a monthly payment on a loan plus interest
Adjusting Entry:
1/1/2009 Insurance Expense $ 8
Prepaid Insurance $ 342
Cash $ 350
Explanation and calculation the above adjusting entry:

Purchased Insurance and recorded the use of four days.
Insurance Interest = Price * 4 days / 180 days = 350 * 4 / 180 = 7.78, rounded to 8.
Prepaid Insurance = Price * 176 days / 180 days = 350 * 176 / 180 = 342.22.
rest incurred
12/31/08
009 at the
needed to
Points Earned
7 pts. 0.00 pts.
1.75 pts. 0.00 pts.
1.75 pts. 0.00 pts.
1.75 pts. 0.00 pts.
1.75 pts. 0.00 pts.

Grading Sheet - FOR ADMINISTRATION USE ONLY
Points Earned Per Requirement:

Req. 1 0
Req. 2 0
Req. 3 0
Req. 4 0
Req. 5 0
Req. 6 0
0
Reduction - Change Layout of Tabs 0

Total 0
Grade for Case 1-2 for group: 22 0%

Team Information:
Group #: 22
Names: Purdue Career Account:

Joseph Toney toneyj
Drew Dennis ddennis
Tianzhao Wu wu393
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0

MGMT200 Section1 Team22

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

MGMT200 Section1 Team22

Uploaded by

Copyright:

Available Formats

MGMT 200 Project DJ: Case 1-2

Start Date: 10/14/2013

and David Valensi at rbauters@purdue.edu and

2. You MUST use the tabs below to complete the requirements.

3. ANY CHANGES TO THE LAYOUT OF THE TABS WILL RESULT IN A DEDUCTION

Name: Purdue Career Acct:

Requirement 1 - Journal Entries 14 pts.

Date Account Title Debit Credit

Nov 15 No Entry Required.

Nov 30 No Entry Required.

Dec 1 (i) Cash $ 35,000

Dec 1 (ii) Cash $ 25,000

Dec 1 (iii) Music Equipment $ 35,000

Dec 5 (i) Prepaid Advertising $ 4,500

Dec 5 (ii) Cash $ 600

Dec 6 (i) Customer Deposits $ 200

Dec 6 (ii) No Entry Required.

Dec 6 (iii) No Entry Required.

Dec 8 (i) Customer Deposits $ 400

Dec 8 (ii) Prepaid Insurance $ 2,730

Dec 8 (iii) Rent Payable $ 2,200

Dec 9 (i) Advertising Expense $ 300

Dec 9 (ii) Cash $ 2,800

Dec 10 (ii) Other Receivable $ 750

Dec 11 (i) Music Library $ 600

Dec 11 (ii) No Entry Required.

Dec 12 (i) Cash $ 600

Dec 12 (ii) Cash $ 1,400

Dec 13 No Entry Required.

Dec 15 (ii) Repair & Maintenance $ 650

Dec 15 (iii) Supplies $ 800

Dec 16 Cash $ 400

Dec 22 Cash $ 9,000

Dec 23 Dividend Paid To Owner $ 2,500

Dec 26 (ii) Accounts Payable $ 1,800

Dec 26 (iii) Cash $ 700

Dec 29 Vehicles $ 30,000

Dec 31 Accounts Receivable $ 3,000

ates that do not require

0.44 pts. pts.

0.44 pts. pts.

0.44 pts. pts.

0.44 pts. pts.

0.44 pts. pts.

0.44 pts. pts.

0.44 pts. pts.

0.44 pts. pts.

0.44 pts. pts.

0.44 pts. pts.

0.44 pts. pts.

0.44 pts. pts.

0.44 pts. pts.

0.44 pts. pts.

0.44 pts. pts.

0.44 pts. pts.

0.44 pts. pts.

0.44 pts. pts.

0.44 pts. pts.

0.44 pts. pts.

0.44 pts. pts.

0.44 pts. pts.

0.44 pts. pts.

0.44 pts. pts.