accounting-assume-you-serve-on-the-board-of-a-local-golf-and-country

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Question 1:
Sales Revenue
Beginning Inventory
Purchases
Available for Sale
Ending Inventory
Cost of Goods Sold
Gross Profit
Operating Expenses
Net Income

$1,000
$400
$500
?
$300
?
?
$100
?

Answer:
Sales Revenue
Beginning Inventory
Purchases
Available for Sale
Ending Inventory
Cost of Goods Sold
Gross Profit
Operating Expenses
Net Income

$1,000
$400
$500
$900
$300
$600
$400
$100
$300

Question 2:

Assume you serve on the board of a local golf and country club. In preparation for renegotiating the club’s bank loans, the
president indicates that the club needs to increase its operating cash flows before the end of the current year. The club’s
treasurer reassures the president and other board members that he knows a couple of ways to boost the club’s operating
cash flows. First, he says, the club can sell some of its accounts receivable to a collections company that is willing to pay the
club $97,000 up front for the right to collect $1 00,000 of the overdue accounts. That will immediately boost operating cash
flows. Second, he indicates that the club paid about $200,000 last month to relocate the 18th fairway and green closer to the
clubhouse. The treasurer indicates that although these costs have been reported as expenses in the club’s own monthly
financial statements, he feels an argument can be made for reporting them as part of land and land improvements (a longlived asset) in the year-end financial statements that would be provided to the bank. He explains that, by recording these
payments as an addition to a long-lived asset, they will not be shown as a reduction in operating cash flows.
Required:
1)

Does the sale of accounts receivable to generate immediate cash harm or mislead anyone? Would you consider it an
ethical business activity?
Answer:
The sale of accounts receivable to generate immediate cash does not herm or mislead anyone if this event is fully disclosed in
the company’s financial statement. Since the sale of accounts receivable to generate immediate cash does not harm/mislead
anyone and as it is a very common business activity it is considered as an ethical business activity.

2)

What category in the statement of cash flows is used when reporting cash spent on long-lived assets, such as land
improvements? What category is used when cash is spent on expenses, such as costs for regular upkeep of the
grounds?
Answer:
Incase of the cash is spent on long-lived assets, it is generally classified as an investing activity. Incase if the cash is spent on
expenses then it will be categorized as an operating activity.

3)

What facts are relevant to deciding whether the costs of the 18th hole relocation should be reported as an asset or as an
expense? Is it appropriate to make this decision based on the impact it could have on operating cash flows?
Answer:
Whether these cost will be recoreded as an asset or expenses will purely depend on the benefits yield fom these costs. Other
facts including improvement in the club members satisfaction and potential to attract new members will decide whether these
costs will be considered as an asset or an expense. More likely than not, the club would not decide to relocate if there is no
substantial future benefits.
It is not appropriate to conclude anything about the transaction only based on the impact it could have on the operating cash
flows. The decision should be made on the facts of the situation and not on whether or not it will make the financial situation
of the club to look better or wrose.

4) As a member of the board, how would you ensure that an ethical decision is made?
Answer:

Question 3:
Following is the adjusted trial balance of Post Company. Based on this information prepare a Balance Sheet, Income Statement
and Statement of Retained Earnings.
POST COMPANY
ADJUSTED TRIAL BALANCE
Cash
Accounts Receivable
Prepaid Insurance
Equipment
Accumulated Depreciation
Supplies
Accounts Payable
Wages Payable
Unearned Revenue
Contributed Capital
Retained Earnings
Sales
Gas Expense
Supply Expense
Insurance Expense
Depreciation Expense
Wage Expense
Dividends

Answer:

$
$
$
$

Debit
80,000.00
11,100.00
1,500.00
5,000.00

$

Credit

500.00

$

1,000.00

$
$
$
$
$
$

900.00
300.00
1,500.00
80,000.00
17,000.00

$
400.00
$
200.00
$
200.00
$
200.00
$
600.00
$
1,000.00
$ 100,700.00 $ 100,700.00

POST COMPANY
Income Statement
Sales
Less:
Gas Expense
Supply Expense
Insurance Expense
Depreciation Expense
Wages Expense
Total Expenses
Net Income

$

POST COMPANY
Balance Sheet
Assets

17,000.00

$
400.00
$
200.00
$
200.00
$
200.00
$
200.00
$
1,200.00
$ 15,800.00

POST COMPANY
Statement of Retained Earnings
Beginning Retained Earnings
$
Add: Net Income
$
15,800
Less: Dividends
$
(1,000)
Ending Retained Earnings
$
14,800

Cash
Accounts Receivable
Prepaid Insurance
Equipment
Accumulated Depreciation
Supplies

$
$
$
$
$
$

80,000.00
11,100.00
1,500.00
5,000.00
(1,000.00)
500.00
$

Total Assets

Accounts Payable
Unearned Revenue
Wages Payable
Total Liabilities
Contributed Capital
Retained Earnings
Total

Note: We have used ending retained earnings in the balance sheet.

97,100.00

$

97,500.00

Liabilities
Current Liabilities
$
900.00
$
1,500.00
$
300.00
$
2,700.00
$
$

80,000.00
14,800.00

Question 3:
Following is the adjusted trial balance of Post Company. Based on this information prepare a Balance
Sheet, Income Statement and Statement of Retained Earnings.
POST COMPANY
ADJUSTED TRIAL BALANCE
Debit Credit
Cash
80,000
Accounts Receivable
11,100
Prepaid Insurance
1,500
Equipment
4,000
Accumulated Depreciation
200
Supplies
500
Accounts Payable
700
Wages Payable
300
Unearned Revenue
1,500
Contributed Capital
80,000
Retained Earnings
0
Sales
17,000
Gas Expense
400
Supply Expense
300
Insurance Expense
200
Depreciation Expense
200
Wage Expense
500
Dividends
1,000
99,700 99,700
Answer:
POST COMPANY
Income Statement
Sales
Gas Expense
Supply Expense
Insurance Expense
Depreciation Expense
Wages
Net Income

17,000
400
300
200
200
500
15,400

POST COMPANY
Statement of Retained Earnings
Beginning Retained Earnings
0
Add: Net Income
15,400
Less: Dividends
1,000
Ending Retained Earnings
14,400

POST COMPANY
Balance Sheet
Cash
Accounts Receivable
Prepaid Insurance
Equipment
Accumulated Depreciation
Supplies
Total Assets
Accounts Payable
Wages Payable
Total Liabilities
Unearned Revenue
Contributed Capital
Retained Earnings
Total Stockholders’ Equity (SE)
Total Liabilities & SE

80,000
11,100
1,500
4,000
200
500
96,900
700
300
1000
1,500
80,000
14,400
95,900
96,900

Note: We have used ending retained earnings in the balance sheet.

Question 4:
Explain the closing entry process and prepare the closing entries in journal form based on the
information in question 3.
Answer:
Particulars
Dr
Retained Earnings
1,000
Dividends
(To close dividends account)
Sales
17,000
Income Summary
(To close Sales account)
Income Summary
1600
Gas Expense
Supply Expense
Insurance Expense
Depreciation Expense
Wages Expense
(To close expenses accounts)
Income Summary
Retained Earnings

Cr
1,000

17,000

400
300
200
200
500

15,400
15,400

(To allocate earnings into equity part of the
balance sheet, which is the retained earnings
account)

Question 5:
c
Cash balance per bank
Cash balance per books (general ledger)
Outstanding checks
Check mailed to the bank for deposit had
not reached the bank by the statement
date.
NSF check returned by the bank for
accounts receivable
July interest earned on the bank statement
Check no. 700 for misc. expense cleared
the bank for $200; erroneously recorded
in the Matrix books for $20

$8,500
$7,320
$2,150

$600
$200
$10

Prepare a bank reconciliation.
Shown the accounting entries that must be made by Matrix in journal entry and T-Account format.
Answer:
Prepare a bank reconciliation.
Answer:
Post Inc. Bank Reconciliation
Cash balance per bank
Less: Outstanding checks
Add: Checks deposited but not credited
Adjusted balance per bank

$8,500
$2,150
$600
$6,950

Adjusted balance per books

$7,320
$200
$180
$10
$6,950

Cash balance per books
Less: NSF check returned by the bank
Less: Error in check no.700 recording (200-20)
Add: Interest earned

Shown the accounting entries that must be made by Matrix in journal entry and T-Account format.
Answer:

Date
31-Jul

Journal Entry
Account titles/Description
Debits
Credits
Accounts receivable
$200
Cash
$200
[Being the NSF check returned by the bank]

31-Jul

Miscellaneous expense
180
Cash
180
[Being the check no.700 for miscellaneous expense incorrectly
recorded for $20, when it is actually $200]

31-Jul

Cash

$10
Interest revenue
[Being the interest earned for the month]

$10

T- Accounts

31-Jul
31-Jul

31-Jul

31-Jul

Balance before adj.
Interest revenue

Cash
$7,320 31-Jul
$10 31-Jul
31-Jul
$7,330

By Accounts receivable
By Miscellaneous expense
By Balance after adjustments

To Cash

Accounts receivable
$200

To cash

$200
$180
$6,950
$7,330

Miscellaneous expense
$180

Interest revenue
31-Jul

By cash

$10

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