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Assignment 1: Creating Financial Statements




Question;Assignment 1: Creating Financial Statements Due Week 3, Day 7 (100 points) The specific course learning outcomes associated with this assignment are: ? Analyze how business transactions are recorded in the financials records of an organization. ? Identify the accounting principles used to create the Income Statement, Balance Sheet, and Statement of Cash Flows. Similar to the exercise used in the course to introduce how business transactions are recorded in the financial records of an organization and used to produce financial statements, Assignment 1 presents you with an organization?s opening financial position and a series of transactions that take place over a year. You should determine the appropriate manner in which to record these transactions and then produce three financial statements for the organization at the end of the year. Assignment: Danny?s Security Systems, Inc. (DSSI) offers its clients security systems and alarm monitoring services on a retail basis. DSSI specializes in offering the most up-to-date services with the most technologically advanced equipment. For example, the high-end alarm system, called DAS59, is widely recognized as an industry leader. All of the balance sheet items from December 31, 2012, are shown below along with the events that occurred during 2013. Please ignore all taxes (income and sales) in preparing your answer. Danny?s Security Systems, Inc. Balance Sheet Items As of December 31, 2012 0.5 points Accounts payable $380,000 0.5 points Accounts receivable $611,000 1.0 points Accumulated depreciation $1,245,000 0.5 points Cash $267,000 0.5 points Common shares $1,152,000 0.5 points Short-term bank loan $125,000 0.5 points Plant, property, and equipment $2,111,000 0.5 points Interest payable $37,000 0.5 points Inventory $850,000 1.0 points Licenses (net) $180,000 0.5 points Long-term bank loan $525,000 0.5 points Goodwill $80,000 0.5 points Retained earnings $304,000 1.0 points Advances from customers $340,000 0.5 points Salaries payable $180,000 0.5 points Short-term investments (trading securities) $180,000 0.5 points Office supplies $9,000 The following events occurred during 2013: (a) New credit sales for the year were $1,910,000. (2 points) (b) Sales of $272,000 were earned from prior period cash advances from customers. (3 points) (c) Old equipment, which had originally cost $147,000 and was fully depreciated, was scrapped on the first day of business of the year. (3 points) (d) New cash sales for the year were $333,000. (2 points) (e) DSSI acquired all of the assets and liabilities of Smith Alarms, LLC for $555,000 cash. The assets included equipment valued at $425,000 (this equipment was carried on the books of Smith Alarms, LLC at $300,000 net), accounts receivable of $230,000, accounts payable of $250,000, and a demand loan of $52,000. There were no intangible assets. (6 points) (f) DSSI acquired office supplies on credit for $32,000. (2 points) (g) DSSI paid salaries to employees of $390,000 in cash. (2 points) (h) Cash collections from credit sales were $1,720,000. (2 points) (i) Cash payments for items purchased on credit during the year were $344,000. (2 points) (j) Paid $363,000 for administrative expenses during the year. (2 points) (k) Paid the bank $58,000 cash towards interest payments during the year. (2 points) (l) At the end of the year, owed the bank $19,000 in interest. (2 points) (m) At the end of the year, the market value of the short-term investments was $157,000. (3 points) (n) A total of $3,000 in office supplies remained on hand at the end of the year. (2 points) (o) Depreciation on plant, property, and equipment for 2013 was determined to be $123,000. (2 points) (p) DSSI collected $327,000 of cash advances from customers. (2 points) (q) DSSI acquired $212,000 of inventory on credit. (2 points) (r) DSSI?s policy is to write off all intangible assets over 3 years using straight-line amortization. 2013 is the second year for amortizing licenses. (2 points) (s) DSSI offers a ?satisfaction guarantee? to its clients for security services. If clients are unhappy with the services they purchased, they are eligible for free additional security services (i.e., this is a form of ?after sales warranty? service). The company estimates that future expenditures of approximately $67,000 will be required to perform these ?after sales warranty? activities to keep clients satisfied for services originally rendered to clients in 2013. (3 points) (t) DSSI spent $125,000 during 2013 on research and development activities related to new services the company could offer clients. It is expected that some of these products would be marketable within one or two years, but nobody is sure which products will be successful. (2 points) (u) At the end of the year, the accountant estimated that $22,000 of accounts receivable owed to the firm would not likely be collected. (2 points) (v) On the last day of business in 2013, DSSI declared an $80,000 dividend, which will be paid sometime in the next year. (2 points) (w) At the end of the year, DSSI owed its employees a total of $66,000. (2 points) (x) DSSI paid down the long-term loan by $140,000. (2 points) (y) At the end of the year, it was determined that $513,000 of inventory remained on-hand. (2 points) (z) At the end of the year, it was determined that the carrying value of goodwill had declined by $28,000. (2 points)


Paper#41466 | Written in 18-Jul-2015

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