ACCT2101 Spring 2011 Comprehensive Assignment This is an INDIVIDUAL projectthe project is due in TWO parts. The first part includes Questions 1-4 and is due March 17. The second part includes Questions 5-8 and is due on the last day of class. ABC Consulting. One night while sitting at the bar in Maxies, three friends (Ahmad, Barbara, and Chen) decided to start a consulting business. They decided to name the Business ABC Consulting. They specialize in marketing services for small creative businesses. Although all three were marketing majors they did remember some accounting and decided to use the following chart of accounts. Account Name Account Name Cash Capital Stock Accounts Receivable Retained Earnings Prepaid Rent Dividends Unexpired Insurance Income Summary Office Supplies Consulting Fees Earned Office Equipment Salaries Expense Accumulated DepreciationOffice Equipment Promotional Materials (supplies) Notes Payable Utilities Expense Accounts Payable Rent Expense Interest Payable Office Supplies Expense Salaries Payable Depreciation Expense Dividends Payable Interest Expense Unearned Consulting Fees Income Taxes Expense Income Taxes Payable Promotional Expense Other Expenses ABC Consulting Inc. closes its accounts and prepares financial statements at the end of each month. During Sept (their first month of operations) they had the following transactions. Date Transaction or Event Sept 1, 2010 25,000 shares of capital stock issued to each shareholder in exchange for $100,000 contribution from each. Sept 1, 2010 Purchased all of the office equipment owned by Dewey, Cheatum, and Howe (a bankrupt telemarketer). The equipment that was bought had a fair market value of $500,000, but the actual purchase price was $300,000. They signed a 5-year 6% note payable and paid $150,000 cash. Sept 1, 2010 Paid $24,000 rent to Li-Mehta Realty Company. They are occupying the same office space as Dewey, Cheatum, and Howe. Sept 4, 2010 Purchased from Midnite Office Supply office supplies worth $2,250 on account. Payment terms are 2/10, n/30. They expect that these supplies will last for several months. Sept 5, 2010 Hired a new administrative aide, his annual salary is $36,500 per year plus a benefit package that is worth $12,500. Sept 8, 2010 Received a $12,000 cash advance payment from a new winery (Chateau Traileur Parc) to help market their new wine Nasti Spumante. (Hint: Use a liability account) Sept 12, 2010 Paid the salaries for the first two weeks of Sept. $7,500. Sept 15, 2010 Excluding the advance from Chateau Traileur Parc, $22,000 was earned. The amount of cash received was $8,000. Sept 17, 2010 Purchased business cards, coasters, and other promotional items. They are trading $500 worth of their consulting services to the printer in exchange for these items. These items are considered supplies and are expected to last quite a while. Sept 23, 2010 Of the accounts receivable recorded on Sept 15th, $7,000 was collected. They received their combined utility bill for the first three weeks. The bill is for $350, n/10. Sept 25, 2010 Rented a sound system for a 10-day promotional event. This system rents for $250 per day. ABC, Inc. will settle their account when they return the sound system. Sept 26, 2010 Paid the salaries for the two weeks ended Sept. 26 $7,250. Sept 27, 2010 Paid utility bill. Sept 28, 2010 A dividend was declared, which they intend to pay at $0.05 per share by the end of the year. Sept 29, 2010 A child was slightly injured when tripped over the sound system. The child is the only son of a lawyer and an orthopedic surgeon. Surprisingly they have filed a half million dollar lawsuit. The actual liability for the accident has not yet been determined. Sept 29, 2010 Purchased a one-year public liability insurance policy for $7,500. The policy becomes effective at 12:01 a.m. October 1, 2010. Sept 30, 2010 They received their Attorneys bill for $2,000. It is due no later than October 15th. Sept 30, 2010 For the last two weeks of Sept, they earned $15,000. Of the $15,000, the amount of cash received amounted to $6,750. Adjusting Entries Date Transaction or Event Sept 30, 2010 The rent paid to Li-Mehta Realty Company was for 6 months. Sept 30, 2010 They recorded the interest accrued on the note payable. Sept 30, 2010 Office equipment is being depreciated over 15 years. They have chosen to use the straight-line method of depreciation. They estimate that the equipment has no residual value. Sept 30, 2010 At the end of the month office supplies worth $1,000 were on hand and $450 worth of promotional supplies were still on hand. Sept 30, 2010 During the month, Chateau Traileur Parc had used $9,000 worth of consulting services. Sept 30, 2010 By the end of the month, they had not returned the sound system. Sept 30, 2010 Salaries earned by employees amounted to $1,500 since the last payroll date (Sept 26th). Sept 30, 2010 Ahmad, Barbara, and Chen have consulted with their independent accountant, Paul Murky (a senior partner at the firm of Murky, Margin and Error, P.C.) and he advised them that they are likely to be subject to a combined local, state, and federal tax rate of 40% The taxes will be paid by December 15. Due as Part 1: 1. Journalize (in good form) the above transactions and post them to T accounts. 2. Prepare adjusting entries and post them to T accounts. 3. Prepare a 10 column worksheet for the month ended Sept 30, 2010. (Hint: Text book Page 195) 4. Prepare closing entries and an after-closing trial balance as of Sept 30, 2010. Due as Part 2: 5. Prepare an income statement and a statement of retained earnings for the month of Sept, and a balance sheet (in report form) as of Sept 30. 6. Prepare required disclosures to accompany the Sept 30 financial statements of ABC Consulting Inc. Your solution should include a separate note addressing each of the following areas (a.) depreciation policy, (b.) maturity dates of major liabilities, and (c.) potential liability due to pending litigation. 7. During Sept, this companys cash balance has fallen significantly. Does this appear headed for solvency in the near future? Explain your reasoning. 8. Would it be ethical for Chen to maintain the accounting records for this company, or must they be maintained by someone who is independent of the organization?