COBU 201 Fall 2016 Assessment Case November 8, 2016

One year ago, Kirkland Thompson founded Thompson Commercial Sales Company, and the business has done very well. Thompson comes to you for advice. He wishes to know how much net income the business earned during the past year. The accounting records consists of the T-accounts in the ledger, which were prepared by an accountant who has moved. The accounts at December 31, 2015 follow:

Additional information:

Thompson indicates that, at year-end, customers owe the business $1,000 accrued service revenue, which the business expect to collect early next year. These revenues have not been recorded. During the year, the business collected 4,100 service revenue in advance from customers, but the business has earned on $800 of that amount. During the year Thompson Commercial has incurred $2,400 of advertising expense, but the business has not yet paid for it. In addition, the business has used up $2,100 of the office supplies. Thompson determines that depreciation on equipment was $7,000 for the year. At December 31, 2015, the business owes its employees $1,200 accrued salary.

To get a loan to expand the business, Thompson must show the bank that the business? stockholders? equity has grown from its original $10,500 balance. You and Thompson agree that you will meet again in one week.

In order to assist Thompson, prepare a report of your assessment of Thompson Commercial Sales Company business that you will present to Kirkland Thompson.

• Use the additional information provided at year-end to record the adjusting entries and post them into the ledger accounts to calculate the new year-end balances.
• Use the updated general ledger balances to prepare the following financial statements [in proper order]:
• Income Statement
• Statement of Retained Earnings
• Balance sheet
• Use the information on the financial statements to answer the following questions:
  • Was Thompson Commercial Sales Company profitable in 2015?
  • Has the stockholders? equity grown?
  • Can Thompson expect to get the loan? Give your reasons for your response. [Hint: Calculating some appropriate liquidity ratios, such as current ratio, cash ratio, acid-test ratio, etc. may help.]
• If Kirkland Thompson establishes another branch of the business in Panama City, Panama, what accounting standards will the company use to record the accounting activities and prepare the financial statements

COBU 201 Fall 2016 Assessment Case November 8, 2016 One year ago, Kirkland Thompson founded Thompson Commercial Sales Company, and the business has done very well. Thompson comes to you for advice. He wishes to know how much net income the business earned during the past year. The accounting records consists of the T-accounts in the ledger, which were prepared by an accountant who has moved. The accounts at December 31, 2015 follow: Additional information: Thompson indicates that, at year-end, customers owe the business $1,000 accrued service revenue, which the business expect to collect early next year. These revenues have not been recorded. During the year, the business collected 4,100 service revenue in advance from customers, but the business has earned on $800 of that amount. During the year Thompson Commercial has incurred $2,400 of advertising expense, but the business has not yet paid for it. In addition, the business has used up $2,100 of the office supplies. Thompson determines that depreciation on equipment was $7,000 for the year. At December 31, 2015, the business owes its employees $1,200 accrued salary. To get a loan to expand the business, Thompson must show the bank that the business' stockholders' equity has grown from its original $10,500 balance. You and Thompson agree that you will meet again in one week. In order to assist Thompson, prepare a report of your assessment of Thompson Commercial Sales Company business that you will present to Kirkland Thompson. 1. Use the additional information provided at year-end to record the adjusting entries and post them into the ledger accounts to calculate the new year-end balances. 2. Use the updated general ledger balances to prepare the following financial statements [in proper order]: Income Statement Statement of Retained Earnings Balance sheet 3. Use the information on the financial statements to answer the following questions: a. Was Thompson Commercial Sales Company profitable in 2015? b. Has the stockholders' equity grown? c. Can Thompson expect to get the loan? Give your reasons for your response. [Hint: Calculating some appropriate liquidity ratios, such as current ratio, cash ratio, acid-test ratio, etc. may help.] 4. If Kirkland Thompson establishes another branch of the business in Panama City, Panama, what accounting standards will the company use to record the accounting activities and prepare the financial statements Report Format: I. II. III. IV. V. VI. Cover page Introduction - giving the premise of the assignment/stating the purpose Problem Indentification Data Analysis - including the financial statements Recommendation - you answers to Thompson's questions Conclusion Be sure to write in complete sentences, present your work in a logical manner and grammatically correct. Report is due on November 22, 2016 Send your report as an attachment in an email to me no later than 12 mid-night. General Ledger Bal. Cash 7,400 Bal. Accounts Receivable 1,250 Accounts Payable 18,500 Prepaid Rent 2,800 Bal. Office Supplies 2,600 Salaries Payable Bal. Equipment Bal. Bal. Accumulated Depreciation Equipment Unearned Revenue 52,000 4,100 Utilities Expense Bal. 800 Common Stock 10,500 Bal. Salaries Expense Bal. Bal. Dividends 20,000 Service Revenue Bal. 70,750 Bal. Advertising Expense 17,000 Suplies Expense Depreciation Expense - Equipment CAPM DCM g DVM=(g*k)/Div= Capital assets growth Plant, property and equipment, net Investments in unconsolidated businesses Wireless licenses Goodwill Other intangible assets, net Non- current assets held for sale Deposit for wireless licenses Other assets 6.55% 64% 0.64 1.64 2014 83,541 796 86,575 25,331 8,338 10,267 - 7,512 2015 89,947 802 75,341 24,639 5,728 - 921 5,739 % growth 7.67 0.75 -12.98 -2.73 -31.30 - - -23.60 Plant, property and equipment, net grewby 7.67%, Investments in unconsolidated businesses grew by 0.75%, wireless licenses Risk premium Rf Dividend=$2.31 g=(1-payout rate)* return on equity g=(1-0.41)*1.08=0.64 D1=2.31(1.64)=3.79 K-g=6.55-0.64=5.91 D1/(k-g)=3.79/5.91 5.00% 4.00% 0.51 2.31 0.64 3.79 5.91 CAPM=(Rm-Rf)+Rf Rm-Rf= Equity Risk premium= 5.0% (www.duffandphelps.com/CostofCapital) Rf=4.0%(www.duffandphelps.com/CostofCapital) =0.51(finance.yahoo.com/quote/VZ/key-statistics?p=VZ DCM= D1/(K-g) Dividend=$2.31 (finance.yahoo.com/quote/VZ/key-statistics?p=VZ g=(1-payout rate)* return on equity g=(1-0.41)*1.08=0.64 D1=2.31(1.64)=3.79 K-g=6.55-0.64=5.91 D1/(k-g)=3.79/5.91 Payout ratio=0.41(csimarket.com/stocks/single_dividendpr.php?code=VZ) ROE=1.08(stock-analysis-on.net/NYSE/Company/Verizon-Communications-Inc/Ratios/Profitability w by 0.75%, wireless licenses fell -12.98%, Goodwill fell -2.73%, Other Intangible assets,net fell 31.30 and other assets fell 23.6 Inc/Ratios/Profitability er assets fell 23.6