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KENDALL SCHOOL OF BUSINESS
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ACC272 B1 – Fall 2013
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Comprehensive Accounting Project
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Four students from Kendall Hospitality program, decide to start a business and open an icecream shop in the month of June.
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The students names are: Victoria, Matt, Jean & Tracy.
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They form a company (partnership) and name it “Chicago Summers”. They decide to use the same name for the ice cream shop.
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The students divide the duties – Matt and Victoria will make the purchases needed to produce the Ice Creams. They will hire
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two helpers to be at the ice cream shop during business hours, prepare and sell the ice cream. Jean will supervise the employees
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She also will be in charge of counting the materials at the end of each business day and communicate to Victoria and Matt how
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much more they need to purchase. Tracy is in charge of keeping the accounting records of the company as well as preparing the financial
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statements for each month
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Here are the transactions Chicago Summers company incurs during the month of June & July 2010:
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June Transactions
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Setting up the shop
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6/1
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Each of the students/owners invests $15,000 of cash in the Chicago Summer Company.
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The students open a business checking account with City Bank and deposit their initial investments.
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6/1
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They sign a 2-year lease to rent a space on Michigan Avenue for the Chicago Summers Ice cream shop.
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Monthly rent of the space is $2000, payable on the first day of each month.
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6/2
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They purchase Ice cream Equipments, on account for 12,600, payable in three equal installments, in the next three months
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The first installment is due for payment in July 2nd. It is estimated that the equipment has a life of 7 years with no
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salvage value.
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6/2
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They purchase Furniture for the Ice Cream Shop on account for 10,000 on account, payable in 45 days.
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It is estimated that the furniture will be used for 5 years, with no salvage value.
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6/2
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They purchase a laptop for $1200 on account to be used exclusively in keeping track of the accounting records.
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Payment for the computer is due in 45 days. Estimated life of the laptop is 3 years with no salvage value.
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6/2
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They purchase a QuickBooks software, to be used in Accounting, for $1500 on account – payable in 45 days.
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It is estimated that the software will be used for 10 years.
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6/5
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They call a technician to install the Ice Cream equipment. Estimated bill of the technician is $700. At the end of the
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month, the company has not yet received the bill, however, the technician completed in full his installation work.
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6/5
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They hire two employees. Total salary cost for the two employees is $1500 a month, payable at the end of
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the month.
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Starting the Operations
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6/5
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Victoria & Matt are in charge of purchasing the key materials to make the ice cream. At the beginning of the month
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they purchase the following:
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Description
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Quantity in LB
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Price
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Total Cost
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Milk
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200
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$ 1.25
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$ 250.00
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Sugar
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200
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$ 0.75
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$ 150.00
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Vanilla
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1
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$ 500.00
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$ 500.00
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Cacao
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200
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$ 3.00
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$ 600.00
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Butter
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200
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$ 2.00
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$ 400.00
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6/5
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They incur freight costs of $50, which they pay in full
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6/15
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Victoria and Matt purchase additional materials. Because of market changes, they realize that prices for their key
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ingredients have gone up.
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Description
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Quantity in LB
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Price
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Total Cost
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Milk
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200
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$ 1.35
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$ 270.00
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Sugar
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200
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$ 0.90
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$ 180.00
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Butter
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100
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$ 2.20
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$ 220.00
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$ 670.00
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6/30
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Throughout the month, the Chicago Summers ice cream shop is able to generate a total of $6,000 in cash sales.
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Inventory
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6/30
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Jean is in charge of keeping track of key material quantities. She knows that most of the materials purchased
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during the month have been used in making ice cream. However some quantities still are left unused. These will be
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used in the next month’s production of ice cream. At the end of the month, Jean performs a physical count of the
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materials left. Below is the result of the count.
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Description
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Quantity in LB
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Milk
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50
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Sugar
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70
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Vanilla
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0.5
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Cacao
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50
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Butter
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90
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June’s financial statement
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6/30
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Tracy is in charge of keeping the accounting records. She records all the economic events presented above by doing the following:
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Preparing the journal entries,
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Posting the appropriate journal entries in the T accounts
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Preparing the Trial balance for the month of June
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Completing the Balance Sheet and Income Statement for the month of June
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July Transactions
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7/1
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The company paid the monthly rent
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‘7/1
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Paid on account for an ad in the local radio station for $700
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7/2
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Paid the first installment due for the purchase of the Ice Cream Equipment (total $4200)
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7/5
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Purchased the following inventory items:
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Description
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Quantity in LB
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Price
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Total Cost
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Milk
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200
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$ 1.30
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$ 260.00
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Sugar
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200
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$ 0.90
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$ 180.00
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Cacao
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100
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$ 2.80
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$ 280.00
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Butter
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100
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$ 1.90
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$ 190.00
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$ 910.00
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7/5
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Incurred $50 of freight cost, which they paid in cash
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All the inventory left over from June and purchased July was fully utilized in making the ice creams in July
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7/15
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Paid in full the Furniture purchased on account in June.
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7/15
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Paid in full the cost of the laptop
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7/15
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Paid in full the cost of the QuickBooks software
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7/30
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Paid the salaries of the two employees
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7/30
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Collected $7,000 in cash sales
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Instructions
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I June Financial Statements
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Assume you are doing Tracy’s job:
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Analyze each of June’s transactions and prepare the journal entries
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Calculate the depreciation and amortization expenses for the month of June for the tangible and intangible assets
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Calculate Cost of Goods Sold assuming the company uses a periodic inventory system and FIFO for cost method
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Post the appropriate journal entries in T accounts
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Prepare a trial balance
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Prepare the Balance Sheet and Income Statement for the month of June.
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II July Financial Statements
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Repeat the steps above for July:
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Analyze each of July’s transactions and prepare the journal entries
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Calculate the depreciation and amortization expenses for the month of July for the tangible and intangible assets
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Calculate Cost of Goods Sold assuming the company uses a periodic inventory system and FIFO for cost method
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Post the appropriate journal entries in T accounts
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Prepare a trial balance
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Prepare the Balance Sheet and Income Statement for the month of July
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III Analysis of Accounting Records
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Prepare a horizontal analysis by comparing June and July balance sheets
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Calculate the following ratios:
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1
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Current ratio (Liquidity)
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2
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Return on Assets (Profitability)
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3
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Debt to Total Assets ratio (Solvency)
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Assume you are reviewing the Financial Statements and the analysis together with Victoria, Matt and Jean
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What are some of the conclusions? What should the company do to stay in business?
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