A Look At Our Feature Story
Refer back to the Feature Story about Rhino Foods, Inc. at the beginning of this chapter and answer the following questions:
1. What is the lesson of the Rhino Foods story and Ted Castle’s innovations?
2. How did Rhino’s employees’ knowledge of financial statements, especially production reports and the income statement, contribute to their effectiveness as employees?
When Ted Castle was a hockey coach at the University of Vermont, his players were self motivated by their desire to win. Hockey was a game you either won or lost. But at Rhino Foods, Inc., a specialty bakery foods company he founded in Burlington, Vermont, he discovered that manufacturing line workers were not so self motivated. Ted thought, what if he turned the food making business into a game, with rules, strategies, and trophies? Ted knew that in a game, knowing the score is all important. He felt that only if the employees know the score—know exactly how the business is doing daily, weekly, monthly—could he turn food making into a game. But Rhino is a closely held, family owned business, and its financial statements and profits were confidential. Should Ted open Rhino’s books to the employees? A consultant he was working with put Ted’s concerns in perspective. perspective. The consultant said, “Imagine you’re playing touch football. You play for an hour or two, and the whole time I’m sitting there with a book, keeping score. All of a sudden I blow the whistle, and I say, ‘OK, that’s it. Everybody go home.’ I close my book and walk away. How would you feel?” Ted opened his books and revealed the financial statements to his employees. The next step was to teach employees the rules and strategies of how to win at making food. The first lesson: “Your opponent at Rhino is expenses. You must cut and control expenses.” Ted and his staff distilled those lessons into daily scorecards (production reports and income statements) that keep Rhino’s employees up to date on the game. At noon each day Ted posts the previous day’s results at the entrance entrance to the production room. Everyone checks whether they made or lost money on what they produced the day before. And it’s not just an academic exercise; there’s a bonus check for each employee at the end of every four week “game” that meets profitability guidelines. Everyone can be a winner! Rhino has flourished since the first game. Employment has increased from 20 to 130 people, while both revenues and profits have grown dramatically.
[[Demonstration Problem]]
At the end of its first month of operations, Watson Island Tour Service, Inc., has the following unadjusted trial balance:
|
WATSON ISLAND TOUR SERVICE, INC. August 31, 2008 Trial Balance |
||
|
|
Debit |
Credit |
|
Cash |
$ 5,400 |
|
|
Accounts Receivable |
8,800 |
|
|
Prepaid Insurance |
2,400 |
|
|
Supplies |
1,300 |
|
|
Equipment |
60,000 |
|
|
Notes Payable |
|
$40,000 |
|
Accounts Payable |
|
2,400 |
|
Common Stock |
|
30,000 |
|
Dividends |
1,000 |
|
|
Service Revenue |
|
10,900 |
|
Salaries Expense |
3,200 |
|
|
Utilities Expense |
800 |
|
|
Advertising Expense |
400 |
|
|
|
$83,300 |
$83,300 |
Other data consist of the following:
1. Insurance expires at the rate of $200 per month.
2. There are $1,000 of supplies on hand at August 31.
3. Monthly depreciation on the equipment is $900.
4. Interest of $500 on the notes payable has accrued during August.
Instructions
(a) Prepare a work sheet.
(b) Prepare a classified balance sheet assuming that $35,000 of the notes payable are long term.
(c) Journalize the closing entries.