BUS 150 Introduction to Financial Accounting

Purpose of This Assessment

The final assessment for this competency is to identify the various characteristics of financial accounting, demonstrate an understanding of how to prepare a comprehensive set of financial statements including a multiple-step income statement, statement of retained earnings, and a classified balance sheet, along with the accompanying general and adjusted journal entries and the unadjusted and adjusted trial balance related to them.  Also, to demonstrate an understanding of the cash flow statement, accounting information systems, annual reports, auditors’ opinions, and the ability to analyze various trends in financial reports.

Items Required for Submission

Students are required to submit the following in proper form to demonstrate mastery of this competency:

• General Journal Entries
• Unadjusted Trial Balance
• Adjusting Journal Entries
• Adjusted Trial Balance
• A Multiple-step Income Statement
• A Statement of Retained Earnings
• A Classified Balance Sheet
• An Analysis of Statement of Cash Flows
• An Analysis of Accounting Information Systems
• A Financial Trend Analysis
• An Analysis of the Annual Report and Auditors’ Opinion

Step ONE: Prepare problems 1 thru 2 in Excel (template provided)

Problem 1 [CLO 1:1 thru CLO 1:3]

UMPI, Inc. is a brand-new business that was just launched on September 1, 2023. They make magical pencils. Every person that owns one can simply put the pencil to paper and the pencil will solve any problem it encounters. Genius!! The investors are so excited for this business that they have ‘banged the doors down’ to buy all the available stock! Retailers are super excited to purchase them, too, even though they will cost $500 a pencil! After all, who doesn’t want a magical pencil that solves all problems?

You are the new plant accountant at UMPI, Inc. The senior plant accountant, CC Jen (the CC stands for Creative Accountant), will prepare the adjusting entries after you have prepared the unadjusted trial balance in good form (problem 2). Naturally, the company prepares their financials based on Generally Accepted Accounting Principles. Below are the transactions that took place in the first month (Sept 2023) of operations. Also, note the chart of accounts that you are to use for your general journal entries are provided below the September transactions.

Sept 1 Common Stock was issued (sold to investors) for cash $525,000.

Sept 1 They (UMPI, Inc.) purchased a magic pencil making machine for $750,000. They paid $125,000 in cash and the remainder on account. They signed an interest-only note agreement with Katahdin Trust Company (KTC) to pay 8.5% interest over the next 3 months. The senior accountant said not to worry about setting up the equipment’s depreciation schedule yet. She will take care of that at the month-end.

Sept 1 They prepaid for 1 year of insurance for the business by paying $3,000 cash. The senior accountant told you that you don’t need to recognize any of the costs yet. That will happen when she adjusts the accounts at month-end.

Sept 1 They paid rent for the whole year. It was $30,000 cash. The senior accountant told you that you don’t need to recognize any of the costs yet. That will happen when she adjusts the accounts at month-end.

Sept 1 They purchased $5,650 worth of Inventory to be used throughout the next few months building the magic pencils. They put it on their open trade account with Netherlands Magic Materials Company (NMMC). The agreement they have with NMMC is that all charges will be paid in full within 30 days of receiving inventory.

Sept 2  Purchased $5,250 worth of office supplies from Ink Jet, Inc. on account. The reason it was so much was because it consisted of 21 ink cartridges for the printer. Each one cost $250 and UMPI anticipates using one a month.

Sept 4  An executive assistant was hired to work under the CEO. He was hired at a salary of $2,500 bi-weekly. His first pay period falls on the 15^th.

Sept 5  The company made their first sale of 30 pencils to a retail department store, Mainely Magic (MM), totaling $15,000 on account. MM agreed to pay UMPI, Inc. within 30 days of the order, so a bill will be sent out to them shortly. Everyone has their fingers crossed that they will pay early! Cash is king in the world of business! CC Jen said that she heard MM’s accounts are usually in good standing with other creditors, so they most likely will pay early. CC Jen told you not to worry about recognizing the Cost of Goods Sold yet. She would take care of that at month end.

Sept 6  UMPI, Inc. wanted to do something fun for the employees (Employee Appreciation Day), so they rented a cotton candy machine for the day. The employees were so excited that management didn’t even mind the slightly exorbitant cost of $7,750 for the machine rental and cotton candy supplies. Especially considering the cotton candy company, Sweets R Us, sent over one of their employees to make and service the yummy treat. UMPI, Inc. was so pleased with the outcome of happy employees that they paid cash at the end of the day. They also threw in a $250 tip for the Sweets R Us worker for a job well done. The senior account said to just expense it all to the one account specifically designated for employee appreciation. I think UMPI management was so happy because the production workers created double the number of products (magical pencils) as they usually do on a ‘normal’ day!

Sept 7  A new retail customer asked if they could prepay for 20 pencils to be delivered on Oct. 15^th. They wanted to be sure of having their order in early to ensure delivery for mid-October, hence the prepayment of $10,000 in cash. 

Sept 9  UMPI, Inc. wanted to get their product known, so they advertised in the regional newspaper. The total cost was $1,750 for the ad. They paid cash for the advertisement.

Sept 15  The executive assistant, hired 9/4, was paid for the past two weeks for the work he performed September 4^th thru 15 ^th.

Sept 19  The residents of the town where UMPI, Inc. is located heard about the magical pencils being produced and they wanted one now! They knocked on the front door of the factory to ask if they each could buy one and low and behold, they did! The CEO told them that the company normally sells only to wholesale customers but would make an exception for this one day. So, the town folk purchased 150 pencils by paying cash totaling $75,000.

Sept 25  Received the electricity bill for the month totaling $22,500. That was for the electricity used throughout September. The bill will be paid at month-end when CC Jen does her month-end accounting. You questioned the senior accountant about recording a bill now when it’s just going to simply be paid within a few days. She reminded you about Generally Accepted Accounting Principles (GAAP). GAAP requires expenses to be recognized when they are incurred, not necessarily when they are paid.

Sept 28  Received a check from Mainely Magic related to the Sept. 5^th sale of 30 magical pencils. MM explained with the $13,500 payment that they couldn’t pay their bill in full but will pay the remainder in early October.

Sept 29  It was a great month for sales, so CC Jen told you to go ahead and pay $2,500 of the amount owed to NMMC for inventory purchased on September 1 and all the amount owed to Ink Jet, Inc. from the Sept 2 purchase of office supplies.

Sept 29  The executive assistant, hired 9/4, was paid for the past two weeks for the work he performed Sept 18^th thru 29^th.

Sept 29  All production workers wages were paid for the month. The total was $25,350 cash. The senior accountant said not to worry about breaking out FICA, income taxes, union dues, and payroll taxes. She will take care of backing those out later (note: upper-level accounting courses, not BUS 150).

Sept 30  All salaried employees were paid for the month totaling $15,550. The executive assistant is paid bi-weekly while the remainder of salaried employees are paid monthly. The senior accountant said not to worry about breaking out FICA, income taxes, union dues, and payroll taxes. She will take care of backing those out later (note: upper-level accounting courses, not BUS 150).

Chart of Accounts: Cash, Common Stock, Sales Revenue, Accounts Receivable, Equipment, Accounts Payable, Office Supplies, Note Payable (KTC), Prepaid Insurance, Prepaid Rent, Unearned Pencil Revenue, Advertising Expense, Equipment, Inventory, Wage Expense, Salaries Expense, Unearned Sales Revenue, Employee Appreciation Day Expense, Utilities Expense

Instructions:

1. Prepare the Journal entries (General Journal entries) for September 2023. Use only the accounts provided above for your journal entries.
2. Post journal entries to T accounts and sum up the total.
3. Prepare an Unadjusted Trial Balance.