Transaction Analysis and Financial Statements

Complete three accounting exercises related to transaction analysis and financial statements using a provided worksheet.
Introduction
Accounting is the language used by a business to communicate how well it is performing to its many stakeholders. Stockholders want to know how their money has been used and what return they will receive on their investment. Creditors want to know the business has the financial resources to continue their business relationship. Potential investors want to know if a business is a good investment. Lastly, employees of a business want to know that their hard work is paying off in continued employment. Each of these stakeholders has a vested interest in the success of the business, and financial reporting will provide them with the data needed to make sound business and investment decisions.
The Accounting Cycle
The accounting cycle begins when business events are translated to transactions, which affect the financial health of a business, and ends with the preparation of financial statements used to communicate financial health to the various stakeholders of the business.
Adjustments and Financial Statements
The annual reporting period is not always a calendar year ending on December 31. An organization can elect to adopt a fiscal year comprising any 12 consecutive months or 52 consecutive weeks. Regardless of which reporting period an organization chooses, the end of a reporting period requires adjustments that are often necessary to properly reflect revenues when earned and expenses when incurred.
Following these adjustments, an adjusted trial balance will be prepared, and it is from this adjusted trial balance that the necessary financial statements will be prepared. Lastly, certain ledger accounts will require their balances to be closed so they can begin the next accounting period with zero balances. These accounts are known as temporary or nominal accounts. When all of this work has been completed, a new accounting period will begin and the cycle will repeat itself.
Overview
This assessment consists of three accounting exercises. The exercises are provided in the Transaction Analysis and Financial Statements Worksheet.Use this worksheet to record and submit your solutions for Exercises 1-1, 1-2, and 1-3.
Preparation
In addition, practice problems for each exercise are provided in the Assessment 1 Practice Problems Worksheet. The worksheet and answer key can be foundin the Capella Resources activity of this assessment and are optional.
The following resourceisrequired to complete the assessment.
Capella Resources
Click the linkprovided to view the following resource:
Transaction Analysis and Financial Statements Worksheet [DOCX].
Submission Guidelines
Submit your completed Transaction Analysis and Financial Statements Worksheet for faculty evaluation. Please do not submit completed practice problems with your assessment.
Competencies Measured
By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:
Competency 1: Analyze the relationship between business events and accounting.
Comparatively analyze two companies, including asset investments, return on assets, and company expenses.
Analyze company equity, including correct net income and debt ratio calculations.
Competency 2: Apply accounting principles as the language of business.
Prepare T-accounts, adjusting journal entries, and an adjusted trial balance.
finacc
ATTACHED FILE(S)
Financial Accounting Principles
Assessment 1: Transaction Analysis and Financial Statements Worksheet
Use this worksheet to complete the following three exercises for Assessment 1. Refer to the instructions in the course for submitting your assessment.
Exercise 1-1
Key comparative figures ($ millions) for two companies, Alltech and SynergyXT, are presented in the following table.

Key Figures

Alltech

SynergyXT

Liabilities + owners’ equity

$11,502

$48,823

Net income

3,127

9,276

Sales

15,453

44,612
For this exercise, perform a comparative analysis of these two companies that answers the following five questions:
What is the total amount of assets invested in each company?
Total assets = Liabilities + Equity
Alltech:
SynergyXT:
What is the return on assets for each company? Alltech’s beginning-year assets equal $8,101 (in millions) and SynergyXT’s beginning-year assets equal $36,171 (in millions).
Revenues – Expenses = Net income
Alltech:
SynergyXT:
How much are expenses for each company?
Revenues – Expenses = Net income
Alltech:
SynergyXT:
Is return on assets satisfactory for each company? Assume competitors average an 18 percent return.
[Write your answer here.]
What can you conclude about Alltech and SynergyXT from these computations?
[Write your answer here.]
Exercise 1-2
The accounting records of Newtown Distributors show the following assets and liabilities as of December 31, 2011, and 2012.

December 31

2011

2012

Cash

$49,800

$22,600

Accounts receivable

27,340

25,960

Office supplies

3,850

3,120

Office equipment

127,000

139,800

Trucks

48,000

48,000

Building

0

195,000

Land

0

45,000

Accounts payable

6,950

37,500

Notes payable

0

105,000
Late in December 2012, the business purchased a small office building and the land for $240,000. $135,000 cash was applied to the purchase with a $105,000 note payable for the balance. In exchange for stock, the owner of the company invested $40,000 cash to make the cash payment of $135,000. The business also pays $2,800 cash per month for dividends.
Use this information to complete the exercise beginning on page 4.
For this exercise, complete the following three tasks:
Prepare balance sheets for Newtown Distributors as of December 31, 2011, and 2012. Report only total equity, which equals the difference between assets and liabilities.

NEWTOWN DISTRIBUTORS
Balance Sheet
December 31, 2011
[Create the 2011 balance sheet here.]

NEWTOWN DISTRIBUTORS
Balance Sheet
December 31, 2012
[Create the 2012 balance sheet here.]
Compare the equity amounts and use the additional information provided in this problem to calculate the net income Newtown Distributors earned in 2012.
[Show the computation of 2012 net income here.]
Compute the 2012 year-end debt ratio for the business.
Debt Ratio =
Exercise 1-3
Use the following information and the table on page 8 to complete the exercise beginning on page 9.
Digital Learning, Inc. provides computer training to individuals and to off-site groups. Tuition is paid directly to the school. The school’s unadjusted trial balance for the year ending December 31, 2012, is shown in the table below. Digital Learning, Inc. initially records their prepaid expenses and unearned revenues in balance sheet accounts. Adjusting entries must be made on December 31 for each of the following items (1–8).
1. A review of the school’s insurance policies found that $2,800 of coverage has expired.
2. A 2012 year-end inventory shows available teaching supplies costing $2,450 remaining in stock.
3. The annual depreciation on the school’s equipment is $11,000.
4. The annual depreciation on the school’s professional library is $6,250.
5. At the request of a client, the school conducted a special six-month course, starting November 1. The school charged the client a monthly fee of $1,800. The first five months were paid in advance. Upon receipt of the cash payment, the school credited the Unearned Training Fees account. The school will record the sixth month’s fee upon collection in 2013.
6. The school conducted a four-month course for one student, starting October 15, for a monthly fee of $2,500, payable upon course completion. As of December 31, no payments have been received. Accruals are applied to the nearest half-month.
7. The school pays its three employees weekly. As of December 31, two days’ salaries have accrued for each employee at a daily rate of $125.
8. The Prepaid Rent account balance represents December’s rent.

DIGITAL LEARNING, INC.
Unadjusted Trial Balance
December 31, 2012

Debit

Credit

Cash

$24,500

Account receivable

0

Teaching supplies

8,000

Prepaid insurance

16,000

Prepaid rent

2,200

Professional library

28,000

Accumulated depreciation—Professional library

$8,500

Equipment

68,000

Accumulated depreciation—Equipment

16,500

Accounts payable

35,100

Salaries payable

0

Unearned training fees

10,500

Common stock

11,000

Retained earnings

52,900

Dividends

42,000

Tuition fees earned

103,900

Training fees earned

38,500

Depreciation expense—Professional library

0

Depreciation expense—Equipment

0

Salaries expense

52,000

Insurance expense

0

Rent expense

24,800

Teaching supplies expense

0

Advertising expense

6,000

Utilities expense

5,400

_______

Totals

$276,900

$276,900
For this exercise, complete the following four tasks:
Prepare T-accounts for Digital Learning, Inc. Use balances from the unadjusted trial balance.

Cash

Equipment

Unadj. Bal.

24,500

Unadj. Bal.

68,000

Accounts Receivable

Accumulated Depreciation
—Equipment

Unadj. Bal.

0

Unadj. Bal.

16,500

Adj. Bal.

Teaching Supplies

Accounts Payable

Unadj. Bal.

8,000

Unadj. Bal.

35,100

Salaries Payable

Unadj. Bal.

0

Prepaid Insurance

Unadj. Bal.

16,000

Adj. Bal.

Unearned Training Fees

Unadj. Bal.

10,500

Prepaid Rent

Unadj. Bal.

2,200

Adj. Bal.

Adj. Bal.

0

Common Stock

Unadj. Bal.

11,000

Professional Library

Unadj. Bal.

28,000

Retained Earnings

Unadj. Bal.

52,900

Accumulated Depreciation
—Professional Library

Dividends

Unadj. Bal.

8,500

Unadj. Bal.

42,000

Adj. Bal.

Tuition Fees Earned

Rent Expense

Unadj. Bal.

103,900

Unadj. Bal.

24,800

Adj. Bal.

Adj. Bal.

Training Fees Earned

Teaching Supplies Expense

Unadj. Bal.

38,500

Unadj. Bal.

0

Adj. Bal.

Adj. Bal.

Depreciation Expense
—Professional Library

Advertising Expense

Unadj. Bal.

0

Unadj. Bal.

6,000

Adj. Bal.

Depreciation Expense
—Equipment

Utilities Expense

Unadj. Bal.

0

Unadj. Bal.

5,400

Adj. Bal.

Salaries Expense

Unadj. Bal.

52,000

Adj. Bal.

Insurance Expense

Unadj. Bal.

0

Adj. Bal.

Prepare the adjusting journal entries for items 1–8 and post them to the T-accounts.
Adjustment (1):
Adjustment (2):
Adjustment (3):
Adjustment (4):
Adjustment (5):
Adjustment (6):
Adjustment (7):
Adjustment (8):
Update the T-accounts balances for the adjusting entries, and prepare an adjusted trial balance.

DIGITAL LEARNING, INC.
Adjusted Trial Balance
December 31, 2012

Debit

Credit
[Create the adjusted trial balance here.]
Prepare Digital Learning’s income statement and statement of retained earnings for 2012. Prepare a balance sheet as of December 31, 2012.

DIGITAL LEARNING, INC.
Income Statement
For Year Ended December 31, 2012
[Create the income statement here.]

DIGITAL LEARNING, INC.
Statement of Retained Earnings
For Year Ended December 31, 2012
[Create the statement of retained earnings here.]

DIGITAL LEARNING, INC.
Balance Sheet
December 31, 2012
[Create the balance sheet here.]
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