COVID-19 —
Managing executive
pay and incentives
in uncertain times
COVID-19 — Managing executive pay and incentives in uncertain times 2
In a matter of three months, COVID-19
has rapidly transformed from a local
virus outbreak to a global pandemic.
While the stress it has put on society
at large and healthcare systems
around the world is unprecedented,
it has also almost brought the global
economy to a grinding halt.
This slowdown is likely to be prolonged, and given the
scale and severity, businesses need to adapt quickly. In the
short term, organizations will need to adopt some cost-
containment measures, and rethink their cash flows and
working capital requirements.
An important piece of the jigsaw for organizations from
this perspective is remuneration. Often constituting one
of the largest “controllable” costs, organizations need to
undertake careful planning to retain, reward and motivate
employees through this crisis.
Extraordinary times demand extraordinary measures
In response to the COVID-19 crisis, several companies
in Singapore, and around the globe, are already
implementing executive pay reductions in the form of
salary freezes and voluntary pay cuts or reduction and
deferral of bonuses. These include Marriott, Lyft, BT,
Santader, Singtel, SATS, SP Group, Singapore Airlines and
Temasek Holdings, among others.
While the overall financial impact of executive pay cuts on
the company’s bottom line is likely to be limited, such cuts
are critical from a leadership, perception and messaging
perspective. At a time when share prices are plunging and
as companies may need to consider headcount reductions,
executives cannot be seen as financially insulated.
From a remuneration standpoint, however, most senior
executives are paid significant proportions of their total
compensation through performance-linked variable pay
awards — both cash and equity. These awards are bound to
be dramatically affected by the slowdown.
To put this in perspective, senior executives in Singapore
typically receive between 40% and 70% of their total pay in
performance-linked incentives, up to half of which could be
in long-term, equity-based vehicles. In comparison, most
other employees only receive between 10% and 20% of their
total pay in incentives — usually as annual cash bonuses.
It ’s now become critical for organizations to effectively
navigate and manage variable pay components by trying
to balance the affordability aspects with fairness to ensure
that motivation and productivity levels do not drop —
which can arguably have a major enduring impact on
business performance.
COVID-19 — Managing executive pay and incentives in uncertain times 3
What can boards and remuneration committees do?
In Mercer’s discussions with multiple boards and
management teams over the past few weeks, we’ve
seen that a number of alternative approaches are being
considered with respect to variable compensation for ...
Plant propagation: Sexual and Asexual propapagation.pptx
COVID-19 — Managing executive pay and incentives in unce
1. COVID-19 —
Managing executive
pay and incentives
in uncertain times
COVID-19 — Managing executive pay and incentives in
uncertain times 2
In a matter of three months, COVID-19
has rapidly transformed from a local
virus outbreak to a global pandemic.
While the stress it has put on society
at large and healthcare systems
around the world is unprecedented,
it has also almost brought the global
economy to a grinding halt.
This slowdown is likely to be prolonged, and given the
scale and severity, businesses need to adapt quickly. In the
short term, organizations will need to adopt some cost-
containment measures, and rethink their cash flows and
working capital requirements.
An important piece of the jigsaw for organizations from
this perspective is remuneration. Often constituting one
of the largest “controllable” costs, organizations need to
undertake careful planning to retain, reward and motivate
employees through this crisis.
Extraordinary times demand extraordinary measures
2. In response to the COVID-19 crisis, several companies
in Singapore, and around the globe, are already
implementing executive pay reductions in the form of
salary freezes and voluntary pay cuts or reduction and
deferral of bonuses. These include Marriott, Lyft, BT,
Santader, Singtel, SATS, SP Group, Singapore Airlines and
Temasek Holdings, among others.
While the overall financial impact of executive pay cuts on
the company’s bottom line is likely to be limited, such cuts
are critical from a leadership, perception and messaging
perspective. At a time when share prices are plunging and
as companies may need to consider headcount reductions,
executives cannot be seen as financially insulated.
From a remuneration standpoint, however, most senior
executives are paid significant proportions of their total
compensation through performance-linked variable pay
awards — both cash and equity. These awards are bound to
be dramatically affected by the slowdown.
To put this in perspective, senior executives in Singapore
typically receive between 40% and 70% of their total pay in
performance-linked incentives, up to half of which could be
in long-term, equity-based vehicles. In comparison, most
other employees only receive between 10% and 20% of their
total pay in incentives — usually as annual cash bonuses.
It ’s now become critical for organizations to effectively
navigate and manage variable pay components by trying
to balance the affordability aspects with fairness to ensure
that motivation and productivity levels do not drop —
which can arguably have a major enduring impact on
business performance.
3. COVID-19 — Managing executive pay and incentives in
uncertain times 3
What can boards and remuneration committees do?
In Mercer’s discussions with multiple boards and
management teams over the past few weeks, we’ve
seen that a number of alternative approaches are being
considered with respect to variable compensation for
executives:
• Reducing budgets for annual executive and
employee cash incentive programs in view of
lowered performance expectations and the need to
better manage immediate cash flow and expenses.
Organizations need to be mindful to do it in
conjunction with reduced performance goals, or
management will be doubly penalized with reduced
budgets and below par performance, resulting almost
certainly in low or no payouts.
• Revising targets for incentive awards for FY2020 and
beyond — especially where they were set prior to the
COVID-19 outbreak taking hold. While in some sectors
in particular this is necessary, given the immediate
nature of the impact, it ’s still difficult to forecast the
duration and scale of such impact as the situation
continues to evolve. It ’s important to bear in mind
that reduced expectations have to be balanced with
reduced spending to manage affordability of budgets.
• No adjustments made to either budgets or targets for
incentive awards, given the uncertainty. Boards and
remuneration committees would make discretionary
4. adjustments at year-end based on actual outcomes
and business response, considering talent risk, pay
competitiveness and affordability.
• For equity-based, long-term incentive awards there are
multiple implications and considerations:
– Equity-based compensation can serve as a useful
reward and retention tool, especially when cash
spend on salaries and incentives is being reduced.
Many start-ups are adopting this approach to
reduce cash-burn rate.
– Setting long-term targets for future grants as per
business expectations, but allowing for either the
exclusion of the period for COVID-19 in performance
calculations or “retesting” targets midway through
the grant cycle should the impact be prolonged and
deeper than expected (a less preferred approach by
institutional shareholders).
– Given the share prices for most companies have
dropped around 20% to 30% on average in the
last few weeks, any grants made right now would
inevitably result in a higher number of shares being
awarded, resulting in higher dilution/depletion
of share reserves. Boards are considering either
delaying the grants to later in the year when share
prices normalize, or awarding the same number of
shares as last year, using a three-month average
share price or capping the dilution impact, in order
to normalize share award grants for FY2020.
– It ’s also important to note that where adjustments
are being made to current year share awards,
historic awards impacted by the current outbreak
5. must also be adjusted appropriately. Given most
awards are based on aggregated performance
over two to four years, companies should exclude
the COVID-19 impact period from performance
calculations to maintain consistency in approach.
– As the full impact and duration of COVID-19 remains
an unknown, it ’s difficult to set meaningful and
accurate long-term targets for performance-based
awards. One way to provide for that inaccuracy
is by expanding the range between threshold
and superior levels of performance expectations,
hedging against significant deviations and
avoiding major volatility in payouts. Another way
is to increase the usage and proportion of relative
performance measures, so managers are rewarded
for how they performed against their peers rather
than against absolute targets.
– Boards are also considering replacing a proportion
of the performance-linked share awards with time-
vested restricted share awards. This hedges against
any unfair and undesirable volatility in executive
earnings, overcoming accurate long-term target-
setting limitations and providing a retention tool
to secure talent when the business emerges from
the crisis. This should inevitably be clubbed with
reduced award sizes, longer vesting periods or
higher shareholding requirements for executives to
ensure they are held accountable for a positive and
sustained post-crisis recovery.
In all of this, companies must take a long-term approach
to variable pay, ensuring that executives’ behaviors are
aligned with the long-term success of the company.
6. COVID-19 — Managing executive pay and incentives in
uncertain times 4
Responding from the top
At times such as these, it ’s important that a company ’s
leaders are front and center, ensuring they guide their people
through this difficult period by maintaining a sense of fairness,
commitment and optimism. To do so, they must ensure that
they are not seen as protecting self-interest over the interests of
employees, shareholders and the broader community.
Company boards across industries are responding by
reducing their own fee levels to express solidarity with senior
management and shareholders.
But in addressing the immediate challenges, it is also important
that organizations do not overlook long-term business priorities
and linkages to compensation structures, and the need to
effectively communicate these with senior management and
employees. Companies need to acknowledge that talent is a
scarce commodity, and therefore they must do enough to retain
their best, especially as they emerge from this outbreak.
It ’s heartening to see companies respond to the downturn in
humane ways. Some are setting up funds to address hardships
faced by their employees while several company executives are
forgoing their paychecks to contribute toward humanitarian
efforts to support communities.
This is as much a test of leadership as it is of businesses. Those
who
lead from the front and row the boat to safety — while ensuring
no one falls over — will emerge in the best shape to thrive
7. when
this crisis abates.
Author
Nishant Mahajan
Head of Executive Remuneration, ASEAN
E: [email protected]
T: +65 8163 8451
Nishant leads the Executive
Remuneration Advisor y business for
Mercer across the ASEAN market.
He currently advises remuneration
committees and boards of some
of the leading listed and privately
owned companies across multiple
industr y sectors, investor profiles
and strategic challenges. He also
suppor ts the Singapore Institute of
Directors professional development
programs and is par t of the guest
faculty with the INSEAD MBA module
on incentives and per formance.
6010769-CR
Copyright 2020 Mercer LLC. All rights reserved.
http://[email protected]
8. Champion Wave Surf, Inc.
1st Edition
Computer Simulation Project
STUDENT’S MANUAL
Adapted by Richard E Fleishman, MBA
From the original by
Stacey R. Adams, CPA
Champion Wave Surf, Inc.
9. Preface
Champion Wave Surf, Inc. is a computerized accounting project
designed for students taking Financial Accounting. The project
is intended to reinforce concepts taught in Financial Accounting
courses, while allowing students the use of Wave Accounting
software to aid in their understanding of computerized
accounting.
The project is not intended to teach Wave Accounting, but
simply uses Wave in a limited capacity to give students the
opportunity to understand the usefulness of computers and
software in the accounting world, but still compelling them to
fully comprehend each accounting transaction and the
accounting process.
Introduction
Background
Champion Wave Surf, Inc. is a small corporation, operated by
Max Kolbe, the majority stockholder. The business opened on
January 1, 2007, at its beautiful location in Morro Bay,
California. Champion Wave has been successful in its first two
months of operations, gaining popularity among the locals and
tourists on the Central Coast. In addition to selling surfboards,
accessories and apparel, Champion Wave also provides
surfboard repair services and offers private surfing lessons.
As the new accounting intern for the company, you have been
asked to complete the accounting for the last two weeks of
March, prepare the financial statements and close the books at
the end of the first quarter, March 31, 2007. This will require
that you post all accounting transactions for the last two weeks
of the month of March, reconcile the bank account, post any
adjusting entries, print and analyze the financial statements,
and, finally, post the closing entries. During the process, you
are expected to audit your own work and make any correcting
entries as you go. Max has provided you with the accounting
files which have been completed through March 17, 2007.
10. Before you begin recording the transactions, it is important that
you become familiar with Champion Wave's chart of accounts
and you thoroughly understand the company's accounting
procedures. Max has provided you with the complete chart of
accounts along with some detailed information from his CPA
that you should review.
Chart of Accounts
Summary
ASSETS
101
Cash
102
Petty Cash
115
Certificate of Deposit
120
Accounts Receivable
125
Credit Cards Receivable
130
Interest Receivable
150
Merchandise Inventory
160
Prepaid Advertising
161
Prepaid Insurance
162
Prepaid Rent
170
Store Supplies
12. 420
Repair Revenue
COST OF GOODS SOLD
501
Cost of Goods Sold
EXPENSES
601
Advertising Expense
605
Bank Charges
607
Cash Over / Short
610
Credit Card Processing Expense
612
Delivery Expense
615
Depreciation Expense, Equipment
616
Depreciation Expense, Furniture & Fixtures
620
Insurance Expense
625
Professional Fees
630
Rent Expense
635
Repairs & Maintenance
650
Salaries & Wages Expense
660
Store Supplies Expense
665
Telephone Expense
13. 667
Utilities Expense
OTHER INCOME & EXPENSES
700
Interest Income
750
Gain on Disposal of Asset
800
Interest Expense
850
Loss on Disposal of Asset
Detail for SelectedAccounts
ASSETS
101
Cash
This account is used for all cash and check transactions and
includes amounts in the bank account and on hand at the store.
102
Petty Cash
This account is used for the small petty cash fund the company
has established. The petty cash fund is $100 and is maintained
on the imprest basis.
115
Certificate of Deposit
This account is used to record the company's investment in the
Certificate of Deposit (CD). The company put $8,000 into the
CD on February 1, 2007. The CD has a 6% annual rate of
interest and an 18 month term to maturity.
120
Accounts Receivable
14. This account is used to record amounts due from customers.
125
Credit Cards Receivable
This account is used to record amounts due from the credi t card
processing company when a customer pays via credit card.
Approximately 2-3 days after a customer pays with a credit
card, cash is received into the bank account, at which time the
receivable should be relieved and the receipt of the cash should
be recorded. The credit card processing company charges a
2.5% fee on each transaction and deducts the fee from the
amount deposited to the bank account.
130
Interest Receivable
This account is used to record interest due to the company but
not yet received.
150
Merchandise Inventory
This account is used to record all of the store's inventory,
including surfboards, accessories and apparel. All product costs,
including transportation-in go into this account. The account is
debited for purchases of inventory and credited following the
sale of inventory. (See also: Cost of Goods Sold.)
160
Prepaid Advertising
This account is debited when advertising costs are paid more
than one month in advance. The account is adjusted at the end
of each month. Advertising services for the year have been paid
in advance, totaling $1,500.00.
15. 161
Prepaid Insurance
This account is debited when insurance premiums are paid more
than one month in advance. The account is adjusted at the end
of each month.
Insurance premiums for the entire year totaling $1,920.00 were
paid in advance in January.
162
Prepaid Rent
This account is debited when rent is paid for a future month.
The account is adjusted at the end of each month. Rent totaling
$5,400.00 was paid in January for the first quarter of 2007.
170
Store Supplies
This account is used for the purchase of all store supplies. The
account is adjusted at the end of each month to reflect the
amount of supplies on hand and expense the supplies that have
been consumed.
180
Equipment
This account is used to record the purchase of fixed assets. The
company purchased $5,360.00 of equipment on January 1, 2007.
The equipment has an expected life of 5 years. The salvage
value is estimated to be $800.00.
185
Furniture & Fixtures
This account is used to record the purchase of fixed assets. The
company purchased $4,532.00 of equipment on January 1, 2007.
The furniture & fixtures have an expected life of 7 years. The
16. salvage value is estimated to be
$500.00.
LIABILITIES
210
Dividends Payable
This account is used for dividends that are declared but not yet
paid to stockholders.
240
Sales Tax Payable
This account is credited for sales tax collected from customers
on all merchandise sales (surfboards, accessories and apparel).
The sales tax rate is 7.75%. Sales tax is not charged for repair
services or lessons. Sales tax remains payable until remitted to
the State Board of Equalization at a later date.
260
Unearned Revenue
This account is used record payments from customers for
lessons before revenue has been earned. When the revenue is
earned, it should be debited from this account and recognized in
the appropriate revenue account.
280
Notes Payable
This account is used to record amounts borrowed from the bank
and other sources of financing from creditors. The company
borrowed $30,000.00 at 8.5% from Central Coast Credit Union
on January 1, 2007.
REVENUE
17. 401
Sales Revenue
This account is used to record the sale of merchandise
(surfboards, accessories or apparel) to customers.
410
Lesson Revenue
This account is used to record revenue from teaching surfing
lessons. Customers are charged a rate of $50.00 per hour for
lessons. Customers can pay in advance for 10 hours of lessons
for only $450.00. Revenue should not be recognized until it is
earned.
420
Repair Revenue
This account is used to record revenue from surfboard repairs.
COST OF GOODS SOLD
501
Cost of Goods Sold
This account is debited for the cost of merchandise sold. All
merchandise is sold at a 100% mark-up over its cost. Each
merchandise sales transaction should be followed by an entry
debiting this account and crediting Merchandise Inventory.
EXPENSES
601
Advertising Expense
This account is used for advertising expenses incurred in the
current month. Advertising costs paid in advance should be
debited to Prepaid Advertising.
18. 607
Cash Over / Short
This account is used for small, immaterial discrepancies,
usually arising in relation to petty cash transactions.
610
Credit Card Processing Expense
This account is used to record fees related to accepting payment
from customers via credit card. The credit card processing
company charges a 2.5% processing fee on each transaction,
which is deducted from the amount deposited to the bank
account. There is an additional monthly fee that gets recorded at
the end of the month from data on the bank statement.
612
Delivery Expense
This account is used to record costs incurred when shipping
merchandise to customers. This could also be called
"transportation-out."
615
Depreciation Expense, Equipment
This account is used to record depreciation adjustments.
Depreciation expense is calculated using the straight-line
method and is recorded monthly.
616
Depreciation Expense, Furniture & Fixtures
This account is used to record depreciation adjustments.
Depreciation expense is calculated using the straight-line
method and is recorded monthly.
620
19. Insurance Expense
This account is used to record adjustments for insurance
expiring in the current month. Insurance premiums paid in
advance should be debited to Prepaid Insurance.
630
Rent Expense
This account is used for rent in the current month. Rent paid in
advance should be debited to Prepaid Rent.
Accounting Methods
Accrual Basis
The company uses the accrual basis of accounting. Adjusting
entries are made monthly in order to recognize revenues and
expenses in the appropriate month.
Depreciation
The company depreciates assets using straight-line depreciation.
Depreciation is recorded monthly.
Inventory
The company uses the perpetual inventory method , updating the
Merchandise Inventory and Cost of Goods Sold accounts after
each sales transaction. Inventory is sold at a 100% mark- up
over its cost. Each merchandise sales transaction should be
followed by an entry debiting Cost of Goods Sold and crediti ng
Merchandise Inventory (for 50% of the amount of the sale).
Purchase Discounts
The company uses the gross method to record purchase
discounts, meaning that it records inventory purchases at the
gross price (list price). If the company does not make payment
to the vendor in time to receive the discount, there is no
additional entry or calculation necessary. However, if the
20. company makes payment within the discount period, the
Inventory and Accounts Payable accounts each should be
reduced for the amount of the discount.
Returns & Allowances
The company does allow sales returns on occasion. Sales returns
are debited from the related sales account directly and Sales
Tax Payable gets adjusted. The merchandise then needs to be
received back into inventory and removed from Cost of Good
Sold (as it is no longer sold!). Just as there are two journal
entries necessary when recording the sale of
merchandise, there will be two entries needed to reverse the
sale.
Champion Wave Surf, Inc.
Set-up & Instructions
1. Open your browser and go to www.waveapps.com. In the
middle of the page you will see a “Start Now” button. This will
take you into the registration and download process.
2. On the opening page you will be asked to give your name,
business name, and what your business does. Your business is
Champion Wave, Inc and it is a retailer.
3. Choose “Manage your accounting”.
4. You currently do your accounting manually, on your own,
don’t need to run payroll, you are a Sole Proprietor.
5. At this point choose “Manage Transactions” and you are
ready to start.
6. You may have to add an account or two as you go. To do this:
a. Click on Accounting>Chart of Accounts
b. Select “Add A New Account” in the upper right corner
c. Fill out the information and click “Save”
21. Data Entry
In Wave Accounting, you will only be entering General Journal
Entries (called “transactions” in Wave) to post data. While there
are other methods of entry in the software, the purpose of your
accounting internship with Champion Wave Surf, Inc. is to
demonstrate your knowledge of accounting, which is best done
through posting journal entries for each transaction and
adjustment.
1) To begin, with the company file open, click on “Accounting”
from the menu bar down the left side of the screen, then select
"Transactions." This will open the transactions screen that will
show all of the transactions that have been entered.
2) In the upper right-hand corner click on “More”, then “Add
journal transaction”. Use the tab key to move from field to
field.
3) A window will open on the right enter a brief description
including the number in BOLD included in the instructions, then
the date.
4) Next are two fields for the debits/credits of the transaction.
Each description field has a drop-down menu in order to enter
the appropriate account. If you enter the first few letters of the
account you want, it will show in the window. Tab to enter the
amount of the debit. Tab again for the credit. If you have more
22. than one debit or credit, there are two buttons below the
transactions, one to add a debit another for a credit. Add as
many as you need. In the description field enter a simple
description of the reason for the entry. When all is good, click
on save and move to your next entry.
5) The first entries are the ending balances for February 28,
2007. You will find these on the next page.
6) Next, enter the adjustment for March 17, 2007 Which follows
the previous entry. You now have a tied-out balance through
March 17th. Your job is to enter the remaining entries for the
third and fourth weeks.
7) If a transaction refers to a prior entry from week one or two,
you will have to look in the instructions, find the entry, and
calculate the data you need for the transaction. There aren’t
many, thankfully.
8) You are now ready to begin the week three transactions.
Corrections
1) Begin by identifying the journal entry that needs to be
corrected. You will need to completely reverse that entry, so
you may want to write down or print out the details of the
transaction (account(s) debited / credited and respective
amounts).
2) Start a new journal entry and post the "reversal" of your
incorrect entry. Using the date of the original entry, you will
debit the account(s) you originally credited and credit the
account(s) you originally debited. You should include "Reversal
of ERROR" in the memo field.
3) Start another new journal entry and post the transaction
correctly, following the procedures for data entry.
If you use delete, I will be able to see that when I review your
G/L, so please follow the above instructions.
23. 13
Champion Wave Surf, Inc.
9:40 PM
Trial Balance
08/03/2013
As of February 28, 2007
Accrual Basis
Feb 28, 07
Debit
Credit
101 · Cash
15,613.29
102 · Petty Cash
100.00
115 · Certificate of Deposit
8,000.00
120 · Accounts Receivable
30. Salaries & Wages Expense 560.00
Store Supplies Expense 0.00
Telephone Expense 118.73
Utilities Expense 0.00
Interest income 0.00
Interest Expense 0.00
Loss on Disposal of Asset 0.00 0.00
$11,055.60$11,055.60
Champion Wave Surf, Inc.
Week of March 4 - 10, 2007
Transactions
1
March 4, 2007
Sold surfboard and apparel to customer for $435.00 plus sales
tax (7.75%). The customer paid cash. The sales receipt number
was 7030401.
a)
101 · Cash
468.71
401 · Sales Revenue
435.00
31. 240 · Sales Tax Payable
33.71
Sold merchandise to customer for cash.
b)
501 · Cost of Goods Sold
217.50
150 · Merchandise Inventory
217.50
To record cost of merchandise sold and relieve inventory
This transaction is already posted as an example. You can view
the two journal entries posted by opening the General Journal
Entries window, and clicking the "Previous" arrow to find the
entries. Do not post the entries again.
2
March 4, 2007
Received cash into the bank account from the credit card
processing company for a transaction of
$483.25 processed on February 28, 2007, sales receipt number
7022805.
101 · Cash
471.17
610 · Credit Card Processing Expense
32. 12.08
125 · Credit Cards Receivable
483.25
Received payment from credit card processing company, less
fees.
This transaction has not been posted yet.
3
March 4, 2007
Sold apparel to customer for $75.00 plus sales tax. The
customer paid cash. The sales receipt number was 7030402.
101 · Cash
80.81
401 · Sales Revenue
75.00
240 · Sales Tax Payable
5.81
501 · Cost of Goods Sold
37.50
150 · Merchandise Inventory
37.50
33. Week of March 4 - 10, 2007
4
March 4, 2007
Sold apparel to customer for $279.50 plus sales tax. The
customer paid with a credit card. The sales receipt number was
7030403.
125 · Credit Cards Receivable
301.16
401 · Sales Revenue
279.50
240 · Sales Tax Payable
21.66
501 · Cost of Goods Sold
139.75
150 · Merchandise Inventory
139.75
5
March 5, 2007
34. Wrote check number 10026 to Pacific Gas & Electric for $68.30
to pay the utilities bill received and posted last month.
201 · Accounts Payable
68.30
101 · Cash
68.30
6
March 5, 2007
Wrote check number 10027 to AT&T for $118.73 for the
telephone bill received in the mail today.
665 · Telephone Expense
118.73
101 · Cash
118.73
7
March 5, 2007
Sold accessories and apparel to customer for $338.98 plus sales
tax. The customer paid cash. The sales receipt number was
7030501.
101 · Cash
35. 365.25
401 · Sales Revenue
338.98
240 · Sales Tax Payable
26.27
501 · Cost of Goods Sold
169.49
150 · Merchandise Inventory
169.49
8
March 6, 2007
Received cash into the bank account from the credit card
processing company for sales receipt number
7030403, processed on March 4, 2007.
101 · Cash
293.63
610 · Credit Card Processing Expense
7.53
125 · Credit Cards Receivable
301.16
36. 9
March 6, 2007
Performed repairs on a surfboard and mailed invoice number
30601 for $157.50 to customer Brett Constance to bill for the
services.
120 · Accounts Receivable
157.50
420 · Repair Revenue
157.50
10
March 6, 2007
Wrote check number 10028 to Surfer's Supply for payment in
full on an invoice for merchandise received and posted last
month. The original amount of the invoice was 463.89. The
invoice was dated February 27, 2007, with terms of the purchase
1/10, n/30. The invoice was recorded using the gross method.
201 · Accounts Payable
463.89
101 · Cash
459.25
150 · Merchandise Inventory
4.64
37. 11
March 6, 2007
Wrote check number 10029 to Pipeline Surfwear for payment in
full on an invoice received last month. The original amount of
the invoice was $285.71. The invoice was dated February 7,
2007, with terms of the purchase 2/10, n/20. The invoice was
recorded using the gross method.
201 · Accounts Payable
285.71
101 · Cash
285.71
12
March 7, 2007
Received cash payment of $175.00 from customer Ken Bruce
for surfing lessons taught last month. The customer was billed
in February with invoice number 22802, for 3.5 hours of
lessons.
101 · Cash
175.00
120 · Accounts Receivable
175.00
13
38. March 7, 2007
Received cash payment from customer Bobby Earl for $450.00
in advance for 10 hours of surfing lessons. Bobby will begin
taking lessons in April. Gave Bobby receipt number 30701 for
record of his payment.
101 · Cash
450.00
260 · Unearned Revenue
450.00
14
March 8, 2007
Taught a 1 hour surfing lesson. Provided receipt number 30801
for the customer, Budd Charles, who paid cash at the time of the
lesson.
101 · Cash
50.00
410 · Lesson Revenue
50.00
15
March 8, 2007
39. Purchased surfboards and accessories from vendor for
$1,050.00. Paid cash at the time of purchase for invoice number
CCB1298.
150 · Merchandise Inventory
1,050.00
101 · Cash
1,050.00
16
March 9, 2007
Sold apparel to customer for $252.26 plus sales tax. The
customer paid with a credit card. The sales receipt number w as
7030901.
125 · Credit Cards Receivable
271.81
401 · Sales Revenue
252.26
240 · Sales Tax Payable
19.55
501 · Cost of Goods Sold
126.13
150 · Merchandise Inventory
126.13
40. 17
March 9, 2007
Purchased $194.65 of store supplies on account from Premi er
Distributing. The invoice number was
PD897 and the terms were Net 15.
170 · Store Supplies
194.65
201 · Accounts Payable
194.65
18
March 10, 2007
Taught a 4 hour surfing lesson to Madeline Taylor. Prepared
invoice number 31001. She will pay later.
120 · Accounts Receivable
200.00
410 · Lesson Revenue
200.00
19
March 10, 2007
Sold 3 surfboards and accessories for $1,132.50 plus tax. The
customer paid with a credit card. The sales receipt number was
41. 7031001.
125 · Credit Cards Receivable
1,220.27
401 · Sales Revenue
1,132.50
240 · Sales Tax Payable
87.77
501 · Cost of Goods Sold
566.25
150 · Merchandise Inventory
566.25
20
March 10, 2007
After two months of successful operations, the board of
directors met and declared $4,000 of dividends, which would be
paid to the stockholders at the end of the month. Ref: Div
3/10/07
390 · Dividends
4,000.00
210 · Dividends Payable
4,000.00
42. Check Figures
Selected figures from the trial balance as of March 10, 2007 are
below. If your account balances do not match the check figures
provided, you need to correct your errors before proceeding. Be
sure to carefully review the instructions for correcting errors.
Champion Wave Surf, Inc.
SELECTED Check Figures
As of March 10, 2007
Mar 10, 07
Debit
Credit
101 · Cash
15,985.87
120 · Accounts Receivable
977.50
45. Assignment
After posting all of the transactions and ensuring your trial
balance matches the check figures provided, print the trial
balance as of March 10, 2007, as well as the journal for March 4
- 10, 2007. These reports can be found by selecting "Reports"
from the menu bar across the top, then choosing "Accountant &
Taxes." The Trial Balance and Journal can both be found here.
Be sure to adjust the dates in each report to reflect the
transactions in Week #1, March 4 - 10, 2007.
Champion Wave Surf, Inc.
Week of March 11 - 17, 2007
Transactions
1
March 11, 2007
Received cash into the bank account from the credit card
processing company for sales receipt number 7030901,
processed on March 9, 2007.
101 · Cash
265.01
610 · Credit Card Processing Expense
6.80
125 · Credit Cards Receivable
271.81
46. 2
March 11, 2007
Purchased merchandise on account from Central Coast
Boarding. Central Coast Boarding provided invoice number
CCB1335 totaling $1,648.50. Terms of the purchase are 2/10,
n/30.
150 · Merchandise Inventory
1,648.50
201 · Accounts Payable
1,648.50
3
March 11, 2007
Wrote check number 10030 for $174.00 to pay the February bill
from Law Office of C. Brown for services provided on account.
201 · Accounts Payable
174.00
101 · Cash
174.00
4
March 12, 2007
47. Taught 6 hours of surfing lessons to a customer who had paid in
advance during February (sales receipt number 21402) at the
special discounted rate of $45 per hour.
260 · Unearned Revenue
270.00
410 · Lesson Revenue
270.00
5
March 12, 2007
Received cash into the bank account from the credit card
processing company for sales receipt number 7031001,
processed on March 10, 2007.
101 · Cash
1,189.76
610 · Credit Card Processing Expense
30.51
125 · Credit Cards Receivable
1,220.27
Week of March 11 - 17, 2007
16
48. 6
March 12, 2007
Received payment of $145.00 on invoice number 7022403 from
customer Mike Joseph for repair services performed on account
during February.
101 · Cash
145.00
120 · Accounts Receivable
145.00
7
March 13, 2007
Returned $500 of damaged merchandise from the purchase on
March 11, 2007 to Central Coast Boarding, invoice number
CCB1335.
201 · Accounts Payable
500.00
150 · Merchandise Inventory
500.00
8
March 14, 2007
Sold apparel and accessories to customer for $595.00 plus sales
tax. The customer paid with cash. The sales receipt number was
49. 7031401.
101 · Cash
641.11
401 · Sales Revenue
595.00
240 · Sales Tax Payable
46.11
501 · Cost of Goods Sold
297.50
150 · Merchandise Inventory
297.50
9
March 14, 2007
Sold surfboards to customer for $836.50 plus sales tax. The
customer paid with a credit card. The sales receipt number was
7031402.
125 · Credit Cards Receivable
901.33
401 · Sales Revenue
836.50
240 · Sales Tax Payable
64.83
501 · Cost of Goods Sold
50. 418.25
150 · Merchandise Inventory
418.25
10
March 15, 2007
Taught 5 hours of surfing lessons on account for customer
Jonathon Richards. Provided the customer with invoice number
31501 for the services.
120 · Accounts Receivable
250.00
410 · Lesson Revenue
250.00
11
March 15, 2007
Received payment in full on invoice number 31001 from
Madeline Taylor.
101 · Cash
200.00
51. 120 · Accounts Receivable
200.00
12
March 15, 2007
Received partial payment of $175.00 on invoice 21703 from
customer David Linthon for services provided on account during
February.
101 · Cash
175.00
120 · Accounts Receivable
175.00
13
March 16, 2007
Received cash into the bank account from the credit card
processing company for sales receipt number 7031402,
processed on March 14, 2007.
101 · Cash
878.80
610 · Credit Card Processing Expense
22.53
125 · Credit Cards Receivable
901.33
52. 14
March 16, 2007
Customer, Allison Paige, paid $450.00 with a credit card for 10
hours of surfing lessons to begin during the summer. Provided
the customer with receipt number 31601.
125 · Credit Cards Receivable
450.00
260 · Unearned Revenue
450.00
15
March 16, 2007
Wrote check number 10031 for $235.00 to Scanlan Accounting
Services for accounting services provided today.
625 · Professional Fees
235.00
101 · Cash
235.00
16
March 16, 2007
Wrote check number 10032 to pay two weeks of wages to the
53. store clerk, totaling $800.00 for the time period 2/26 - 3/11. The
store clerk works Monday through Friday and gets paid $80.00
per day. Three days of wages were accrued at the end of
February.
650 · Salaries & Wages Expense
560.00
250 · Wages Payable
240.00
101 · Cash
800.00
17
March 16, 2007
Purchased additional inventory from Surfer's Supply on
account. Surfer's Supply provided invoice number SS9241
totaling $675.90 with terms 1/10, n/30. The merchandise was
sent FOB shipping point. The responsible party will pay SLO
Delivery & Trucking for delivery services directly.
150 · Merchandise Inventory
675.90
201 · Accounts Payable
675.90
54. 18
March 17, 2007
Merchandise purchased from Surfer's Supply yesterday arrived.
The responsible party paid $62.00 cash to SLO Delivery &
Trucking for shipment number SLO3846.
150 · Merchandise Inventory
62.00
101 · Cash
62.00
19
March 17, 2007
Purchased $98.50 of store supplies on account from Premier
Distributing. The invoice number was PD938 and the terms
were Net 15, FOB Destination. The responsible party paid
$25.00 cash to SLO Delivery & Trucking.
170 · Store Supplies
98.50
201 · Accounts Payable
98.50
20
March 17, 2007
55. Replenished the petty cash fund by writing check number 10033
for $88.75. The petty cash box contained two receipts as
follows: Repairs & Maintenance $55.00 and Professional Fees
$35.00.
635 · Repairs & Maintenance
55.00
625 · Professional Fees
35.00
101 · Cash
88.75
607 · Cash Over / Short
1.25
Check Figures
Selected figures from the trial balance as of March 17, 2007 are
below. If your account balances do not match the check figures
provided, you need to correct your errors before proceeding. Be
sure to carefully review the instructions for correcting errors.
Champion Wave Surf, Inc.
SELECTED Check Figures
56. As of March 17, 2007
Mar 17, 07
Debit
Credit
101 · Cash
XX,120.80
120 · Accounts Receivable
707.50
125 · Credit Cards Receivable
450.00
150 · Merchandise Inventory
14,411.47
170 · Store Supplies
1,170.68
201 · Accounts Payable
2,117.55
240 · Sales Tax Payable
58. Assignment
After posting all of the transactions and ensuring your trial
balance matches the check figures provided, print
the trial balance as of March 17, 2007, as well as the journal for
March 11 - 17, 2007.
Champion Wave Surf, Inc.
Mid-Month Review
In order to answer the following questions, you may find it
helpful to view the interim financials statements. These reports
can be found by selecting "Reports" from the menu bar across
the top, then choosing "Company & Financial." For the Income
Statement, select "Profit & Loss Standard" and be sure to adjust
the dates appropriately (March 1 - 17, 2007). For the Balance
Sheet, select "Balance Sheet Standard" and, again, be sure to
use the appropriate date (March 17, 2007).
1
What is net income for March 1 - March 17, 2007?
59. 1,817.94
2
What is net income year-to-date (January 1 - March 17, 2007)?
10,124.88
3
What is the cash balance as of March 17, 2007?
18,120.80
4
What is the accounts receivable balance as of March 17, 2007?
707.50
60. 5
Numerically express the accounting equation as of March 17,
2007.
$57,294.45 = $41,169.57 + $16,124.88
Mid-Month Review
6
What is the trial balance total as of March 17, 2007?
91,393.35
7
What is the current ratio as of March 17, 2007?
17-Mar
47,650.45 / 11,169.57 = 4.266
61. 8
How has the current ratio changed since February 28, 2007?
What does this mean?
28-Feb
44,011.15 / 5,348.21 = 8.229
The ratio was higher at 2/28 than at 3/17. The higher the ratio,
the easier the company can pay its maturing debts. Liquidity has
decreased dramatically, but is still very healthy.
9
What is the debt to assets ratio as of March 17, 2007?
17-Mar
41,169.57 / 57,294.45 = .719
10
How has the debt to assets ratio changed since February 28,
2007? What does this mean?
28-Feb
35,348.21 / 53,655.15 = .659
The ratio was lower at 2/28 than at 3/17. The higher the ratio,
the greater the financial
risk, so risk has increased slightly.
Champion Wave Surf, Inc.
62. 10:04 PM
Profit & Loss
08/03/2013
March 1 - 17, 2007
Accrual Basis
Mar 1 - 17, 07
Ordinary Income/Expense
Income
401 · Sales Revenue
3,944.74
410 · Lesson Revenue
770.00
420 · Repair Revenue
157.50
Total Income
4,872.24
Cost of Goods Sold
501 · Cost of Goods Sold
1,972.37
Total COGS
1,972.37
Gross Profit
2,899.87
Expense
607 · Cash Over / Short
-1.25
610 · Credit Card Processing Expense
79.45
625 · Professional Fees
63. 270.00
635 · Repairs & Maintenance
55.00
650 · Salaries & Wages Expense
560.00
665 · Telephone Expense
118.73
Total Expense
1,081.93
Net Ordinary Income
1,817.94
Net Income
1,817.94
Champion Wave Surf, Inc.
11:14 PM
Balance Sheet
08/03/2013
As of March 17, 2007
Accrual Basis
Mar 17, 07
ASSETS
Current Assets
Checking/Savings
101 · Cash
64. 18,120.80
102 · Petty Cash
100.00
115 · Certificate of Deposit
8,000.00
Total Checking/Savings
26,220.80
Accounts Receivable
120 · Accounts Receivable
707.50
Total Accounts Receivable
707.50
Other Current Assets
125 · Credit Cards Receivable
450.00
130 · Interest Receivable
40.00
150 · Merchandise Inventory
14,411.47
160 · Prepaid Advertising
1,250.00
161 · Prepaid Insurance
1,600.00
162 · Prepaid Rent
1,800.00
170 · Store Supplies
1,170.68
Total Other Current Assets
20,722.15
Total Current Assets
47,650.45
Fixed Assets
66. 260 · Unearned Revenue
1,845.00
Total Other Current Liabilities
9,052.02
Total Current Liabilities
11,169.57
Long Term Liabilities
Mar 17, 07
280 · Notes Payable
30,000.00
Total Long Term Liabilities
30,000.00
Total Liabilities
41,169.57
Equity
310 · Common Stock
10,000.00
390 · Dividends
-4,000.00
Net Income
10,124.88
Total Equity
16,124.88
TOTAL LIABILITIES & EQUITY
67. 57,294.45
Champion Wave Surf, Inc.
Week of March 18 - 24, 2007
Transactions
1
March 18, 2007
The customer who purchased surfboards on March 14, 2007,
returned one surfboard with a list price of
$425.00. The customer received the refund in cash and was
provided receipt number 31801 for the transaction.
68. 2
March 18, 2007
Sold apparel to customer for $198.24 plus sales tax. The
customer paid cash. The sales receipt number was 7031802.
3
March 18, 2007
Received cash into the bank account from the credit card
processing company for receipt number
31601, processed on March 16, 2007.
69. 4
March 19, 2007
Customer, Budd Charles, brought his surfboard in for repairs.
Repairs were completed and the customer was given invoice
number 31901 for $119.00.
Week of March 18 - 24, 2007
5
March 19, 2007
Collected $225.00 from customer, Betty Jane, who was invoiced
in February for lessons taught, invoice number 21703.
70. 6
March 19, 2007
Taught a 3 hour surfing lesson for cash. Provided the customer
with receipt number 31902.
7
March 20, 2007
Sold 3 surfboards and accessories to customer for $1,649.50
plus sales tax. The customer paid cash. The sales receipt
number was 7032001. Shipped the merchandise to the
customer's home address, FOB destination. An invoice for
shipping costs will be sent to the responsible party.
71. 8
March 20, 2007
Taught 4.5 hours of surfing lessons to a customer who had paid
in advance during February (receipt number 20703) at the
special discounted rate.
9
March 20, 2007
Received cash payment from customer, Brett Constance,
referencing invoice number 30601.
72. 10
March 21, 2007
Sold accessories to customer for $319.28 plus sales tax. The
customer paid with a credit card. The sales receipt number was
7032101.
11
March 21, 2007
Received an invoice for $209.00 from the landlord, Coastal
Properties, Inc., for repairs made in the store. The invoice
number was CP200768, net 10.
73. 12
March 21, 2007
Purchased merchandise from Pipeline Surfwear for $795.00,
invoice number PS40627. The merchandise was delivered FOB
shipping point at a cost of $45.00. All amounts due were paid in
cash at the time of delivery.
13
March 22, 2007
Taught a 2 hour surfing lesson to customer David Linthon, who
paid cash for the lesson, plus paid off the $75.00 balance he
owed from an invoice in February. Provided the customer with
receipt number 32201 for the payment.
74. 14
March 22, 2007
Wrote check number 10034 to Premier Distributing to pay the
open invoices from March 9 and March 17, 2007 in full.
15
March 23, 2007
Paid Surfer's Supply the amount due on invoice number SS9241
dated March 16, 2007.
75. 16
March 23, 2007
Paid Central Coast Boarding the amount due on invoice number
CCB1335 dated March 11, 2007.
17
March 23, 2007
Wrote check number 10035 to Law Office of C. Brown for
$165.00 to pay for a legal consultation that day.
18
March 24, 2007
76. Wrote check number 10036 to pay the bill received from the
landlord on March 21, 2007.
19
March 24, 2007
Wrote check number 10037 for $5,400.00 to pay rent for the
second quarter (April, May & June 2007).
20
March 24, 2007
Repaired surfboard for customer Chris Jackson. Provided
customer with invoice number 32401 for
$95.00.
77. Check Figures
Selected figures from the trial balance as of March 24, 2007 are
below. If your account balances do not match the check figures
provided, you need to correct your errors before proceeding. Be
sure to carefully review the instructions for correcting errors.
Champion Wave Surf, Inc.
SELECTED Check Figures
As of March 24, 2007
Mar 24, 07
Debit
Credit
101 · Cash
12,052.26
80. Champion Wave Surf, Inc.
Week of March 25 - 31, 2007
Transactions
1
March 25, 2007
Received cash into the bank account from the credit card
processing company for sales receipt number 7032101,
processed on March 21, 2007.
2
March 25, 2007
Received invoice number SLO3953 from SLO Delivery &
Shipping for $79.00 referencing sales receipt 7032001 from
March 20, 2007. Terms are Net 10.
81. 3
March 25, 2007
The customer who purchased accessories on March 21, 2007,
returned one item with a list price of
$38.00. The customer received the refund in cash and was
provided receipt number 32501 for the transaction.
4
March 26, 2007
Sold a surfboard and accessories to customer Neal Kelly for
82. $512.92 plus sales tax. Neal also paid for ten hours of lessons in
advance. The customer paid for the entire purchase with a credit
card and was provided sales receipt number 7032601.
5
March 26, 2007
Repaired surfboard for customer Bobby Earl. Provided invoice
number 32602 to Bobby for $72.00 to be paid later.
83. 6
March 26, 2007
Received payment in full from customer Jonathon Richards
referencing invoice number 31501.
7
March 27, 2007
Received invoice number PG4660998 from Pacific Gas &
Electric for $127.32 and will pay later.
8
March 27, 2007
84. Sold surfboard to customer for $488.00 plus sales tax. The
customer paid for the purchase with a credit card and was
provided sales receipt number 7032701.
9
March 27, 2007
Shipped the merchandise from sales receipt number 7032701 to
the customer's address at a cost of
$65.00. The shipping terms were FOB destination. The
responsible party paid cash to the shipping company directly.
85. 10
March 28, 2007
Purchased merchandise from Pipeline Surfwear on account. The
vendor provided invoice number PS2015 for $1,138.00 with
terms 2/15, n/25. The merchandise was shipped FOB destination
and the responsible party paid the shipping costs of $95.00 in
cash.
11
March 28, 2007
Mr. Kolbe decided to get additional insurance coverage to
provide more protection relating to the risk of shark bites while
teaching surfing lessons. Received invoice number F9111 from
Farmtown Insurance for $630.00 for six months of coverage
commencing on April 1, 2007.
86. 12
March 28, 2007
Wrote check number 10038 to pay SLO Delivery & Shipping in
full for invoice number SLO3953.
13
March 28, 2007
Received cash into the bank account from the credit card
processing company for sales receipt number 7032601,
processed on March 26, 2007.
14
87. March 29, 2007
Received check for $119.00 from customer Budd Charles
referencing invoice number 31901.
15
March 29, 2007
Taught 3 hours of lessons to Neal Kelly (sales receipt number
7032601).
16
March 29, 2007
Received cash into the bank account from the credit card
processing company for sales receipt number 7032701,
processed on March 27, 2007.
88. 17
March 30, 2007
Mr. Kolbe decided to launch a new advertising campaign,
hoping to boost sales for the months leading up to the summer.
Received an invoice number A6390 from A-Town Advertising
for $795, for advertising during April, May and June.
18
March 30, 2007
Wrote check number 10039 to pay two weeks of wages to the
store clerk, totaling $800.00 for the time period 3/12 - 3/25. The
store clerk works Monday through Friday and gets paid $80.00
per day.
89. 19
March 31, 2007
Distributed cash to pay dividends declared earlier in the month
to the shareholders. Ref: Div 3/10/07
20
March 31, 2007
The company sold equipment for $350.00. The equipment
orignally cost $536.00 and there is accumulated depreciation on
that equipment of $22.80. Ref: S033107
90. Check Figures
Selected figures from the trial balance as of March 31, 2007 are
below. If your account balances do not match the check figures
provided, you need to correct your errors before proceeding. Be
sure to carefully review the instructions for correcting errors.
Champion Wave Surf, Inc.
SELECTED Check Figures
As of March 31, 2007
Mar 31, 07
Debit
Credit
93. The bank statement for the month ending March 31, 2007 has
just arrived. You need to reconcile the bank account (manually)
in the form provided on the next page. After you complete the
reconciliation prepare and enter the adjusting entries for the
books (description: Bank Rec). Assume that all transactions
prior to 3/18 cleared.
Central Coast Credit Union
Customer Service
123 Higuera Street
(805) 555-BANK
San Luis Obispo, CA 93401
Statement for the Month Ending March 31, 2007
Beginning Balance
16,378.48
Account 1234567890
Deposits & Credits
10,696.12
Champion Wave, Inc
104. Champion Wave Surf, Inc.
Adjusting Entries
Prepare and post journal entries at March 31, 2007 for each of
the month-end adjustments.
(All adjusting entries for January and February have been
posted already.)
1
Interest Receivable
AJE #1
The company put $8,000 into the CD on February 1, 2007. The
CD has a 6% annual rate of interest and an 18 month term to
maturity. Interest earned during February was already posted at
February 28, 2007.
2
Prepaid Advertising
AJE #2
Advertising services for the year (Jan 2007 - Dec 2007) have
been paid in advance, totaling
$1,500.00.
105. 3
Prepaid Insurance
AJE #3
Insurance premiums for the entire year totaling $1,920.00 were
paid in advance in January.
4
Prepaid Rent
AJE #4
Rent totaling $5,400.00 was paid in January for the first quarter
of 2007.
106. 5
Store Supplies
AJE #5
A count of the store supplies at month-end indicated that there
was $632.50 of supplies on hand.
Adjusting Entries
6
Depreciation - Equipment
AJE #6
The company purchased $5,360.00 of equipment on January 1,
2007. The equipment has an expected life of 5 years. The
salvage value is estimated to be $800.00.
107. 7
Depreciation - Furniture & Fixtures
AJE #7
The company purchased $4,532.00 of equipment on January 1,
2007. The furniture & fixtures have an expected life of 7 years.
The salvage value is estimated to be $500.00.
8
Interest Payable
AJE #8
The company borrowed $30,000.00 at 8.5% from Central Coast
Credit Union on January 1, 2007.
9
Wages Payable
AJE #9
The store clerk works Monday through Friday and gets paid
$80.00 per day.
108. 10
Inventory
AJE #10
A count of the inventory at month-end indicated that there was
$14,771.60 of merchandise on hand.
Check Figures
Selected figures from the adjusted trial balance as of March 31,
2007 are below. If your account balances do not match the
check figures provided, you need to correct your errors before
proceeding. Be sure to carefully review the instructions for
correcting errors.
109. Champion Wave Surf, Inc.
SELECTED Check Figures
As of March 31, 2007
Mar 31, 07
Debit
Credit
101 · Cash
X,X56.66
120 · Accounts Receivable
286.00
150 · Merchandise Inventory
14,771.60
201 · Accounts Payable
2,690.32
240 · Sales Tax Payable
110. 2,991.64
260 · Unearned Revenue
1,957.50
401 · Sales Revenue
38,593.22
700 · Interest Income
107.66
800 · Interest Expense
637.50
TRIAL BALANCE TOTAL
XX,648.04
XX,648.04
Champion Wave Surf, Inc.
Final Review & Analysis
1
What is net income for March 1 - March 31, 2007?
111. 2
What is net income year-to-date (January 1 - March 31, 2007)?
3
What is the cash balance as of March 31, 2007?
4
What is the accounts payable balance as of March 31, 2007?
5
Numerically express the accounting equation as of March 31,
2007.
112. 6
Hypothetically, if the company used the allowance method for
accounting for bad debts, and determined that it needed to set-
up an allowance of 1/2% of total income for the quarter, what
would be the net realizable value of accounts receivable?
Final Review & Analysis
7
What is the return on sales ratio for the quarter ending March
31, 2007? (Use "Total Income" as your sales figure.)
8
What is the gross margin percentage for the quarter ending
March 31, 2007? (Use "Total Income" as your sales figure.)
113. 9
What is the current ratio as of March 31, 2007? How has the
current ratio changed since February 28, 2007? What does this
mean?
10
Would you invest in Champion Wave Surf, Inc.? Why or why
not? Be specific and analytical!
Champion Wave Surf, Inc.
Financial Statements
Now that you have posted all of the transactions for the month,
reconciled the bank statement at month end and posted the
adjusting journal entries, it is time to prepare the financial
statements for Mr. Kolbe to review. Mr. Kolbe will want each of
the following to review and discuss with you:
1
Income Statement (Profit & Loss) for March 1 - 31, 2007
2
114. 3
Income Statement (Profit and Loss) for the quarter, January 1 –
March 31, 2007
Balance Sheet as of March 31, 2007
4
Trial Balance as of March 31, 2007
Be sure you print each of these documents before doing the
closing entries!
You will find the reports by clicking on Reports> Get the Big
Picture. Make sure to enter the appropriate dates for each report
and click on “Export” in the upper right of the page. Combine
the reports in one email to me. Then Enter your closing entries.
Closing Entries
Prepare and post the closing journal entry to close the books as
of the end of the first quarter (March 31, 2007). After closing
the books, print the Trial Balance as of March 31, 2007 one last
time!
***Be sure that you have prepared all of your financial reports
correctly and completed the Final Review questions before
posting the closing entry!
Hint: Use the Trial Balance as of March 31, 2007 and zero out
all of the temporary accounts into Retained Earnings.
116. design their 2021 executive compensation programs.
1. Revisiting Clawbacks and 'Cause' De�nitions
Expanding clawbacks and "cause" de�nitions to cover
misconduct beyond �nancial matters may help ensure that a
company will be able to
recoup executive compensation in the event of reputational
harm to the company or adverse publicity.
Recently, the U.S. Securities and Exchange Commission (SEC)
announced (https://www.reginfo.gov/public/do/eAgendaMain?
operation=OPERATION_GET_AGENCY_RULE_LIST¤t
Pub=true&agencyCode=&showStage=active&agencyCd=3235&
csrf_token=739
86BB1C8D8833E7C234D63D2431A704BEFB764D7F40398DE
E4CDAA0AE09B71BAFC48906485A4984A5D914BEF28D9B88
936) that it
will issue revised rules to implement the clawback provisions of
the Dodd-Frank Wall Street Reform and Consumer Protection
Act in 2021.
The existing proposed SEC clawback rules
(https://ogletree.com/insights/faqs-on-the-secs-proposed-
clawback-rule/) generally require a
public company to adopt a clawback policy to recover excess
incentive compensation paid to current or former executive
o�cers during
the three �scal years prior to the date the company is required
117. to �le a �nancial restatement due to a material error, regardless
of whether
the restatement is caused by an executive's misconduct.
Although the SEC's clawback rules apply to public companies,
private companies are viewing clawback policies as good
corporate
governance and are adopting similar practices. In anticipation of
this new guidance, companies may want to review their
clawback policies
to con�rm they comply with current SEC guidance.
Companies might also consider implementing clawback policies
that extend beyond �nancial restatements (e.g., requiring
employees to
return incentive compensation awards if grounds exist for a "for
cause" termination), as well as revisiting the "cause" de�nitions
in executive
compensation arrangements to con�rm that they adequately
protect the company.
2. Change in Control and Severance Agreements
Due to �nancial challenges, a number of companies are facing
di�cult restructuring decisions. In addition, many �nancial
buyers and
competitors have not abandoned their strategic business plans
and may initiate acquisitions of companies that are temporarily
undervalued
118. in the COVID-19–disrupted economic environment.
Accordingly, companies may want to review existing change in
control or severance
arrangements or implement new arrangements.
With respect to severance arrangements, it is important to
consider whether they are subject to the Employee Retirement
Income Security
Act (ERISA) and Internal Revenue Code Section 409A, and,
depending on how post-termination health bene�ts are
provided, determine
any continuing health bene�ts compliance issues under
COBRA. Companies should consider reviewing change in
control arrangements to
Fe
ed
ba
ck
https://www.reginfo.gov/public/do/eAgendaMain?operation=OP
ERATION_GET_AGENCY_RULE_LIST¤tPub=true&age
ncyCode=&showStage=active&agencyCd=3235&csrf_token=73
986BB1C8D8833E7C234D63D2431A704BEFB764D7F40398DE
E4CDAA0AE09B71BAFC48906485A4984A5D914BEF28D9B88
936
https://ogletree.com/insights/faqs-on-the-secs-proposed-
clawback-rule/
10/1/21, 3:36 PM 5 Executive Pay Issues for 2021
119. https://www.shrm.org/resourcesandtools/hr-
topics/compensation/pages/5-key-executive-compensation-
issues-for-2021.aspx 2/3
ensure leadership continues to be focused on the company's
business and is protected in the event of an unexpected or
unwanted
transaction.
3. Temporary Salary Reductions
In light of the ongoing COVID-19 pandemic, many companies
have changed a number of their internal compensation policies
or practices in
2020. For example, companies may have implemented
temporary salary reductions with promises to repay forgone
salaries either later in
2020 or in a future year. It may be a good time to revisit such
arrangements and ensure that any repayment is completed prior
to March 15,
2021 to avoid potential Code Section 409A concerns.
In addition, companies may want to be aware of any state wage
and hour laws implicated by these salary reductions. Publicly
traded
companies may want to con�rm whether repayments are
required to be disclosed under SEC rules.
Companies that implemented salary reductions may be at risk of
losing key executives to competitors and should consider
whether
120. restoring compensation (or, alternatively, o�ering discretionary
bonuses or retention awards) would assist in e�orts to retain
and motivate
key executives.
[SHRM members-only toolkit: Designing Executive
Compensation Plans (www.shrm.org/resourcesandtools/tools-
and-
samples/toolkits/pages/executivecompensationplans.aspx)]
4. 2020 Performance Awards
The pandemic has a�ected the ability of many companies to
e�ectively set performance goals and determine payouts for
long-term and
annual incentive compensation programs. In determining 2020
incentive award payments, companies that have been
signi�cantly
impacted by the pandemic may choose to exercise compensation
committee or board discretion to adjust performance metrics set
earlier
this year.
In making these determinations, companies may want to
con�rm that incentive compensation plan documents provide
the compensation
committee or board with discretion to make adjustments.
Companies should also consider establishing a framework that
takes into account
121. how discretion will be applied this year and in future years.
Publicly traded companies planning to adjust performance goals
should be aware of guidance from proxy advisory �rms, such as
Institutional Shareholder Services and Glass Lewis.
5. 2021 Incentive Compensation
Because the e�ects of the pandemic on the economy in 2021
and beyond remain unclear, it may be helpful to con�rm that
incentive
compensation programs explicitly provide the compensation
committee and board with the discretion to adjust performance
metrics and
determine payouts.
In designing 2021 incentive compensation programs, companies
may want to consider the current economic climate while
keeping in mind
that incentive programs serve the important purpose of
e�ectively motivating and retaining key executives. For
instance, some companies
may change �nancial performance metrics to strategic metrics
(such as satisfying diversity, equality, and inclusion objectives)
to address the
economic uncertainty or may delay setting performance goals
until later in 2021 when there is more clarity regarding a
company's business
124. November 2020
Executive Pay Measures Shift Toward Fairness, Social
Responsibility (www.shrm.org/ResourcesAndTools/hr-
topics/compensation/pages/executive-pay-measures-shift-
toward-fairness-and-social-responsibility.aspx), SHRM Online,
September 2020
HR DAILY NEWSLETTER
News, trends and analysis, as well as breaking news alerts, to
help HR professionals do their jobs better each business day.
Email Address
Fe
ed
ba
ck
https://www.shrm.org/about-shrm/Pages/Contact-Us.aspx
tel:800.283.SHRM%20(7476)
https://www.shrm.org/about-shrm/Pages/Terms-of-
Use.aspx#Disclaimer
https://ogletree.com/people/john-a-morrison
https://www.shrm.org/ResourcesAndTools/hr-
topics/compensation/Pages/fewer-workers-will-get-pay-raises-
in-2021-as-bonuses-gain-ground.aspx
https://www.shrm.org/ResourcesAndTools/hr-
topics/compensation/pages/executive-pay-measures-shift-
toward-fairness-and-social-responsibility.aspx
