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BUAD5107: Pat Ferguson C Case

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This case study is a practice activity to help you master Transaction Analysis. Click through each slide at your own pace and try to answer each of the questions when prompted.

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BUAD5107: Pat Ferguson C Case

  1. 1. Pat Ferguson – Consultant, C Case Interactive Component
  2. 2. NAVIGATION TIPS 1. This case is a practice case. This case will give you an opportunity to assess how well you are able to analyze the impact of economic events and provide you with more experience with the thought process. 2. This is a self-paced exercise with no narration. 3. Print out a copy of the “Pat Ferguson – Consultant, C Case” before proceeding. 4. When you are required to provide an answer and you are uncertain how to answer, you can enter “?” as your response. However, it is better to make an attempt to respond even if you are uncertain.
  3. 3. Review the spreadsheet below prepared at the beginning of January. Notice that columns have been included in the spreadsheet for totals as a check on accuracy. The total for assets must always equal the total for liabilities plus owners’ equity. Opening Balances
  4. 4. QUESTION Event 1 During the month of January Pat was paid $14,000 in cash for professional services that were provided in January. What accounts were affected by these economic events?
  5. 5. ANSWER Event 1 Cash– increase Retained earnings – increase (revenue)
  6. 6. Review the spreadsheet below prepared after the January revenue has been recorded. When a transaction is properly recorded the total for assets must always be the same as the total for liabilities plus owners’ equity. Balances After Event 1
  7. 7. QUESTION Event 2 During the month of January Pat billed $42,000 for professional services and none of these accounts were collected in January. What accounts were affected by these economic events?
  8. 8. ANSWER Event 2 Account Receivable - Increase Retained Earnings - Increase (revenue)
  9. 9. Review the spreadsheet below prepared after the collection of accounts receivable has been recorded. Again, notice that the total for assets must always be the same number as the total for liabilities plus owners’ equity. Balances After Events 1 and 2
  10. 10. QUESTION Event 3 During the month of January Pat collected cash of $52,000 from accounts receivable. What accounts were affected by these economic events?
  11. 11. ANSWER Event 3 Cash– increase Accounts Receivable - decrease
  12. 12. Balances After Events 1-3 Review the spreadsheet below prepared after the collection of Receivables.
  13. 13. QUESTION Event 3 cont. When accounts receivable are collected, is retained earnings increased or decreased or does retained earnings remain unchanged?
  14. 14. ANSWER Event 3 cont. UNCHANGED This event does not affect revenues or expenses or dividends. No new wealth has entered the business and no existing wealth has left the business. Retained Earnings is increased by revenues and decreased by expenses and dividends. The book value before this event was $266,000. The book value after this event is $266,000.
  15. 15. QUESTION Event 4 Pat purchased supplies on credit in the amount of $650. What accounts were affected by these economic events?
  16. 16. ANSWER Event 4 Supplies – increase Accounts Payable– Increase
  17. 17. Review the spreadsheet below prepared after this transaction. Balances After Events 1-4
  18. 18. QUESTION Why is it that expenses decrease retained earnings and the purchase of supplies does not decrease retained earnings?
  19. 19. ANSWER Expenses represent a drain of resources. When supplies are acquired resources are not depleted. Instead the asset “cash” is invested in the asset “supplies.”
  20. 20. QUESTION Event 5 Pat paid $8,000 towards outstanding accounts payable. What accounts were affected by these economic events?
  21. 21. ANSWER Event 5 Cash - decrease Accounts Payable– decrease
  22. 22. Review the spreadsheet below prepared after this transaction. Balances After Events 1-5
  23. 23. QUESTION Event 6 Pat issued stock to his sister. She paid $15,000 for a 5% share of the outstanding stock. What accounts were affected by these economic events?
  24. 24. ANSWER Event 6 Cash - Increase Contributed Capital - increase
  25. 25. Review the spreadsheet below prepared after this transaction. Balances After Events 1-6
  26. 26. QUESTION Event 7 Pat paid $18,000 in cash for operating expenses. This amount does not include any salaries. What accounts were affected by these economic events?
  27. 27. ANSWER Event 7 Cash - decrease Retained earnings – decrease (operating expense)
  28. 28. Review the spreadsheet below prepared after this transaction. Balances After Events 1-7
  29. 29. QUESTION Event 8 Pat paid $12,000 in salaries for two employees. This amount does not include any salary payment for Pat. What accounts were affected by these economic events?
  30. 30. ANSWER Event 8 Cash- decrease Retained earnings – decrease (salaries expense)
  31. 31. Review the spreadsheet below prepared after this transaction. Balances After Events 1-8
  32. 32. QUESTION Event 8 Why do expenses decrease retained earnings?
  33. 33. ANSWER Event 8 Expenses cause a decrease in the wealth of the owner, and this is reflected by decreasing the Retained Earnings account.
  34. 34. QUESTION Event 9 Pat purchased equipment in cash for $5,000. What accounts were affected by these economic events?
  35. 35. ANSWER Event 9 Cash- decrease Equipment - increase
  36. 36. Review the spreadsheet below prepared after this transaction. Balances After Events 1-9
  37. 37. QUESTION Event 10 Pat’s personal cash requirements were estimated (by Pat’s significant other) to be $10,000. Pat, who wanted to end the month with more cash, opted to take a salary of $3,000. What accounts were affected by these economic events?
  38. 38. ANSWER Event 10 Cash- decrease Retained earnings – decrease (salary expense)
  39. 39. Review the spreadsheet prepared after this transaction. Balances After Events 1-10
  40. 40. QUESTION Event 11 The monthly adjustment for depreciation of $1,000 was recorded. What accounts were affected by these economic events?
  41. 41. ANSWER Event 11 Equipment - decrease Retained earnings – decrease (depreciation expense)
  42. 42. Review the spreadsheet prepared after this transaction. Balances After Events 1-11
  43. 43. QUESTION Event 11 Has retained earnings increased, decreased, or remained the same as a result of recording depreciation expense in January?
  44. 44. ANSWER Event 11 DECREASED Expenses cause a decrease in the wealth of the owner, and this is reflected by decreasing the Retained Earnings account.
  45. 45. QUESTION Event 12 At the end of the month, cost of the remaining inventory of supplies was estimated to be $850. An adjustment was recorded. What accounts were affected by these economic events?
  46. 46. ANSWER Event 12 Supplies - decrease Retained earnings – decrease (supplies expense)
  47. 47. Review the spreadsheet prepared after this transaction. Balances After Events 1-12
  48. 48. QUESTION Event 13 Pat estimates based on past experience that $5,000 of the accounts billed in January will never be collected. What accounts are affected by these economic events?
  49. 49. ANSWER Event 13 Accounts receivable - decrease Retained earnings – decrease (Bad Debt Expense)
  50. 50. Review the spreadsheet prepared after this transaction. Balances After Events 1-13
  51. 51. PREPARING FINANCIAL STATEMENTS Financial statements are prepared at the end of the reporting period. The data in the spreadsheet are used to prepare a balance sheet, an income statement and a cash flow statement. The balance sheet is a “snapshot” as of a particular moment in time and it is labeled “as of.” The income and cash flow statements cover intervals and they are labeled “for the period ended …”
  52. 52. QUESTION Balance Sheet Review the spreadsheet prepared after the last transaction. Can you see where to find the information needed to prepare a balance sheet as of January 31, 2016?
  53. 53. ANSWER Balance Sheet The information needed is found in row 16 of the spreadsheet. The balance sheet is presented on the following slide.
  54. 54. To the right is the Balance Sheet for Pat Ferguson. Balance Sheet as of January 31, 2016
  55. 55. QUESTION Income Statement Review the spreadsheet prepared after the last transaction for event 13. Can you see where to find the information needed to prepare an income statement for the month ended January 31, 2016?
  56. 56. ANSWER Income Statement The data for the income statement are to be found in the column headed “retained earnings.” Copied below are columns I, J and K of the spreadsheet.
  57. 57. To the right is Pat Ferguson’s Income Statement. Income Statement for the month ended
  58. 58. QUESTION Cash Flow Statement Review the spreadsheet prepared after the last transaction for event 13. Can you see where to find the information you need to prepare a cash flow statement for the month ended January 31, 2016?
  59. 59. ANSWER Cash Flow Statement The data for the cash flow statement are to be found in the column headed “cash.”
  60. 60. QUESTION Cash Flow Statement Classifications To prepare the cash flow statement we need to be able to classify every transaction according to whether the transaction belongs in Operations, Investing Activities, or Financing Activities. See if you agree with our classification of the entries.
  61. 61. ANSWER Cash Flow Statement Classifications
  62. 62. SUMMARY Congratulations. You made it to the end. The spreadsheet model we have developed is available for you to download. There are four tabs in this model. We have covered a great deal in this presentation. Now we need to reinforce the learning.
  63. 63. NEXT STEPS If you feel very confident of your ability to analyze transactions and prepare financial statements using a spreadsheet model, you should proceed to the “Advance Preparation for the Nibelungen Rings, A Case.” If you are not confident of your ability to analyze transactions and prepare financial statements using a spreadsheet model, then you should complete the “Pat Ferguson – Consultant, D Case.” If you are uncertain of your status, it is wise to complete the D Case.

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