Like many new graduates in 2014, Marie Little struggled to find a sustained professional job. In early April she had finally found a good position, but was laid off by June. This ended her brief corporate career, finding herself once again without income. Marie packed her personal items from her office cubicle, passing too many empty spaces created by temporary tan walls. It was a long walk through the lending company’s hall, but she began to think about starting her own business…as far away from mortgage institutions as possible. She began to think; “If I own the business they cannot lay me off and I can actually create a business where I can use my degree.” Like many hired by the giant lender, she had no financial experience. Her job had been to sell a mortgage product and push her customers into a longer term refinance agreement with upfront profitable fees for her financial institution. Financial knowledge was not a premium, the institution wanted sales. Marie had graduated from the University of Michigan-Dearborn’s College of Arts, Science, and Letters with a bachelor’s degree majoring in art, but had also taken a few elective courses in web design. During her summer breaks she had working for a marketing firm in their web advertising department. The job had been interesting, which was why she enrolled in the three elective web design and development courses. She decided to rely on her summer job experience in developing web pages for clients. The five years she spent getting an art degree would also be helpful, and could be easily applied to her technical web design skills. And it would certainly be a lot less boring than selling the same mortgage product…over and over again. After a week of notes and thoughts, she began to formalize her strategy into a business plan. The purpose of Marie’s firm would be to create original, edgy web sites, web advertisements, and consult on existing web page designs. She knew of several similar companies in the southeast Michigan area, and planned to focus on the metro area, eventually expanding into most of southern Michigan. On June 20, 2014, she transferred all of her savings, $35,000, to a new bank account with the company name, and two days later she added $18,000 borrowed from her uncle to the account. After that things moved quickly as she rented a second floor office for $3,500 a month, paying one month’s rent in advance as a security deposit to apply to the end of the lease, and $3,500 for July 2014. She purchased some used computer equipment with software from her last employer, and ordered stationary and office supplies that cost $4,000 when they were delivered on June 29. Websites by Marie opened for business on July 2, 2014. Although Marie was not an accountant, she took stock of her company’s financial position as she began to seek her first contracts. The company had spent all but $13,000 of the cash that ...

1. Like many new graduates in 2014, Marie Little struggled to find
a sustained
professional job. In early April she had finally found a good
position, but was
laid off by June. This ended her brief corporate career, finding
herself once
again without income. Marie packed her personal items from
her office
cubicle, passing too many empty spaces created by temporary
tan walls. It was
a long walk through the lending company’s hall, but she began
to think about
starting her own business…as far away from mortgage
institutions as possible.
She began to think; “If I own the business they cannot lay me
off and I can
actually create a business where I can use my degree.” Like
many hired by the
giant lender, she had no financial experience. Her job had been
to sell a
mortgage product and push her customers into a longer term
refinance

2. agreement with upfront profitable fees for her financial
institution. Financial
knowledge was not a premium, the institution wanted sales.
Marie had graduated from the University of Michigan-
Dearborn’s College of
Arts, Science, and Letters with a bachelor’s degree majoring in
art, but had also
taken a few elective courses in web design. During her summer
breaks she had
working for a marketing firm in their web advertising
department. The job had
been interesting, which was why she enrolled in the three
elective web design
and development courses. She decided to rely on her summer
job experience in
developing web pages for clients. The five years she spent
getting an art degree
would also be helpful, and could be easily applied to her
technical web design
skills. And it would certainly be a lot less boring than selling
the same
mortgage product…over and over again. After a week of notes
and thoughts,

3. she began to formalize her strategy into a business plan. The
purpose of
Marie’s firm would be to create original, edgy web sites, web
advertisements,
and consult on existing web page designs. She knew of several
similar
companies in the southeast Michigan area, and planned to focus
on the metro
area, eventually expanding into most of southern Michigan.
On June 20, 2014, she transferred all of her savings, $35,000, to
a new bank
account with the company name, and two days later she added
$18,000
borrowed from her uncle to the account. After that things moved
quickly as she
rented a second floor office for $3,500 a month, paying one
month’s rent in
advance as a security deposit to apply to the end of the lease,
and $3,500 for
July 2014. She purchased some used computer equipment with
software from
her last employer, and ordered stationary and office supplies
that cost $4,000
when they were delivered on June 29.

4. Websites by Marie opened for business on July 2, 2014.
Although Marie was
not an accountant, she took stock of her company’s financial
position as she
began to seek her first contracts. The company had spent all but
$13,000 of the
cash that had been put into the bank account, but it had some
assets as well.
Assets Liabilities and Owner’s Equity
Cash in bank $13,000 Loan $18,000
Office supplies 4,000 Marie’s equity 35,000
Equipment and software 29,000
Prepaid rent 7,000
Marie was a little worried that the cash had gone so quickly, but
she also had
confidence in herself and her willingness to work hard.
In the first few days, Marie lined up two webpage design
projects from local
businesses. She spent part of each day working on the projects,
and the

5. remainder of her time was spent looking for new clients. By
early August she
had four other designers at work and a steady stream of new
work coming in by
way of referrals. She also felt far too busy to attend to any
financial aspects of
the business. When clients paid, the money went into the bank
account. The
associates were paid weekly, and she paid rent and other bills
when they were
received. In the ninth week of operations, Marie’s uncle
telephoned her to ask
how things were going, and she could not answer the question
with any
confidence. It was time for an accounting, and the end of
August would be a
good time to do it.
Little found the following information she had accumulated
during the two
months of operations:
1. Clients had paid $39,000 for completed work, and two clients
still owed a
total of $9,000 for work that had been completed and delivered
to them. There

6. were no projects underway as the office closed on August 31 for
the Labor Day
weekend.
2. Additional office supplies had been purchased for cash of
$1,000, and office
supplies and stationery that had cost $3,900 were still on hand.
3. Rent of $7,000 for August and September was paid in cash.
Utility bills, a
repair of equipment, and the salaries paid to designers
(including Marie Little)
were paid in cash totaling $35,000.
4. Additional equipment and software was purchased on August
27 for
$15,000, with half of that amount being paid in cash and the
remainder due one
month later.
As Marie thought about the first two month’s operations, she
was perplexed by
the fact that cash in the bank had decreased even though she
was sure the
business was operating profitably.

7. She also wondered how to account for the following:
1. She had agreed to pay her uncle interest on his loan of 4%
per year, but no
interest had been paid so far.
2. The equipment and software were working out well, but Little
knew that
they had a technological life of no more than three years from
the time that she
had purchased them.
In brief, Marie felt that the first two months had been
successful, but she was
puzzled about how to draft meaningful reports to mail to her
uncle.
Instructions and Questions for the
Marie Little Case
You are a friend of Marie and a recent graduate of the
University of Michigan-
Dearborn’s MBA program. You are looking for work as a
business consultant.
Knowing your excellent credentials, Marie has asked you to
help her get her
business finances in order, report on the status of her business

8. and make any
recommendations that you can to help her make her business a
success. She
cannot pay you but she would be willing to help you set up your
own webpage.
Having taken financial accounting and eager to show off your
newly acquired
business skills, you accept her offer. You want the report to be
very
professional so you decide to perform the following:
1. Record journal entries to summarize the transactions from
June 20 to August
31.
2. Set up T accounts to post the entries with proper references,
since the
company (a corporation) does not yet have a general ledger.
3. Prepare an unadjusted trial balance at August 31 from the T
accounts. The
trial balance should have extra columns to post adjusting entries
and references
to come up with an adjusted trial balance.

9. 4. Prepare adjusting entries and post them to the trial balance
and T accounts.
5. Prepare an income statement and a classified balance sheet.
6. Analyze the information you developed in the financial
statements. What
risks does Marie’s company face? Can the selection of
alternative accounting
policies mitigate these risks? If no, how can the identified risks
to be covered?
Defend your position.
7. Had the company made a profit through August 31, 2014 as
Marie Little
believed? If so, how would you explain why the cash in the
bank had declined?
8. How would you report the status of the business on August
31, 2014?
Other assumptions:
• The books are to be prepared using the accrual method of
accounting.
• The tax rate is 22%.
• Depreciation is computed using the straight line method.
• The business started on 6-20-14 when it was formed

10. • Ratio analysis may be necessary. You should discuss ratios
that could be
important.
What other specific recommendations would you give to your
friend Marie to
help her get on the road to success? (Analyze and be thorough.)