FOR MORE CLASSES VISIT www.tutorialoutlet.com CM Corporation (CMC) was founded in 2011 by Eric Conner and Phil Martin. The company designs, installs, and services security systems for high-tech companies. The founders, who describe themselves as "entrepreneurial geeks," met in a computer lab when they were teenagers and found they had common interests in working on security systems for critical industries

1. CMC often allows customers to finance the purchase of their products through
long-term lending agreements and therefore reports Long-term Notes Receivable
on their Balance Sheet
FOR MORE CLASSES VISIT
www.tutorialoutlet.com
CM Corporation (CMC) was founded in 2011 by Eric Conner and Phil Martin. The
company designs, installs, and
services security systems for high-tech companies. The founders, who describe
themselves as "entrepreneurial
geeks," met in a computer lab when they were teenagers and found they had
common interests in working on
security systems for critical industries. In early January 2017, CMC hired you as an
accounting intern to assist the
CFO and the entire corporate accounting team.
Lately Conner and Martin have been working with “radio frequency identification”
(RFID) technology. They
have developed a detailed system designed to track inventory items using RFID tags
embedded invisibly in
products. This technology has numerous inventory applications in multiple industries.
One of the most basic
applications is tracking manufacturing components; if tagged components "go
walking" (if employees attempt to
take them), companies can easily track and find them. Conner and Martin have sold
their system to several hightech companies in the area. These companies have a
number of government contracts that require extensive
security systems to protect sensitive data from infiltration by terrorists and
competitors. To date, CMC’s cash flow
from sales and services has adequately funded its operations.
CMC anticipates growth potential for its products. As a result, it is planning a new
public offering of their
common stock at the end of 2017. The accounting department is currently quite small
and the CFO has requested
additional staff to help keep pace with the company’s fast-paced growth. Therefore, as
an accounting intern you
can immediately become a valuable member to their corporate accounting team. To
familiarize you with the
company's operations, the CFO has provided an unadjusted trial balance from the end
of their last fiscal year
(2016) on an Excel spreadsheet.

2. Instructions
(a)
Download the excel file “CASE 1 – CMC” which has the unadjusted trial balance
with the existing accounts.
This file also contains an accounting “system” comprised of a series of linked
spreadsheets. The linkages
enable the effects of all accounting entries (journal, adjusting, and closing) to flow
through to
spreadsheets to update the income statement, balance sheet, and retained earnings.
You notice that for
the fiscal year ended December 31, 2016, the bookkeeper has made all the routine
general journal entries
throughout the year, but none of the adjusting or closing entries have been recorded.
The following information is provided for adjustments prior to closing the books.
Connor and Martin ask
you to enter the adjustments into the spreadsheet using the tab labeled “AJE’s &
Closing Entries”. Also
post these adjustments to the Trial Balance in the two columns to the right of the
unadjusted trial balance.
(CMC uses a perpetual inventory system.) You MUST use cell referencing when
posting to the Trial
Balance or your grade will be assessed a heavy penalty. Adjusting Journal Entries
(AJE’s):
1.
Wages earned by employees during December (’16) and to be paid in January (’17)
are $35,875;
associated payroll taxes on these wages are $2,910. (Record in two separate adjusting
entries.
The payroll taxes are an expense to the company for unemployment benefits and
recorded as a
payable to the state & federal taxing authority.)
2.
The Unearned Consulting Revenue account has a balance of $261,220 as of December
31, 2016.
Earlier in the year, on May 1, 2016 a client paid CMC $153,000 cash in advance for a
12-month
consulting services contract. CMC will earn revenue evenly over this 12-month
period. This was
the only prepayment received from clients during the entire 2016 fiscal year and
recorded with a
credit to Unearned Revenue. Of the beginning balance in Unearned Revenue (i.e. at
Jan 1 2016),
65% of the work has now been completed by year end.
3.
You discover that a sale of a product was made on account and recorded in December
for

3. $148,500; the product has not yet been shipped (i.e. delivered to the customer). The
cost of the
product was 55% of its selling price. CMC uses the perpetual inventory method.
4.
Bad debt expense is estimated to be 6% of ending Accounts Receivable. (Round to the
nearest
whole dollar.)
5.
CMC prepays for some insurance and advertising. The Prepaid Expense account has a
balance of
$26,774 at year end but before adjustment. This balance includes $12,200 for a two-
year casualty
insurance policy purchased on March 1, 2016. Of the remaining prepaid balance, 60%
of the
advertising has now been used. (Round to the nearest whole dollar.)
6.
CMC records depreciation and amortization expense annually as one compound
adjusting journal
entry. They do not use an accumulated amortization account. Annual depreciation
rates are 7%
for Buildings & Equipment/Furniture, no salvage. (Round to the nearest whole
dollar.) Annual
Amortization rates are 10% of original cost, straight-line method, no salvage. The
patent was
acquired on October 1, 2013. The last time depreciation & amortization were
recorded was
December 31, 2015.
7.
The long-term liabilities were outstanding for all of 2016 and accrue interest at 8%
APR. CMC
records accrued interest quarterly (interest was last updated on Sept. 30.) The
company is
required to pay the interest annually each January 1 st.
8.
CMC often allows customers to finance the purchase of their products through long-
term lending
agreements and therefore reports Long-term Notes Receivable on their Balance Sheet.
These
notes are interest bearing and earn CMC interest revenue. The beginning balance of
Interest
Receivable at January 1, 2016 was $3,500. During 2016, cash received from
customers for
interest on these notes amounted to $17,600. You determine that the income statement
for the
year-ended December 31, 2016 should show Interest Revenue in the amount of
$18,700. The

4. adjusting entry to accrue interest revenue at year end has not yet been recorded.
9.
On December 15, CMC declared a dividend of $150,000, to be paid on January 20,
2017. It had
not yet been recorded.
10.
At December 31, the Long-Term Investments are classified as Available-for-sale debt
securities (or
“AFS”). To comply with GAAP, CMC must report long-term investments in financial
instruments at
fair value as of the balance sheet date. These debt securities have a current fair value
of
$162,600. The Investment is in a corporate bond that was issued at par for $180,000,
earns 8%
APR, and pays interest semi-annually each Jun 30 and Dec 31. The investment was
purchased on
July 1, 2016. You discover that the semi-annual interest revenue on this bond has not
yet been
received and therefore not recorded, and the company has yet to mark-to-market the
investment
portfolio at year end. CMC uses a “Fair Value Adjustment” account (an adjunct/contra
account)
to report any increase/decrease in the asset’s value. (Ignore income taxes as this is an
unrealized
gain/loss)
11.
CMC has a 35% tax rate on their taxable income. Continued…
(b) After making the 11 adjusting entries in Part (a), record the appropriate closing
entries on the spreadsheet
provided using the tab labeled “AJEs and Closing Entries”. Post all closing entries to
the Trial Balance in
the columns labeled 12/31/16 Closing Entries. *Remember, after closing, all
temporary accounts should
show a zero balance. (c) Complete the required financial statements (Statement of
Comprehensive Income, and Statement of
Stockholder’s Equity) in good form. The Statement of Stockholder’s Equity should
reconcile with your
balance sheet (which is automatically updated for you…so check to make sure the
ending balances are the
same), income statement, & Statement of Comprehensive Income. (Use cell
referencing to link the
appropriate cells from the other financial statements. Keep in mind that not all cells on
the Statement of
Stockholder’s Equity will require any updates. For example, no new stock was issued
during 2016; the
balance in the contributed capital accounts will therefore not change.) To submit your

5. finished Case:
1. Save your Excel file using the LAST NAMES of each of your group members so I
know who deserves
credit for the contents of each file and can post the grades accordingly. For example, if
I am working
with two other group members, Sam Smith and Bridget Jones, I would save the excel
file using the
name CASSIDY-SMITH-JONES.xls
2. Using the “Cases” tab through Blackboard, attach your completed Excel file to the
assignment for
grading. All grading for completion, accuracy and the use of formulas and cell
referencing will be
based on my review of your Excel file. ONLY ONE MEMBER OF YOUR GROUP
NEEDS TO SUBMIT YOUR
COMPLETED EXCEL FILE. 3. The only items you need to turn in at the start of
class on the due date is:
a. A cover page for your Case 1 which includes the names of your group members.
b. Your Group Evaluation Forms
*You do not need to turn in any pages of your excel file. These will all be graded
based on a review of
your excel file.