Financial Performance Analysis

• What role does each financial statement play in the analysis of financial condition?

Resources

Suggested Resources

The resources provided here are optional. You may use other resources of your choice to prepare for this assessment; However, you will need to ensure that they are appropriate, credible, and valid. They provide helpful information about the topics in this unit. The MBA-FP6014 – Financial Accounting Library Guide can help direct your research. The Supplemental Resources and Research Resources, both linked from the left navigation menu in your courseroom, provide additional resources to help support you.The following resources are assessment specific templates for completing the assessment.

• Assessment 2 Problem Template.

The following resources provide relevant financial accounting methods and practices.

• Doran, D. T. (2012). Financial reporting standards: A decision-making perspective for non-accountants. New York, NY: Business Experts Press.
  • Chapter 2, “Cash, Receivables, and Revenue Recognition,” pages 27-55
  • Chapter 3, “Inventory and Cost of Goods Sold,” pages 58-88
  • Chapter 4, “Operational Assets,” pages 89-124
  • Chapter 5, “Liabilities: Current Contingent, and Long Term Debt,” pages 125-161
  • Chapter 9, “Stockholders’ Equity and Earnings Per Share,” pages 261-296
• Libby, R., Libby, P., & Hodge, F. (2017). Financial accounting (9th ed.). New York, NY: Irwin. – Available from the bookstore
  • Chapter 3, “Operating Decisions and the Income Statement,” pages 98–131.
  • Chapter 4, “Adjustments, Financial Statements, and the Quality of Earnings,” pages 160–191.

Assessment Instructions

Note: Some of the assessments in this course build upon each other, so you are strongly encouraged to complete them in the order in which they are presented.For this assessment, complete the problem below. You may use Word or Excel to complete the assessments throughout this course, but you will find Excel to be most helpful for creating spreadsheets. Tutorials for using Excel are provided in the Supplemental Resources in the left navigation menu. If you use Excel, submit the assessment in one Excel document, using separate tabs for each spreadsheet.To complete this assessment, you may choose to use the Assessment 2 Problem Template linked in the Suggested Resources under the Capella Resources heading.

Transactions

Audrey Jhingree opened an ice cream parlor in a university town. The parlor specializes in ice cream combinations named after popular professors in the business department of the university. You have been hired as a manager. Your duties include maintaining the store’s financial records. The following transactions occurred in April 2012, the first month of operations:

• a. Received cash of $40,000 total ($10,000 each) from four investors. Each investor received 100 shares of common stock. This took place on April 1.
• b. Paid three months’ rent for the store on April 1 at $2,000 per month (recorded as prepaid expenses).
• c. Purchased ice cream and cones for $6,000 on account payable, due in 60 days. This took place on April 2.
• d. Purchased supplies for $1,000 cash on April 2.
• e. Received a two-year $11,000 loan at the bank. The note payable is dated April 2.
• f. Used the money from (e) to purchase a computer for $3,000 (for record keeping and inventory tracking) and to purchase $8,000 of used furniture and fixtures for the store.
• g. Placed a grand opening advertisement in the local paper for $600 cash.
• h. Made sales in the first half of the month totaling $5,000: $4,250 was in cash and the rest was on accounts receivable. The cost of the ice cream sold was $2,000.
• i. Made a $600 payment on accounts payable on April 18.
• j. Incurred and paid employee wages of $2000 for the month of April.
• k. Collected accounts receivable of $700 from customers.
• l. Made a repair to one of the refrigerators for $300.
• m. Made sales in the last half of the month for $6,000, all for cash. The cost of the ice cream sold was $2,400.

Recording Transactions, Posting to T-Accounts, Preparing Financial Statements, and Commenting on What Financial Statements Tell Potential Investors

Using the information provided above, complete the following for Audrey Jhingree’s ice cream parlor. To complete this problem, you may choose to use the Assessment 2 Problem Template, which is linked in the Suggested Resources under the Capella Resources heading.

1. Set up appropriate T-accounts for cash, accounts receivable, supplies, inventory, prepaid expenses, equipment, furniture and fixtures, accounts payable, notes payable, contributed capital, sales revenue, cost of goods sold (expense), advertising expense, wage expense, and repair expense. All accounts begin with zero balances.
2. Record in the T-accounts the effects of each transaction for Audrey’s shop in April, referencing each transaction in the accounts with the transaction letter. Show the ending balances in the T-accounts. Note that transactions (h) and (m) require two types of entries, one for sales and one for cost of goods sold. Prepare trial balances for 4/30/12.
3. Prepare financial statements at the end of the month ended April 30, 2012. Hint: Do the income statement first, followed by the statement of stockholders’ equity, and then the balance sheet. Properly label each statement: Does it cover a period of time or just a point in time?
4. Write a short memo to Audrey offering your opinion on the results of operations during the first month of business.
5. After three years in business, you are being evaluated for a promotion. One measure is how efficiently you have managed the assets of the business. Using the data in the following table, compute the total asset turnover ratio for 2014 and 2013 and evaluate the results. Also compute the return on invested capital (net income divided by total stockholders’ equity). Do you think you should be promoted? Why or why not?

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