Paper instructions:
Assignment: Creating Financial Statements
Criteria:
a) Analyze how business transactions are recorded in the financials records of an organization.
b) Identify the accounting principles used to create the Income Statement, Balance Sheet, and Statement of Cash Flows.
1. Use the information provided in the assignment to create and use the necessary account to prepare the three required financial statements.
2. Use a Super-T worksheet to record the opening balance sheet values provided and record transactions (a) through (z). There are 10 points available for correctly recording the opening values.
There are 60 points available for correctly recording transactions (a) through (z).
2. Prepare a Balance Sheet for DDSI as of December 31, 2013.
3. Prepare a Balance Sheet as a separate document. Use all of the appropriate formatting and presentation norms necessary to create a Balance Sheet. (10 points)
4. Prepare an Income Statement for DSSI for the year ending December 31, 2013.
5. Prepare an Income Statement as a separate document. Use all of the appropriate formatting and presentation norms necessary to create an Income Statement. (10 points)
6. Prepare a Statement of Cash Flows (using the direct method) for DSSI for the year ending
December 31, 2013.
7. Prepare a Statement of Cash Flows as a separate document.
8. Use all of the appropriate formatting and presentation norms necessary to create a Statement of Cash Flows. (10 points)
This presents an organization’s opening financial position and a series of transactions that take place over a year. Determine the appropriate manner in which to record these transactions and then produce three financial statements for the organization at the end of the year.
Assignment:
Danny’s Security Systems, Inc. (DSSI) offers its clients security systems and alarm monitoring services on a retail basis. DSSI specializes in offering the most up-to-date services with the most technologically advanced equipment. For example, the high-end alarm system, called DAS59, is widely recognized as an industry leader. All of the balance sheet items from December 31, 2012, are shown below along with the events that occurred during 2013. Please ignore all taxes (income and sales) in preparing your answer.
Danny’s Security Systems, Inc.
Balance Sheet Items
As of December 31, 2012
Accounts payable $380,000
Accounts receivable $611,000
Accumulated depreciation $1,245,000
Cash $267,000
Common shares $1,152,000
Short-term bank loan $125,000
Plant, property, and equipment $2,111,000
Interest payable $37,000
Inventory $850,000
Licenses (net) $180,000
Long-term bank loan $525,000
Goodwill $80,000
Retained earnings $304,000
Advances from customers $340,000
Salaries payable $180,000
Short-term investments (trading securities) $180,000
Office supplies $9,000
The following events occurred during 2013:
(a) New credit sales for the year were $1,910,000.
(b) Sales of $272,000 were earned from prior period cash advances from customers.
(c) Old equipment, which had originally cost $147,000 and was fully depreciated, was scrapped on the first day of business of the year.
(d) New cash sales for the year were $333,000.
(e) DSSI acquired all of the assets and liabilities of Smith Alarms, LLC for $555,000 cash.
The assets included equipment valued at $425,000 (this equipment was carried on the books of Smith Alarms, LLC at $300,000 net), accounts receivable of $230,000, accounts payable of $250,000, and a demand loan of $52,000. There were no intangible assets.
(f) DSSI acquired office supplies on credit for $32,000.
(g) DSSI paid salaries to employees of $390,000 in cash.
(h) Cash collections from credit sales were $1,720,000.
(i) Cash payments for items purchased on credit during the year were $344,000.
(j) Paid $363,000 for administrative expenses during the year.
(k) Paid the bank $58,000 cash towards interest payments during the year.
(l) At the end of the year, owed the bank $19,000 in interest.
(m) At the end of the year, the market value of the short-term investments was $157,000
(n) A total of $3,000 in office supplies remained on hand at the end of the year.
(o) Depreciation on plant, property, and equipment for 2013 was determined to be $123,000.
(p) DSSI collected $327,000 of cash advances from customers.
(q) DSSI acquired $212,000 of inventory on credit.
(r) DSSI’s policy is to write off all intangible assets over 3 years using straight-line amortization. 2013 is the second year for amortizing licenses.
(s) DSSI offers a “satisfaction guarantee” to its clients for security services. If clients are unhappy with the services they purchased, they are eligible for free additional security services (i.e., this is a form of “after sales warranty” service). The company estimates that future expenditures of approximately $67,000 will be required to perform these “after sales warranty” activities to keep clients satisfied for services originally rendered to clients in 2013.
(t) DSSI spent $125,000 during 2013 on research and development activities related to new services the company could offer clients. It is expected that some of these products would be marketable within one or two years, but nobody is sure which products will be successful.
(u) At the end of the year, the accountant estimated that $22,000 of accounts receivable owed to the firm would not likely be collected.
(v) On the last day of business in 2013, DSSI declared an $80,000 dividend, which will be paid sometime in the next year.
(w) At the end of the year, DSSI owed its employees a total of $66,000.
(x) DSSI paid down the long-term loan by $140,000.
(y) At the end of the year, it was determined that $513,000 of inventory remained on-hand.
(z) At the end of the year, it was determined that the carrying value of goodwill had declined by $28,000.
Documents:
Using the Super-T approach (excel template attached), prepare an Income Statement, Balance Sheet, and Statement of Cash Flows (using the direct method) for DSSI as of December 31, 2013, following the generally accepted accounting principles (GAAP) covered in the course to date.
This assignment should include the following documents:
1. A Super-T worksheet (excel template attached) showing all opening balances and how the transactions (a) through (z) were recorded.
Note: the purpose of submitting this document is to be able to see how you recorded the transactions necessary to prepare the three financial statements listed below.
2. A Balance Sheet for DDSI as of December 31, 2013.
3. An Income Statement for DDSI for the year ending December 31, 2013.
4. A Statement of Cash Flows for DSSI for the year ending December 31, 2013.