Module 1 Assignment Part 1

Assignment Learning Objectives:

Primary Learning Objectives:

o Review the concepts of the beginning financial accounting course

o Review the accounting cycle

o Work with a manual accounting information system

Secondary Learning Objective:

o Review basic Excel skills

INTRODUCTION:

This assignment is a review of general financial accounting principles and procedures. The assignment is broken into two parts. In the first part of the assignment you will create general journal entries for a series of transactions. You will also show the impact of these transactions on a set of t-accounts and create an interim trial balance. The second part of the assignment continues the review of accounting procedures with additional journal entries and the adjusting journal entries for month end close. You will again show the impact of the transactions on t-accounts and create a trial balance. For the last part of the assignment you will explore how your journal entries might be created in an automated system by entering your “manual” journal entries into the SAP/R3 system. The SAP system will then be used to produce a set of financial statements (balance sheet and income statement).

The following company information will be used for both parts of the assignment:

Cottonwood Distribution, Inc.

Cottonwood Distribution, located in Red Bluff, CA was the “brain child” of two California State University, Chico graduates. Cottonwood purchases products from local producers and distributes them to rodeo event organizers throughout the United States, Australia, Canada, and South America. Cottonwood has two main product lines: “resale merchandise”, which includes belt buckles, apparel, posters, and other items purchased by the event organizer and re-sold to customers at the rodeo stores; and “event merchandise”, which includes any promotional materials, tools, tack, gloves, chaps, and so on used by rodeo participants and organizers. Sales tax of 7.25% must be charged on event merchandise sold and delivered or shipped within the state of California. (Resale merchandise is taxed when sold to the end consumer.)

Cottonwood Distribution began business on January 1, 2004. Cottonwood’s fiscal year begins on January 1 and ends on December 31. The company is organized as an S-corporation under California Corporations Code section 100 and both owners own equal shares in the corporation.

The company currently rents a “complex” of two large warehouses linked to a 4000 sq.ft. office building, located off highway 99. The company plans to build a new facility within the next five years, but needs to make some improvements to the rented facilities in the meantime. In 2006, owners and managers of Cottonwood agreed to a 2007 budget, which included adding industrial shelving in one of the warehouses for inventory storage and new shrink-wrap equipment for packaging their products.

When the company first started, a manual accounting system was put in place. However, the company has decided that it needs to computerize its accounting process to be more efficient. In addition, in order to expand their sales to the PRCA, (Professional Rodeo Cowboy’s Association), Cottonwood must have EDI capabilities by January 1, 2008. A project team has been established to meet this deadline and the computerization of the accounting system is the first step in implementation of the company’s new information system and their link to the PRCA.

Computer consultants have configured the new computer system and it is ready to use. The books of the company were closed on December 31, 2006 to prepare for the transition to the new system. The account balances are now ready to be transferred to the new computer system. Cottonwood will run parallel systems during January 2007; that is, they will record transactions in both the manual system and their new computerized system to make sure the new system is set up properly. This is a standard business practice that reduces the risks associated with implementing new systems.

The next page shows Cottonwood Manufacturing’s chart of accounts followed by the account balances as of December 31, 2006 and then the descriptions of events occurring during the first half of January 2007 for which you are to make general journal entries in a manual accounting system. Your manual accounting system should include a general journal, t-accounts, and a trial balance. You will create your general journal using Excel (see the sample problem for the format). Your t-accounts and trial balance will also be generated in Excel. Don’t forget to include your beginning and ending balances in your t-accounts.

For the second part of the assignment, you will complete the journal entries for the second half of the month and then enter all the data into the SAP ERP system. When you enter your data into the SAP system the resulting financial information from the manual system and the SAP system should match.

DETAILED REQUIREMENTS:

Record the daily transactions if appropriate, (some transactions may not involve journal entries), as general journal entries into Excel. Also, post these journal entries into t-accounts and then calculate account balances using cell formulas in Excel. Enter the t-account balances into your Excel document as a trial balance. You should create links between your spreadsheets to expedite this process and minimize the risk of an error in data entry. Looking over the answer to the sample problem may be helpful in reviewing your Excel skills. Some Excel skills may be reviewed in class and some links to tutorials are made available to you.

Note: Since part 2 of the assignment builds on documents you create in part 1 of the assignment, you will want to review your instructor’s feedback on part 1 prior to investing significant time on part 2 of the assignment.

Chart of Accounts for Cottonwood Distribution Inc.

G/L Account No. Account name

1001 Cash (Bank of America checking account)

1101 Accounts Receivable

1111 Allowance for doubtful accounts

1201 Resale Merchandise Inventory

1202 Event Merchandise Inventory

1301 Office Supplies

1302 Prepaid Insurance

1303 Prepaid Rent

1304 Prepaid Advertising

1310 Deposits

1401 Warehouse and Office Equipment

1411 Accumulated depreciation - Equipment

1501 Buildings

1511 Accumulated depreciation – Buildings

1601 Land

2001 Accounts Payable

2002 Accrued Wages Payable

2003 Accrued Payroll Taxes Payable

2004 Accrued Sales Tax Payable

2005 Accrued Interest Payable

2010 Other Payable

2020 Dividends Payable

2030 Current Maturities of Long-Term Debt

2099 Other Accrued Expenses Payable

2100 Notes Payables

3000 Common Stock - (no par)

3100 Retained Earnings

4001 Resale Merchandise Sales

4002 Event Merchandise Sales

4099 Miscellaneous Revenue

4100 Purchase Discounts

5001 Cost of Goods Sold – Resale Merchandise Sales

5002 Cost of Goods Sold – Event Merchandise Sales

6001 Advertising Expense

6002 Depreciation Expense

6003 Insurance Expense

6004 Interest Expense

6005 Office Supplies Expense

6006 Rent Expense

6007 Salaries/Wages Expense

6008 Shipping Expense

6009 Utilities Expense

6010 Computer Expense

6011 Bad Debt Expense

6012 Maintenance & Repairs

6099 Miscellaneous Expense

Beginning Account Balances as of December 31, 2006 – Cottonwood, Inc.

DESCRIPTION OF EVENTS OCCURRING January 1 –15, 2007

Date Description of Event

1 / January 2, 2007 / Employees are paid bi-monthly on the first day of the month for work performed during the last half of the previous month (because of the New Year’s holiday, this month they are paid on the 2nd), and on the 16th for work done during the first half of the current month. Total wages paid on this date were $20,400. (Ignore payroll taxes for this assignment.)
2 / Cottonwood signed and paid for an annual advertising agreement with the PRCA for banner ads on the PRCA website. Cottonwood’s advertisements will be posted to the website starting in March 2007 and run until February 28, 2008. The contract cost is $7,200 plus any art and setup charges, which will be billed as they occur.
3 / January 3, 2007 / Cottonwood’s office manager picked up office supplies from Office Max on her way into work. She checked the orders against Cottonwood’s purchase order and stocked the supplies in the supply cabinet. The Office Max invoice totaled $362 and payment terms are net the 15th of the month.
4 / Cottonwood received a check for $12,620 from one of their customers as payment for a previous order.
5 / Cottonwood received a shipment of event merchandise from the Rodeo Outfitters Company. This merchandise was ordered on December 20th and was delivered by Viking Freight. Rodeo Outfitters paid Viking for the shipping charge of $882. Cottonwood is to pay Rodeo Outfitters $92,000 based on terms of 2/10 net 30.
6 / Cottonwood received their new product catalogs ordered from a local print shop. The print shop billed Cottonwood $6,000 for 5,000 catalogs with payment terms of net 10. Cottonwood considers catalogs as advertising and expenses the catalogs at the end of the month based on how many catalogs are sent out during the month.
7 / January 4, 2007 / Cottonwood received an order from the FFA rodeo in LaJunta Colorado, (LJ FFA), for $19,820 in event merchandise. The Cottonwood customer service representative confirmed that the LJ FFA Rodeo’s account was paid current and they had sufficient credit available to cover the new sale. The order was then sent to the warehouse where it was picked and prepared for shipping. The merchandise was shipped via UPS at a cost of $170, which was paid by Cottonwood. Cost of the merchandise shipped was $12,584. Terms of the sale are net 30.
8 / January 5, 2007 / Cottonwood placed a purchase order with the Lazy J Ranchers Emporium for $76,000 in resale merchandise. Payment terms to Lazy J Ranchers are net 30 upon receipt of goods.
9 / Cottonwood paid an outstanding vendor invoice of $16,050.
10 / Cottonwood paid the December telephone bill to AT&T in the amount of $428. Expenses are usually accrued at the end of the month as “other accrued expenses payable”.
11 / January 8, 2007 / Cottonwood hired an additional employee for the warehouse. She starts work today. As with all of the other employees, this employee will be paid bi-monthly at a rate of $2,400 per month.
12 / Cottonwood received an order from the Del Norte County Rodeo in Trinity, CA for $18,000 of resale merchandise. This is a new rodeo with no credit history. Cottonwood has requested payment in full prior to the delivery of goods. The cost of the goods ordered is $10,440.
13 / One of Cottonwood’s sales reps sold event merchandise to the Dust Bowl Rodeo in Kansas for a total sales amount of $126,000. Terms of the sale are net 15 and will be paid by electronic funds transfer (EFT). The order information was sent to the warehouse where the merchandise was picked and packaged for shipment. The order was picked up by CWX Freightlines and shipping costs of $685 were paid by Cottonwood at the time of shipment. Cost of the merchandise shipped was $80,600.
14 / Cottonwood received customer checks totaling $28,400 for payment on outstanding accounts.
15 / January 9, 2007 / Cottonwood paid the December’s Pacific Gas & Electric (PG&E) bill in the amount of $2,110 using their bank’s automated bill payment system.
16 / A wire transfer in the amount of $18,000 is received from the Del Norte County Rodeo for payment of the order placed on January 8th. The goods are picked, packaged and shipped via UPS. Cottonwood has an account with UPS and will pay the shipping costs of $112 for this order. UPS’ payment terms are net 7 days.
17 / Alamo Conference Center in Texas placed an order via email. Cottonwood’s sales rep wrote up the order, checked their credit and sent the order information to the warehouse for shipping. The sale amount was $102,240, which included $80,100 in resale merchandise and $22,140 in event merchandise. The cost of the resale merchandise was $51,264 and the cost of the event merchandise was $11,513. The goods were shipped that day. Cottonwood paid the shipping expense of $1,502. Payment terms for the order are net 15.
18 / January 10, 2007 / Cottonwood’s warehouse received the January 5th order from Lazy J Ranchers Emporium. The inventory was counted and placed on the shelves. Proof of receipt and the vendor’s invoice was sent to accounting. Lazy J paid the shipping of $1,190.
19 / January 11, 2007 / Cottonwood placed a purchase order with a local vendor for the new industrial shelving for the warehouse that was approved in Cottonwood’s budget. The total price for the shelving is $24,000 plus 7.25% sales tax. Installation costs are quoted at $1,200. Vendor payment terms are net 10.
20 / The Bozeman Convention Center, (BCC), in Montana contacted Cottonwood with an order for $21,000 in resale merchandise. Cost of the merchandise was $13,440. BCC has never purchased from Cottonwood before, but has already submitted the appropriate paperwork to Cottonwood’s credit department.
21 / January 12, 2007 / Cottonwood’s credit department approved BCC for up to $15,000 credit at terms of net 15. BCC has been asked to send payment of $6,000 so that their order can be shipped.
22 / Cottonwood paid Office Max for the supplies picked up on January 3rd.
23 / Cottonwood paid for their printed catalogs received January 3rd.
24 / Cottonwood paid the invoice for the shipment from Rodeo Outfitters received on January 3rd and took the 2% discount because of early payment.
25 / January 15, 2007 / After extensive collection effort including having a collection agency contact the party, Cottonwood was notified today that the Fly-by-Knight Rodeo has gone out of business. They owed Cottonwood $3,500 on account. Cottonwood now deems that debt as being uncollectible and removes it from their books.
26 / Employees submitted their time statements for hours worked from January 1 – 15th.

End of Assignment