This case study is a practice activity to help you master Transaction Analysis. Click through each slide at your own pace and try to answer each of the questions when prompted.
2. NAVIGATION
TIPS
1. This case is a practice case. This case will give you an
opportunity to assess how well you are able to analyze the
impact of economic events and provide you with more
experience with the thought process.
2. This is a self-paced exercise with no narration.
3. Print out a copy of the “Pat Ferguson – Consultant, C Case”
before proceeding.
4. When you are required to provide an answer and you are
uncertain how to answer, you can enter “?” as your
response. However, it is better to make an attempt to
respond even if you are uncertain.
3. Review the spreadsheet below prepared at the beginning of January. Notice that
columns have been included in the spreadsheet for totals as a check on accuracy.
The total for assets must always equal the total for liabilities plus owners’ equity.
Opening Balances
4. QUESTION
Event 1
During the month of January Pat was paid $14,000 in
cash for professional services that were provided in
January. What accounts were affected by these
economic events?
6. Review the spreadsheet below prepared after the January revenue has been
recorded. When a transaction is properly recorded the total for assets must always
be the same as the total for liabilities plus owners’ equity.
Balances After Event 1
7. QUESTION
Event 2
During the month of January Pat billed $42,000 for
professional services and none of these accounts were
collected in January. What accounts were affected by
these economic events?
9. Review the spreadsheet below prepared after the collection of accounts receivable
has been recorded. Again, notice that the total for assets must always be the same
number as the total for liabilities plus owners’ equity.
Balances After Events 1 and 2
10. QUESTION
Event 3
During the month of January Pat collected cash of $52,000
from accounts receivable. What accounts were affected by
these economic events?
12. Balances After Events 1-3
Review the spreadsheet below prepared after the collection of Receivables.
13. QUESTION
Event 3 cont.
When accounts receivable are collected, is retained earnings
increased or decreased or does retained earnings remain
unchanged?
14. ANSWER
Event 3 cont.
UNCHANGED
This event does not affect revenues or expenses or dividends. No
new wealth has entered the business and no existing wealth has left
the business. Retained Earnings is increased by revenues and
decreased by expenses and dividends. The book value before this
event was $266,000. The book value after this event is $266,000.
15. QUESTION
Event 4 Pat purchased supplies on credit in the amount of $650.
What accounts were affected by these economic events?
18. QUESTION
Why is it that expenses decrease retained earnings and
the purchase of supplies does not decrease retained
earnings?
19. ANSWER
Expenses represent a drain of resources. When supplies
are acquired resources are not depleted. Instead the asset
“cash” is invested in the asset “supplies.”
20. QUESTION
Event 5
Pat paid $8,000 towards outstanding accounts payable.
What accounts were affected by these economic events?
23. QUESTION
Event 6
Pat issued stock to his sister. She paid $15,000 for a 5%
share of the outstanding stock. What accounts were
affected by these economic events?
26. QUESTION
Event 7
Pat paid $18,000 in cash for operating expenses. This
amount does not include any salaries. What accounts were
affected by these economic events?
29. QUESTION
Event 8
Pat paid $12,000 in salaries for two employees. This
amount does not include any salary payment for Pat. What
accounts were affected by these economic events?
37. QUESTION
Event 10
Pat’s personal cash requirements were estimated (by Pat’s
significant other) to be $10,000. Pat, who wanted to end
the month with more cash, opted to take a salary of
$3,000. What accounts were affected by these economic
events?
45. QUESTION
Event 12
At the end of the month, cost of the remaining inventory of
supplies was estimated to be $850. An adjustment was
recorded. What accounts were affected by these economic
events?
48. QUESTION
Event 13
Pat estimates based on past experience that $5,000 of the
accounts billed in January will never be collected. What
accounts are affected by these economic events?
51. PREPARING
FINANCIAL
STATEMENTS
Financial statements are prepared at the end of the
reporting period. The data in the spreadsheet are used to
prepare a balance sheet, an income statement and a cash
flow statement. The balance sheet is a “snapshot” as of a
particular moment in time and it is labeled “as of.” The
income and cash flow statements cover intervals and they
are labeled “for the period ended …”
52. QUESTION
Balance Sheet
Review the spreadsheet prepared after the last transaction. Can you
see where to find the information needed to prepare a balance sheet
as of January 31, 2016?
54. To the right is the Balance Sheet for Pat
Ferguson.
Balance Sheet as of January 31, 2016
55. QUESTION
Income Statement
Review the spreadsheet prepared after the last transaction for event
13. Can you see where to find the information needed to prepare an
income statement for the month ended January 31, 2016?
56. ANSWER
Income Statement
The data for the income statement are to be found in the
column headed “retained earnings.” Copied below are
columns I, J and K of the spreadsheet.
57. To the right is Pat Ferguson’s Income
Statement.
Income Statement for the month ended
58. QUESTION
Cash Flow Statement
Review the spreadsheet prepared after the last transaction for event
13. Can you see where to find the information you need to prepare a
cash flow statement for the month ended January 31, 2016?
60. QUESTION
Cash Flow Statement
Classifications
To prepare the cash flow statement we
need to be able to classify every transaction
according to whether the transaction
belongs in Operations, Investing Activities,
or Financing Activities. See if you agree
with our classification of the entries.
62. SUMMARY
Congratulations. You made it to the end.
The spreadsheet model we have developed is
available for you to download. There are four tabs in
this model.
We have covered a great deal in this presentation.
Now we need to reinforce the learning.
63. NEXT STEPS
If you feel very confident of your ability to analyze
transactions and prepare financial statements using a
spreadsheet model, you should proceed to the
“Advance Preparation for the Nibelungen Rings, A
Case.” If you are not confident of your ability to analyze
transactions and prepare financial statements using a
spreadsheet model, then you should complete the “Pat
Ferguson – Consultant, D Case.” If you are uncertain
of your status, it is wise to complete the D Case.
