Accounting
PRINCIPLES OF ACCOUNTING (ACCT 1036-012) CRN: 52083 -202102
Graded Individual Assignment
Assignment #1 – Case Problem – Identify objective of financial reporting, elements of
the financial statements, and revenue and expense recognition.
New Normal Company is a grocery wholesaler and is planning to expand its
operations. The company has applied for a bank to finance the expansion.
Charmaine, the company’s manager, has prepared the preliminary financial
statements.
The preliminary financial statements for the year ended December 31, 2021, reported
the following:
Current assets $175,000
Current liabilities 101,000
Sales 619,000
Cost of goods sold 310,000
Total operating expenses 118,750
The bank has requested that New Normal have an independent professional
accountant review the financial statements. You have been asked to review the
statements and during your review you have discovered the following:
1. A supplier shipped $22,000 of merchandise inventory to New Normal on
December 31, 2021, FOB shipping point. Charmaine indicated that she did not
record the inventory for the year ended December 31, 2021, because it was not
received until January 2, 2022.
2. Included in sales and accounts receivable was $15,000 for merchandise
ordered by a customer that was packed and in the warehouse. The customer
indicated that they might pick it up on January 10, 2022. The customer will pay
for the merchandise within 30 days of pickup. The cost of the merchandise was
included in merchandise inventory because the merchandise was still in New
Normal’s warehouse.
3. New Normal offers its customers a full refund for merchandise returned within
15 days of purchase. Sales recorded from December 17 to December 31 were
$60,000. Typically, about 5% of sales are returned.
The returned goods are scrapped and not returned to merchandise inventory.
Charmaine said that customers had not returned any merchandise from the
December 17 to December 31 sales by the company’s year end.
Any returns from these sales will be recorded in January when the
merchandise is returned, and the company knows the exact amount of the
returns.
4. During the last week of December, the company had run a promotional
PRINCIPLES OF ACCOUNTING (ACCT 1036-012) CRN: 52083 -202102
Graded Individual Assignment
campaign in the local newspaper. The cost of the campaign was $5,100.
Charmaine recorded it as a prepaid expense because she anticipates that
January 2022 sales will be higher because of the campaign.
Solution Requirements:
A. Briefly explain how financial statements help the bank with its decision on whether
to lend money to New Normal.
B. Briefly, but concisely, explain why the bank has requested an independent review
of the financial statements.
C. Calculate the correct amounts for:
a. Current assets,
b. Current liabilities,
c. Sales,
d. Cost of goods sold, and
e. Total operating expenses.
Explain each of your corrections. New Normal Company applies the correct approach
to recognize revenue and expenses.
Assignment Submission Requirements:
I. Due for Blackboard individual online file submission on or before Monday,
February 14, 2022, 3:00 p.m.
II. File naming: Assignment #1- Student Full Registered Name, Student GBC ID
III. File format: Typewritten, using MS Word only. The assignment file must be
attached to the submission folder in Blackboard.
IV. FILE FORMATS NOT ALLOWED: Pdf or any static file format that do not permit
marking and commentary annotations (e.g., grades awarded and mark
deductions, etc.), any third-party file links.
E N D
