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thecoonting quired to pick up the empty bottles. Fuller purchased. one used grinding machine but had to buy a second, fone new; supplies and parts necessary to run and maintain the machines were also purchased. Fuller also purchased a personal computer with the inten- tion of using it to keep company records, These items used $65,000 of the $75,000 Fuller had saved and in- vested in the company. ‘A warehouse costing $162,000 was found in an excellent location for the business. Fuller was able to interest family members enough in this project that three of them, two sisters and a brother, invested $30,000 each. These funds gave Fuller the $50,000 down payment on the warehouse. The bank ap- proved a mortgage for the balance on the building. In granting the mortgage, however, the bank official suggested that Fuller start from the beginning with, proper accounting records. He said these records would help not only wich future bank dealings but also with tax returns and general management of the company: He suggested Fuller find a good accountant to provide assistance from the statt, to get things go- ing on the right foot. Fuller’ neighbor, Marion Zimmer, was an ac- countane with a local firm. When they sat down to talk about che new business, Fuller explained, “L know litle about keeping proper records." Zimmer suggested Fuller should buy an “off-the-shelf” ac- counting system sofeware package from a local office supply retailer. Zimmer promised to help Fuller select and install che package as well as learn how to use i. In order to select the right package for Fuller's needs, Zioamer asked Fuller to list all ofthe items purchased for the business, all ofthe debts incursed, and the in- formation Fuller would need to manage the business. Zimamer explained that not all of this information, CASE 1-2 Baron Coburg* ‘Once upon a time many, many years ago, there lived a feudal landlord in a small province of Western Eu- rope. The landlord, Baron Coburg, lived in a castle high on a hill, He was responsible for the well-being. cof many peasants who occupied the lands surround- inghhis castle. Each spring, as the snow began to melt, the Baron would decide how to provide for all his peasants during the coming year. "Copyghi © by The Acoantng Rie: ‘would be captured by the accounting records and dis- played in financial statements. Based on what Fuller told Zimmer, Zimmer promised to create files to ac- ‘commodate accounting and nonaccounting informa tion that Fuller could access through the company's personal computer. As Fuller’s first lesson in ac~ counting, Zimmer gave Fuller a brief lecture on the nature of the balance sheet and income statement and suggested Fuller draw up an opening balance sheet for the company, Confident now that che venture was starting on solid ground, Kim Fuller opened the warehouse, signed contracts with two local bottling companies, and hired two grinding machine workers and a truck driver. By February 1998 the new firm was making regular deliveries to Fuller's former employer. Questions 1. What information will Faller need to manage the ‘business? Classify this information in two eategories: accounting information and nonaccounting information, 2. See what you can do to draw up a beyinning of business list ofthe asets and liabilities of Fuller's company making any assumptions you consider useful, How should Fuller ‘0 about putting a value on the company’s assets? Using ‘your values, what is che company’s openiny ownet? equity! 3. Now that Fuller has started to make sles, what information is needed to determine “profit and lose") ‘What should be the general construction of a profit and loss analysis for Fulle’s business? How frequently should Fuller do such an analyse? 4. Whar other kinds of changes i assets, liabilities, and ‘owner’ claim will need careful recotding and reporting if Fillers to keepin control ofthe business! One spring, the Baron was thinking about the wheat crop of the coming growing season. "I believe that 30 acres of my land, being worth five bushels of wheat per acre, will produce enough wheat for next swinter,” he mused, “but who should do the farming? 1 believe I'll give Ivan and Frederick the responsibility of growing the wheat.” Whereupon Ivan and Frederick ‘were summoned for an audience with Baron Coburg. “Ivan, you will farm on the 20-scre plot of ground and Frederick wil frm the 10-cre plo,” the Barge 22 Part One Financial Acconnting Required: thecoonting a. Explain each transaction, . Prepare a balance sheet as of the end of the month. . Prepare an income statement for the month (ignore taxes). d. Explain the changes in the Cash account. , Explain why the change in the Cash account and the month's income are not the same, Problem 1-5. During the month of June, Bon Voyage Travel recorded the following transactions: 1. Ownets invested $25,000 in eash to start the business. They reveived com mon stock, 2. The month's rent of $500 was prepaid in cash, 3. Equipment costing $8,000 was bought on credit. 4, $500 was paid for office supplies 5. Advertising costing $750 was paid for with cash 6. Paid $3,000 employee salaries in cash. 7. Earned travel commissions of $10,000 of which $2,000 was received in cash, 8. Paid $5,000 of the $8,000 owed to the equipment supplier 9. Used $100 of the office supplies. 10. Charged $1,000 of miscellancous expenses on the comporate credit card. Required 4a. Prepare an analysis of the month's transactions using the same tabular for- mat as shown in Problem 1-4 (ignore taxes). . Prepare a balance sheet as of the end of the month. ¢. Prepare an income statement for the month, 4, Explain the changes in the Cash account . Explain why the change in the Cash account and the month's income are nor the same. Cases CASE 1-1 Kim Fuller” In the early fall of 1997, Kim Fuller was employed as a district sales engineer for a large chemical firm. During routine discussion with plant chemists, Fuller learned that the company had developed a use for the recycled material, in pulverized form, made from plastic soda pop bottles, Because the state had mandatory deposits on all beverage bottles, Fuller re- 7 Professor RobereN. Anthony, Hatvard Busnes School alized that a ready supply of this material was avail- able, All that was needed was an organization to tap that bottle supply, grind the bottles, and deliver the pulverized plastic to the chemical company, It was an ‘opportunity Fuller had long awaited—a chance to start a business In November 1997 Fuller began checking into the costs involved in setting up a plastic bottle grind- ing business. A used truck and three trailers were ac-

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