Case Studies -- Financial Accounting

Case Study #2: Merchandising

Lyryx was created to provide students and instructors with high quality
assessment material, with content closely aligned to the text and critical thinking
as a learning objective.

The project was based on the well established pedagogical premise that
students need to do homework to learn the material, and must be tested by
quizzes and other examinations to assess whether they did learn that material.

The functionality of the system is based on key principles of learning1:

1. High challenge, low threat
2. Immediate feedback
3. Rich environment
4. Opportunity for mastery

In addition to assignments in the form of Labs and Quizzes, Lyryx has created two
“Case Studies” as part of its Financial Accounting products, providing an
opportunity for an in-depth examination of a subject.

They are extended assignments involving a relatively complex scenario.

Successful completion is based on a comprehensive understanding of the
corresponding material and obtained by successfully completing several parts.
They can be used for course projects or even as part of examinations.

You will find in this document a short description of the second case study
covering merchandising. The first case study relates to the accounting cycle and
is described in a separate document.

All the best to you and your students,

Claude Laflamme, President

(403) 999-7524

1
See Tilly Jensen “Enhancing the critical thinking skills of first year business students”, May 2008.

#205, 301 -14 t h Street NW  Cal gar y, Albert a  Canada T2N 2A1
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Case Study #2: Merchandising

Case Study #2 consists of 11 parts. It is available as an item under Chapter 15 of
the corresponding Lyryx product "Lyryx Interactive Financial Accounting". It is also
available in the corresponding Lyryx products "Lyryx Assessment Financial
Accounting" and in the standalone product "Lyryx QuickStart" also based on that
text.

The information from each part is carried over to the next creating a large
comprehensive-type question. Students must achieve 90% or higher on each
part in order to continue to the next part, though the parts can be run as many
times as necessary to achieve this.

It is estimated that the average student will require between 7-8 hours to
complete this project.

Each Case Study is randomly generated so no two students will get the same
version. The following examples will show one of these randomizations.

The Accounting Cycle case study begins with a description.

It is October 1, 2009, the first business day of the month, and

you have just been hired as the accountant for Gulf Corp.,
which operates with monthly accounting periods. For simplicity,
ignore all tax considerations (including income tax) and assume
that Gulf Corp. sells one product. All of the company's
accounting work has been completed through the end of
September, 2009. Gulf Corp.'s year end is October 31. The post-
closing trial balance at September 30, 2009 follows.
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The 11 parts are as follows:

1) (80 marks) Journalize various transactions (22 in total) that occur during the
month. The transactions must be recorded in various subledgers (Merchandise
Inventory, Accounts Payable, Accounts Receivable, Capital Asset) as well as the
journal. These transactions are presented in the form of source documents
(invoices, receipts, memos, etc..) that the student must analyze and extract
relevant info from. They include common activities such as: Expense Payments,
Sales, Purchases, Returns (both on sales and purchases), account write-offs, etc..
(Ch 6, 8, 10)

A sample completed student work is as follows:

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2) (5 marks) Post journal entries from part 1 to ledgers.

(Posting of journal entries to ledgers is done automatically, similar to how an
accounting software package would post automatically.)

Sample entries are as follows, among others:

3) (45 marks) Prepare an Unadjusted Trial Balance. (Ch 4)

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4) (50 marks) Prepare a Bank Reconciliation and appropriate adjusting entries.

Adjusting entries include but are not limited to: Inventory shrinkage, Bad debts
expense, prepaid expense, and amortization. (Ch 4, 9)

5) (5 marks) Adjustments posted automatically to the ledgers.

Sample adjustments are as follows among others.
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6) (60 marks) Prepare an Adjusted Trial Balance. (Ch 4)

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7) (75 marks) Prepare Financial Statements (Income Statement, Balance Sheet

and Statement of Retained Earnings). (Ch 6, 15)
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8) (15 marks) Prepare closing entries. (Ch 15)

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9) (5 marks) Closing entries automatically posted to ledgers for the student.

Sample entries are as follows, among others:

10) (30 marks) Prepare a Post-closing Trial Balance. (Ch 5)

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11) (8 marks) Answer a few analysis questions based on the previous 10 parts. (Ch
5, 10)

A sample is as follows.

a) What percentage of the assets were financed by debt at September 30,

2009? At October 31, 2009? Was the change in debt financing favorable or
unfavorable? Round to the nearest whole number.

b) Calculate the current ratio at September 30, 2009 and at October 31, 2009.
Was the change in liquidity favorable or unfavorable? Round to two decimal
places.

c) Calculate the accounts receivable turnover for the month ended October 31,
2009. Assuming the industry average receivable turnover is 9.82, does Gulf Corp.
compare favorably or unfavorably? Round to two decimal places.

Additionally, each part includes a multiple choice question asking what the next
step in the accounting cycle is.

This is the last step of the Merchandise Case Study.