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ACCTBA1 GROUP BUSINESS CASE ANALYSIS

[5% of class standing grade for the second half]


Term 1, Academic Year 2015-2016
Adapted from: Haddock, M.D., Price, J.E., and Farina, M.J. (2015). College Accounting: A Contemporary Approach,
3rd edition. McGraw Hill Education.

Nothing But Clothing


Nothing But Clothing is a merchandising business that sells brand-name clothing at discount prices. The
firm is owned and managed by Diva Lena, who started the business on January 1, 2015. Transactions
for the month of December 2015 and adjustments data follow:

Date Transaction
Dec 1 Signed a three-month radio advertising contract for P48,000. Paid full amount in advance.
2 Received P5,200 cash from a credit customer to fully settle account
3 Sold merchandise on credit for P24,800 to Tee
4 Paid P8,800 cash to settle in full the account with supplier. The amount paid is already net
of P200 cash discount.
7 Accepted return of merchandise from Tee. The merchandise was originally sold for P1,630.
10 Received P1,700 cash (net of P50 cash discount) from a credit customer.
11 Sold merchandise on credit for P20,500 to Vee
12 Purchased merchandise for P48,200 from Tank on terms 2/10, n/30
14 Sold merchandise to Bolero and received a P19,400 60-day 10% note in exchange
15 Had cash sales of P22,300 from December 1 to 15
15 Paid salary of employees for the first half of the month. Monthly salary totaled P16,800.
17 Received P5,100 cash from a credit customer
18 The owner, Diva Lena, withdrew P7,200 cash for personal use
21 Purchased merchandise for P33,800 from Cardigan issuing a 45-day 12% note
22 Sold merchandise to Jacket for P13,500 on terms 2/10, n/30
28 Issued credit memorandum for P695 to Jacket for defective goods returned.
29 Paid P14,450 to magazine publishing house for advertisement that appeared in December
issue of magazine
31 Paid utilities totaling P11,212 for the month of December
31 Had cash sales of P17,000 from December 16 to 31
31 Paid salary of employees for the second half of the month

Adjustments Data:
(a) Record the accrued interest on note receivable.
(b) Record the accrued interest on note payable.
(c) An inventory of the supplies showed that items costing P3,240 were on hand.
(d) The Prepaid Rent account balance of P84,000 represents the advance payment of rent covering
December 1, 2015 to May 31, 2016.
(e) Record the expired portion of advertising contract payment.
(f) Of the reported Sales, P32,000 refers to sale of items to be delivered on January 15, 2016.
(g) The firm purchased office equipment on January 1, 2015 for P430,000. This equipment is
estimated to have a useful life of five years and salvage value of P40,000.
(h) The store furniture and fixtures, with estimated useful life of 10 years and salvage value of
P30,000, was bought on February 1, 2015 for P400,000.
(i) It is estimated that 5% of outstanding accounts receivable are doubtful of collection.
(j) Based on physical count, ending merchandise inventory was determined to be P81,260.
The firm’s chart of accounts and trial balance as of November 30, 2015 are given below:

NOTHING BUT CLOTHING


Chart of Accounts

ASSETS REVENUES
101 Cash 401 Sales
111 Accounts Receivable 402 Sales Returns and Allowances
112 Allowance for Doubtful Accounts 403 Sales Discount
113 Notes Receivable 411 Interest Income
114 Interest Receivable COST OF GOODS SOLD
131 Merchandise Inventory 501 Purchases
141 Supplies 502 Purchase Returns and Allowances
142 Prepaid Rent 503 Purchase Discount
167 Office Equipment 504 Freight-in
168 Accumulated Depreciation – Office EXPENSES
Equipment
169 Store Furniture and Fixtures 602 Advertising Expense
170 Accumulated Depreciation – Store 614 Depreciation Expense – Office
Furniture and Fixtures Equipment
LIABILITIES 616 Depreciation Expense – Store Furniture
and Fixtures
203 Accounts Payable 621 Doubtful Accounts Expense
205 Notes Payable 631 Freight-out
206 Interest Payable 641 Rent Expense
211 Salaries Payable 651 Salaries Expense
231 Unearned Sales Revenue 661 Supplies Expense
EQUITY 671 Transportation Expense
301 Diva Lena, Capital 681 Utilities Expense
302 Diva Lena, Drawing 890 Miscellaneous Expenses
399 Income Summary 900 Interest Expense

NOTHING BUT CLOTHING


Trial Balance
November 30, 2015
Account Number Account Title Dr Cr
101 Cash P 98,000
111 Accounts Receivable 62,100
131 Merchandise Inventory 88,996
141 Supplies 4,100
142 Prepaid Rent 84,000
167 Office Equipment 430,000
169 Store Furniture and Fixtures 400,000
203 Accounts Payable P 283,000
301 Diva Lena, Capital 974,876
302 Diva Lena, Drawing 25,000
401 Sales 980,000
403 Sales Discount 21,000
501 Purchases 631,000
502 Purchase Returns and Allowances 14,250
631 Freight-out 18,630
651 Salaries Expense 178,000
671 Transportation Expense 36,000
681 Utilities Expense 164,000
890 Miscellaneous Expenses 11,300
TOTAL P 2,252,126 P 2,252,126
INSTRUCTIONS:
1. Form a group composed of three members (or two members if everyone else has a groupmate).

2. Your group is tasked to do the following:


a. Open the general ledger accounts and enter the balances for December 1, 2015. Obtain the
necessary figures from the trial balance prepared on November 30, 2015.
b. Analyze the transactions for December and record each transaction in the general journal
(Use 10-column worksheet – Worksheet#1 and #2). Use page 16 to begin December’s
transactions.
c. Post the transactions to the general ledger accounts. Use ledgers.
d. Prepare the Trial Balance as of December 31, 2015. Use 10-column worksheet –
Worksheet#3 left side.
e. Based on adjustments data, journalize and post the adjusting entries in the general journal.
Use 10-column worksheet – Worksheet#3 right side.
f. Prepare a functional-form Income Statement for the year ended December 31, 2015. Use
10-column worksheet – Worksheet#4 left side.
g. Prepare a Statement of Changes in Equity for the year ended December 31, 2015. Use 10-
column worksheet – Skip three lines after Income Statement.
h. Prepare a report-form Statement of Financial Position as of December 31, 2015. Use 10-
column worksheet – Worksheet#4 right side.
i. Journalize and post the closing entries in the general journal. Use 10-column worksheet –
Worksheet#5 left side.
j. Prepare a Post-closing Trial Balance as of December 31, 2015. Use 10-column worksheet –
Worksheet#5 right side.
k. Journalize and post the reversing entries in the general journal. Use 10-column worksheet –
Skip three lines after Post-closing Trial Balance.

3. Submit your group’s case analysis to your professor on the following dates:
 MW schedule: November 25, 2015 (Wednesday)
 TH schedule: November 26, 2015 (Thursday)

4. The criteria for grading the case analysis are as follows:


CRITERIA EXEMPLARY SATISFACTORY DEVELOPING BEGINNING
(100) (90) (80) (70)
Content and The group applies all The group applies The group applies The group fails to
Application relevant ACCTBA1 some ACCTBA1 topics few ACCTBA1 topics apply ACCTBA1 topics
[80%] topics appropriately appropriately appropriately appropriately
to the business case.
Format and The group follows the The group follows the The group follows the The group does not
Use of format and has not format and uses only format but uses a follow format and
English one spelling/ the English language mixture of Filipino uses a mixture of
Language grammatical error in in the paper which is and English language Filipino and English
[10%] the paper. at an acceptable in the paper and/or language in the paper
level. uses the English and/or uses the
language somewhat English language
inappropriately. inappropriately.
Teamwork The group shows The group shows The group shows The group shows lack
[10%] strong teamwork as teamwork as somewhat a lack of of teamwork as
evidenced in the evidenced in the teamwork as evidenced in the
oneness and consistency in terms evidenced in some inconsistencies both
consistency both in of content of the inconsistencies both in the flow and
the flow and contents paper in the flow and contents of the paper
of the paper contents of the paper