Accounting 202
Project 3
YOU MAY NOT DISCUSS THIS PROJECT WITH ANYONE (EXCEPT INSTRUCTOR, GA’s AND PARTNER )
Instructions: This document contains the instructions and information you will use to complete Project 3. Accompanying this document is an Excel worksheet that contains the template for Project 3 which you will complete and submit as an attachment to this assignment in ecampus. DO NOT CHANGE THE LINES OR SPACING OF THE SPREADSHEET!!!
You may work with a partner on this project, or you may do the project individually. If you work with a partner, both partners must work on all portions of the project. Submit only one Excel file per pair of students.
Download the excel file with Project 3 and save to your computer using P3 and the lastname of each partner as the file name (for example: P3SmithJones). Be sure that you save the file in .xlsx format. Submit your completed Excel file on eCampus (as detailed above) no later than Tuesday, April 24 at 11:59 PM.
You decide to earn some money to finance your education by starting a business that designs Web pages. You will begin business on January 1, 2018, and run the business for the next 12 months. On your Excel spreadsheet, calculate the number of budgeted hours you will work for clients during the year by adding the last three digits of your student ID numbers of you and your partner, if working with a partner.Use only the last three digits of this sum. If working alone, just use the last three digits of your student ID number. If the number is less than 600, add 600 to the number. (If the last three digits of your ID number happen to be 000, use the first three digits of your ID number instead.) This number will be the expected number of billable hours to be worked in the coming budget year. You are going to prepare a budgeted income statement, cash budget, and budgeted balance sheet for the coming year based on the assumptions listed below.
BUDGET ASSUMPTIONS FOR THE COMING YEAR:
1. Before the business begins, you will take $4,000 cash from your savings account to invest in the business. You will protect yourself by organizing as a corporation, with yourself as the only stockholder.
2. Before the business begins, it will buy a computer, printer, and software package that together cost $6,400. Your parents have agreed to lend the business $6,400 cash so that the business can pay for the equipment and software. The business plans to repay your parents on January 31, 2019. Your parents do not expect any interest but require you to sign a promissory note.
The beginning balance sheet for your business is presented on the following page:
Arachne, Inc.Balance Sheet
January 1, 2018
Assets
Current Assets
Cash / $4,000
Long-term Assets
Equipment / 6,400
Less Accumulated Depreciation / 0
6,400
Total Assets / $10,400
Liabilities and Stockholder’s Equity
Current Liabilities / $0
Long-term Liabilities
Note Payable / 6,400
Total Liabilities / $6,400
Stockholder’s Equity
Common Stock / $4,000
Retained Earnings / 0
Total Liabilities / $4,000
Total Liabilities and Stockholder’s Equity / $10,400
3. Starting January 1, 2018, the business willcharge $50 per hour for design work and bill clients as each job is completed. You expect that by December 31, 2018, the end of the fiscal year, 80% of clients will have paid the business in cash. You expect that the rest will pay by January 31, 2019.
4. The business will hire an assistant to help with general office work. The assistant will earn $20per hour and will work exactly the same hours that you work. The assistant will be paid for each month's work on the fifth day of the month following the month when the work is done. For the sake of simplicity, treat the assistant as an independent contractor rather than an employee. This means that you do not have to worry about withholding or matching payroll taxes. Assume that hours worked in December, 2018 are expected to total 10% (round to nearest whole hour) of the total hours for the year.
5. The business will purchase office supplies for cash of $2,800 in January, 2018
6. On February 1, the business will pay cash of $1,800 for a one-year liability insurance policy.
7. Since this is a new business, you think that it is important to advertise. The business will buy $600 of newspaper advertising each month. All payments for advertising costs will be made in the following month. (For example, January advertising expense will be paid for in February).
8. A dividend of $3,000 will be declared and paid before year end.
Record SUMMARY budgeted transactions for the entire year based on the above assumptions in the T-Accounts below. Round all amounts to the nearest whole dollar. The T-Accounts will not be turned in, but should be completed to assist you in completing the budgeted financial statements.
Cash / Accounts Payable / Common Stock / Sales4000 / 4000
Wages Expense
Accounts Receivable / Wages Payable / Retained Earnings
Insurance Expense
Advertising Expense
Office Supplies / Notes Payable / Dividends
6400
Supplies Expense
Prepaid Insurance
Depreciation
Expense
Equipment
6400
Accumulated
Depreciation
ASSETS = LIABILITIES + STOCKHOLDER’S EQUITY
Record the expected adjusting entries in the T-Accounts for the following:
A1) It is expected that the equipment and software will be used for four years, after which time they will be worthless. The business uses the straight-line method of depreciation.
A2) It is expected that office supplies will be used up at the rate at the rate of $2.00 per hour worked, with the remaining amount still on hand at year-end.
A3) Record the insurance that has been used up during the year.
Instructions for Excel Worksheet:
Part A:In the Excel spreadsheet, complete the BudgetedIncome Statement (you may not need to fill in all linesprovided) and questions 1. – 5.
Part B:Review Chapter 9 and your notes from class.In the Excel spreadsheet, complete the Cash Budget (you may not need to fill in all linesprovided).
Part C:Review Chapter 9 and your notes from class. In the Excel spreadsheet, complete the Budgeted Balance Sheet in good form.Complete questions 1. and 2.in this section.
Part D:Review Chapter 7 and 10 and your notes form class.Assume that you have now decided to charge clients $45 per hour instead of $50 per hour. Demand for your services will increase 10% over the hours you used in your original budget. All the other assumptions above remain the same.Answer questions 1. – 7.in the Excel spreadsheet.
Part E:Review Chapters 7 and 8 and your notes from class. Ignore the information used in Part D above and go back to the original assumptions on page 1. Now assume that Virtual Office Company could replace your assistant with their own office service. They will charge you $1000 per month plus 10% of your revenue. Answer questions1. – 5.in the Excel spreadsheet.
Part F: Review Chapter 10 and your notes from class. Ignore the information provided in Part D and E above and go back to the original assumptions on page 1. Your original budgeted income statement is your “master” budget. Assume now that actual hours worked were 600 and the actual price charged per hour was $52. Answer questions 1. and 2. in the Excel spreadsheet.
Part G:Review Chapter 12 and your notes from class. In the Excel spreadsheet, answer questions 1. – 3.
You are considering the purchase of a Web server that costs $15,000. Your parents have offered to provide another interest-free loan. You plan to use this server for six years and then sell it for the expected residual value of $2,000. This server will allow your clients to post their Web pages and is expected to generate annualincremental net cash inflows equal to 10% of the total revenue from Part A.
1. Determine the annual incremental cash inflows.
2.Using the tables from your textbook and a 10% required rate of return, calculatethe net present value of the proposed investment. Label your calculations clearly.
3. Based on your calculation of net present value, should you buy the server?
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