Assignment 01 Financial Accounting

BBA 1 (2 year)
Assignment no. 1
Michael McBryan Case study

Assume that Michael McBryan, an experienced auto mechanic, opens his own automotive repair
business, Overnight Auto Service. A distinctive feature of Overnight’s operations is that all repair work is
done at night. This strategy offers customers the convenience of dropping off their cars in the evening
and picking them up the following morning. Operating at night also enables Overnight to minimize labor
costs. Instead of hiring full-time employees, Overnight offers part-time work to mechanics who already
have day jobs at major automobile dealerships. This eliminates the need for costly employee training
programs and for such payroll fringe benefits as group health insurance and employees’ pension plans,
benefits usually associated with full-time employment.
Overnight’s Accounting Policies: McBryan has taken several courses in accounting and maintains
Overnight’s accounting records himself. He knows that small businesses such as his are not required to
prepare formal financial statements, but he prepares them anyway. He believes they will be useful to
him in running the business. In addition, if Overnight is successful, McBryan plans to open more
locations. He anticipates needing to raise substantial amounts of capital from investors and creditors. He
believes that the financial history provided by a series of monthly financial statements will be helpful in
obtaining investment capital
Question No. 1 Record Overnight’s following transactions for the month of January in the
general journal.
1. Jan. 20 Michael McBryan and family invested $80,000 cash in exchange for capital stock.
2. Jan. 21 Representing Overnight, McBryan negotiated with both the City of Santa Teresa and
Metropolitan Transit Authority (MTA) to purchase an abandoned bus garage. (The city owned
the land, but the MTA owned the building.) On January 21, Overnight Auto Service purchased
the land from the city for $52,000 cash.
3. Jan. 22 Overnight completed the acquisition of its business location by purchasing the
abandoned building from the MTA. The purchase price was $36,000; Overnight made a $6,000
cash down payment and issued a 90-day, non-interest-bearing note payable for the remaining
$30,000.
4. Jan. 23 Overnight purchased tools and equipment on account from Snappy Tools. The purchase
price was $13,800, due in 60 days.
5. Jan. 24 Overnight found that it had purchased more tools than it needed. On January 24, it sold
the excess tools on account to Ace Towing at a price of $1,800. The tools were sold at a price
equal to their cost, so there was no gain or loss on this transaction.
6. Jan. 26 Overnight received $600 in partial collection of the account receivable from Ace
Towing.
7. Jan. 27 Overnight made a $6,800 partial payment of its account payable to Snappy Tools.
8. Jan. 31 By the last week in January, McBryan had acquired the assets Overnight needed to start
operating, and he began to provide repair services for customers. Rather than recording each
individual sale of repair services, he decided to accumulate them and record them at the end of
the month. Sales of repair services for the last week of January were $2,200, all of which was
received in cash.
9. Jan. 31 McBryan decided to pay all operating expenses at the end of the month. For January, he
owed $200 for utilities and $1,200 for wages to his employees, a total of $1,400, which he paid
on January 31.
Question No. 2. Five account classifications are shown as column headings in the table
below. For each account classification, indicate the manner in which increases and decreases are
recorded (i.e., by debits or by credits).
Revenue Expenses Assets Liabilities Owners’ Equity

Increases recorded by:
Decreases recorded by:
Question No. 3. Record the following selected transactions in general journal form for Sun
Orthopedic Clinic, Inc. Include a brief explanation of the transaction as part of each journal entry.
Oct. 1 The clinic issued 4,000 additional shares of capital stock to Doctor Soges at $50 per share.
Oct. 4 The clinic purchased diagnostic equipment. The equipment cost $75,000, of which $25,000
was paid in cash; a note payable was issued for the balance.
Oct. 12 Issued a check for $9,000 in full payment of an account payable to Zeller Laboratories.
Oct. 19 Purchased surgical supplies for $2,600. Payment is not due until November 28.
Oct. 25 Collected a $24,000 account receivable from Health One Insurance Company.
Oct. 30 Declared and paid a $300,000 cash dividend to stockholders.
Question No. 4 Trafflet Enterprises incorporated on May 3, 2011. The company engaged in the
following transactions during its first month of operations:
May 3 Issued capital stock in exchange for $800,000 cash.

May 4 Paid May office rent expense of $1,000.
May 5 Purchased office supplies for $400 cash. The supplies will last for several months.
May 15 Purchased office equipment for $8,000 on account. The entire amount is due June 15.
May 18 Purchased a company car for $27,000. Paid $7,000 cash and issued a note payable for the
remaining amount owed.
May 20 Billed clients $32,000 on account.
May 26 Declared a $5,000 dividend. The entire amount will be distributed to shareholders on June
26.
May 29 Paid May utilities of $200.
May 30 Received $30,000 from clients billed on May 20.
May 31 Recorded and paid salary expense of $14,000.
A partial list of the account titles used by the company includes:

Cash Dividends Payable Accounts Receivable Dividends Office Supplies Capital Stock
Offi ce Equipment Client Revenue Vehicles Office Rent Expense Notes Payable Salary
Expense Accounts Payable Utilities Expense
Prepare journal entries, including explanations, for the above transactions.

Assignment 01 Financial Accounting

Uploaded by

Copyright:

Available Formats

Assignment 01 Financial Accounting

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Assignment 01 Financial Accounting

Uploaded by

Copyright:

Available Formats

BBA 1 (2 year)

Michael McBryan Case study

Revenue Expenses Assets Liabilities Owners’ Equity

May 3 Issued capital stock in exchange for $800,000 cash.

A partial list of the account titles used by the company includes:

Prepare journal entries, including explanations, for the above transactions.

You might also like