15.515: Financial Accounting
Fall 2013
Problem Set #1
Due September 13 @ 4PM

IMPORTANT INFORMATION:
This homework has two problems. Use the excel spreadsheet provided on Stellar to answer these questions. The excel file has two worksheets. The worksheet titled “New Form” is for Question A while the one titled “BSE entries” is relevant for Question B. Please note that you need to submit a hard copy of your solution.

A. New Form Inc.

New Form, Inc. began business on July 1, 2013. New Form is a wholesale office supply distributor. The following events occurred during July.

For each of the following transactions, indicate on the spreadsheet provided to you whether there was an increase or decrease in the appropriate balance sheet account, using “+”s and “–”s respectively. Additionally, for each transaction indicate whether there was an effect on Net Income (NI) and on Net Cash Flows (NCF); specifically, indicate whether there was an increase, decrease or no effect on NI and NCF by “+”, “-” or “0” respectively. The first entry is filled in for you as an example. All relevant book-keeping entries are made at the end of each month.

1. Shareholders contributed $150,000 in exchange for 150 shares of common stock.

2. New Form signed a one-year lease for its warehouse and offices, paying $72,000 in advance for occupancy of twelve months.

3. New Form acquired equipment and fixtures for $96,000. A down payment of $40,000 was made and a three-year note payable signed for the balance.

4. Assorted merchandise inventory was acquired on account for $190,000.

5. Sales of $200,000 were made on account. The merchandise had originally cost $160,000.

6. Collections of $60,000 were made from customers.

7. Payments of $80,000 were made to suppliers.

8. Employees earned $5,000 in wages for the month of July. The paychecks will be cut and distributed on the first day of the following month.

9. Declared and paid a dividend of $10,000 to the shareholders.
B. Kardashian Korporation.

Kardashian Korporation began business on January 1, 2013. Kardashian Korp. is a wholesale makeup distributor. The following events occurred during the first year of the company’s business.

Jan. 1 | | Kim, Khloe, and Kourtney Kardashian found Kardashian Korporation by contributing $150,000 each. Each sister receives 10,000 shares in Kardashian Korp. | | | | Feb. 1 | | Kardashian Korp. signs a lease for an office on Rodeo Drive. The lease requires a monthly payment of $12,500 at the conclusion of each month. The first payment is due at the end of February. Kardashian Korp. also pre-pays $60,000 for one year of insurance on the property. | | | | Feb. 8 | | Kourtney agrees to pay Nick Saglimbeni $70,000 to decorate their office. The office decoration will take place on April 1. | | | | Mar. 3 | | The Kardashians choose furniture for their office. It is delivered that day and looks fantastic. The furniture costs $200,000. They pay $20,000 now and agree to pay the remaining balance six months later. | | | | Apr. 1 | | Nick finishes decorating the office and sends a bill for $70,000. The Kardashians decide to pay it later so that they can convince Nick that he would rather have them throw him a fabulous party instead. | | | | Apr. 19 | | Kardashian Korp. pays for $60,000 of makeup inventory from a Chinese supplier in anticipation of the launch of the Khroma Beauty makeup line. It also prepays for $28,000 worth of advertising in Cosmo and Teen Vogue. Beginning next month, one ad will appear each month for the next seven months. | | | | May 25 | | The Kardashians’ efforts to persuade Nick to let them plan a party for him are unsuccessful. Nick wants the cash much more than a party. Kardashian Korp. pays Nick for the amount he billed previously. | | | | June 14 | | Khroma Beauty is guaranteed to be a huge success, so Kardashian Korp. pays a dividend of $2 per share. | | | | July 1 | | Kim hires Kendall Jenner as a full-time employee. Kendall starts working immediately and agrees to receive a one-time payment of $30,000 as a salary at the end of the calendar year. | | | | Aug. 3 | | Kardashian Korp. pays what it owes on the furniture. | | | | Oct. 10 | | Kim needs more cash after her divorce, so she decides to sell 2,500 shares to Khloe and 2,500 to Kourtney at $25 per share. | | | | Nov. 30 | | The last of the Cosmno and Teen Vogue ads run. The Khroma Beauty advertising campaign has been very successful. Industry insiders estimate that the Khroma Beauty brand name is worth $1.5 million as a result of the advertising. | | | | Dec. 15 | | Macys buys $100,000 of Khroma Beauty makeup. It pays $70,000 now and agrees to pay the remaining $30,000 one month later. The cost of the makeup was $25,000. Macy’s also puts in an order for $1,000,000 worth of makeup to be delivered after the new year. | | | | Dec. 31 | | Kendall Jenner receives a check for her salary (hint: look at the event on July 1). |

Required: 1. Use the balance sheet equation to record the above events. Assume that Kardashian Korporation waits until the end of the month to record any accrued expenses (i.e. If Kardashian Korporation rented a warehouse, it waits until Feb 28th, March 31st, April 30th, etc. to record any rent expense for February, March, April, etc.). When you have completed the event analysis, compute the ending balances for each account. Note: a. Label the date of each event in the first column. b. For each event that affects Retained Earnings (RE), provide a brief description in the last column (i.e., Sales revenues, Cost of Goods Sold, etc). c. Some events may require multiple transactions. Some events may not need to be recorded in the financial statements. If an identified event does not affect the BSE, indicate the firm would not record a transaction and give a brief explanation why (i.e., Will be recorded next period). d. Ignore depreciation expense

2. Prepared a Balance Sheet dated December 31, 2013 and an income statement for the year of 2013.