Assignment 2: Recording Business Transactions, Adjustments, and Preparing Financial

Statements

Title: "Simulating Business Transactions for a Construction Company - Assignment 2"

Course: Introduction to Accounting

Semester: Fall 2024
Date: 01 – 12 - 2024

Objective

In this assignment, students will simulate the operations of a construction company by

recording both basic and advanced business transactions. The assignment will cover the
entire accounting cycle, from recording initial transactions to adjusting entries, and
preparing the necessary financial statements: Income Statement, Balance Sheet, and
Cash Flow Statement. Students will use the double-entry accounting system to handle
these activities.

Assignment Details

Scenario:

Your construction company has been established, and it has begun operations. You need to
record the following transactions, handle necessary adjustments for depreciation, accrued
expenses, and unearned revenue, and then prepare the relevant financial statements. This
assignment builds on the foundational concepts from the Overview of Accounting,
Accounting Fundamentals, and Financial Statements chapters and introduces more
complex topics like depreciation and accrual accounting covered in Cost Accounting for
Engineers, Managerial Accounting, and Ethics in Accounting.

Tasks to Complete (with examples):

1. Transactions to Record (Basic Transactions)

1. Initial Capital Investment

o The company receives $100,000 in capital from shareholders.

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 o Journal Entry:

▪ Debit: Cash (Asset) - $100,000

▪ Credit: Owner’s Equity - $100,000

2. Purchase of Construction Materials on Credit

o The company purchases materials worth $20,000 for a construction project

on credit.

o Journal Entry:

▪ Debit: Construction Materials (Asset) - $20,000

▪ Credit: Accounts Payable (Liability) - $20,000

3. Payment of Salaries

o The company pays $8,000 in salaries.

o Journal Entry:

▪ Debit: Salaries Expense (Expense) - $8,000

▪ Credit: Cash (Asset) - $8,000

4. Earned Revenue from Completed Project

o The company completes a residential project and earns $40,000.

o Journal Entry:

▪ Debit: Accounts Receivable (Asset) - $40,000

▪ Credit: Revenue (Income) - $40,000

5. Purchase of Office Supplies

o The company purchases office supplies worth $1,500 in cash.

o Journal Entry:

▪ Debit: Office Supplies (Asset) - $1,500

▪ Credit: Cash (Asset) - $1,500

6. Loan Repayment

o The company repays $5,000 of the loan it took earlier.

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 o Journal Entry:

▪ Debit: Loan Payable (Liability) - $5,000

▪ Credit: Cash (Asset) - $5,000

2. Adjusting Transactions (Advanced Adjustments)

1. Depreciation of Equipment

o The company’s construction equipment (purchased earlier for $30,000) has

a useful life of 5 years, with no salvage value. Record the depreciation for one
month.

o Journal Entry:

▪ Debit: Depreciation Expense (Expense) - $500

▪ Credit: Accumulated Depreciation (Contra-Asset) - $500

2. Accrued Salaries Expense

o The company has accrued $3,000 in salaries for the month, which will be
paid in the next period.

o Journal Entry:

▪ Debit: Salaries Expense (Expense) - $3,000

▪ Credit: Accrued Salaries Payable (Liability) - $3,000

3. Revenue Adjustment for Unfinished Project

o The company has completed 80% of a construction project worth $50,000

but has only recognized $30,000 in revenue. The remaining $20,000 needs to
be recognized as unearned revenue.

o Journal Entry:

▪ Debit: Unearned Revenue (Liability) - $20,000

▪ Credit: Revenue (Income) - $20,000

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 4. Interest on Loan

o The company has an outstanding loan of $50,000 with an annual interest rate
of 6%. Calculate the interest expense for the month and record the journal
entry.

o Interest Calculation:

▪ Interest = $50,000 * 6% / 12 = $250 per month

o Journal Entry:

▪ Debit: Interest Expense (Expense) - $250

▪ Credit: Interest Payable (Liability) - $250

5. Payment of Accrued Expenses

o The company pays $3,000 in accrued salaries from a previous period.

o Journal Entry:

▪ Debit: Accrued Salaries Payable (Liability) - $3,000

▪ Credit: Cash (Asset) - $3,000

Deliverables:

1. Journal Entries

o Record the basic and advanced transactions as journal entries.

2. General Ledger

o Post the journal entries to the respective ledger accounts (Cash, Accounts
Payable, Revenue, Salaries Expense, etc.).

3. Trial Balance

o Prepare a trial balance to verify that the accounting records are accurate and
balanced.

4. Updated Income Statement

o Prepare an updated income statement based on the trial balance, reflecting

the adjustments made (depreciation, salaries, and interest expense).

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 5. Updated Balance Sheet

o Prepare an updated balance sheet showing the company’s financial position

at the end of the period after the adjustments.

6. Updated Cash Flow Statement

o Update the Cash Flow Statement to reflect any changes due to these
adjustments, including operating expenses, capital expenditures, and
financing activities.

7. Written Summary

o Provide a brief summary explaining the adjustments made, why they were
necessary, and their impact on the financial position of the company.

8. Group Presentation

o Prepare a 5-minute presentation to explain the work done and key insights
learned.

Evaluation Criteria:

Criteria

1. Accuracy of Journal Entries

2. Proper Ledger Preparation

3. Accuracy of Trial Balance

4. Updated Income Statement

5. Updated Balance Sheet

6. Updated Cash Flow Statement

7. Written Summary

8. Group Presentation

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Submission Guidelines:

• Deadline: Submit your assignment by Thursday 12/12/2024, to e-mail:

[email protected]

• Format: Submit a single PDF document including journal entries, ledger, trial
balance, income statement, balance sheet, cash flow statement, and written
summary.

• Presentation: Each group should present their findings during the next class
session Sunday 08/12/2024.

• File Name: "Assignment2_Group_[Group Number].pdf"

Important Notes:

1. Ensure that all journal entries are accurate and reflect the correct accounting
treatment.

2. Be prepared to explain your accounting processes and how each adjustment

impacts on the company's financials.

3. Late submissions will result in a 10% deduction per day.

Additional Notes for Cash Flow Statement:

1. Operating Activities: This section reflects cash inflows and outflows related to day-
to-day operations.

2. Investing Activities: Cash transactions related to the purchase or sale of assets,

such as office supplies.

3. Financing Activities: Cash transactions related to funding the business, such as

loans and repayments.

Additional Notes for Adjustments:

1. Depreciation: The method used for depreciation in this assignment is the straight-
line method. Make sure to calculate depreciation correctly based on the asset’s
useful life.

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2. Accrued Expenses and Revenue: Ensure that accrued items are recorded as
liabilities and unearned revenue is recognized only when earned.

3. Cash Flow Statement: Update the operating activities section to reflect the impact
of operating expenses like depreciation and salaries.