Case Study Assignment

Quantum Products, Inc. is in its second year of operations. The majority owner and president of the company, Mr. Bradshaw, has no prior accounting experience and has been preparing the financial statements on his own. The preliminary financial statements for Quantum Products, Inc. are presented below:

Quantum Products, Inc. has hired you to review the financial statements and make any necessary adjustments before being presented to the board of directors. Mr. Bradshaw has provided the following information to help you adjust the financial statements.

(1) Inventory is costed using the first-in first out method. Inventory at December 31, 2015 was comprised of: 2,200 units at $25.10 per unit. 2016 purchases included:
2/4/2016: 1,125 units @ $26.00 per unit 4/8/16: 1,160 units @25.25 per unit 6/20/16: 1,080 units @ $25.80 per unit 9/6/16: 1,170 units @ $25.40 per unit 11/22/16: 1,090 units @ $25.50 per unit
6,625 units were sold in 2016.

(2) Equipment includes two assets.

a. Asset #1 was purchased on April 1, 2016 for a cost of $40,000. This asset has a salvage value of $4,000 and an expected useful life of 5 years. The asset is depreciated using the straight-line method.

b. Asset #2 was purchased on November 1, 2016 for a cost of $36,000. This asset has no salvage value and an expected useful life of 3 years. The asset is depreciated using the straight-line method.

(3) Accounts receivable detail is as follows:

The allowance for doubtful accounts is based on the aging of accounts receivable method. The estimated percentage of uncollectible amounts is as follows:

Current amounts (not yet due) = 1% 1 - 30 days past due = 3%
31 - 60 days past due = 5% Over 60 days past due = 9%

Invoices are billed at net 30 days.

(4) There were two loans with activity during 2016.

a. Note amount, $6,000. Annual interest rate of 6%. Interest was accrued monthly. Loan date: June 1, 2011. The loan and all accrued loan interest was paid off on June 1, 2016.

b. Note amount, $12,000. Annual interest rate of 4%. Interest is accrued monthly. Loan date: March 1, 2016. The loan and all accrued interest is due on March 1, 2021.

(5) Deferred revenue is for product to be delivered in 2017 and should be $12,500 at December 31, 2016.

(6) A physical count of supplies at the end of the year reflected $3,000 of supplies on hand at December 31, 2016.

(7) Total rent for the year should reflect 12 payments of $2,500 per month. Prepaid rent is included in the Prepaid Expenses account.

Requirements:

(1) Prepare a trial balance spreadsheet for the year ended December 31, 2016 as demonstrated in Exhibit 4.5 of the text. You should use the accounts included on the preliminary financial statements provided above. All necessary accounts are included on the preliminary financial statements.

(2) Record the adjustments required based on the seven items of information presented above. Be sure to include all calculations used to determine adjustment amounts. These calculations should be made on separate worksheets (tabs) in your one Excel file.

(3) Using your adjusted trial balance, prepare a properly formatted income statement, balance sheet, and statement of stockholders' equity for the calendar year 2016.

(4) Prepare a memo to Mr. Bradshaw detailing what problems you found on his preliminary financial statements. In addition to the issues with the preliminary financial statement, provide Mr. Bradshaw with: current ratio, working capital, net profit margin, receivable turnover ratio, average collection period, inventory turnover ratio, average days to sell inventory. Additional information to assist you with your memo is:

a. Average net profit margin for Quantum Product's competitors is 15%.
b. Accounts receivable at 12/31/2015, $36,000
c. Product inventory at 12/31/2015, $25,000 (base your inventory turnover ratio and average days to sell inventory on the product inventory only).

Attachment:- Case_Assignment.pdf