Week 4 · Assignment: Traditional alternative (no AI)

Week 4 — Month-End at the Bicycle Shop: Six Adjustments, One Balance — Traditional alternative (no AI)

Financial Accounting Free sample edition

Traditional alternative (no AI), unpublished. In the course this is a separate assignment that ships unpublished beside the adaptive assignment: same objective, no AI. An instructor who prefers it publishes it and unpublishes or deletes the adaptive one, as the note at its top says.

Instructors: publish this instead of the adaptive version if you prefer, and unpublish or delete the adaptive one.

Assignment 4 of the term — compute the bicycle shop's month-end adjustments, record and classify them, prove the adjusted trial balance, and set a founder straight about why the books needed adjusting.

This week you met the cash basis and the accrual basis, the five steps of revenue recognition, expense recognition, deferrals and accruals, depreciation, and the adjusted trial balance. In this assignment you work four short problems on the bicycle shop's month-end, interpret each one, and explain this week's ideas to someone who has them wrong. This week's lecture tutorial, quiz, discussion, and Accounting Workshop practise the same ideas from other angles. It builds on Week 3, where you journalized the shop's twelve transactions, posted them, and proved the unadjusted trial balance.

The task

This week's material is pinned. Under the accrual basis, revenues are recorded when earned and expenses when incurred, regardless of when cash moves, and GAAP requires accrual-basis statements. Revenue recognition follows the five steps of the FASB's Accounting Standards Update No. 2014-09 (May 2014); the fifth step is to "recognize revenue when (or as) the entity satisfies a performance obligation". An accrual or deferral adjusting entry affects one income statement account and one balance sheet account, and never Cash. Deferrals are adjustments where cash moved first (prepaid expenses and unearned revenues); accruals are adjustments where cash moves later (accrued revenues and accrued expenses); depreciation is the allocation of a long-lived asset's cost to the periods that use it, credited to Accumulated Depreciation, a contra asset.

The running case is an illustrative, unnamed bicycle repair and sales shop, organized as a corporation by two founders; it describes no real business. Its six month-end adjustments for Month 1 are (a) supplies used, (b) insurance expired, (c) depreciation, (d) unearned revenue earned as the shop performs one quarter of a cycling club's $1,200 season of tune-ups, (e) $400 of wages the mechanic earned but has not been paid, and (f) $250 of repairs finished for a delivery company but not yet billed.

One of the founders (an illustrative person) sends you this message: "Our bank balance is $17,100 and our trial balance already balanced at $36,800, so why are we adjusting anything? The cycling club paid us $1,200, so that's $1,200 of revenue. And depreciation is only a guess at what the equipment would sell for." Your job is to answer the way this course would, starting from four small calculations on the shop's books.

Work these four problems, showing your arithmetic:

The bicycle shop bought $900 of supplies during Month 1, and a count on Day 31 finds $350 of supplies on hand. How many dollars of supplies were used in Month 1?
The bicycle shop paid $2,400 for a 12-month insurance policy that began on Day 1. How many dollars of insurance expired in Month 1?
The bicycle shop's equipment cost $12,000 and is expected to last 5 years of 12 months each, with no residual value. How many dollars of depreciation belong to one month?
The bicycle shop's unadjusted trial balance shows $36,800 on each side, and three month-end adjustments each add a new amount to both sides: $200 of depreciation, $400 of accrued wages, and $250 of accrued revenue. What total does the adjusted trial balance show on each side?

Beside each answer, add one brief interpretation:

Problem 1: write adjustment (a) as a journal entry, debit first and credit second, and name its kind; then say why the entry does not use Cash.
Problem 2: write adjustment (b) as a journal entry and name its kind; then give the Prepaid Insurance balance after it.
Problem 3: write adjustment (c) as a journal entry, give the equipment's book value after it, and explain why Accumulated Depreciation is a contra asset and why depreciation is not market value.
Problem 4: sort all six adjustments, (a) to (f), as deferrals or accruals; explain why (a), (b), and (d) do not change the trial balance total; and use the fifth step of revenue recognition to explain how much of the club's $1,200 the shop has earned and why the rest is still Unearned Revenue.

Explain it to a non-expert

The founder means well and has three things wrong. Write a 3–5 sentence message that explains why a balanced trial balance and a healthy bank balance do not make the month's numbers complete, why the club's $1,200 is not all revenue yet, and why depreciation spreads the equipment's cost rather than measuring its price. Name one limit, such as that the supplies count and the five-year life are estimates a lender would want explained, or that this course gives no tax advice. Explain any technical term in everyday words. More than one good answer is possible.

For a different, ungraded example, imagine a roommate who says a concert ticket bought months ahead "is already used up, because the money is gone." Model answer: "The money left your account when you bought the ticket, but you have not used the show yet; until the night of the concert, the ticket is something you still have, not something you have spent. Paying and using happen on different days. One caveat is fair: if the show is canceled and no refund comes, the ticket may turn out to be worth nothing, so it is worth keeping an eye on."

Use that pattern for the founder, with your own wording and evidence.

Show your arithmetic. A reader should be able to reproduce every number you report from the figures in the problems without guessing which figures or steps you used.

Deliverables

Submit a single report containing:

the four results, each with the subtraction, division, or sum shown and the brief interpretation the task names for that problem;
the three journal entries for adjustments (a), (b), and (c), each with the debit first, the credit second, equal amounts, and its kind;
the sort of all six adjustments as deferrals or accruals;
your message to the founder, explaining why the month's numbers needed adjusting, why the club's $1,200 is not all revenue yet, and why depreciation is cost allocation, with one limit; and
a one-line restatement of the figures you used, so your results are reproducible.

Keep it to roughly one page. Clear and correct beats long.

Choose how you show it. Present your report as written text, or as a recorded audio or video explanation of about three minutes with a transcript, or as a labelled spreadsheet of the entries with a short explanation. Every form is graded by the same scoring criteria. Submit in any accessible file type or as a link; a recorded response may be submitted as audio or video with a transcript, or as text.

How you'll be graded

The full analytic rubric is attached to this assignment in Canvas.

Academic integrity and AI use

This version is designed to be completed without AI: do the arithmetic, the entries, the interpretations, and the writing yourself. You may use a calculator or a spreadsheet for the arithmetic. State a standard only as the FASB states it, check every entry so that its debits equal its credits, and give no tax or investment advice. Submitting work you did not write as your own, or copying another student's work, is an integrity violation under the course policy.

Built with The Course Maker · samples.thecoursemaker.com