Introduction To Financial Accounting
You will be given a set of transactions for a company, Aaron’s Auto Parts from January 1, 2012
through December 31, 2012. Please do all work in Microsoft Excel (or equivalent).
Project Part 1
This portion of the project will be due at the beginning of class on October 24, 2013. The first part of
your project must be submitted on Blackboard before the start of class in excel format.
1. Prepare the journal entries for each transaction shown. For transactions such as
depreciation, amortization of prepaid expenses, etc, they can be done once at the end of
the year instead of monthly (it is up to your preference)
2. Prepare the T-accounts for all accounts that are affected by the transactions
3. Prepare a chart of accounts, with account numbers and descriptions for all accounts
4. Prepare a trial balance as of December 31, 2012. The trial balance should show
unadjusted balances, adjusting journal entries, adjusted balances, the closing journal
entry, and the post-closing trial balance. The trial balance should be in columnar format,
broken out into debit and credit columns for each category.
Project Part 2
This portion of the project will be due at the beginning of class on December 5, 2013 printed out in
hard copy form. This should look like something you would give a client. Make sure the formatting is
correct and that your printed project looks presentable.
1. Submit a copy of your corrected project part 1 on Blackboard in the same method as
2. Prepare a full set of financial statements for Aaron’s Auto Parts using the trial balance
prepared in Part 1 – this means a Balance Sheet as of December 31, 2012, as well as an
Income Statement , Statement of Stockholder’s Equity and Statement of Cash Flows for
the year ended December 31, 2012.
3. Prepare the following ratios based on AAP’s final balances, and prepare brief comments
on what these ratios mean: (many of the ratios are covered in Chapter 5, which is not
covered until the end of the semester. If you are trying to finish this early, you may need
to visit Chapter 5 early)
a. Return on Equity
b. Debt to Equity
c. Current Ratio
d. Net Operating Profit Margin
e. Gross Profit Margin
f. Times interest earned
Introduction To Financial Accounting
Class Project - Transactions
Aaron’s Auto Parts
Aaron’s Auto Parts (AAP) was established to distribute auto parts to retailers and auto shops. The
company began business on November 1, 2011. The following transactions took place during the year
ended December 31, 2012:
Beginning Account Balances as of January 1, 2012 are as follows:
Accounts Receivable $10,000
Accounts Payable $10,500
Retained Earnings $71,500
(1) January 2 Investors contributed $150,000 cash to help in launching AAP in exchange for
50,000 shares of stock
(2) January 31 AAP obtained a $80,000 cash loan from Capital Bank. The note has a 9% annual
interest rate and requires monthly interest only payments (0.75% per month) on
the first day of every month beginning on March 1, 2012. The loan is due to be
paid in full in two years.
(3)January 31 Aaron rented a building for $5,500 per month on a seven year rental contract.
Rent is due on the 1st of every month beginning on February 1
(4) January 31 Aaron hired two of his friends, Eric and Josh, to work for him and to help get
started. He will pay his two employees $4,500 each on the first day of each
quarter starting April 1, 2012.
(5) February 28 AAP purchased shelving, racks, a forklift, and other equipment on account for
$9,500. This equipment is expected to be usable for 7 years
(6) March 1 Made its first monthly interest payment to Capital Bank for the $80,000 loan it
obtained in transaction (2) – Don’t for get the rest of the months!
(7) March 28 AAP purchased oil filters, air filters, brake pads, etc. totaling $375,000 from
various manufacturers on account
(8) June 1 Sold 15,000 brake pads to Bob’s Brakes on account. These brake pads were sold
for $36.50 each, and they cost $20.75 each
(9) June 15 Sent a check totaling $35,000 to a vendor as partial payment for the inventory
purchased in transaction (7)
(10) July 7 Sold 350 alternators to Joe’s Garage for $145 each on account. AAP had
previously purchased these items for $100 each. AAP also sold 1,750 oil filters to
Joe’s Garage for $6 each. They cost AAP $4.
(11) August 1 AAP purchased a general insurance plan that will cover the company for two
years from August 1, 2012 through July 30, 2014. The policy cost $35,000 for the
two years. AAP paid for the policy in cash.
(12) August 28 AAP purchased a parts delivery truck for $23,000 on account. The truck will be
usable for 7 years.
(13) September 8 Collected the full amount outstanding from Bob’s Brakes on the sale made in
(14) October 3 Paid the remainder of the amount due for the inventory purchased in transaction
(7), and paid for the equipment purchased in transaction (5) and the truck
purchased in transaction (12)
(15) October 15 Paid a $5,000 dividend to shareholders
(16) October 19 AAP signed a contract with an auto parts retailer to provide 5,000 oil filters on the
first of every month for 6 months beginning on November 1. AAP collected the
total sales price for all six month’s worth of oil filters when the contract was
signed, for a total of $210,000. The filters cost $4.25 each.
(17) October 31 Billed Alan’s Auto Repair for $47,000 of parts sold and shipped to Alan’s on that
day. The cost of these items to AAP was $32,650.
(18) November 15 Received $165,250 worth of parts inventory purchased from Cal Parts. An invoice
came with the parts dated November 15. The invoice is payable on January 15,
(19) December 15 Received a utility bill for $375, which will be paid the first of the following
(20) December 31 Aaron is unsure that he will collect the amount due from Joe’s Garage, since Joe’s
has not paid on its account since its purchase in July
(21)December 31 AAP receives an order from Bob’s Brakes for another 200 brake pads. AAP will
deliver them on January 2nd
(22) December 31 Prepare the income tax accrual for AAP at a standard 34% tax rate