Case #2: Ricky Rock Wrestling for Fun
Richard Brandt graduated from York University with his BAS although he spent more time in
the gym than in the classrooms and libraries. His parents and grandparents were very proud
and happy of this achievement. As a graduation gift, Richard's Grandparents gave him
$20,000 to start his own business.
So, on September 1, 2015, Richard started a small business called "Ricky Rock Wrestling
for Fun". "Ricky Rock" offers a party package designed for active kids, teen and adults that
want to learn and practice wrestling activities for fun by learning how to perform headlocks,
leg scissors and other tricks.
As a student, he learned and practiced Greco-Roman wrestling and built an impressive
body. Now graduated from university he has decided to continue with his passion of
wrestling but added a spin to make money. In one tournament in 2013 Richard meet Linda
who was competing for a US university team and she mentioned that she was working on
girls birthday parties focused on wrestling. In June 2015 Richard contacted Linda and told
her about his idea and Linda shared with him all documentation she has prepared in these
years including: brochure to be distributed to potential customers, personal cards, party
themes, parties activities, schedules and agendas, etc. During August Richard has
completed his business plan and was ready to launch 'Ricky Rock Wresting for Fun' in the
GTA.
The following is a list of transactions that occurred during the first month of operations:
September 1st Opened a business bank account with the $20,000 received as a gift from the
Grandparents $20,000.
September 1st Signed 12 month commercial insurance contract for any liability that might
emerge from the activity, $600 per month for 1 year.
September 2nd Purchase in cash costumes of famous wrestlers to wear at parties. The
costumes can last one full year $600.
September 3rd Paid in cash the set up of the web site. It expects to last the whole life of this
business $2,000.
September 4th Collected the brochures and presentation cards to be used in promoting the
business. One third is paid in cash while the rest will be paid on October 5th $450.
September 5th First event organized and delivered. Birthday party for a 5 years old boy.
Received the payment in cash $1,000.
September 6th Second event organized and delivered as part of a series of activities
organized by a charity to raise funds. One third is paid in cash while the rest will be paid by
the Charity Organization on October 5th $3,000.
September 8th Labour day, no events, no work so Richard goes to the gym and does a
double routine (the rest of the days he just does a simple routine of 2.5 hours).
September 12th Third event organized and delivered. Birthday party for a 7 years old boy.
Parents promise to pay in a few days $1,000.
September 15th Pays first 2 months of insurance $1,200.
September 19th & 20th Fourth event organized and delivered. Provided one of the activities of
a corporate team building extravaganza weekend. The contract signed says the payment will
be effective in 30 days with a cheque $2,000.
September 23rd Paid the gym membership for September, October, November and
December $2,000.
September 24th Telephone bill for $200 was received for the month of September, payment
due October 5th $200.
September 26th Fifth event organized and delivered. Birthday party for a 4 years old boy.
Received payment in cash $1,000.
September 26th One of the parents at the birthday party for a 4 years old boy hires him for
his son's birthday party on October 10th. Received payment in cash $500.
September 27th Sixth event organized and delivered. Birthday party for a 6 years old boy.
Received payment in cash $1,000.
September 29th Received the payment for the birthday party for the 7 years old boy of
September 12th $1,000.
September 30th Richard pays to his parents a rent for using the car for business purposes
and to go and come back from the gym $200.
September 30th Richard promised to pay on October 6th to his parents the extra charge that
comes in the insurance premium of their cars for having him as an additional driver (male
under 25) $800.
Additional information: September 30th Inventory of brochures and cards showed that two
thirds of them are still available (not used) $300.
Prepare "T" Accounts in ACCRUAL and CASH basis for this case using the following chart
of accounts, when relevant, prepare the Income statement, Statement of Retained Earnings
and Balance Sheet and then answer the questions.
ACCRUAL accounting:
Revenues
Cash
Telephone Expense
Brochures
Car Rent Expenses
Accounts Receivables
Car Rent Insurance Expense
Prepaid Insurance
Costumes Expense
Prepaid Gym Membership
Brochures Expense
Costumes
Gym Membership Expense
Accumulated Depreciation Costumes
Insurance Expense
Web Site (intangible asset)
Advances From Customers
Accounts Payable
Owner's Equity
Costumes Depreciation Expense
Telephone Payable
CASH accounting:
Revenue
Expense on Web site
Car rent expenses
Insurance Expense
Car Rent Insurance Expense
Gym Membership Expense
Costumes Expense
Brochures Expense
Telephone Expense
Cash
Owner's equity
Costumes Depreciation Expense
Advances From Customers
Accounts Payable
At the end of the accounting period (Sep 30th, T account after AJE), what is the balance of
Gym Membership Expense? Use accrual accounting.
$500
At the end of the accounting period (Sep 30th, T account after AJE but before preparing the
Income Statement), what is the balance of Owner's equity? Use accrual accounting.
$20,000
At the end of the accounting period (Sep 30th, T account after AJE), what is the total of Non
Current Assets? Use accrual accounting.
Between $2,001 and $3,000 Correct
At the end of the accounting period (Sep 30th, T account after AJE), what is the total of Non
Current Liabilities? Use cash accounting.
Less than $100
At the end of the accounting period (Sep 30th, T account after AJE), what is the balance of
Brochures Expense? Use accrual accounting.
$150
At the end of the accounting period (Sep 30th, T account after AJE), what is the balance of
Cash/Bank account (use only one account for all cash/cheque transactions). Use cash
accounting.
Between $18,000 and 19,999
At the end of the accounting period (Sep 30th, T account after AJE), what is the balance of
Owner's equity? Use cash accounting.
Between $15,000 and $20,000
At the end of the accounting period (Sep 30th, T account after AJE), what is the balance of
Car rent Expense? Use accrual accounting.
$200
At the end of the accounting period (Sep 30th, T account after AJE), what is the total of Non
Current Liabilities? Use accrual accounting.
Less than $100
At the end of the accounting period (Sep 30th, T account after AJE), what is the balance of
Accounts Receivables? Use accrual accounting.
$4,000
At the end of the accounting period (Sep 30th, T account after AJE), what is the balance of
Telephone Payable? Use accrual accounting.
$200
At the end of the accounting period (Sep 30th, T account after AJE), what is the balance of
Insurance Expense? Use cash accounting.
$1,200
At the end of the accounting period (Sep 30th, T account after AJE), what is the total of
Current Assets? Use accrual accounting.
Between $22,600 and $25,750
At the end of the accounting period (Sep 30th, T account after AJE), what is the balance of
Gym Membership Expense? Use cash accounting.
$2000
At the end of the accounting period (Sep 30th, T account after AJE), what is the balance of
Telephone Expense? Use cash accounting.
0
At the end of the accounting period (Sep 30th, T account after AJE), what is the balance of
Accumulated Depreciation Costumes? Use cash accounting.
0
At the end of the accounting period (Sep 30th, T account after AJE), what is the balance of
Costumes Expense Account? Use accrual accounting.
None of the other alternatives are correct
At the end of the accounting period (Sep 30th, T account after AJE), what is the total of
Owner's Equity including the Net Income/Net Loss of the period? Use accrual accounting.
More than $20,000
At the end of the accounting period (Sep 30th, T account after AJE), what is the Net
income/Net Loss? Use cash accounting.
Less than $1,000
At the end of the accounting period (Sep 30th, T account after AJE), what is the balance of
Brochures? Use cash accounting.
None of the other alternatives are correct