Gopher Manufacturing Company Accounting 5101 Carlson School U of Minnesota -- Page 1 of 15
Gopher Manufacturing Company, LLC
Carlson School of Management
University of Minnesota
Table of Contents
Notes on the Case .............................................................................................. 2
Refresher of the Accounting Cycle ..................................................................... 3
Company Background ........................................................................................ 6
Accounting Policies............................................................................................. 7
Chart of Accounts ............................................................................................... 9
Current Year Transactions .................................................................................. 11
Adjusting Entries ................................................................................................ 13
Requirements ..................................................................................................... 15
Fall 2022
Gopher Manufacturing Company Accounting 5101 Carlson School U of Minnesota -- Page 2 of 15
Notes on the case
1. As a convention, the case refers to the most recent completed business year as the current
year. This is the year on which we will perform the accounting. Beginning balances for the
current year are ending balances from the prior year. The year following the current year is
the next year and there will be some carry-forwards to the next year. The balance sheet for
the prior year is represented through the beginning trial balance.
2. Data for this case are given as accounting schedules and are provided in Microsoft Excel
worksheet format. There is a provided spreadsheet but it has only data from the prior year
and some blank forms. You will have to use your accounting knowledge to design the logic of
your own spreadsheets.
3. Your task is to complete the accounting cycle for the current year and produce financial
statements for the current year.
4. Unrealistically, the Company has made no journal entries during the entire year. So, you must
begin with the post-closing trial balance from the prior year and make all journal entries for
the transactions listed below (see Current Year Transactions and Adjusting entries).
5. For the purposes of this case we will ignore the effect of income taxes. You will notice that
there is no taxes payable or tax expense account in the chart of accounts and that is
intentional.
Gopher Manufacturing Company Accounting 5101 Carlson School U of Minnesota -- Page 3 of 15
Refresher on the accounting cycle
The accounting cycle refers
to the process of recording
accounting events (transactions)
and combining this new
information with last year's
financial statements to produce
updated financial statements.
An accounting cycle begins
with last year's financial
statements. The first year of
operations presents unique
problems (chiefly the design of
the accounting system) and will
not be considered in this case.
First we will provide a succinct overview of the accounting cycle, and then a more detailed
description of each step. The accounting cycle begins with the post-closing trial balance from the
prior year which is the same information as the balance sheet as of the end of the prior year and
is now our beginning trial balance. We update this beginning trial balance by journalizing
accounting transactions for the current year. This gives us an updated but unadjusted trial balance.
At the end of the reporting period we adjust these transactions for some events that are more
efficiently handled at one point in time rather than continuously. We post both general journal
entries and adjusting journal entries to the ledger giving us an updated and adjusted trial balance.
We finally close the income statement accounts to Retained-Earnings giving us a post-closing trial
balance which is the same information as the end of current year balance sheet and the income
statement for the current year. We then detail changes in the equity accounts and produce a cash
flow statement. Of course, we will repeat this process next year.
Journalizing describes the process of recognizing accounting events (transactions) and
recording them into the Journals. A company can have multiple journals to record different types
of economic activities, but for this problem set we will focus on the General Journal. A journal entry
is composed of debits and credits such that the total of both are equal and gives a specific account
and the amount added to or taken from that account. For example, current year journal entry #1
involves the sale of goods. The corresponding entry in the General Journal is shown in Figure 1.
Gopher Manufacturing Company Accounting 5101 Carlson School U of Minnesota -- Page 4 of 15
Figure 1
GENERAL JOURNAL
title
post
account
1.
108
104
400
Accounts Receivable
Cash-In-Bank
Sales
debit
x
x
x
credit
32,000,000
8,000,000
40,000,000
The “account” and “title” columns in Figure 1 are taken from the chart of accounts. We debit
accounts receivable and cash-in-bank to recognize an increase in those assets, and a corresponding
credit to Sales to recognize an increase in sales revenue for the period. We visually separate out
credits from debits by indenting all accounts that are credited. Total debits equal total credits,
maintaining the balance sheet identity.
The journal entries are then posted to the specific account of the ledger (e.g., 104, Cash-inBank), meaning that the ledger accounts are updated to reflect the new activity. The
ledger
contains all the company’s accounts (both real and nominal) and can be thought of as location of
all t-accounts for the company. Real accounts are those that are carried forward each year and
presented on the balance sheet, whereas nominal accounts contain balances presented on the
income statement and are closed out at the end of each reporting period. We identify in the journal
entry that the posting has been completed by putting a check in the “post” column in Figure 1. The
journal is organized in chronological order and contains all transactions that occurred during the
year, whereas the ledger is organized by specific account and reflects the cumulative balances in
all accounts since the firm was organized. Figure 2 presents the leger accounts for cash, accounts
receivable, and sales after posting current year journal entry 1.
Figure 2
104
Cash in Bank
ref
comment
balance brought forward
CYJE 1
108
credit
balance
23,158,000
31,158,000
8,000,000
Accounts Receivable
ref
CYJE 1
400
sales for cash
debit
23,158,000
comment
balance brought forward
sales on credit
debit
43,000,000
credit
balance
43,000,000
75,000,000
32,000,000
Sales -- Gross
ref
CYJE 1
debit
balance brought forward
sales for year
credit
balance
-
40,000,000
40,000,000
Gopher Manufacturing Company Accounting 5101 Carlson School U of Minnesota -- Page 5 of 15
The “ref” column of Figure 2 indicates which journal entry was posted to this specific ledger
account (Current Year Journal Entry 1, or CYJE 1). The debit or credit from the journal entry is then
listed in the appropriate column, representing either an increase or decrease in the ledger account
(depending on the nature of the account and whether the entry is a debit or credit) and an updated
balance is then calculated.
After recording all current year transactions in both the Journal and Ledger, an updated trial
balance is created. The Trial Balance consolidates all the current balances from each ledger
account. We begin with the Beginning Trial Balance, which is the same as the balance sheet from
the previous year. For example, in Figure 3 we see that the balance listed for account 104 Cash-inBank is 23,158,000, or the balance that was carried forward from the previous year in Figure 2. We
then updated each account by putting the net debits from all current year transactions (if total
debits exceed total credits) or net credits (if total credits exceed total debits), and the updated
balance is presented. As a matter of convenience, it is also possible to first determine the updated
balance for each account as the most recent balance of each ledger account, and then to infer
from the difference between beginning and current balance whether the net difference was a
credit or debit entry. In Figure 3, the first two rows of the trial balance are displayed. The net effect
on the Cash in Bank account during the reporting period was an increase of $10,088,884, resulting
in an updated balance of $33,244,884.
Figure 3
Gopher Manufacturing Company -- Trial Balances and Worksheet
Account Name
Cash In Bank
BeginningT/B
DEBIT
CREDIT
23,158,000
Current Year Transactions
DEBIT
CREDIT
10,088,884
Updated T/B
DEBIT
CREDIT
33,246,884
At the end of the reporting period, after all current year transactions are recorded and an
updated trial balance is created, some fine-tuning of the accounts is often necessary. These
adjusting journal entries are similar to regular journal entries but are commonly done at the end
of the accounting period rather than during (for efficiency and convenience). Combining adjusting
journal entries with the trial balance gives an updated adjusted trial balance.
Two things need to be done after the end of the accounting period: first, the balances in the
income statement accounts need to be set to zero in preparation for the new accounting period
and second, the balances of the income statement accounts are moved to Retained Earnings. Both
of these are accomplished by closing journal entries. Finally, a post-closing trial balance is
presented, which will become the beginning trial balance for the following year. We then produce
the Reconciliation-of-Owners’-Equity statement and a Cash-Flow Statement from the income
statement and balance sheets. Then we begin the cycle all over for the New Year.
Gopher Manufacturing Company Accounting 5101 Carlson School U of Minnesota -- Page 6 of 15
Company Background
Gopher Manufacturing Company was formed in 2010 as a Limited Liability Corporation in the
state of Minnesota. There were two equal partners who each took 2,500,000 shares of common
stock (par value $0.50 per share) as their respective shares. Additional stock was issued during the
current year as part of a deal struck with a valued employee.
The Company manufactures one product in one size which we will call a widget. The Company
purchases raw materials which it stores until needed in the production process. Gopher also stores
finished widgets pending shipment to customers.
The Company has experienced a steady increase in demand for widgets and the outlook is for
stable sales into the foreseeable future.
Gopher Manufacturing Company Accounting 5101 Carlson School U of Minnesota -- Page 7 of 15
Accounting Policies
1. Depreciation and Amortization is computed on straight line basis to zero salvage over the
following useful lives:
Buildings
Machinery and Equipment
Automobiles and Trucks
Patents
20 years
10 years
5 years
20 years
Land is not depreciated but is considered to have an indefinite life (so would be subject to an
impairment test).
Depreciation on all assets is computed by taking one half of the annual straight line
depreciation in the first year without regard for the actual date of purchase. This is called the
half-year rule.
When an asset is sold, depreciation is not updated to the date of the sale, but rather any gain
or loss on sale is considered to be an adjustment to depreciation.
2. In general, inventories are stated at full cost utilizing First-in-First-Out flow methods. WorkIn-Process and Finished Goods are costed at direct materials plus factory labor (thus factory
labor is included in the cost of manufactured inventory). The Company does not allocate any
overhead to these accounts. This is non-standard accounting but is done in this practice set
as a simplification.
3. Intangible assets are stated at cost and amortized over 20 years, straight line to zero. By
convention, Intangible assets are shown on the balance sheet at net value.
4. The Company is a limited-liability-corporation LLC in the state of Minnesota, USA. There are
10,000,000 shares of common stock authorized of which 5,040,000 shares are issued and
outstanding at the end of the current year. The two former partners holds 2,500,000 shares
each and a valued employee holds 40,000 shares at the end of the current year.
5. Payroll is paid each week on Friday for the week ended Friday of the previous week. That is,
pay is delayed one week from the end of the period.
For a week that spans the end of the year, the Company apportions payroll between Payroll
Expense (or Work-in-Process Inventory) and Accrued-Payroll Payable pro rata based on the
number of days. The Company has a policy of recognizing all cash payments to employees as
wage expense when paid and then adjusting the wages payable account at the end of the
year.
6. The Company uses a calendar year beginning January 1 and ending December 31 and closes
its books annually.
Gopher Manufacturing Company Accounting 5101 Carlson School U of Minnesota -- Page 8 of 15
7. The Company uses the allowance method to write-off of bad debts. The adjusted balance in
the allowance is estimated using the percentage-of-accounts-receivable method with the
rate of 1.5%. This gives the target balance in the allowance account, but the journal entry
must consider any beginning balance in the allowance account.
8. A few years ago, the Company took out a mortgage to purchase the factory and warehouse
building used in their operations. Details of this loan including a complete amortization table
are given in the Excel document under the tab labeled ‘Mortgage’.
Gopher Manufacturing Company Accounting 5101 Carlson School U of Minnesota -- Page 9 of 15
Chart of Accounts
Chart of Accounts
Acc#
Assets
Account Description
104
Cash In Bank
cash deposits in bank accounts less
any compensating balances
108
Accounts Receivable
amounts owed to the Company by
customers
108x
Allowance for Bad Debts
amounts estimated to be written off in
the future on sales already made
112
Prepaid Rent
rent paid before the time the space or
machine is used
114
Prepaid Insurance
insurance paid before the time it
provides coverage
116
Patents
intangible assets. patents have 20 year
life
estimate of amount of intangible that
has been used, a contra-account
116x
Liabilities
Account Name
Accumulated Amort. – Patents
120
Supplies Inventory
cleaning, stationery, ink cartridges,
small consumables
124
Raw Materials Inventory
unworked materials and supplies used
directly in making widgets
128
Work in Process
materials and labor spend on widgets
started but not yet completed
132
Finished Goods Inventory
materials and labor spend on finished
widgets
146
Land
land owned by the Company. land is
not depreciated.
148
Buildings
Buildings including factory, sales and
offices.
148x
Acc. Depreciation - Buildings
estimate of amount of buildings that
have used.
160
Machinery & Equipment
furniture, fixtures and equipment used
in the factory
160x
Acc. Depreciation - M&E
estimate of the amount of factory
assets used up
164
Automobiles & Trucks
chiefly delivery trucks but one or two
cars for local travel
164x
Acc. Depreciation - Autos & Trucks
estimate of the amount of automobiles
and trucks used up
200
Accounts Payable
amounts owed to vendors by the
Company
204
Accrued General Payroll
General payroll owed to workers but
not yet paid
208
Accrued Factory Payroll
Factory payroll owed to workers but not
yet paid
212
Notes Payable
a formal agreement to borrow funds
typically short term
216
Unearned Revenue
cash received from customers but the
product has not yet been delivered
Gopher Manufacturing Company Accounting 5101 Carlson School U of Minnesota -- Page 10 of 15
owners'
equity
Revenues
Dividends Payable
228
Utilities Payable
250
Mortgages Payable
300
Common Stock at $0.50 Par
a legal requirement in Minnesota, Par
has little significance
304
Additional Paid in Capital
amounts received for the issuance of
shares over the Par value
308
Retained Earnings
sum of all earnings from incorporation
reduced by any dividends
400
Sales – Gross
amounts promised to the Company in
exchange for widgets
400x
Expenses
dividends in cash declared but not yet
paid
224
Sales Discounts and Returns
utility bills received but not yet paid
long term borrowing of funds with
periodic payments
reductions in the amounts promised for
any number of reasons
402
Interest Revenue
500
Cost of Goods Sold
amounts spend directly on widget
production and storage
504
Rent Expense
amounts paid to rent equipment or
space
516
General Payroll Expense
payroll for non-factory workers, this is
expensed
520
Utilities Expense
524
Depreciation Expense
528
Amortization Expense
532
Interest Expense
540
Bad Debt Expense
544
Insurance Expanse
548
Supplies Expense
amounts of supplies inventories used
556
Gain or loss on disposal of equipment
disposing an asset at a price that is
below the book value
amounts earned on invested funds
cost of water, gas and electricity
allocation of the cost of assets over
their useful lives
allocation of the cost of intangible
assets over their useful lives
amounts paid to lenders of funds
amounts of accounts receivable
deemed uncollectible and written off
amounts paid to insurers for coverage
Gopher Manufacturing Company Accounting 5101 Carlson School U of Minnesota -- Page 11 of 15
Current Year Transactions
Make journal entries for the following transactions. Unrealistically, the Company has made no
journal entries since closing the books at the end of the prior year. Note: The journal entries are
not necessarily listed in chronological order in which the transactions occurred.
1. Purchases of $12,000,000 of Raw-Materials Inventory were made during the current year.
The entire $12,000,000 was charged to Accounts-Payable.
2. During the current year, General Payroll of $4,005,000 was paid in cash and Factory Payroll
of $6,507,000 was paid in cash. See accounting policy #2.
3. Part of the raw-materials ($11,300,000 worth) was transferred to Work-In-Process
Inventory during the current year. Part of these ($22,800,000 worth) were completed and
transferred to Finished-Goods Inventory.
4. Current year sales were 600,000 units. Each widget sold for $40 sales. Of the current year's
sales, $18,000,000 were on account (credit sales) and $6,000,000 were for cash.
5. The cost of making a widget this current year is $24 per widget. The Finished-Goods
Inventory has a beginning layer of 100,000 units which cost $22 per widget to make. Record
cost of goods sold relating to transaction 4. See accounting policy #2.
6. Payments were made on account to the Company (cash received as payment on credit
sales) to the amount of $19,500,000. How could this be more than credit sales?
7. During the year, cash payments were made to vendors on Accounts-Payable for
$11,800,000.
8. One large customer was granted a special discount of 2% of the invoice provided that this
customer paid in cash within 30 days of the invoice date. This customer purchased
$900,000 of goods (the sale was already accounted for at gross in #4 above). The customer
paid $882,000 to settle his account 15 days after the invoice date. (Hint: You need to
account for the payment, the customer paid $882,000 to satisfy accounts receivable that
were on the books for $900,000. Where did the missing $18,000 go?)
9. Interest of $19,000 was earned on bank accounts and collected during the current year.
This amount was deposited by the bank directly into the Cash-In-Bank account.
Gopher Manufacturing Company Accounting 5101 Carlson School U of Minnesota -- Page 12 of 15
10. On 1 May current year, $28,800 was paid in cash for a two-year automobile insurance policy
effective immediately.
11. On 2 June, a machine with a historical cost of $40,000 and accumulated depreciation of
$27,000 was sold for $5,000 in cash. Since the Company does depreciation as an adjusting
journal entry, no depreciation for the current year had been recorded for this machine.
12. An assembly machine was purchased by issuing a Note Payable for $1,000,000. The
machine is assumed (consistent with accounting policies) to have a useful life of 10 years.
13. On 5 August, the Company contracted to rent a computer-controlled sheet metal cutter.
The contract was for three years beginning when the cutter was installed (which was
completed on 30 September). The contract called for monthly payments of $8,000 per
month and the Company prepaid one full year ($96,000) on 30 September.
14. Mortgage payments are made on the first day of each month in cash. A Mortgage
Amortization Table is given in the data for this case (the spreadsheet titled “Mortgage”).
Assume that the current year covers January of year-2 through December of year-3 of the
table. Again, unrealistically, no journal entries have been made for the mortgage this
current year. Round cash payment, interest expense, and change in principal for the year
down to the nearest dollar.
15. On 15 October, the two original shareholders issued 40,000 shares of common stock to a
valued employee (vice-president of marketing) who was being wooed by a rival company.
The employee is prohibited from selling the shares for 5 years and did sign a non-compete
agreement. Recall that the stock has a par value of $0.50 per share. However, the original
partners estimate that the shares have a market value of $25 per share.
16. During the year, the Company paid $700,000 for utilities (water, gas, electricity) in cash.
This entire amount was expensed and not capitalized into inventory as overhead (a
simplifying assumption).
17. On 31 November, a customer pre-paid for a shipment of widgets which will not be shipped
until January of the New Year. Cash was received in the amount of $24,000.
18. At the end of the current year, the Company learns that a customer has declared
bankruptcy and there is no likelihood of collecting any cash. It is determined that the entire
Account Receivable for this customer must be written off. The balance owed is $49,000.
Gopher Manufacturing Company Accounting 5101 Carlson School U of Minnesota -- Page 13 of 15
19. On 5 December, the Company declared a dividend-in-cash to all common shareholders of
record on 5 December (which includes the new shareholder). The amount was $0.50 per
share and the cash is to be disbursed on 15 January of the next year. There was no dividend
in the prior year.
20. Purchases for supplies were in the amount of $42,000 paid in cash.
Adjusting Journal Entries
1. Notice that two Accrued-Payroll-Payable accounts are in the ledger and have a non-zero
balance from the prior year. This represents the sum of the pay performed as of 30
December of the prior year but not yet paid. At the end of the current year, workers again
have worked a few days for which they have not yet been paid. This amounts to $6,000 for
General Payroll and $4,000 for Factory Payroll. (Hint: The Company does not update these
accounts when payments are made in January, they simply adjust the balance at the end
of the year to the appropriate ending balance).
2. On 31 December, Supplies Inventory was physically counted and found to be $15,000.
3. Record an appropriate amount of insurance expense for the year. Until 30 April of the
current year, the automobiles were insured under a prior policy and at a lower price. The
current policy is for $1,200 per month. The previous policy was for $800 per month.
4. Record an appropriate amount of rent expense on the metal cutter mentioned in CYJE 13.
5. Record an appropriate amount of interest expense on the note payable used to finance the
purchase of equipment in CYJE 12. The Note Payable plus accrued interest is due 30 April
of the next year. The note was signed and began accruing interest on 1 August of the
current year. No cash payments were required during the current year but the note does
accrue simple interest at 0.5% per month (simple interest means do not calculate
compound interest). This interest is added to the balance of the note so that when cash
settlement is made, it will include all interest charges.
6. The company has received utility bills totaling $30,000 which it has not yet paid as of 30
December. (Note that there is a beginning balance in Utilities Payable Account. Similar to
the Wages Payable this account is not updated in January when the utility bill is paid, it is
simply adjusted at the end of the year to the appropriate balance.)
Gopher Manufacturing Company Accounting 5101 Carlson School U of Minnesota -- Page 14 of 15
7. Record an appropriate amount of depreciation expense for each of the company’s three
(3) fixed asset accounts. See accounting policy #1.
8. Record an appropriate amount of amortization expense for the company’s intangible
assets.
9. Record an appropriate amount of bad debt expense. See accounting policy #7.
Gopher Manufacturing Company Accounting 5101 Carlson School U of Minnesota -- Page 15 of 15
Requirements
Below are the three (3) required assignments related to this case. See the class schedule for due
dates. You are to attempt each assignment and turn in a solution by 11:59 PM on the due date
for that assignment. These assignments will be graded based on completeness and effort (10
points for each assignment). We will go over the assignments in class after they are due. You are
to submit one computer file for each of these three assignments using the provided Excel
spreadsheet. These assignments cover material from Introductory Accounting. Our textbook will
be somewhat useful, but you are encouraged to use all available resources (e.g., previous text
books, internet, and study groups) to complete each assignment. NOTE: I HAVE CHANGED SOME
NUMBERS FROM PREVIOUS YEARS CASES. DO NOT USE ANSWERS FROM PRIOR STUDENTS TO
COMPLETE THIS CASE. YOU WILL GET CAUGHT AND DOING SO WILL BE CONSIDERED CHEATING.
1. Read all pages of this document. Open and review the Excel spreadsheet (Gopher Manuf
Student 2021.xlsx) which contains the data for this case. On the “CYJE” sheet (Current Year
Journal Entries), record the journal entry for “Current Year Transactions” 1 through and
including 20 (starts on page 11 of this document). Post each of these journal entries to the
“Ledger” sheet. Prepare an “Updated Trial Balance” on the “TrialBalFull” sheet by listing both
the net effect of the current year transactions and the current balance for each account.
DELIVERABLE -- HW#1: The journal entries, updated ledger accounts and updated Trial
Balance submitted to Canvas in one excel file (multiple worksheets).
2. On the “AJE” sheet (Adjusting Journal Entries), record all adjusting journal entries 1 through
and including 9. Post these journal entries to the “Ledger” sheet and prepare an “Adjusted
Trial Balance” on the “TrialBalFull” sheet. On the “CJE” sheet (closing journal entries) record
the closing journal entry, post it to the ledger, and copy balances to create a post-closing trial
balance. Prepare the income statement. DELIVERABLE -- HW#2: The adjusting entries, closing
entries, completed trial balance and income statement all submitted to Canvas in one excel
file (multiple worksheets).
3. Prepare the balance sheet including a column for the beginning of the year and a column for
the end of the year. Prepare a reconciliation of owners' equity accounts and the cash flow
statement using both the indirect and direct presentation method. For the indirect method,
start with net income and make the necessary adjustments (e.g., depreciation, gains/losses,
and changes in current asset and current liabilities) to get to operating cash flow. For the
direct method, covert each line on the income statement to its cash equivalent (e.g., convert
“Revenues” to “Cash collected from customers”). DELIVERABLE -- HW#3: Balance Sheet,
reconciliation of owners’ equity accounts, indirect cash flow statement, direct cash flow
statement, and a few comments on the differences between these three cash flows
statements, all submitted to Canvas in one excel file (multiple worksheets).