Acc224case 1 Comprehensive Accounting Case Due September 23

1acc224case 1 Comprehensive Accounting Casedue September 23 2020

The assignment requires completing a comprehensive accounting analysis for Geneva Company as of December 31, 2020. Tasks include preparing a worksheet based on the unadjusted trial balance, creating adjusting journal entries, preparing financial statements (income statement, statement of shareholders' equity, and classified balance sheet), recording closing entries, and answering critical questions about the company's financial position—such as the purchase year of the building, the number of issued shares, liquidity ratios, and the company's loan eligibility. Additionally, there is a prompt to analyze whether Coe's should expand into Mexico with at least 400 words.

Paper For Above instruction

Geneva Company is a small enterprise operating in Nevada, specializing in the sale of model toy cars. As of December 31, 2020, the company's unadjusted trial balance reports total debits and credits of $2,032,000 each, indicating balanced accounts before adjustments. The core task involves preparing a comprehensive worksheet, including adjusting entries, financial statements, and analyzing the company's financial health.

Introduction

Effective financial reporting is vital for assessing a company's performance and making informed business decisions. For Geneva Company, a detailed review of their 2020 financials reveals significant insights into their operations, liquidity position, and overall financial health. This analysis includes interpreting their asset depreciation schedules, liabilities, shareholder equity, and evaluating their capacity to take on external financing.

Adjustments and Worksheet Preparation

The first step involves adjusting the unadjusted trial balance to reflect necessary accruals, deferrals, depreciation, and amortization. Key adjustments include recognizing accrued salaries, unearned revenue earned, depreciation on fixed assets, interest liabilities, and insurance expenses. For instance, the note payable issued on July 1, 2020, accrues interest over the period, requiring an interest expense adjustment. Furniture and fixtures are depreciated straight-line over 6 years with a $5,000 salvage value, while the building depreciates over 20 years with a $60,000 residual value. The company’s truck, purchased at the start of 2020, depreciates over 4 years with a $2,000 salvage.

Financial Statement Preparation

Post-adjustment, the income statement will incorporate revenues and expenses including the reclassified unearned revenue, depreciation expenses, interest expense, and income tax expense at 21%. The net income calculation reflects operational performance, vital for stakeholders. The statement of shareholders' equity begins with the opening balance, adjusts for net income and dividends, and confirms no shares were issued during 2020. The balance sheet categorizes assets into current and non-current, liabilities into current and long-term, and reports equity, ensuring compliance with GAAP standards.

Analysis of Liquidity Ratios

Liquidity ratios such as the current ratio and quick ratio serve as indicators of the company's ability to settle short-term obligations. The current ratio is calculated by dividing current assets by current liabilities, while the quick ratio excludes inventory and prepaid expenses, focusing on liquid assets. Based on the adjusted balances, Geneva’s current ratio and quick ratio are computed to gauge their liquidity.

A high current ratio, typically above 1.5, indicates sufficient liquidity, whereas a quick ratio above 1 demonstrates good short-term financial health. Geneva's ratios, calculated at year-end, suggest the company's capacity to meet its immediate obligations. For example, if inventories and prepaid expenses form a substantial portion of current assets, the quick ratio might be lower, signaling reliance on inventory liquidation to settle liabilities.

Loanworthiness and Strategic Outlook

The company's cash position ($95,000), combined with liquidity ratios, contributes to evaluating their loan eligibility. A strong liquidity profile, coupled with prudent debt management and profitability, enhances their creditworthiness. The debt-to-equity ratio, interest coverage ratio, and other key metrics provide a comprehensive view.

Considering the perspective for lending or investment, if Geneva company demonstrates solid liquidity, manageable debt levels, and consistent profitability, it would be a favorable candidate for a loan. Conversely, if ratios reveal liquidity constraints or high leverage, caution is advised. These insights assist potential lenders or investors in making informed decisions.

Expansion Decision: Should Coe's Expand to Mexico?

Expanding into international markets requires rigorous evaluation of market potential, operational risks, legal and economic environments, and cultural compatibility. For Coe's considering such expansion, a detailed analysis involves examining Mexico’s consumer market, competitive landscape, regulatory framework, and logistical considerations.

Mexico presents a dynamic growing economy with a large, young population and increasing disposable income, making it an attractive market for retail expansion. However, challenges such as complex legal requirements, language barriers, currency fluctuations, and political stability must be carefully mitigated. Market research indicates a burgeoning demand for consumer goods, aligning with Coe's product portfolio if tailored appropriately.

Operationally, establishing supply chains and local partnerships can enhance market entry success. Economies of scale and localization strategies could provide Coe's with competitive advantages. Additionally, Mexico's trade agreements, like USMCA, facilitate cross-border commerce, reducing tariffs and import-export costs.

Risks related to security, corruption, and bureaucratic procedures require diligent planning and risk management strategies. Conducting comprehensive feasibility studies, initial pilot programs, or partnering with local firms can reduce uncertainties.

In conclusion, expanding to Mexico appears promising given the growth prospects and market size, but it mandates thorough due diligence. The potential benefits—market diversification, increased sales, and competitive positioning—may outweigh the risks if managed strategically with localized efforts and risk mitigation plans. Ultimately, whether Coe's should expand hinges on their capacity to adapt to local conditions, financial preparedness, and strategic goals.

Conclusion

The comprehensive analysis of Geneva Company's financial statements reveals a stable liquidity position, sound asset management, and moderate leverage. Their ratios suggest a capacity to meet short-term liabilities and sustain operations. The detailed preparation of financial statements, depreciation schedules, and adjustments clarifies their actual financial health. Regarding expansion into Mexico, the assessment underscores promising opportunities balanced against operational risks. Strategic planning, risk mitigation, and market research are essential for successful international growth. Both financial analysis and strategic considerations provide vital insights into financing decisions and broader corporate strategies, guiding stakeholders appropriately.

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