Case Solution Ribbon's an Bows, Inc.
Case 1-1: Ribbons an’ Bows, Inc.
Note: This case is unchanged from the Twelfth Edition.
Approach
This is an introductory case and it should be taught as an introductory case. There will be plenty of time in the course for the students to learn the correct form of financial statements and details of accounting standards. In short, the instructor should be prepared to allow a variety of formats for the financial statements and tolerate some “not quite correct” accounting.
The instructor may want to have students discuss Carmen’s March 31 statement, but the bulk of the class should focus on the three case questions. Any discussion of the March 31 statement should deal with the nature of the various accounts (i.e. prepaid rent is rent paid in advance of using the property and it is an asset because it has future economic benefits for the company, etc), rather than the format of the statement. It is better to leave the beginning of the course’s instruction in financial statement formats to the assigned case question discussions.
Comments on Information Gathered and Carmen’s Concerns
1. The three month sales total is the sum of the cash sales ($7,400) and credit sales ($320). 2. Cost of sales is derived from the following equation
Beginning merchandise inventory $3,300
Plus Purchases 2,900
Equals Total available merchandise $6,200
Less Ending merchandise inventory 4,100
Equals Cost of sales $2,100 3. Rent expense is $1,800 of $600 per month times three months. Paid in cash. 4. Part-time employee expenses ($1600) is the sum of cash paid ($1510) plus amount owed ($90). 5. Supplies expense ($80) is beginning supplies inventory ($100) less supplies inventory on hand on March 31 ($20). 6. The prepaid advertising ($150) was run by the local paper on April 2. The benefit of the asset expired so the asset became an expense. 7. The commercial sewing machine purchase led to an $1800 asset being recorded (a
Note: This case is unchanged from the Twelfth Edition.
Approach
This is an introductory case and it should be taught as an introductory case. There will be plenty of time in the course for the students to learn the correct form of financial statements and details of accounting standards. In short, the instructor should be prepared to allow a variety of formats for the financial statements and tolerate some “not quite correct” accounting.
The instructor may want to have students discuss Carmen’s March 31 statement, but the bulk of the class should focus on the three case questions. Any discussion of the March 31 statement should deal with the nature of the various accounts (i.e. prepaid rent is rent paid in advance of using the property and it is an asset because it has future economic benefits for the company, etc), rather than the format of the statement. It is better to leave the beginning of the course’s instruction in financial statement formats to the assigned case question discussions.
Comments on Information Gathered and Carmen’s Concerns
1. The three month sales total is the sum of the cash sales ($7,400) and credit sales ($320). 2. Cost of sales is derived from the following equation
Beginning merchandise inventory $3,300
Plus Purchases 2,900
Equals Total available merchandise $6,200
Less Ending merchandise inventory 4,100
Equals Cost of sales $2,100 3. Rent expense is $1,800 of $600 per month times three months. Paid in cash. 4. Part-time employee expenses ($1600) is the sum of cash paid ($1510) plus amount owed ($90). 5. Supplies expense ($80) is beginning supplies inventory ($100) less supplies inventory on hand on March 31 ($20). 6. The prepaid advertising ($150) was run by the local paper on April 2. The benefit of the asset expired so the asset became an expense. 7. The commercial sewing machine purchase led to an $1800 asset being recorded (a