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Gaber, Hayes & Porporato

Tanya Terrific was a recent BAS graduate of York University majoring in accounting.
After obtaining her CGA designation she considered her options in terms of what she
wanted to do with her life and decided that she would like to devote her life to helping
people and one way she could do that was to tutor students still in school.
Tanya had $10,000 in accumulated savings and also had a promise from her widowed
mother to loan her an equivalent amount if she needed start-up capital. With her mom’s
best wishes she decided to take the plunge and start a tutoring service.
In January of 2014 she contacted a lawyer for advice about incorporating. Tanya had
heard stories from her accounting professors about students who failed that tried to sue
their professor and she certainly did not want to expose herself to that kind of risk. The
legal firm LA Law provided the necessary l
egal advice and did all the necessary paper
work to incorporate
as a Canada Business Corporation. Initial capitalization allowed for
10,000 no par value shares. Tanya, her lawyer and her mom were named as Directors of
the Corporation which was called Tanya’s Tutoring Service Ltd. The lawyers also
checked that the name was not already registered and she paid an additional $200 to
register her Internet domain website URL as www.tanyatutor.ca.
Tanya contributed her $10,000 in exchange for 1,000 of the shares. This was deposited
into a new corporate bank account she set up with TD Canada Trust on January 10,
2014. The bank account was a standard commercial chequing account that gave
cheques returned with monthly statements for a fee of $40/month. The January
statement is included.
Tanya’s next action was to rent an office in the mini-mall on Keele St. across from the
campus. She signed a 12 month lease on Janua
ry 10 for $500/month plus HST (Ontario
rate = 13%). As an inducement to sign the lease the January rent was reduced to $300
plus HST, but she did have to provide a security deposit of $1,000 (HST exempt) up
front because this was a business involving student contact. The deposit would be
returned at such time that the lease ended if there was no damage and she was to
receive 5% simple interest on the amount which would be paid to her with the returned
principal. She decided to treat the deposit as a miscellaneous receivable.
Hint: start up costs can be capitali
zed as an intangible asset “Organiza
tion Costs” and are assumed to have
an indefinite life for amortization purposes. You may want to read the segment in Module 10 on intangibles
for further clarification. Internet domain names would be afforded similar treatment.
She went next to Staples Business depot and was able to acquire all the necessary
office furniture, computing and telecommunication equipment. Although this was a large
chunk of change, Tanya realized that as sole shareholder, if the business failed she
could always use the stuff to set up an office at home. For accounting purposes all
equipment would be depreciated in 2 years.
At this point Tanya realized she was spending money at a furious clip and remembered
her professor’s warning that 65% of new businesses in Canada fail in the first year
because of cash flow problems. She decided to take advantage of her mom’s offer and
took the $10,000 by giving back a promissory note that bore interest at 12% payable
monthly. The note had no stated maturity date but either party could give 3 months
notice to end the loan. Tanya classified this as long term debt but since her firm was not
yet subject to audit and all the hassles of full fledged GAAP compliance, she ignored the
CICA requirements to present value the liability. She told her mom that although interest
would be accrued monthly, she would only hand her an interest cheque every six
Next step for Tanya was to put together a business plan. First of all, since her expertise
was clearly in accounting, the business would initially confine itself to the accounting
discipline. Tanya’s Tutoring Service (TTS) woul
d offer the following services to students:
1. Private tutoring at $25 an hour.
2. Group sessions at $10 an hour.
3. Preparation, administration and marking of mock exams at $125 per incident.
4. Sale of textbook summaries (her version of Cliff’s Notes) summarizing the
curriculum content of each accounting textbook in the BAS program for $100
5. Provision of career placement serv
ices where the student would be coached on
how to dress, prepare and conduct himself/herself in job interviews and advice on
how to properly set up a resume. Fee for this service was $150 per 2-hours
Tanya consulted with Hortense, her legal adv
isor at LA Law (who was also a boyfriend
and very generous with free advice), and was told that in Ontario only the sale of the
course notes would be subject to HST as the other items fell under the educational
counseling rubric. Hortense also informed Tanya that as a GST/HST registrant, her HST
reporting period would be annual as it is the one that requires the least frequent filing of
GST/HST returns available for her threshold amount (annual sales of less than
$1,500,000). Tanya’s Tutoring Ltd. has a December 31 fiscal year-end, therefore the due
date of her tax return is June 15 of the subsequent year. However, any HST owed is
payable by April 30 of the subsequent year.
This payment is to be reported on line 110
of the income tax return.
The next step was hiring of tutors. She was able to use her contacts in the Atkinson
Accounting Society to get plenty of names of A students interested in getting such an
activity on their own resume. Some had been and were currently T/A’s for accounting
professors in the School of Administrative Studies. Hortense pointed out that as long as
these people were deemed casual labour instead of employees and were not allowed to
work more than 15 hours each per week, she would avoid the huge aggravation of
having to make payroll deductions on their
behalf. Tanya developed a contact list of 22
people and the courses each could tutor. The mock exams would be compiled by herself
during her spare time and administered online through her website. As for the textbook
summaries she would use the copious notes she made while taking each course to
make these booklets. INSTAPRINT agreed to “publish” these at $22.12 per copy + HST
and she placed an initial order for 100 booklets.
While Tanya felt quite comfortable running her own website, designing it was another
matter. She decided to engage the services of a gifted computer science student who
put together a fabulous website with all the necessary interactive software for $800.
Since this was a cash transaction no mention was made of HST. She did record the
transaction on her books as an intangible asset to be amortized straight line over two
years. Tanya knew this was probably supposed to be expensed immediately but since
her expenses were going to be so high in relation to revenues in the start up year, she
felt that her actions were justifiable.
Tanya also took a self-defense course because she was going to be out and about on
the dimly lit York campus and North York after dark quite often. The cost of the course
was $300 and this was paid by the company and was charged to Miscellaneous
Expense in January. On further reflection she realized this was a personal and not a
business expense and subsequently
reimbursed the company.
In terms of setting up her accounting system Tanya decided on the following records:
Chart of Accounts
General Journal used for all adjusting and oddball entries
Sales Journal
Disbursements Journal
Sales were handled in the following fashion. Students would sign up for “services” on the
website which would show the available times and successful bookings. Students had
the choice of prepaying with credit cards
or paying at the session. Revenues were
recognized at the moment of the session when students paid in cash or at the moment
of reservation when the students used credit card. If a session was to be paid in cash,
non shows at the sessions were not recognized as revenues and students were
blacklisted from using the company again. The credit card company (VISA) charged 3%
of sales receipts for its processing services. For simplicity, Tanya recorded the sales
when she made the bank deposit of the cash payments and when Visa made the deposit
in her bank account. Occasionally no show st
udents would show up later with plausible
sob stories. Tanya would take their money for the new session adding a $10 processing
fee to the new billing.
Tanya of course had other business expenses that were normal for the business and
these are reflected in the disbursements journal.
The tutoring business kept Tanya hopping and the time just sped by. There seemed to
be no end to the need of accounting students (especially in ADMS 2500) for assistance.
Tanya got behind on her record keeping. No financial statements were prepared for
January and February and in March she realized she needed to smarten up and decided
to just prepare a quarterly statement for the three months ended March 31, 2014.
(Balance Sheet, Income Statement and Statement of Retained Earnings but no Cash
Flow Statement). Tanya also realized that
according to her banking agreement the bank
only sent her a bank statement and cheques on request and none had been requested
the last two months. She ordered a statement covering the 3 month period leading up to
March 31.
One event happened near the end of March that left Tanya somewhat distressed and
depressed. Several accounting students writing deferred exams in January had signed
up for intensive coaching sessions with
her but had failed the exam. She had just
received a letter from their lawyer stating that a class action lawsuit had been launched
against her for recovery of fees and huge sums in punitive damages. On consultation
with LA Law, she was advised that suit would probably deem frivolous and there was no
need to accrue for it. A financial statement footnote would be appropriate, however, until
such time as a court decision was reached. LA Law did inform her that the expected
legal fee for her defense would be $2,000 but a billing would not be prepared until the
expected court date in May.
On March 31
a group of nine students showed up at her offices and asked Tanya for a
special deal. They had just completed the introductory course in management
accounting but they felt they were not ready
to write the final exam, therefore they asked
Tanya for a special training in the next two weeks focused on solving accounting cases.
Tanya was somewhat reluctant to accept the group as she would have to prepare
special material for the sessions and she was not sure that all nine students would show
up. The students offered to pay 50% of the fees in cash by March 31
and the rest on
April 7
. The sessions would start on April 4
and will finish on April 15
. Tanya thought
it was a good deal and accepted while writing a receipt for $1,200 for half the sessions.
Tanya decided to declare a one dollar per share dividend on March 31 if possible.
PART 1 REQUIRED: Prepare the accounting
records for Tanya’s Tutoring Service
(Version B)
1. Set up the Chart of Accounts.
2. Prepare the bank reconciliation for March 31, 2014.
3. Prepare the General Journal for the first quarter 2014.
4. Post all transactions to the T-accounts.
5. Prepare a trial balance for the first quarter 2014.
6. Prepare the AJE, post them and redo the trial balance.
7. Prepare the Financial Statements in good form for the first quarter 2014 including
footnotes for a Summary of Significant Accounting Policies and for contingency
8. Special instructions:
Parts 1 and 2 are to be prepared using any software while part 3 has to be
prepared using an accounting software.
Parts 1, 2 and 3 are to be submitted in one pdf file. Any submission not using
a pdf file will receive a mark of zero.
It is mandatory to submit the AJE, while it is optional to submit all the other
general journal entries for the quarter. Every AJE should have an explanation
under it in parenthesis.
Every place where the word “Tanya” appears in items 1, 2, 3 and 4 of the
required substitute your own first name.
Make the amount of the lawsuit equal to the last six digits of your student
PART 2: Locate and use an annual
Find the most recent annual report online for a Canadian public company of your choice
from the SEDAR website. The annual report chosen must contain audited financial
statements and the MDA (management’s discussion and analysis).
Indicate the name of the Company, its exact website address (URL) and answers found
in the annual report to the following questions:
1. What industry is the company of your choice in and why did you decide to select
this company?
2. What was the total change in current assets during the year?
3. What amount was reported for revenue (gross revenue before net revenue) for the
year and what was the change in revenue during the year from the preceding
4. What was a main reason given in management’s discussion and analysis for this
change in revenue?
5. What amount was reported for total liabilities and for net income/earnings [note:
companies may use different titles such as ‘earnings’ to describe income]?
6. When was the auditor’s report dated? Who was the auditor?
7. Who was the Chair of the Board of Directors at the time the annual report was
PART 3: Use commercial accounting
The objective of part 3 of the term project is to afford students the opportunity to use
accounting software so they appreciate the extent to which technology has completely
transformed accounting. While the need for judgment and decisions will never disappear,
the bookkeeping aspects of accounting have been largely automated. We hope you will
marvel at and enjoy how easy it is to produce financial statements with the click of a
button without doing the requisite adjusting entries. Actually working the numbers by
hands accelerates the learning process, but on
ce you leave University, you will see that
the computer handles most accounting re
cord keeping today. The term project
requirements just scratch the surface in te
rms of showing the capabilities of accounting
software. We hope you will take the time to view all the tutorials and do some clicking
around to try out even more features.
Acquire access to any commercial accounting software package that you don’t have to
purchase. You or your employer ma
y already possess software such as
etc. If not, you can do a Google
search and locate dozens of downloads online.
is probably the most popular software used in Canadian Industry, but it is a
little complex for our needs and doesn’t have a trial version.
Two other popular Canadian products are
Simply Accounting has a stripped down version of their product (free download) on their
website. The download instructions need to be printed out since there are quite a few
steps to install. They do not appear to have a Mac version. Stripped down versions are
good news because they have much easier learning curves and they take up much less
heard drive space on your PC.
Certainly the most popular choice by students seems to be
. This software
is probably the leading Canadian seller for personal use as it integrates perfectly with
tax return software.
is similar to most software these days in
that you are offered a 30 day free trial. There is a catch, however, it
requires you to give
a credit card number in advance and after 30 days a dialog box pops up asking if you
want to purchase the software. You have to respond no and then your software is
disabled. This protocol is called negative billing and some people find it offensive. There
is also a truly free version buried on their website but they don’t advertise it and it seems
to be much, much slower.
Sage Peachtree
is another popular name in accounting software and they seem to offer
a trial download on their website although they s
eem to want to solicit a lot of personal
information first.
used to be popular but they have closed their Canadian
operations. There is still a free trial version available on their Australian website.
MAC Users
….Choices are more limited for Mac’s. Several sites have reviews of some
product options.
If you dislike giving a credit card number, or have no credit cards, confine your search to
either “free ware” or “shareware” (which is free but asks for a donation).
An important caveat….never download any
freeware/shareware without a good anti-
virus program on your computer. There is evil
hiding in ether-space. This is especially
so for Windows users. We have even downl
oaded a shareware antivirus program which
turned out to be a virus. People who download a lot of software might even want to
consider a download manager program which basically takes a snapshot of all footprints
(including registry entries) that the new so
ftware leaves on your system. Shareware
crashes a lot and sometimes even freezes systems. It is very frustrating when the
Windows Uninstall Utility will not uninstall when you want to wipe software off your
computer. These download monito
ring programs guarantee a one button wiping clean of
unwanted programs. Another step towards self-protection is the back-up hard drive with
auto back-up feature.
A second caveat…. Some of these programs are just intended for foreign countries and
don’t compute our HST or Canadian payroll
deductions or use Canadian terminology.
Make sure the software is appropriate for use in Canada.
Third caveat….The Web also has free trials
of Enterprise Reporting Systems (ERP)
which handle accounting. Not recommended you use these as they are more complex
with longer learning curves.
Fourth caveat
Don’t download your time limited free trial
the first day of the term. You need a few
classes of accounting to have enough savvy to answer the questions so no point in
starting the trial before you are ready.
Use your software to create a set of books for a fictional company that includes your
name and ID# (e.g., if your name was Jones then it might be Jones Jelly Bean
Emporium – 211344654) with the fiscal year end of December 31, 2011. Many products
have ‘wizards’ or tutorials to lead you through this process.
Post the following transactions using the ‘general journal entry’ option rather than
‘specialized journal’ option. Hint: If you being prompted to enter customer or supplier
name and address information, you are not us
ing the ‘general journal entry’ option, and
are doing more than is required in this assignment.)
a. A credit sale, dated December 1st, in an amount equal to double your student
b. A utility expense, paid in cash, equal to one seventh of your student number
c. A payment to a landlord to prepay rent in an amount equal to one fifth of your
student number
d. A journal entry to accrue wages in an amount equal to one third of your student
number, to accrue other wages related expenses for one fifth of your student
e. The receipt of cash, the proceeds of a bank loan, in an amount equal to twice your
student number
f. The payment of an amount equal to half your student number for a piece of durable
If your software does not permit entry of y
our full nine digit student number then use the
last 7 or 8 digits and make a note on your submission that this has been done.
Prepare and print the Income Statement for December and the Balance Sheet at
December 31
and also your general journal showing your journal entries.
Your term project for ADMS 2500 consists of three parts. Specific requirements for
submission (where, when and how) are contained in an announcement on your course
website. Please note that parts 1 and 2 should be word processed, and Part 3 should be
computer generated by an accounting software program.
All students are required to send the three parts in one file of the type PDF from the
official University e-mail account. E-mails containing multiple files will be accepted,
however only the file at the top of the list will be marked. Files submitted in any other
format than pdf will not be marked as they will not be opened. The print outs of the
accounting software in Part 3 shall be merged with the print outs of the other 2 parts.
Part 1, 2 and 3 can be converted into pdf files by printing them into a pdf file instead of a
Also please note that if your submissions on Part 1, 2 or 3 are found to be perfect clones
of another submission (as determined by
Software or other analysis) or are
purchased from a commercial tutoring business you can be expected to be invited to be
invited to a University hearing to demonstrate why you have not committed a breach of
York’s policy on academic honesty. No problem
in consulting with a study buddy on this
project but each student submission should be unique enough to demonstrate you are
indeed the sole author. Each semester several students are indeed prosecuted and
found guilty by the University tribunal. Better not to do the project at all than risk the
consequences of a conviction for plagiarism

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