I think we've had a good month, but it's hard to tell without a better sense of exactly what our financial performance was. The information you've given me is really of little use unless it's better structured and presented. Please come to my office first thing tomorrow.
Marissa Gardner, Director of the Catalog Division of Sidney’s Art Gallery, was speaking by phone to Brandon Cohan, the bookkeeper she had hired to help her keep track of the financial performance of the gallery's catalog division. Prior to hiring Mr. Cohan, Ms. Gardner had asked the gallery's accountants to create a general journal and enter the Catalog Division's pre-opening financial transactions in it (Exhibit 1). Mr. Cohan's job was to maintain this system, but, as of the middle of October, he had only prepared a list of financial events (Exhibit 2), which he had given to Ms. Gardner. It was this she was discussing in her conversation with him.
BACKGROUND
Sidney's Art Gallery contained a vast array of Italian works of art, some dating back to the 17th and 18th centuries. Its founder, Daniel Sidney, was the son of a wealthy New Jersey family with strong ties to Southern Italy and Sicily. Unlike his siblings, Mr. Sidney had decided at an early age not to enter the family business, and instead had developed an interest in art. Following graduation from college, he moved to Italy, where he lived for several years, purchasing paintings of some of Italy's best known masters, as well as marble busts, statues, tapestries, and other valuable art works.
When Mr. Sidney returned to the United States in the early 1980s, he brought his collection with him, which by this time had become quite large. In order to house it suitably, he purchased an 18th century mansion, located in the downtown area of Newark. Shortly thereafter he married and began to raise a family.
Finding the mansion and its works of art unsuited to the activities of small children, and with increasing strains on his financial resources, he decided to convert the entire building into an art gallery. Although he was the major shareholder in the gallery, and chairman of its board of directors, he remained only marginally involved with the gallery's day-to-day operating activities, preferring instead to devote his time and energies to his growing family. Also, at his father's irresistible insistence, Mr. Sidney had become increasingly involved with the family's business activities, and this, combined with his increasing interactions with his own family, left him with little time to devote to the gallery. . . .
Assignment
- Set up T accounts for each account named in the general journal. Post entries 1 through 8 to these accounts, using the item number as a reference.
- Analyze the transactions in Exhibit 2, and post them to the T accounts, using the item number as a reference.
- Consider any adjusting entries that are required. Number them beginning with 19, and post them to the T accounts, using the item number as a reference.
- Prepare closing entries, and post them to the T accounts, using the letters A, B, C, etc. as a reference
- Prepare an income statement for September and a balance sheet as of September 30.
- What should Ms. Gardner tell the board of directors and Mr. Sidney about these statements?