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Opera Workshop
Author(s):
Young, David W.
Functional Area(s):
   Financial Accounting
Setting(s):
   Nonprofit
Difficulty Level: Beginner
Pages: 2
Teaching Note: Available. 
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First Page and the Assignment Questions:

The Opera Workshop was a small organization that was dedicated to advancing the public's knowledge of operatic works as well as providing support and training for aspiring artists. The Workshop had a small part-time paid staff and a large group of unpaid students who performed four times a year in minor operas.

The Workshop had been in existence for two years. Its balance sheet as of the end of 1998 is shown in Exhibit 1. During 1999, the following events occurred (in summarized form):

  1. On January 1, 1999, the Workshop took out a $10,000 loan from a local bank to finance its activities. The entire amount of the loan was due on 5 January of 2000, including interest at a rate of 12% for all of 1999. No interest would be due for the first 5 days of 2000.
  2. It purchased $1,000 worth of supplies and materials for constructing its sets, paying the entire amount in cash.
  3. It sold $18,000 worth of tickets for its four productions. $17,000 of this was received in cash. The remaining $1,000 was for tickets that had been sold to a local opera club; the amount was due on January 3, 2000. The Workshop expected that the entire amount would be paid on time.
  4. Its paid staff earned a total of $12,000 for the year. Of this amount, $500 was still owed to the Executive Director as of the end of 1999. The Workshop expected to pay her this amount in early January, 2000.
  5. It paid off the accounts payable shown on its balance sheet (Exhibit 1). No accounts payable were due as of the end of 1999.
  6. As of the end of 1999, an inventory showed that $300 of the supplies and materials still remained on hand. The sets had been thrown out after the final performance of each opera.
  7. The equipment shown on the balance sheet consisted of audio equipment used for performances. It had been purchased in January 1997 for $10,000 in cash, and had an estimated useful life of 10 years, after which it could be sold for approximately $1,000.
  8. It incurred interest on the loan for all of 1999. No cash payments were made, however.

Assignment

  1. Set up the balance sheet in Exhibit 1 as a series of T Accounts, place the beginning balance in the appropriate place in each account, and prepare journal entries for all relevant items.
  2. Post the journal entries to the ledger (i.e. the T Accounts). Calculate ending balances for the T Accounts. Hint: it may be necessary to create some new T Accounts. Check to make sure that Assets = Liabilities + Equity.
  3. Prepare a balance sheet as of December 31, 1999.
  4. Use your entries in the retained earnings account to create an income statement for 1999.
  5. What is your assessment of the financial condition of the Opera Workshop?