FINANCIAL ACCCOUNTING BAC122 – WINTER 2022

CLAUDE CHABOT BICYCLES CASE

Claude Chabot Bicycles, a small bicycle retailer in Cookshire, was created in 1975 by Mr. Chabot, a keen cyclist who
wanted to offer both high-grade and low-grade bicycles in his home town. Mr. Chabot has obtained a bachelor
degree in sport studies at Bishops University many years ago. He does the bookkeeping and prepares the financial
statement of the company himself. It’s May 15, 2020 and the firm Winter Consulting Ltd has just been hired by
Mr. Chabot to give some advice on the company’s financial statements for the year ended December 31, 2019. He
is going to ask for a loan from the bank in order to expand the company. The bank ask that the company present a
current ratio equal or higher than 3:1. Here is information about the company’s accounting policies:

 Since the merchandise sold (bicycles) has serial numbers, the company records sales of inventory with the
specific identification method.
 Once a year, on December 31, Mr. Chabot does a physical count of inventory. The last physical inventory
reported the following information about bicycles located in the warehouse and the store. A problem occurred
recently with SUPPERIDE brand. A famous rider hurt himself during a race and rumors spread about a possible
mechanical problem affecting all bikes manufactured by the company. To support the sale of that brand,
Mr Chabot had to decrease the price of the bicycles.

Physical count of bicycles to sell

Model Serial Number Cost Actual selling
price
GARNEAU MEN AXIS SL-3 5445028448 $700 $1,200
VENTURA RACE ROAD BIKE 54CM 134398NNS9 $1,000 $1,700
GARNEAU XS 38CM 340NF7S92-4F $300 $400
GARNEAU SL2 WOMENS ROAD BIKE 51CM 999DNHAF93 $900 $1,500
GARNEAU MOTION CITY 2.0 URBAN 54CM 4498F0DFNH20 $400 $600
SUPERRIDE JUNIOR 3 18 399283FJJ $400 $300
SUPERRIDE PRO XXL 69 CM 00383JJ3 $2,200 $1,500
$5,900 $7,200

Physical count of bicycles on consignment

A new bicycle manufacturer, Roady Co, has manufactured new type of bike with three wheels specially
designed for seniors. Since Mr Chabot didn’t want to assume the risk (it’s a new product and there is no
guarantee that if he will be able to sell it), he took delivery of three Roady bikes on a consignment basis. Up to
now, no Roady Bike has been sold. Mr. Chabot is entitled to receive a commission of 10% for each bicycle sold.

Model Serial Number Selling price Commission to

Mr. Chabot
ROADY 130 13093993 $350 $35
ROADY 132 13255868 $1,000 $100
ROADY 134 13499499 $350 $35
$1,700 $170
The bikes were recorded in the company’s books as soon as they were received with the following journal
entry.
Inventory of bicycles on consignment 1,700
A/P 1,700
Commissions Receivable 170
Commissions Revenue 170

1
 FINANCIAL ACCCOUNTING BAC122 – WINTER 2022

 When you asked Mr. Chabot for merchandise in transit on December 31, he mentioned that he sold a bicycle to
Ted, one of his friends living in Alberta, on December 31 and shipped the bicycle on the same date. Because
Ted is a very good friend, he sold the bicycle at $400, the cost price. Claude Chabot also paid delivery fees of
$100. The terms of the contract was: 2/10, n/30, FOB destination. Mr. Chabot received a cheque from his friend
on January 8. Since there is no profit associated with that transaction, the sale was recorded on December 31
with the following journal entry:
A/R 400
Inventory 400
Freight expense 100
Cash 100

 In December 2019, Mr Chabot decided to start selling sport shirts explicitly designed for cycling. Here are the
transactions related to shirts for the month of December. All the sales were paid cash but the purchases were
made on account. Mr. Chabot did not record any transaction related to the purchase and the sales of shirts
because he doesn’t know how to do it. He is confused because shirts don’t have distinct serial number. One of
his friends, who owns a computer store, told him that the average method would be the best in his situation.
However, another friend suggested him the LIFO method. He asked you to provide the journal entries to record
the purchases and the sales of shirts. Provide one cumulative journal entry for all purchases transactions and
one cumulative journal entry for all sales transactions.

Purchases: Sales:
Date Qty Unit cost Date Qty Selling
Price
December 1 20 $30 December 5 6 $40
December 15 4 $35 December 8 1 $40
December 20 8 $38 December 10 5 $40
December 17 9 $40
December 22 2 $40

APPENDIX
Financial Statements (Partial) before years-end adjusting entries.

CLAUDE CHABOT BICYCLES

BALANCE SHEET AS AT DECEMBER 31, 2019

ASSETS LIABILITIES
Cash 300 A/P 2,800
Receivables 1,100 Tax Payable 300
Inventory 5,900 3,100
Inventory on consignment 1,700 EQUITY
9,000 Common Shares 1,000
Retained Earnings 14,900
PPE 10,000 15,900

TOTAL ASSETS 19,000 TOTAL LIAB+EQUITY 19,000

2
 FINANCIAL ACCCOUNTING BAC122 – WINTER 2022

REQUIREMENT:
1) You are a Junior Accountant, working for Winter Consulting firm. Write a memo to Mrs. Winter discussing
the relevant accounting problems and answering to Mr. Chabot’s questions.
2) Upload a draft of your memo on Moodle
3) Book a meeting with Mrs. Winter to get feedback.
4) Upload the final version of your memo on Moodle.

CLAUDE CHABOT CASE / MARKING GRID

SECTION DESCRIPTION MARKS

INTRODUCTION Brief introduction including any bias/objective of Mr. Chabot. ____ / 2

ACCOUNTING For each accounting problem:

MEMO FORMAT

PROBLEMS  Identification of the problem

 The journal entry to correct the mistake with detailed calculation
 Justification according accounting standards. ____ / 16

Conclusion
CONCLUSION  Assess if the company meets the requirement asked by the bank ____ / 4
(before and after adjusting entries)
 Cleanliness
 PDF file submitted on Moodle
MEMO PRESENT.

 Cover page
PRESENTATION OF  Page numbers
____ / 8
MEMO  Text justified
 Numbers formatted (0 or 2 decimals with $ and “,”)
 Subtitles for sections
 Tables for calculations
MEETING

MEETING WITH MRS.

Done with professionalism (10-15 minutes) ____ / 4
WINTER

TOTAL ____ / 34