Monopoly An Analysis of Its Transactions Essay Example

Monopoly: An Analysis of Its Transactions Essay In 1933, Charles Darrow lived in the period known as the Great Depression. During this period the United States was experiencing massive unemployment and misfortune. This heightened period of economic ruin gave rise to the board game Monopoly which promised its players vicarious fame and fortune through characters such as a dog, a car, a horse, and many others. In addition to its leisure value, Monopoly provides valuable lessons in business, specifically for those interested in Accounting principles. The overall objective to Monopoly is to bankrupt all of your opponents. To do this, a player needs to acquire multiple properties while maintaining a reasonable amount of cash to pay debts such as rent and fees. The example company used in this analysis was Edwards Property Management (EPM) who managed properties for other companies and stayed at other properties in order to assess their competitive value. The company goal was to own/rent certain monopolies and to manage others for companies. To start the business, EPM borrowed $1500 from the local bank. This money will be used to purchase property, pay taxes and general operating expenses. These funds were acquired as a note payable at 10% interest. The starting capital was recorded in the journal on January 1, 2001 and the game began. In this scenario of game play, the four corners of the board represented the 4 quarters of the year for EPM. Adjusting entries for the interest due to Monopoly Savings and Loan were journalized to the Interest Expense and Accrued Expenses accounts. This was done to attempt to show the true value of EPM. If we had not made these entries, we would have been overstating the value of the company. The entries were tedious but proved to be helpful. An example of one follows: We will write a custom essay sample on Monopoly: An Analysis of Its Transactions specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Monopoly: An Analysis of Its Transactions specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Monopoly: An Analysis of Its Transactions specifically for you FOR ONLY $16.38 $13.9/page Hire Writer Mar 31, 2001 Interest Expense 37.50 Accrued Expense 37.50 Description: First quarters interest on funds borrowed from Monopoly Savings and Loan for operating expenses. In the first year, Edwards Property Management invested in a hotel on Connecticut Avenue along with several other properties including Tennessee Avenue, Ventnor Avenue, and Pacific Avenue. These properties were bought with cash and intended to be rented by EPM for Rent Revenue. Their corresponding journal entries reflected their purchase with the balancing side of that entry to the Building-Hotel account and to the Hotel Property. We made an across the board assumption that twenty percent of the value was attributable to the land and eighty percent was attributable to the building. For example: Jan 1, 2001 Building Hotel 96 Hotel Property 24 Cash 120 Description: Purchased Connecticut Avenue with cash. Assumed 80% of value is in existing building and 20% was in the land purchased. Given the current accounting rules, the land was not amortized but the buildings were. These buildings were depreciated over 10 years using the straight-line method. Because the actual date of acquisition for each of the properties varied considerably from the start of the year, EPM used the half-year convention as visible in the chart below. As a fee to their clients for managing their properties, EPM charges a flat fee of $200 per year total (one turn around the board) regardless of the number of properties managed. This fee is collected as the EPM representative (in this case the dog) passes the proverbial Go corner which also triggers the new fiscal year. This $200 is booked to the Precollected Revenue account. This money is precollected for services to be rendered throughout the year. The cash is recognized but the revenues are not recognized until the service is provided. Jan 1, 2001 Precollected Revenue 200 Cash 200 Description: Received revenue from clients for managing properties. $50 to be earned per quarter. We use the liability account, Precollected Revenue, as a representation of our own obligation to provide property management services to our clients. Adjusting entries are made at the beginning of each quarter to show earned revenue. Throughout the year, Edwards Property Management stays at competitors properties to perform competitive analysis of their offerings including the state of the property, cost, availability of beds, and general hotel assessment. The competitors charge Rent for each visit. These values are part of the expense of day to day operations. For example, in July of 2003, EPM prepaid rent for the second half of that year. EPM anticipated only needing one visit to assess the hotel but nonetheless, prepaid rent for half a year at that visit. The total prepaid was $22 which our competitors gladly accepted. There were two adjusting entries for the third and fourth quarters to spread the expense over its potential service life (the second half of 2003). Journal entries were made against Cash and Prepaid Rent Expense for the outlay of the expenditure. The reconnaissance mission was a success and we benefited greatly from the experience. One visit to Community Chest showed that lady luck was no longer on the side of Edwards Property Management. The card had explained that we owed $100 for a hospital visit. This happened when a client had slipped and fallen on the ice while EPM was showing their prized property, Boardwalk. In order to avoid a lawsuit, EPM immediately called the hospital and had an ambulance sent over. The client was very understanding and accepted our apologies. The accountants viewed this expense as an entry to the Medical Expense account. Jan 1, 2001 Medical Expense 100 Cash 100 Description: Paid for hospital visit when Mr. Slipper E. Feet fell on ice at the Boardwalk property. The Medical Expense was aggregated into the Miscellaneous Expenses account at year end as there were no other medical expense attributed to the company. The competition in the property management business was tough for Edwards Property management. In their fifteen years, they built an empire that spanned from Baltic Avenue to Boardwalk. However, they eventually were outgrown by the Car and the Hat who formed a larger corporation containing two monopolies, one consisting of the red properties and the other consisting of the purple properties. Competitive analysis proved to be too costly while visiting properties such as Illinois Avenue or New York Avenue. Luckily, EPMs accounting records were as solid as their reputation and the new corporation paid handsomely for the goodwill that EPM had built.