Foundations of Accounting I

Accounting Project
Written by: Karen Pitsch
Special thanks to Donna Larner

andiddle !o" is a #erchandising business" $heir account balances as of %o&e#ber
'() *(+* ,unless other-ise indicated.) are as follo-s:
++( !ash / 01)'0(
++* Accounts ecei&able 2)+03
++' Allo-ance for Doubtful Accounts 24(
++4 5erchandise In&entory *)'12
++2 Prepaid Insurance 4)04(
++0 Store Supplies *)34(
+*' Store 67uip#ent +(()3((
+*1 Accu#ulated Depreciation8Store 67uip#ent '+)(2(
*+( Accounts Payable ')*32
*++ Salaries Payable (
*+3 Interest Payable (
**( %ote Payable ,Due *(+0. '()(((
,/2)((( to be paid in *(+'.
'+( andiddle) !apital ,9anuary +) *(+*. 12)*33
'++ andiddle) Withdra-als 2()(((
'+* Inco#e Su##ary (
1+( Sales *:2)+'(
1++ Sales eturns and Allo-ances +()(*(
1+* Sales Discounts 0)*((
4+( !ost of ;oods Sold '()*4(
4*( Sales Salaries 6<pense '1)1((
4*+ Ad&ertising 6<pense +3)(((
4** Depreciation 6<pense (
4*' Store Supplies 6<pense (
4*: 5iscellaneous Selling 6<pense *)3((
4'( =ffice Salaries 6<pense *4)4((
4'+ ent 6<pense *1)*((
4'* Insurance 6<pense (
4'' >ad Debt 6<pense (
4': 5iscellaneous Ad#inistrati&e 6<pense +)24(
44( Interest 6<pense +)+((
andiddle !o" uses the perpetual in&entory syste# and the Last8in) First8out costing
#ethod" $ransportation8in and purchase discounts should be added to the In&entory
!ontrol Sheet) but since this -ill co#plicate the co#putation of the Last8in) First8out
costing #ethod) please ignore this step in the process" $hey also use the Allo-ance
5ethod for bad debt"
$he Accounts ecei&able and Accounts Payable Subsidiary Ledgers along -ith the
In&entory !ontrol Sheet should be updated as each transaction affects the# ,daily."
andiddle !o" sells three types of #icro-a&e o&ens"

$he sale prices of each are:
:(( -att #icro-a&e: /+::
+((( -att #icro-a&e: /*::
+*(( -att #icro-a&e: /1::
During Dece#ber) the last #onth of the accounting year) the follo-ing transactions -ere
co#pleted:
Dec" +" Issued check nu#ber *2'* for the Dece#ber rent) /*)*(("
*" Sold t-o +*(( -att #icro-a&es for cash"
1" Purchased four +((( -att #icro-a&es on account fro# 5att !o") ter#s *?+()
n?'() F=> shipping point) /4:2"
4" Issued check nu#ber *2'' to pay the transportation charges on purchase of
Dece#ber 1) /3:" ,%=$6: Debit 5erchandise In&entory" Do not include
shipping and purchase discounts to the In&entory !ontrol sheet for this
project".
2" Sold si< +((( -att #icro-a&es and four +*(( -att #icro-a&es on account to
>riana !o") in&oice 3:+) ter#s *?+() n?'() F=> shipping point"
3" Issued check nu#ber *2'1 for refund of cash on sales #ade for cash) /+4("
,!usto#er -as going to return goods until an allo-ance -as arranged".
+(" Purchased store supplies on account fro# Prince !o") ter#s n?'() /'+("
+(" Issued check to 5att !o" nu#ber *2'4 for the full a#ount due) less discount
allo-ed" ,ound discount to nearest dollar".
++" Paid Prince !o" full a#ount due) check nu#ber *2'2"
+*" Issued credit #e#o for one +((( -att #icro-a&e returned on sale of
Dece#ber 2" ,%=$6: Assu#e the returned #icro-a&e -as fro# the ++?'(
in&entory.
+'" Issued check nu#ber *2'0 for ad&ertising e<pense for last half of Dece#ber)
/')((("
+1" ecei&ed cash fro# >riana !o" for the full a#ount due ,less return of
Dece#ber +* and discount@ round to nearest dollar."
+:" Issued check nu#ber *2'3 to buy fi&e :(( -att #icro-a&es) /1:4"
+:" Issued check nu#ber *2': for /4:2 to 9oseph !o" on account"
*(" Sold se&en :(( -att #icro-a&es on account to !a#eron !o") in&oice
nu#ber 3:*) ter#s +?+() n?'() F=> shipping point"
*(" $o e<pedite sale on Dec" *() issued check nu#ber *21( for shipping charges
on sale to !a#eron on Dece#ber *() /+*( ,%=$6: !a#eron !o" -ill be
rei#bursing us for this shipping cost."
*+" ecei&ed /+)':2 cash fro# 5cKenAie !o" on account) no discount"
*+" Purchased three +*(( -att #icro-a&es on account fro# 6lisha !o") ter#s
+?+() n?'() F=> shipping point) /010) shipping /03 ,%=$6: Debit
5erchandise In&entory /3*4) but only put /010 in the In&entory !ontrol
Sheet."
*1" ecei&ed notification that 5arie !o" has been granted bankruptcy -ith no
a#ount of reco&ery" We are to -rite8off her a#ount due" ,%ote: See page
'24 for entry re7uired".
*2" Issued a debit #e#o for return of /*1: because of da#age to one +*(( -att
#icro-a&e purchased on Dece#ber *+) recei&ing credit fro# the seller"
*0" Issued check nu#ber *21+ for sales salaries of /*)(4( and office
salaries of /+)1(("
*3" Purchased store e7uip#ent on account fro# 9oseph !o") ter#s n?'() F=>
destination) /+)*(("
*:" Issued check nu#ber *21* for store supplies) /0("
*:" Purchased se&en +((( -att #icro-a&e fro# Prince !o) ter#s +?+() n?'()
F=> shipping point) for /+)++' on account) shipping /+(0"
'(" Sold eight +((( -att #icro-a&es on account to >riana !o") in&oice nu#ber
3:') ter#s *?+() n?'() F=> shipping point"
'(" ecei&ed cash fro# sale of Dece#ber *() less discount) plus transportation
paid on Dece#ber *(" ,ound calculations to the nearest dollar".
'+" Issued check nu#ber *21' for purchase of Dece#ber *+) less return
of Dece#ber *2 and discount" ,ound discount to the nearest dollar".
'+" Issued a debit #e#o for /*(( of the purchase returned fro#
Dece#ber *3"
Instructions:
+" 6nter the balances of each of the accounts in the appropriate balance colu#n of the
;eneral Ledger ,>8S and I8S Ledger." Write >alance in the ite# section) and place
a ,<. in the Post eference colu#n"
*" 9ournaliAe the transactions in a sales journal) purchases journal) cash receipts
journal) cash pay#ents journal) or general journal as illustrated in chapter 0" Also
post to the Accounts ecei&able and Accounts Payable Subsidiary ledgers and
In&entory !ontrol Sheet as needed"
'" $otal each colu#n on the special journals and pro&e the journals"
1" Post the totals of the account na#ed colu#ns and indi&idually post the B=ther
AccountsC colu#ns as -ell to the ;eneral Ledger"
4" Prepare the Schedule of Accounts ecei&able and the Schedule of Accounts
Payable ,their total a#ount #ust e7ual the a#ount in their controlling general ledger
account."
2" Prepare the unadjusted trial balance on the -orksheet"
0" !o#plete the -orksheet for the year ended Dece#ber '+) *(+*) using the follo-ing
adjust#ent data:
a" 5erchandise in&entory on Dece#ber '+ /+)(:(
b" Insurance e<pired during the year *)*4(
c" Store supplies on hand on Dece#ber '+ 34(
d" Depreciation for the current year needs to be calculated" $he business uses
the Straight8line #ethod) the store e7uip#ent has a useful life of +( years
-ith no sal&age &alue" ,%=$6: the purchase and return -ill not be included
as the dates of the transactions -ere after the +4
th
of the #onth."
e" Accrued salaries on Dece#ber '+:
Sales salaries /+)(04
=ffice salaries 41( /+)2+4
f" $he note payable ter#s are at 3D) pay#ent is not being #ade until 9an" ')
*(+'" Interest #ust be recogniAed for one #onth"
g" !alculate the >ad Debt adjust#ent a#ount@ net realiAable &alue of Accounts
ecei&able is deter#ined to be /2)'+'"
3" Prepare a #ultiple8step inco#e state#ent) a state#ent of o-nerEs e7uity) and a
classified balance sheet in good for#" ,eco##end re&ie- of B!urrent LiabilitiesC on
page +1:".
:" 9ournaliAe and post the adjusting entries"
+(" 9ournaliAe and post the closing entries" Indicate closed accounts by inserting a Aero
in both balance colu#ns opposite the closing entry"
++" Prepare a post8closing trial balance"
!heck Figures for Accounting Project:
!ash eceipts 9ournal@ !ash !olu#n: 0)'+1
Fnadjusted $rial >alance $otal: 1+4)++3
%et Inco#e: ++:)11:
Post !losing $rial >alance: +3+):0(