Question

INSTRUCTIONS: PLEASE SELECT THE CORRECT ANSWER CHOICE

Use the following balance sheet information from Aggie Health and Fitness Centers’ month-end financial statements dated August 31, 2016 and open t-accounts for each balance sheet line item. Then use the enclosed TRANSACTIONS AND ADDITIONAL INFORMATION to complete the General Journal, Ledger, Worksheet and Financial Statements for the second month of operations. Use the Perpetual Inventory method as discussed in class for all sales of merchandise.

Aggie Health and Fitness Center

Balance Sheet

As of August 31, 2016

Assets: Liabilities:

Cash $4,500 Accounts Payable $2,900

Accounts Receivable 6,500 Salaries Payable 5,600

Inventory – Concessions 1,100 Interest Payable 1,375

Supplies 400 Unearned Revenue 500

Prepaid Insurance 4,400 Note Payable 330,000

Total Current Assets 16,900 Total Current Liabilities 340,375

Land 80,000 Stockholder’s Equity

Building 408,000 Common Stock 245,500

Equipment 67,200 Retained Earnings 3,563

Furniture and Fixtures 20,016 Total Liab. and SHE $589,438

Accumulated Depreciation (2,678)

Total Assets $589,438

Fiscal Year

Aggie Health and Fitness Center was established as a business in August 2016. Aggie Health and Fitness Center follows a fiscal year end of July 31.

Inventories

Inventories consist of concessions available for resale to members. These concessions consist of energy drinks, nutritional supplements, etc. Inventories are valued on a first-in, first-out basis, using the perpetual method. (Note: The Center plans to expand its inventory during September to include logo-based apparel.)

Prepaid Insurance

Aggie Health and Fitness Center carries property insurance through Good Hands Insurance Co. The Center purchased a 12 month policy on August 1, 2016 for $4,800.

Fixed Assets

Property and Equipment are stated on the basis of historical cost.

Land and Building: The Land and Building was a group purchase made on August 1, 2016. The total purchase price amounted to $488,000. On the date of purchase the land was appraised at $80,000 and the building was appraised at $408,000. The Health and Fitness Center paid $158,000 down and signed a $330,000, 12-month, 5% note for the balance. Depreciation on the building is computed using the straight-line basis with no salvage value. The life of the building is estimated to be 20 years.

Equipment and Furniture and Fixtures: All equipment and furniture and fixtures were purchased for cash on August 1, 2016. Both equipment and furniture and fixtures are depreciated using the straight-line method of depreciation. No salvage value is anticipated. The useful life of the equipment is 8 years. The useful life of the furniture and fixtures is 6 years.

The book values of these assets are presented below:

Land $80,000 $80,000

Building 408,000

Less: Accumulated Depr 1,700 406,300

Equipment 67,200

Less: Accumulated Depr 700 66,500

Furniture and Fixtures 20,016

Less: Accumulated Depr 278 19,738

Net Plant, Property, and Equipment $572,538

Unearned Revenue

The balance in the unearned revenue account is due to the sale of gift certificates redeemable for massage therapy.

Revenue Recognition

The Company recognizes service revenue upon providing services for customers. Sales revenue is recognized upon customer receipt of goods. Revenue for gift certificate sales is recognized at redemption. (Note: all memberships sold during the first month of operations were for one month only).

Instructions

Use the following TRANSACTIONS AND ADDITIONAL INFORMATION to complete the General Journal, Ledger, Worksheet and Financial Statements for the second month of operations for Aggie Health & Fitness Center (The Fitness Center). Use the Perpetual Inventory method as discussed in class for all sales of merchandise.

TRANSACTIONS:

TRANSACTION #	DATE	TRANSACTION DESCRIPTION
1	Sept 1	Purchased a 3-month advertising campaign to be broadcast on local radio stations during the months of September, October and November. Paid $1,500 in advance for this ad campaign.
2	Sept 1	Sold 160, twelve-month memberships to the Fitness Center for $420 each. All membership dues were collected in cash.
3	Sept 2	Purchased office supplies for $325 on an open account from Kelli’s Office Supplies. The Fitness Center has 30 days to pay for the supplies.
4	Sept 3	Purchased on account a total of 180 shirts with an embroidered Aggie Health and Fitness Center logo from C & C Creations at a price of $14 per shirt. These shirts are available for resale to customers.
5	Sept 4	Paid wages due to employees on August 31
6	Sept 5	Purchased flowers for the reception desk for $54 cash
7	Sept 6	Purchased concessions for $5,200 on account from Advocare Distributing, Inc. These concessions consist of energy drinks, nutritional supplements, etc., and are available for resale to customers
8	Sept 7	Provided 50 hours of personal training services to members. Fees are charged at a rate of $45 an hour. The total amount was billed to individual member’s accounts
9	Sept 10	Paid the total amounts due to Kelli’s Office Supplies for the Sept. 2 transaction and C&C Creations for the Sept. 3 transaction
10	Sept 12	Sold thirty-five shirts to a corporate member, Allen & Associates for $36 each. Collected $500 in cash and the balance is owed to the Fitness Center on account
11	Sept 13	The owners of the company invested an additional $18,000 into Aggie Health and Fitness Center in exchange for common stock
12	Sept 14	Gift certificates totaling $300 were redeemed for massage therapy performed
13	Sept 15	The concessions stand reported sales of merchandise for $5,400 for the first half of the month. The concessions that were sold had an original cost of $2,320. All of these transactions were billed directly to each member’s account
14	Sept 15	For the first half of September, provided 22 hours of massage therapy at a rate of $75/hour. Billed the individual members’ accounts for services provided
15	Sept 16	Received $6,775 for services previously billed to customer’s accounts
16	Sept 16	Paid wages and salaries of $4,700 to Aggie Health and Fitness Center employees
17	Sept 17	Purchased on account additional concessions for $2,100 from Advocare Distributing
18	Sept 20	Paid $5,680 on accounts payable
19	Sept 21	Collected the balance of what was owed on account from Allen & Associates for the Sept. 12 transaction
20	Sept 22	Sold forty-seven shirts to individual customers for $40 each. Collected 30% in cash, the balance is owed to Aggie Health and Fitness Center on account
21	Sept 23	Received a utility bill that totaled $535 for the month. It is due October 12
22	Sept 24	Sold a gift certificate for $100 cash. The gift certificate is valid for one year and is redeemable for a 60 -minute massage
23	Sept 26	Cash sales of shirts: 30 shirts sold at $40 each
24	Sept 27	Aggie Health and Fitness Center paid a dividend of $4,000 to its shareholders
25	Sept 28	Received $4,225 for services previously billed to customers’ accounts
26	Sept 29	Purchased additional equipment for $28,000; paid $5,000 in cash and signed a two year, 4% note for the balance
27	Sept 29	Fees for massage therapy for the last half of September totaled $4,900. All of these transactions were collected in cash. Fees for personal training given during the last half of September amounted to $7,200. Fifty percent of the personal training fees were collected in cash
28	Sept 30	∙Credit sales for concessions during the last half of September totaled $1,900. ∙Cash sales for concessions during the last half of September totaled $480. ∙Cost of the concessions sold during the last half of September was $1,015

ADDITIONAL INFORMATION:

1.Depreciation expense for the month of September should be calculated using the straight-line method.

2.At the end of the month, a physical count was taken of the Fitness Center’s inventories.

It revealed the following information:

a.Sixty of the shirts for resale were on hand at September 30.

b.Concession merchandise still on hand as of September amounted to $4,990.

3. Salaries earned by employees but unpaid on September 30 totaled $5,115.

4. Office Supplies still on hand on September totaled $100.

What is the correct adjusting journal entry for Insurance Expense/Prepaid Insurance?

A.

Insurance Expense	400
Prepaid Insurance	400

B.

Prepaid Insurance	400
Insurance Expense	400

C.

Insurance Expense	4,800
Prepaid Insurance	4,800

D.

Insurance Expense	800
Prepaid Insurance Please select the correct letter choice.	800

What is the correct adjusting journal entry for Interest Expense/Interest Payable?

A.

Interest Payable	2,750
Interest Expense	2,750

B.

Interest Expense	2,750
Interest Payable	2,750

C.

Interest Expense	1,375
Interest Payable	1,375

D.

Interest Payable	1,375
Interest Expense Please select the correct letter choice.	1,375