Question

Foundations of Accounting I

Accounting Project

Written by: Karen Pitsch

David’s Entertainment is a merchandising business. Their accountbalances as of November 30, 2012 (unless otherwise indicated), areas follows:

110 Cash $ 73,920

112 AccountsReceivable 34,250

113 Allowance for DoubtfulAccounts 11,000

115 MerchandiseInventory 123,900

116 PrepaidInsurance 3,750

117 StoreSupplies 2,850

123 StoreEquipment 100,800

124 Accumulated Depreciation-StoreEquipment 20,160

210 AccountsPayable 21,450

211 SalariesPayable 0

218 InterestPayable 0

220 Note Payable (Due2017) 15,000

310 D. Williams, Capital (January 1,2012) 73,260

311 D. Williams,Drawing 50,000

312 IncomeSummary 0

410 Sales 853,445

411 Sales Returns andAllowances 20,020

412 SalesDiscounts 13,200

510 Cost of MerchandiseSold 414,575

520 Sales SalariesExpense 74,400

521 AdvertisingExpense 18,000

522 DepreciationExpense 0

523 Store SuppliesExpense 0

529 Miscellaneous SellingExpense 2,800

530 Office SalariesExpense 40,500

531 RentExpense 18,600

532 InsuranceExpense 0

533 Bad DebtExpense 0

539 Miscellaneous AdministrativeExpense 1,650

550 InterestExpense 1,100

David’s Entertainment uses the perpetual inventory system andthe First-in, First-out costing method. Transportation-in andpurchase discounts should be added to the Inventory Control Sheet,but since this will complicate the computation of the First-in,First-out costing method, please ignore this step in the process.They also use the Allowance Method for bad debt.

The Accounts Receivable and Accounts Payable Subsidiary Ledgersalong with the Inventory Control Sheet should be updated as eachtransaction affects them (daily).

David’s Entertainment sells four types of televisionentertainment units.

The sale prices of each are:

TV A: $3,500

TV B: $5,250

TV C: $6,125

PS D: $9,000

During December, the last month of the accounting year, thefollowing transactions were completed:

Dec. 1. Issued check number 2632 for theDecember rent, $2,600.

Purchased three TV C units on account from Prince Co., terms2/10, n/30, FOB shipping point, $11,100.

Issued check number 2633 to pay the transportation changes onpurchase of December 3, $400. (NOTE:Do not include shipping andpurchase discounts to the Inventory Control sheet for thisproject.)

Sold four TV A and four TV B on account to Albert Co., invoice891, terms 2/10, n/30, FOB shipping point.

Sold two projector systems for cash.

Purchased store supplies on account from Matt Co., terms n/30,$580.

Issued check to Prince Co. number 2634 for the full amount due,less discount allowed.

Issued credit memo for one TV A unit returned on sale ofDecember 6.

Issued check number 2635 for advertising expense for last halfof December, $1,500.

Received cash from Albert Co. for the full amount due (lessreturn of December 14 and discount).

19. Issued check number 2636 to buy two TV C units, $7,600.

19. Issued check number 2637 for $6,100 to Joseph Co. onaccount.

Sold five TV C units on account to Cameron Co., invoicenumber

892, terms 1/10, n/30, FOBshipping point.

For the convenience of the customer, issued check number 2638for shipping charges on sale of December 20, $700.

Received $12,250 cash from McKenzie Co. on account, nodiscount.

Purchased three projector systems on account from Elisha Co.,terms 1/10, n/30, FOB destination, $15,600.

24. Received notification that Marie Co. has been grantedbankruptcy with no

amount of recovery. We are to write-off her amount due. (Note:See page

402 for entry required.)

Issued a debit memo for return of $5,200 because of a damagedprojection

system purchased onDecember 21, receiving credit from the seller.

Issued check number 2639 for refund of cash on sales made forcash, $600.(Customer was going to return goods until an allowancewas arranged.)

27. Issued check number 2640 for sales salaries of $1,750 andoffice

salaries of $950.

Purchased store equipment on account from Matt Co., terms n/30,FOB

destination, $1,200.

Issued check number 2641 for store supplies, $470.

Sold four TV C units on account to Randall Co., invoice number893,

terms 2/10, n/30, FOB shipping point.

Received cash from sale of December 20, less discount, plustransportation

paid on December 20. (Roundcalculations to the nearest dollar.)

Issued check number 2642 for purchase of December 21, lessreturn

of December 25 and discount.

Issued a debit memo for $300 of the purchase returned from

December 28.

Instructions:

Enter the balances of each of the accounts in the appropriatebalance column of a four-column account (General Ledger).WriteBalance in the item section, and place a check mark (x) in the PostReference column.

Journalize the transactions in a sales journal, purchasesjournal, cash receipts journal, cash payments journal, or generaljournal as illustrated in chapter 7.Also post to the AccountsReceivable and Accounts Payable Subsidiary ledgers and InventoryControl Sheet as needed.

Total each column on the special journals and prove thejournal.

Post the totals of the account named columns and individuallypost the “other” columns as well to the General Ledger.

Prepare the Schedule of Accounts Receivable and the Schedule ofAccounts Payable (their total amount must equal the amount in theircontrolling general ledger account).

Prepare the unadjusted trial balance on the worksheet.

Complete the worksheet for the year ended December 31, 2012,using the following adjustment data:

a. Merchandise inventory on December31 $90,800

b. Insurance expired during theyear 1,250

c. Store supplies on hand on December31 975

d. Depreciation for the current year needs tobe calculated. The business uses

the Straight-line method, the store equipment has a useful life of10 years

with no salvage value. (NOTE: the purchase and return will not beincluded

as the dates of the transactions were after the 15^th ofthe month).

e. Accrued salaries on December 31:

Salessalaries $1,400

Officesalaries 760 2,160

f. The note payable terms are at 8%, payment is notbeing made until Jan. 3, 2013. Interest must be recognized for onemonth.

g. Net realizable value of Accounts Receivable is determined tobe $27,950.

8. Prepare a multiple-step income statement, a statement ofowner’s equity, and a

classified balance sheet in goodform. (Recommend review of “Current Liabilities” on pages 166 &167 and “Current Maturities of Long-term Debt” on page 480.)

9. Journalize and post the adjusting entries.

Journalize and post the closing entries.Indicate closed accountsby inserting a line

in both balance columns opposite the closing entry.

Prepare a post-closing trial balance.

Check Figures for Accounting Project:

Cash Receipts Journal; Cash Column: 97,939

Unadjusted Trial Balance Total: 1,080,620

Net Income: 264,350

Post-Closing Trial Balance: 347,490