ACC – Queta Johnson is about to open a new business – Chocolate Nirvana

Introduction

Queta Johnson is about to
open a new business – Chocolate Nirvana.
It will be a small chocolate specialties store. She plans on selling a limited number of
hand-made molded candies, some of which are holiday specific and others that
are of a more generic nature, as well as carrying a line of top-end candy
bars. The majority of her sales will
come from walk-in customers which will all be on a cash only basis. In addition, she will also sell direct to
two local businesses, on account, with terms 1/10,n/30. She anticipates working full-time at the
store and needing the help of four part-time employees. She uses
a perpetual FIFO (First-in, First-Out) method to account for her
inventory. So, every
time you record a sale of merchandise, whether on account or for cash, you
must also figure out the cost of the goods while recording the sale in the
inventory subsidiary.

The
purpose of this practice set is to allow you the chance to see how each of
the separate components we have worked on this semester fit together. As you complete the set, you may find it
necessary to look back at what we learned in various chapters to help
remember exactly what to do.

Instructions

1. Record the transactions for Chocolate
Nirvana found on the enclosed forms in one of the journals provided:

Cash Payments – any time you spend
money

Cash Receipts – any time you receive
money

Purchase – any time you purchase
something on account

Sales – any time you sell something on
account

General – only transactions that do
NOT fit into one of the previous journals

Chocolate
Nirvana uses Accounts Receivable, Accounts Payable, and Merchandise Inventory
Subsidiary Ledgers as well as a check book

Remember to post to the
subsidiary ledgers any time those accounts are used

The
first work you will be doing will be do determine which journal each form
belongs in. Each form will only go
into one journal. If we can post it
into one of the special journals, we will.
If it does not belong in a special journal – that is the only time we
will use the general journal for our transactions. This will be fairly rare. Pay attention to the words used on the
forms. If it indicates that we have
received money – FOR ANY REASON – we will record that in the Cash Receipts
Journal. If it indicates that we need
to write out a check – FOR ANY REASON – it must go into the Cash Payments
Journal. If we sell something on
account then it would go into the Sales Journal. And if we buy something on account or we
receive a service on account, then it would go into the Purchases
Journal. If it is a sales return, a
purchase return, or the payroll entries it must go into the General
Journal.

As we
record the information from the forms into the journals we need to watch the
columns where we record the information.
If we record something in the Cash Receipts or the Cash Payments
Journals, then we will have to affect cash.
Any number we put in the Cash debit column from Cash Receipts we will
also put into the check book as a deposit.
Any number we put in the Cash credit column from Cash Payments we will
also put into the check book as a check we write out. If we affect Accounts Receivable, Accounts
Payable, or Merchandise Inventory in any of the special journals OR in the
general journal, we must ALSO take that amount into that subsidiary
ledger. If we debited it in the
journal we will debit it in the subsidiary; if we credited it in the journal
we will credit it in the subsidiary.
If we purchased the merchandise inventory we will show it as a
purchase in the inventory sheets, if we sold it we will show it under the
cost of goods sold section – we will determine our cost for the sale by applying
the FIFO rules and determining our cost in the goods we sold.

Payroll – record the payroll
as instructed first into their employee earnings records, then transfer the
information into the payroll register and after totaling the payroll register
use that information to prepare a general journal entry. Specific data for each individual
regarding their pay rate, status and number of allowances can be found on
their earnings record sheets. Specific
rates to be used for social security, medicare, and the unemployment amounts
can be found down in the next section.
Prepare the journal entries based off what we were taught in the
textbook. You will need to debit the
salary expense account for total gross wages and credit each of the things we
withheld (as summarized on the payroll register). However you must credit Payroll
Checking Account for the net pay because this business uses a separate
checking account for normal checks and payroll checks.

When you are asked to
transfer enough funds to cover payroll, you will debit the Payroll Checking
account for the same amount you credited in the first payroll entry in the
general journal (net pay) but now it will be in the Cash Payments Journal. This will give you a debit and a credit and
will result in a zero balance (and nothing recorded in the Wages Payable
account yet).

Keep in mind that after
recording the general journal entry to record the actual payroll you must
also prepare a journal entry to record the payroll tax expense for the
business. Chocolate Nirvana is
responsible for matching the Social Security and Medicare amounts withheld
from its employees and also must pay in for Federal and State
Unemployment. This means that when it
comes time to post into the ledger you will have two identical amounts in the
Social Security account and two identical amounts in the Medicare
account. This entry was shown in the
textbook so please follow the format we saw there. The following rates apply:

Social Security 6.2%, on the first $110,000 earned each
year by each employee

Medicare 1.45%

FUTA .8%, on the first $7,000 earned each year by each employee

SUTA 9%, on the first $12,000
earned each year by each employee

We will NOT actually write
out the individual payroll checks

Hint: If you are asked to write out a check to
cover more than one thing you must take more than one line so that you
properly record the affect to each account.

To this point you should NOT
have anything recorded in the General Ledger.
Wait until you have your journals completed, TOTALED, and corrected,
before putting anything into the general ledger.

2.
After completing all journals, TOTAL THEM and write the totals below the last number
in the column, compare to the check figures,
and post to the general ledger.
For any journal column with the name of a specific account in the
column heading you will post only the total from that column into that account
in the general ledger. Journal columns
shown as “Other” in the heading need to be posted individually into
the general ledger. As you post
remember that you have to use the post reference numbers. In the ledger you fill in the journal
abbreviation and page number where you get your data and in the journal you
put the ledger account number where you posted it. Cash Receipts is CR; Cash Payments is CP;
Purchases is P; Sales is S; and General Journal is J. In the journal to show that you posted it
into a subsidiary ledger you put a check mark.

3. Prepare an unadjusted trial balance. After getting your numbers to match the
check figure transfer the information into the first columns of the
worksheet.

4. Prepare month end adjusting entries based
on the following data:

a) Record accrued interest on the long term
note for 3 days – $16.77

b) Depreciation – calculate depreciation for
JUST the month of October based on the following information:

Store Equipment – 5 year life, $2000
salvage value, purchased October 10, use straight line depreciation

Office Equipment – 5 year life, $200
salvage value, purchased October 10, use straight line depreciation

c) Record entry for expired insurance

d) Currently there are $75 worth of office
supplies on hand

e) Currently there are $125 worth of store
supplies on hand

f) Record entry amount of advertising expired for the
period just ended

g) Record wages earned, but unpaid, on Oct 31
of $275

Adjusting
entries need to be recorded in the general journal, posted into the general
ledger (remember to indicate Adjusting Entry in the Item column), and added
to the worksheet.

5. Complete the worksheet, schedule of
accounts receivable/payable, Income Statement, Statement of Owners’ Equity,
and Balance Sheet. Add any accounts
not already found on the worksheet as needed to complete your adjusting
entries.

The
schedule of accounts receivable and schedule of accounts payable are prepared
by listing every business owing us money at the end of the month and totaling
them and listing every business we owe money to at the end of the month and
totalling them. We use the two
subsidiary ledgers to get this information.

Prepare
the Income Statement using the Multiple step format and the Balance Sheet
using the classified format. The Notes
Payable – current balance on the Balance Sheet should be $15,000 and the
Notest Payable – noncurrent balance on the Balance Sheet should be $13,750.

6. Prepare closing entries, post to the
ledger, and prepare a post-closing trial balance

The
easiest way to prepare your closing entries would be to use your completed
worksheet. Close the credit amounts in
the Income Statement column into income summary for the first entry. Close the debit amounts from the Income
Statement columns into Income Summary for the second entry. Close the difference between the two income
summary amounts (should equal net income) in to the Capital account in the
third entry. Finally, close the
drawing account into the capital account in the fourth entry. These entries are done in the General Journal
and then posted into the General Ledger.
Be sure to indicate Closing entry in the Item column. You will then prepare the post-closing
trial balance by going through the ledger and listing every account that
still has a balance and listing the balance (as either a debit or a credit –
based on what it is in the ledger).

(Have
you made sure that your balances in your subsidiary ledgers match their
controlling accounts in the general ledger?
Does the net income from your work sheet match the net income you
reported on your Income Statement?)

In the Exhibit section you
will find:

Chart of Account

Tax Withholding Chart

Check Figures

In the Forms section you will
find:

The transactions forms you need to
record in the various journals

In the Journals section you
will find:

Sales Journal – begin with invoice
1001

Purchases Journal

Cash Receipts Journal – begin with
invoice 101

Cash Payments Journal – begin with
check 1001

General Journal (ONLY transactions
that CANNOT go into one of the special journals)

In the Ledgers section you
will find:

Accounts Receivable Subsidiary Ledger

Accounts Payable Subsidiary Ledger

Merchandise Inventory Subsidiary
Ledger

General Ledger

In the Checkbook section you
will find:

Checkbook – begin with check 1001

In the Payroll section you
will find:

Individual Earnings Records

Payroll Register – Begin with check
101 (assign to employees in order – do not actually write out checks to the
employees)

In the Financial Statement
section you will find:

Unadjusted Trial Balance

Work Sheet

Schedule of Accounts Receivable

Schedule of Accounts Payable

Income Statement (Multiple Step
format)

Statement of Owners’ Equity

Balance Sheet (Classified format)

Post Closing Trial Balance