Foundations of Accounting I Accounting Project-David’s Entertainment is a merchandising business

Foundations of Accounting I
Accounting Project

Written by: Karen Pitsch

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

110 Cash $ 73,920
112 Accounts
Receivable 34,250
113 Allowance
for Doubtful Accounts 11,000
115 Merchandise
Inventory 123,900
116 Prepaid
Insurance 3,750
117 Store
Supplies 2,850
123 Store
Equipment 100,800
124 Accumulated
Depreciation-Store Equipment 20,160
210 Accounts
Payable 21,450
211 Salaries
Payable 0
218 Interest
Payable 0
220 Note
Payable (Due 2017) 15,000
310 D.
Williams, Capital (January 1, 2012) 73,260
311 D.
Williams, Drawing 50,000
312 Income Summary 0
410 Sales 853,445
411 Sales
Returns and Allowances 20,020
412 Sales
Discounts 13,200
510 Cost
of Merchandise Sold 414,575
520 Sales
Salaries Expense 74,400
521 Advertising
Expense 18,000
522 Depreciation
Expense 0
523 Store
Supplies Expense 0
529 Miscellaneous
Selling Expense 2,800
530 Office
Salaries Expense 40,500
531 Rent
Expense 18,600
532 Insurance
Expense 0
533 Bad
Debt Expense 0
539 Miscellaneous
Administrative Expense 1,650
550 Interest Expense 1,100

David’s
Entertainment uses the perpetual inventory system and the First-in, First-out
costing method. Transportation-in and
purchase 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 Ledgers along with the
Inventory Control Sheet should be updated as each transaction affects them
(daily).

David’s Entertainment sells four types of
television entertainment 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, the following transactions
were completed:

Dec. 1.
Issued check number 2632 for the December rent, $2,600.
3. Purchased three TV C units
on account from Prince Co., terms 2/10, n/30, FOB shipping point, $11,100.
4. Issued check number 2633 to
pay the transportation changes on purchase of December 3, $400. (NOTE:
Do not include shipping and purchase discounts to the Inventory Control
sheet for this project.)
6. Sold four TV A and four TV
B on account to Albert Co., invoice 891, terms 2/10, n/30, FOB shipping point.
10. Sold two projector systems
for cash.
11. Purchased store supplies on
account from Matt Co., terms n/30, $580.
13. Issued check to Prince Co.
number 2634 for the full amount due, less discount allowed.
14. Issued credit memo for one
TV A unit returned on sale of December 6.

15. Issued check number 2635
for advertising expense for last half of December, $1,500.
16. Received cash from Albert
Co. for the full amount due (less return 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. on account.
20. Sold five TV C units on
account to Cameron Co., invoice number

892, terms 1/10, n/30, FOB shipping point.
20. For the convenience of the
customer, issued check number 2638 for shipping charges on sale of December 20,
$700.
21. Received $12,250 cash from
McKenzie Co. on account, no discount.
21. 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 granted bankruptcy with no
amount of recovery. We are to write-off her amount due. (Note: See page
402 for entry required.)
25.
Issued
a debit memo for return of $5,200 because of a damaged projection

system purchased on December 21, receiving credit from the seller.
26. Issued check number 2639 for refund of cash on
sales made for cash, $600. (Customer
was going to return goods until an allowance was arranged.)
27. Issued check number 2640 for sales
salaries of $1,750 and office

salaries of $950.
28. Purchased store equipment on account from Matt
Co., terms n/30, FOB

destination, $1,200.
29. Issued check number 2641 for store supplies,
$470.
30. Sold four TV C units on account to Randall
Co., invoice number 893,
terms 2/10, n/30, FOB shipping point.
30. Received cash from sale of December 20, less
discount, plus transportation

paid on December 20. (Round
calculations to the nearest dollar.)
30. Issued check number 2642 for purchase of
December 21, less return
of December 25 and discount.
30. Issued a debit memo for $300 of the purchase
returned from

December 28.

Instructions:

1. Enter the balances of each
of the accounts in the appropriate balance column of a four-column account
(General Ledger). Write Balance in the
item section, and place a check mark (x) in the Post Reference column.
2. Journalize the transactions
in a sales journal, purchases journal, cash receipts journal, cash payments
journal, or general journal as illustrated in chapter 7. Also post to the Accounts Receivable and
Accounts Payable Subsidiary ledgers and Inventory Control Sheet as needed.
3. Total each column on the
special journals and prove the journal.
4. Post the totals of the
account named columns and individually post the “other” columns as well to the
General Ledger.
5. Prepare the Schedule of
Accounts Receivable and the Schedule of Accounts Payable (their total amount must
equal the amount in their controlling general ledger account).
6. Prepare the unadjusted trial balance on the
worksheet.
7. Complete the worksheet for
the year ended December 31, 2012, using the following adjustment data:
a.
Merchandise inventory on December 31 $90,800
b.
Insurance expired during the year 1,250
c.
Store supplies on hand on December 31 975
d.
Depreciation for the current year needs to be calculated. The business uses
the Straight-line method, the
store equipment has a useful life of 10 years
with no salvage value. (NOTE: the purchase and return will not be
included
as the dates of the
transactions were after the 15th of the month).
e.
Accrued salaries on December 31:
Sales salaries $1,400
Office salaries 760 2,160
f.
The note payable terms are at 8%, payment is not being made until Jan.
3, 2013. Interest must be recognized for
one month.
g.
Net realizable value of Accounts Receivable is determined to be $27,950.

8. Prepare a multiple-step income statement, a
statement of owner’s equity, and a
classified balance sheet in good form.
(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.
10.
Journalize
and post the closing entries. Indicate
closed accounts by inserting a line
in both balance columns opposite the
closing entry.
11.
Prepare
a post-closing trial balance.