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Queta Johnson is about to open a new business ? Chocolate Nirvana.


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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.




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.




1. Record the transactions for Chocolate


Nirvana found on the enclosed forms in one of the journals provided:


Cash Payments – any time you spend




Cash Receipts – any time you receive




Purchase – any time you purchase


something on account


Sales – any time you sell something on




General – only transactions that do


NOT fit into one of the previous journals




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




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




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.




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




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




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






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.




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




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).




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




The transactions forms you need to


record in the various journals


In the Journals section you


will find:


Sales Journal - begin with invoice




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




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




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




Statement of Owners’ Equity


Balance Sheet (Classified format)


Post Closing Trial Balance


Paper#38621 | Written in 07-Dec-2015

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