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

Description

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Question

 

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

 

Paper#38621 | Written in 07-Dec-2015

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