11. On January 1, Kevin Reynolds, a student at State U, decides to start a business. Kevin has noticed that various student organizations around campus are having more and more need for mass produced copies of programs on CDs. While a lot of students have a CD drive on their computers that can write to CDs, it is

a slow process when a high volume of CDs is needed.

Kevin believes that with a beginning investment in specialty equipment, he can provide a valuable

product to the college community and earn some profit. On January 1, Year One, Kevin officially begins "Kevin's CD Kopies."

Part 1

The following occur during January:

1. Kevin deposits $500 of his own money into the company's checking account as his capital

contribution.

2. As president of the company, Kevin signs a note payable in the amount of $1,000 from

Neighborhood Bank. The note is due from the company in one year.

3. KCDK (Kevin's CD Kopies) purchases a CD duplicator (a piece of equipment), which can copy

seven CDs at one time. The cost is $1,300, and he pays cash.

4. KCDK purchases 500 blank CDs for $150 on account.

5. KCDK pays $20 cash for flyers that are used as advertising.

6. KCDK quickly catches on with the student groups on campus. KCDK sells 400 CDs to various

groups for $0.80 per CD. KCDK receives cash payment for 300 of the CDs, and the student groups

owe for the other 100 CDs.

7. KCDK pays $100 on its accounts payable.

8. KCDK receives $40 in advance to copy 50 CDs for a student group. He will not begin work on the

project until February.

9. KCDK incurs $40 in tax expense. The taxes will be paid in February.

Required:

A. Prepare journal entries for the previous events as needed.

B. Post the journal entries to T-accounts.

C. show an unadjusted trial balance for KCDK for January.

D. show adjusting entries for the following and post them to the company's T-accounts.

10. Kevin's roommate, Mark, helps with copying and delivering the CDs. KCDK pays Mark a salary of $50 per month. Mark will get his first check on February 1.

11. KCDK incurs $10 in interest expense. The interest will be paid with the note at the end of the year.

E. Creat an adjusted trial balance for KCDK for January.

F. Show financial statements for KCDK for January.

G. Show closing entries for the month of January.

Part 2

The following occur in February:

12. Kevin decides to expand outside the college community. On the first day of the month, KCDK

pays $20 in advance for advertising in the local newspaper. The advertisements will run during

February and March.

13. The student groups paid for the 100 CDs not paid for in January.

14. KCDK paid off its remaining accounts payable, salaries payable, taxes payable and interest

payable.

15. KCDK purchases 450 CDs for $135 on account.

16. KCDK sells 500 CDs during the month for $0.80 each. KCDK receives cash for 450 of them and is owed for the other 50.

17. KCDK completes and delivers the advanced order of 50 CDs described in number 11.8.

18. KCDK incurs $80 in tax expense. The taxes will be paid in March.

Required:

A. Prepare journal entries for the previous events if needed.

B. Post the journal entries to the T-accounts.

C. Work and Show an unadjusted trial balance for KCDK for February.

D. Create adjusting entries at the end of February for the following and post them to your

T-accounts.

19. Mark continues to earn his salary of $50, and the next payment will be made on March 1.

20. An adjustment is made for advertising in number 11.12.

21. KCDK incurs $10 in interest expense. The interest will be paid with the note.

E. show an adjusted trial balance for KCDK for February.

F. Create the financial statements for February.