Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Assume it is currently June 1, 2019. You are working for the temporary accounting employment agency known as Acctempo. Today you have been asked to

Assume it is currently June 1, 2019. You are working for the temporary accounting employment agency known as Acctempo. Today you have been asked to work at The Digital Village, a small electronics store that operates in inner city San Francisco and is owned by Miranda Pauli. Your task here is to complete the accounting cycle for The Digital Village for the month of June 2019. To assist you in this task, Miranda tells you to read the company's accounting policies and procedures. Note that you will be required to follow these policies and procedures when completing the accounts for The Digital Village.

Accounting policies

a.Business operations: The Digital Village is set up as a private non-listed corporation based in San Francisco with Miranda Pauli as the sole stockholder. The business derives its main source of revenue from retail sales of electronic goods. To assist in managing the business, The Digital Village rents a small office space. Note that the business is required to pay for the rent for this premises in advance. The electricity and water expenses incurred during the month relate to the running of the office. Additional expenses include an insurance policy to protect the equipment in the office in the event of theft or fire. All costs associated with the office are classified as general and administrative expenses. Miranda is the only full-time employee and her role is to handle all administrative tasks. Miranda's salary is paid once at the end of each month. All other employees are sales staff who are employed on a part-time basis. The sales staff receive their wages on a weekly basis.

b.Accounting cycle: The business adopts a monthly accounting cycle.

c.Purchases: Purchases are recorded when the business receives the goods. All items purchased are received on the same day as recorded in the transaction list, except for purchase orders which are received at a later date. Note that the business uses the gross method of recording purchases and receives trade discounts from some suppliers.

d.Revenue recognition: The business recognizes revenue when goods sold are delivered to customers. All items sold are delivered on the same day as recorded in the transaction list except for sales orders, which are delivered at a later date as agreed with the customer. Note that the business uses the gross method of recording sales and sometimes grants trade discounts to customers. Past experience has shown that offering early payment discounts did not increase the likelihood of accounts receivable being paid promptly. Therefore, discounts for early payment of accounts are not offered to credit customers.

e.Sales tax: The business is a registered entity for sales tax purposes and collects 5% sales tax on all items sold to customers. Note that the business holds a reseller's certificate so it is not liable to pay sales tax on purchases of inventory. No sales tax is due to be remitted during the month of June.

f.Cash: The business accepts cash and checks and uses checks to pay for the majority of its expenses. On the day checks are received, Miranda deposits them at the bank. It may take a number of days for the checks to be cleared by the bank. The business holds its checking account with ZNZ Bank.

g.Inventories: The business uses the perpetual inventory system and applies the FIFO method to allocate costs to inventory and cost of goods sold. Note that the business maintains a set of inventory cards with multiple pairs of lines to keep track of changes in inventory. In each inventory card under the Balance column, items with different unit costs are listed in separate lines with the items purchased earlier listed first in the pair of lines provided.

h.Prepayments: The business has a policy of recording prepayments, including office supplies, as assets. At the end of the month, adjustments are made to the relevant accounts to recognize the expense during the accounting period.

i.Property, plant and equipment: Property, plant and equipment items are depreciated over their estimated useful life using the straight line method to calculate the depreciation charge. Depreciation is allocated on a monthly basis and the monthly depreciation charge is calculated as the yearly depreciation expense divided by the number of months in a year.

j.Long term liabilities: The business obtained an interest only loan from Earth Bank on June 1, 2019 at a simple interest rate of 6% per year. The first interest payment is due at the end of August 2019 and the principal on the loan is due on June 1, 2024.

Accounting procedures: The Digital Village adopts a manual accounting system and uses the general journal and special journals for the recording of individual transactions. Miranda Pauli has tailored the design of those journals to meet the specific needs of the business so the format of those journals may be slightly different to those you have seen before. However, she advises you that the general principles of how to use special journals are followed in her business.

The table below shows the journals used by the business and the types of transactions that can be recorded in each of these journals:

Journal Code Transaction type General journal GJ All transactions that are not able to be recorded in the special journals below.

Sales journal SJ - Credit sales of inventory

Purchases journal PJ - Credit purchases of inventory

Cash receipts journal CRJ - Cash inflows to the business

Cash payments journal CPJ- Cash outflows from the business

To summarize the effects of transactions recorded in those journals, Miranda maintains the general ledger and the following ledgers: accounts receivable subsidiary ledger, accounts payable subsidiary ledger, and inventory cards. Miranda then indicates that she is aware other businesses using a manual accounting system may post transactions from journals to ledgers at different times (i.e. daily or monthly). Although the posting procedures used in her business may be different to what you have seen before, she asks that you specifically follow her company's accounting procedures. The information below explains when transactions are required to be posted from the journals to the appropriate ledger accounts and inventory cards:

Posting of entries recorded in the general journal - All transactions that are entered in the general journal are posted on a daily basis. Note that if a transaction recorded in the general journal involves both a control account and a subsidiary ledger account, that journal entry will need to be posted to both ledgers.

Posting of entries recorded in the special journals - When a transaction is recorded in a special journal, part of the journal entry may need to be posted daily and part of that entry is to be posted monthly.

a.Daily: If a transaction affects a subsidiary ledger account, then the entry that involves a subsidiary ledger account is to be posted to that subsidiary ledger on a daily basis. However, the same amount posted to the subsidiary ledger account is not posted to the related control ledger account immediately. This procedure allows the business to keep track of supplier and customer balances on a daily basis. In the cash receipts journal or the cash payments journal, if a transaction is recorded in the Other Accounts column, then the amount recorded in the Other Accounts column is to be posted to the appropriate general ledger account daily. If a transaction results in a change in the number of inventory items on hand, then the entry that affects inventory is to be posted to the appropriate inventory card on a daily basis. In this way, the business is able to track the balance of inventory on hand.

b.Monthly: At the end of the month, the totals of each column in the special journals are manually calculated. Those totals, with the exception of the totals of the Other Accounts columns in the cash journals, are posted to the appropriate general ledger accounts at the end of the month.

Transactions for June

You will use the following five weeks of transactions as you complete the books for June. Note that the transactions are divided into five separate weeks. This is because you will not enter this whole list of transactions on any one page. You will be given five separate pages in which to enter the transactions for each of the five weeks.

Date Description

Week 1

Purchased 15 BlueBerry Phones from Mega Tech for $660 each, terms net 30.

Obtained a loan of $54,000 from Earth Bank at a simple interest rate of 6% per year. The first interest payment is due at the end of August 2019 and the principal of the loan is to be repaid on June 1, 2024.

Paid the full amount owing to Pony, Check No. 632. Payment fell outside discount period.

Purchased 28 Swish Phones with cash for $480 each, Check No. 633.

Purchased 18 MX620 Notebook Computers from Big Telco for $1,000 each, terms 2/10, n/30

Sold 17 BlueBerry Phones to Radio Hut for $980 each, plus 5% sales tax, Invoice No. 385.

Made cash sale of 12 Swish Phones for $960 each plus 5% sales tax.

Paid the full amount owing to Moon Megasystems, Check No. 634. Payment fell outside discount period.

Paid sales staff wages of $12,542 for the week up to and including yesterday, Check No. 635. Note that $6,500 of this payment relates to the wages expense incurred during the last week of May.

Week 2

Paid the full amount owing to JCN Electrical, Check No. 636.

Pikea paid the full amount owing on their account.

Made cash sale of 12 MePod Multimedia Players for $760 each plus 5% sales tax.

Sold 24 DK800 Desktop Computers to Turbo Tech for $1,760 each, plus 5% sales tax, Invoice No. 386.

Paid sales staff wages of $13,128 for the week up to and including yesterday, Check No. 637.

Made payment of $1,255 to State Power for 3 months of electricity up to and including May 31, Check No. 638.

Week 3

Paid $2,800 for one month's rent of the show room (from 16 June to 15 July inclusive), Check No. 639.

Turbo Tech paid $35,500 in partial payment of their account.

Radio Hut paid the full amount owing on their account.

Sold 45 MX620 Notebook Computers to Hypertronics for $1,560 each, plus 5% sales tax, Invoice No. 387.

Made cash sale of 44 Swish Phones for a list price of $960 each plus 5% sales tax. A trade discount of 25% applies.

Paid sales staff wages of $12,586 for the week up to and including yesterday, Check No. 640. 20 Received a purchase order from Turbo Tech. Created a corresponding sales order to deliver 6 DK800 Desktop Computers to this customer for $1,760 each plus 5% sales tax, Invoice No. 388.

Returned 7 faulty Swish Phones, originally purchased for $480 each, to Mega Tech. Received a Credit Memorandum for $3,360.

Week 4

Paid the full amount owing to Mega Tech, Check No. 641. 25 Delivered 6 DK800 Desktop Computers to Turbo Tech for $1,760 each, plus 5% sales tax, Invoice No. 388. These items were ordered on the 20th.

Paid the full amount owing to Big Telco, Check No. 642. Payment fell outside discount period.

Made cash sale of 52 BlueBerry Phones for $980 each plus 5% sales tax. 27 Paid sales staff wages of $13,400 for the week up to and including yesterday, Check No. 643.

Ordered 17 MX620 Notebook Computers from Pony for $1,000 each, agreed terms with Pony are 2/10, n/30.

Week 5

Received 17 MX620 Notebook Computers for $1,000 each, which were ordered on the 28th, agreed terms with Pony are 2/10, n/30.

Made cash sale of 17 MePod Multimedia Players for $760 each plus 5% sales tax.

Handys Electronics paid the full amount owing on their account. 30 Purchased 20 DK800 Desktop Computers with cash for a list price of $960 each. A trade discount of 25% applies, Check No. 644.

Paid monthly salary of $6,200 to Miranda Pauli, Check No. 645.

Adjusting entries information

Using the following information, you will record end of month adjustments:

-Office Furniture owned by the business: original purchase price was $8,000, estimated useful life was 6 years, and estimated residual value was $2,000 at the end of the useful life. Depreciation is calculated on a monthly basis using the straight line method. The monthly depreciation charge is calculated as the yearly depreciation expense divided by the number of months in a year.

-Office Equipment owned by the business: original purchase price was $38,000, estimated useful life was 11 years, and estimated residual value was $6,000 at the end of the useful life. Depreciation is calculated on a monthly basis using the straight line method. The monthly depreciation charge is calculated as the yearly depreciation expense divided by the number of months in a year.

-The water usage for the month of June is estimated to be $112.

-The estimated electricity payable as at the end of the month is $437.

-Sales staff work every single day during the week including weekends and are paid on a weekly basis. Wages were last paid up to and including 26 June. Wages incurred after that day (from June 27 to June 30 inclusive) are estimated to have been $1,880 per day.

-Interest expense incurred during the month of June but not yet paid to Earth Bank for the bank loan is $270.

-Interest earned from short-term investments in ZNZ Bank for the month of June is $105.

-Office supplies totaling $2,213 are still on hand at June 30.

-15 days of rent remained pre-paid at the start of June.

-3 months of advertising remained pre-paid at the start of June.

-5 months of insurance remained pre-paid at the start of June.

When calculating the portion of prepayments that expire during the month of June, you are asked to assume that an equal amount of expense is incurred per month.

After taking a physical count of inventory at the end of the month, the balance of inventory on hand as at June 30 is found to be equal to the closing balance of the Merchandise Inventory account. This means there is no adjusting entry required for inventory shrinkage.

I need help with the journal entries.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting

Authors: Libby, Short

6th Edition

978-0071284714, 9780077300333, 71284710, 77300335, 978-0073526881

More Books

Students also viewed these Accounting questions

Question

understand gender differences with regard to work-related outcomes;

Answered: 1 week ago