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The Fashion Rack

The Fashion Rack is a retail merchandising business that sells brand-name clothing at discount prices. The firm is owned and managed by Teresa Lojay, who started the business on April 1, 20X1. This project will give you an opportunity to put your knowledge of accounting into practice as you handle the accounting work of The Fashion Rack during the month of October 20X1.

INTRODUCTION

The Fashion Rack has a monthly accounting period. The firms chart of accounts is shown below. The journals used to record transactions are the sales journal, purchases journal, cash receipts journal, cash payments journal, and general journal. Postings are made from the journals to the accounts receivable ledger, accounts payable ledger, and general ledger. The employees are paid at the end of the month. A computerized payroll service prepares all payroll records and checks.

DATE		TRANSACTIONS
Oct.	1	Issued Check 601 for $4,400 to pay Properties Management, Inc., the monthly rent.
	1	Signed a three-month radio advertising contract with Cable Station KTLE for $5,100; issued Check 602 to pay the full amount in advance.
	2	Received $520 from Megan Greening, a credit customer, in payment of her account.
	2	Issued Check 603 for $17,820 to remit the sales tax owed for July through September to the State Tax Commission.
	2	Issued Check 604 for $7,673.40 to A Fashion Statement, a creditor, in payment of Invoice 9387 ($7,830), less a cash discount ($156.60).
	3	Sold merchandise on credit for $2,480 plus sales tax of $124 to Mariam Salib, Sales Slip 241.
	4	Issued Check 605 for $1,050 to BMX Supply Co. for supplies.
	4	Issued Check 606 for $8,594.60 to Unique Styles, a creditor, in payment of Invoice 5671 ($8,770), less a cash discount ($175.40).
	5	Collected $1,700.00 on account from Amy Trinh, a credit customer.
	5	Accepted a return of merchandise from Mariam Salib. The merchandise was originally sold on Sales Slip 241, dated October 3; issued Credit Memorandum 18 for $630, which includes sales tax of $30.
	5	Issued Check 607 for $1,666 to Classy Threads, a creditor, in payment of Invoice 3292 ($1,700), less a cash discount ($34).
	6	Had cash sales of $18,600 plus sales tax of $930 during October 16.
	8	Received a check from James Helmer, a credit customer, for $832 to pay the balance he owes.
	8	Issued Check 608 for $1,884 to deposit social security tax ($702), Medicare tax ($162), and federal income tax withholding ($1,020) from the September payroll. Record this check in the cash payments journal.
	9	Sold merchandise on credit for $2,050 plus sales tax of $102.50 to Emma Maldonado, Sales Slip 242.
	10	Issued Check 609 for $1,525 to pay The Daily News for a newspaper advertisement that appeared in October.
	11	Purchased merchandise for $4,820 from A Fashion Statement, Invoice 9422, dated October 8; the terms are 2/10, n/30.
	12	Issued Check 610 for $395 to pay freight charges to Ace Freight Company, the trucking company that delivered merchandise from A Fashion Statement on September 27 and October 11.
	13	Had cash sales of $13,200 plus sales tax of $660 during October 813.
	15	Sold merchandise on credit for $1,940 plus sales tax of $97 to James Helmer, Sales Slip 243.
	16	Purchased discontinued merchandise from Acme Jobbers; paid for it immediately with Check 611 for $5,120.
	16	Received $510 on account from Mariam Salib, a credit customer.
	16	Issued Check 612 for $4,723.60 to A Fashion Statement, a creditor, in payment of Invoice 9422 ($4,820.00), less cash discount ($96.40).
	18	Issued Check 613 for $7,400 to Teresa Lojay as a withdrawal for personal use.
	20	Had cash sales of $13,500 plus sales tax of $675 during October 1520.
	22	Issued Check 614 to City Utilities for $1,492 to pay the monthly electric bill.
	24	Sold merchandise on credit for $820 plus sales tax of $41 to Megan Greening, Sales Slip 244.
	25	Purchased merchandise for $3,580 from Classy Threads, Invoice 3418, dated October 23; the terms are 2/10, n/30.
	26	Issued Check 615 to Regional Telephone for $940 to pay the monthly telephone bill.
	27	Had cash sales of $14,240 plus sales tax of $712 during October 2227.
	29	Received Credit Memorandum 175 for $430 from Classy Threads for defective goods that were returned. The original purchase was recorded on October 25.
	29	Sold merchandise on credit for $3,450 plus sales tax of $172.50 to Amy Trinh, Sales Slip 245.
	29	Recorded the October payroll. The records prepared by the payroll service show the following totals: earnings, $10,800; social security, $702.00; Medicare, $162.00; income tax, $1,020; and net pay, $8,916. The excess withholdings corrected an error made in withholdings in September.
	29	Recorded the employers payroll taxes, which were calculated by the payroll service: social security, $702; Medicare, $162; federal unemployment tax, $118; and state unemployment tax, $584. This, too, reflects an understatement of taxes recorded in September and corrected in this month.
	30	Purchased merchandise for $4,080 from Unique Styles, Invoice 5821, dated October 26; the terms are 1/10, n/30.
	31	Issued Checks 616 through 619, totaling $8,916.00, to employees to pay October payroll. For the sake of simplicity, enter the total of the checks on a single line in the cash payments journal.
	31	Issued Check 620 for $525 to A+ Janitors for October janitorial services.
	31	Had cash sales of $1,800 plus sales tax of $90 for October 2931.
ADJUSTMENTS
	31	During October, the firm had net credit sales of $10,140. From experience with similar businesses, the previous accountant had estimated that 1.0 percent of the firms net credit sales would result in uncollectible accounts. Record an adjustment for the expected loss from uncollectible accounts for the month of October.
	31	On October 31, an inventory of the supplies showed that items costing $2,740 were on hand. Record an adjustment for the supplies used in October.
	31	On September 30, 20X1, the firm purchased a six-month insurance policy for $8,400. Record an adjustment for the expired insurance for October.
	31	On October 1, 20X1, the firm signed a three-month advertising contract for $5,100 with a local cable television station and paid the full amount in advance. Record an adjustment for the expired advertising for October.
	31	On April 1, 20X1, the firm purchased equipment for $83,000. The equipment was estimated to have a useful life of five years and a salvage value of $12,500. Record an adjustment for depreciation on the equipment for October.
	31	Based on a physical count, ending merchandise inventory was determined to be $82,260.

Required:

Part 1

1. Sales Journal, Purchases Journal, Cash Receipts Journal, Cash Payments Journal, and General Journal Tabs: Analyze the transactions for October and record each transaction in the proper journal.

2. General Ledger, Accts Rec Sub Ledger, and Accts Pay Sub Ledger Tabs: Post the individual entries that involve customer and creditor accounts from the journals to the subsidiary ledgers on a daily basis. Post the individual entries that appear in the general journal and in the Other Accounts sections of the cash receipts and cash payments journals to the general ledger on a daily basis.

3. Sales Journal, Purchases Journal, Cash Receipts Journal, Cash Payments Journal Tabs: Total, prove, and rule the special journals as of October 31, 20X1. Post the column totals from the special journals to the general ledger accounts.

Scroll down to the bottom to complete both sets of Tabs.

Part 2

4. Schedule of Accts Rec and Schedule of Accts Pay Tabs: Check the accuracy of the subsidiary ledgers by preparing a schedule of accounts receivable and a schedule of accounts payable as of October 31, 20X1. Compare the totals with the balances of the Accounts Receivable account and the Accounts Payable account in the general ledger.

5. Worksheet Tab: Check the accuracy of the general ledger by preparing a trial balance in the first two columns of a 10-column worksheet. Make sure that the total debits and the total credits are equal.

6. Worksheet Tab: Complete the Adjustments section of the worksheet using the adjusting transactions.

7. Worksheet Tab: Complete the Adjusted Trial Balance section of the worksheet. Then determine the net income or net loss for October and complete the worksheet.

8. Income Statement Tab: Prepare a classified income statement for the month ended October 31, 20X1. (The firm does not divide its operating expenses into selling and administrative expenses.)

9. Stmt of Owners Equity Tab: Prepare a statement of owners equity for the month ended October 31, 20X1.

10. Balance Sheet Tab: Prepare a classified balance sheet as of October 31, 20X1.

11. Adjusting and Closing Tab: Journalize and post the adjusting entries and then the closing entries to the General Journal.

12. Postclosing Tab: Prepare a postclosing trial balance.