Holiday Jet Ski is a sole proprietorship , personal watercraft business owned by Aaron Larson .Holiday Jet
Question:
Holiday Jet Ski is a sole proprietorship, personal watercraft business owned by Aaron Larson.Holiday Jet Ski is located on the shore of Michigan Lake and is the exclusive dealer for Kawasaki Jet Ski personal watercraft. The business also sells other brands of personal watercraft and accessories, provides excellent service for all watercraft including parts and labors, and rents storage space to those who prefer to keep their watercraft equipment at the lake.
To complete the on-the-job training for your accounting course, you have been placed in a four-week internship program with Holiday Jet Ski. You will be responsible for all the accounting work for the month of June (June 3 to June 30) 2019 including recording the business transactions, auditing your work and correcting all accounting errors and preparing the trial balance for the month. Since this job is your first, it will provide you the opportunity to obtain your hands-on experience and practice your accounting skills.
The business has four revenues accounts: Watercraft, Accessories, and Parts Sales; Sales Returns and Allowances record all transactions involving the sale and return of merchandise items. Service Fees Earned accounts for fees earned in servicing customer watercraft. Sales tax (7%) charged on all merchandise and service sales.The revenue account Storage Fees Earned is adjusted at the end of each accounting period to reflect all of the storage fees that have been earned. The liability account, Unearned Storage Fees is used to record all of the cash receipts for storage of customer watercraft and equipment. Sales tax is not charged on storage fees.
Holiday Jet Ski accepts both bank credit cards and company credit cards. When a customer purchases merchandise using a bank card, the sale is entered as a cash sale. The credit card expense (1 - 4%) is recorded at the time of the sale. If a customer uses a company credit card, the sale is recorded as a sale on account with Accounts Receivable - Credit Card Companies being debited for the charge. The credit card expense is recorded when the cash is received from the credit card company. All cash sales and cash payment are deposited into the bank account on the same day.
Special attention to following accounts:
1.Accounts Receivable - Credit Card Companies records all company credit card sales.(All bank card sales are recorded as cash sales)
2.Storage Fee Receivable is used only for adjusting entries.
3.Merchandise Inventory is the inventory account for all watercraft, accessories and parts.
4.Prepaid Insurance is debited for the purchase of all insurance policies.
5.Prepaid Rent is debited for rent payment made for more than one month in advance.
6.Advertising Expense is debited directly for all advertising fees incurred.
7.Prepaid Advertising is used only for adjusting entries. All advertising costs are debited directly to the Advertising Expense account.
8.Store and Shop Supplies is used only for adjusting entries. Since more store and shop supplies are consumed during the period, the Store and Shop Supplies Expense account is debited for all store and shop supply purchases. The value of the small amount of supplies that remain at the end of the accounting period is adjusted to the Store and Shop Supplies account.
9.Sales Tax Payable is credited for the 7% sales tax that is charged for all Jet Ski, accessories, parts, and service sales.Sales tax is not charge on storage fees.
10.Unearned Storage Fees is a liability account and is credited directly for all storage fees received in advance. Sales tax is not charged on storage fees.
11.Aaron Larson, Withdrawals is the owner's equity account debited for all cash and asset withdrawals from the business made by Aaron Larson. At the end of each accounting period the account is closed into Aaron Larson, Capital.
12.Service Fees Earned is credited for all customer service and is billed at a rate of $56.00 per hour.
13.Storage Fees Earned is adjusted at the end of the accounting period for all storage fees that have been earned.
14.Purchases of Merchandise is the Cost Account debited for each purchase of watercraft, accessory items, or part.
15.Transportation-In is the Cost Account debited for all freight and delivery charges incurred in transporting merchandise to the Holiday Jet Ski receiving dock. Deliveries to customers are charged to Delivery Expense.
16.Store and Shop Supplies Expense is debited for all purchases of store and shop supplies. The value of any store and shop supplies that remain at the end of each accounting period is adjusted to the Store and Shop Supplies account.
17.Delivery Expense is debited for the delivery and freight charges incurred in shipping merchandise items to the company.
18.Credit Card Expense accounts for the bank and company credit card fees charged to Holiday Jet Ski for allowing customers to use their credit cards to purchase merchandise and services. These fees will be between 1 and 4 percent of the total amount (including sales tax) of the customer charge.
(An adjusting entry will be made at the end of the each accounting period for the credit card expense accrued on company credit card sales that have been recorded as receivables. This adjusting entry will require a debit to the Credit Card expense and a credit to Accounts Receivable - Credit Card Companies.)
19.Tools Expense is debited for all small purchases of store and ship tools.
20.Rent Expense is adjusted at the end of each accounting period.
21.Insurance Expense is adjusted at the end of each accounting period.
ASSETS
1.Cash
2.Petty Cash
3.Accounts Receivable
4.Accounts Receivable - Credit Card Companies
5.Notes Receivable
6.Storage Fees Receivable
7.Interest Receivable
8.Merchandise Inventory
9.Prepaid Insurance
10.Prepaid Rent
11.Prepaid Advertising
12.Store and Shop Supplies
13.Store Equipment and Fixtures
14.Accumulated Depreciation - Store Equipment and Fixtures
15.Shop Equipment
16.Accumulated Depreciation - Shop Equipment
17.Trucks
18.Accumulated Depreciation - Trucks
LIABILITIES
1.Accounts Payable
2.Notes Payable
3.Sales Tax Payable
4.Salaries and Wages Payable
5.Interest Payable
6.Unearned Storage Fees
OWNER'S EQUITY
1.Aaron Larson, Capital
2.Aaron Larson, Withdrawal
REVENUE
1.Watercraft, Accessories, & Parts Sales
2.Sales Returns & Allowances
3.Service Fees Earned
4.Storage Fees Earned
COST OF GOODS SOLD
1.Purchases of Merchandise
2.Purchases Returns & Allowances
3.Purchase Discounts
4.Transportation-In
OPERATING EXPENSES
1.Store & Shop Supplies Expense
2.Salaries & Wages Expense
3.Truck Operating Expense
4.Advertising Expense
5.Delivery Expense
6.Credit Card Expense
7.Tools Expense
8.Depreciation Expense - Store Equipment and Fixtures
9.Depreciation Expense - Shop Equipment
10.Depreciation Expense - Trucks
11.Rent Expense
12.Insurance Expense
13.Professional Services Expense
14.Electric and Gas Expense
15.Telephone Expense
16.Bank Service Charges
17.Cash Short & Over
18.Miscellaneous Expense
OTHER REVENUE
1.Interest Earned
OTHER EXPENSES
1.Interest Expense
INCOME SUMMARY
1.Income Summary
Transactions for June 3 - 29, 2019
June
3
Sold a wet suit to a Jet Ski customer and received a check for $126.26. The check
covered the selling price of the wet suit ($118) plus 7% sales tax.
June
3
Issued check number 22097 for $900 to Sanders & Crichton for three months rent
on a small inventory storage facility for expanding business activity.
June
3
Discovered that an entry for $21.00 of poster printing charges had been entered in
error to the Miscellaneous Expense account rather than the Advertising Expense
Account. The date of the original entry is June 1.
June
3
Issued check number 22098 and replenished the Petty Cash fund. Holiday Jet Ski
maintains a $75 petty cash fund to handle small miscellaneous expenditures that
occur frequently during normal business operations. A total of $3.75 remains in the
petty cash box at this time. A summary receipts and invoices shows the following
expenditures have been made to date from Petty Cash:
Store & Shop Supplies Expense$43.00
Advertising Expense11.75
Miscellaneous Expense16.50
June
3
Billed the Round Hill Ski Club $675.50 plus sales tax for accessories installed (for
no charge) on their racing craft. Round all sales tax calculations to the nearest
cent. For example: $47.285 = $47.29
June
4
Issued check number 22099 for $1,260 as payment in full of the May 4 invoice
from Messlinger Sports Equipment.
June
4
Issued check number 22100 for $235 to A.C. Barkley, Attorney-at-law, for
professional services received.
June
5
Purchased Jet Ski accessories and parts from a new supplier Thunder Lake
Supply. Issued check 22101 for $1,366 as payment in full. The goods were
FOB destination.
June
5
Aaron Larson withdrew $100 from the business for personal use (check #22102)
June
5
Purchased Jet Skis for inventory from Kawasaki, USA. The purchase price for the
merchandise totaled $41,450. The terms of the purchase are 2/10, n30 and the
goods were shipped FOB Destination.
June
5
Completed service work on a customer Jet Ski and received a check for the
balance due. Sales invoice lists $112 for two hours of labor, $423 for parts and
accessories, and 7% sales tax.
June
6
Sold for cash two Jet Skis to a cash customer for $5,975 each plus sales tax.
June
6
Received $76.50 cash from customer Beverly Kyle as payment in full on her
account.
June
6
Issued check number 22103 for $45.75 as payment in full of the Less Incorporated
invoice of May 27.
June
7
Purchased $2,212 in parts and merchandise accessories from Tumbleweed Sports.
The credit terms are 1/10, n30 and the goods are shipped FOB Shipping point via
a separate logistic company. The transportation costs will be paid later upon
receipt of the invoice.
June
7
Purchased store and shop supplies on account from Albright Supply for $97.55.
The credit term is net 10 days.
June
8
Received a check for $420 from the Browns Ravine Jet Skiers for storage fees on
their watercraft. This check prepays their storage fees for June, July and August.
June
8
Received $200 cash as a partial payment on the past-due account of customer
Alice Berry.
June
10
Sold a 3-passenger Kawasaki Jet Ski to customer Emma Larson for $7,100 plus
sales tax. (don't forget to include the sales tax) Ms. Larson paid $900 cash as a down payment and charged the balance to her account. The account will be paid
in full in 30 days.
June
10
Received a check for $4,212.71 from the Western National Credit Card Company
as payment in full on credit card invoices that had been received through June 2
and mailed on June 4. The invoices totaled $4,343 and the credit card company
charged a 3% fee for the use of their system.
June
10
Sold three (3) Kawasaki Jet Ski to Suzanne Fujico for cash. The two Jet Skis - A
sell for $4,750 each and the T145G model sells for $5,500 with added accessories.
Sales taxes were charged for the sales. (sales taxes not included yet)
June
10
Purchased three (3) Hero Jet Skis from Springview, Incorporated. The list price
of the jets is $3,575 each with a trade discount of 28%. The credit terms are n/30
and the merchandise is shipped FOB Destination.
June
11
Issued check #22104 for $124.55 to Rambis Freight for transportation fees on
the June 7 purchase from Tumbleweed Sports.
June
11
Purchased three (3) Shark personal watercraft for inventory from Yancy Sprintcraft.
Purchase price for the merchandise totaled $18,600 and the entire amount was
charged to the Holiday Jet Ski account. The credit terms offered by Yancy are
1/10, n30 and the goods are shipped FOB shipping point. A separate billing for
freight charges of $414 has also been received from Less, Inc., a local freight
carrier.Terms from Less Inc. are net 10.(Two journal entries are required.)
June
12
Issued check #22105 to Albright Supply for the $721.25 due today. Terms from
Albright Supply are net 10.
June
12
Sold four Kawasaki Super Jet Skis and miscellaneous accessories and parts to
the Browns Ravine Jet Skiers for $27,245 plus sales tax. The Browns Ravine Jet
Skiers paid $5,000 in cash and charged the balance on their account.
June
13
Issued debit memorandum #DM004 to Yancy Sprintcraft for $6,200 and returned
one Yancy Shark personal watercraft. The hull of this watercraft arrived with serious
damage that will require major repair or replacement at the factory. The purchase
was made on June 11.
June
13
Sold a Sprintcraft Jet Ski trailer to John Brandon for $795 cash plus sales tax.
Mr. Brandon paid for his purchase by using a Bank Credit Card. The bank charged
Holiday Jet Ski a 2% credit card fee.
June
14
Received a check for $20,163 from customer Charles Montero as payment in full
on his account. The payment was for the May 15 transaction.
June
14
Issued check #22106 for $37.50 to the U.S. Postal Service for stamps and other
store supplies.
June
14
Purchased $402.25 in store supplies from Albright Supply and charged the total to
the business account. Credit terms are net 10.
June
14
Issued check #22107 for $52.44 for the purchase of miscellaneous tools to be used
in the service shop.
June
14
Purchased shop supplies from Sons & Sons Supply and issued check #22108
for $176.56 as payment in full.
June
15
Issued check #22109 in payment to Kawasaki, USA for the June 5 purchases.
June
15
Issued check #22110 John Douglas, the part-time repair and sales person for the
business. John is paid $9.65 per hour and worked 44.75 hours during the past
two-week period ended June 14.
June
15
Issued debit memorandum #DM005 to Albright Supply for $35.50 as the returned of
store supplies which was purchased on account on June 14.
June
15
Issued check #22111 to AT&T Phone Company for $53.74. The check is paid in
full for Aaron Larson's personal home phone bill. No business calls were made this
month on his home phone.
June
15
Received a check for $223.50 from Alice Berry as payment in full on her past due
account.
June
15
Borrowed $18,500 cash from the First National Bank by issuing a short term,
60-day note payable.
June
17
Purchased Jet Ski parts and accessories for $4,566.75 cash (check #22112) from
Fong Brother Company.
June
17
Issued the following checks as payment in full for monthly billings:
Check #22113 to Michigan Power & Light for $312.45
Check #22114 to Michigan Lake Service for truck gas and truck repairs, $355.43.
Check #22115 to Michigan AT&T Telephone for $104.65.
June
17
Issued check #22116 to Albright Supply for the June 7 purchased.
June
17
Sold a Kawasaki Jet Ski and accessories to Joel Letterman for $8,340, plus sales
tax. Mr. Letterman paid in full using a Western National Credit Card. (Don't forget to
include the sales tax.)
June
17
Issued check #22117 for $2,189.88 to Tumbleweed Sports as payment in full of the
June 7 purchased.Tumbleweed offers cash terms of 1/10, n30 and the invoice
balance of $2,212 is being paid in time to qualify for the purchase discount.
June
18
Upon analysis of the Tumbleweed Sports account, discovered that a second
Invoice (T1011) dated May 18, had been misfiled and must be paid today.The
amount due was $309 and the cash terms extended by Tumbleweed Sports was 1/10, n30. Check #22118 was issued to Tumbleweed for the payment.
June
18
Purchased a special order, custom built, racing version of the T-model from
Kawasaki, USA. The amount from Kawasaki totals $8,753, ($8,673 being the cost
of the T-model, and $80 the charge for freight in cost. Credit terms: 2/10, n30 and
FOB Shipping point.
June
18
Received a check for $119.84 from Robert Altman as payment in full for 2 hours of
service work ($56 per hour) performed today on his Jet Ski and trailer.
June
19
Issued check #22119 for $313.50 to Robert Logan, Chartered Accountant, for
accounting services received.
June
19
Performed service work totaling $179.76, including tax, for customer Alice Murray.
Alice paid in full using a Western National Credit Card.[Hint: divide $179.76 by 1.07 (100% of selling price plus 7% sales tax) to calculate the amount billed for the
service fees.]
June
20
Issued check #22120 for $22.50 to the Sierra Freight Company as payment in full
for delivery of a customer Jet Ski that had been serviced.
June
20
Issued check #22121 to Jet Ski Cruising magazine for an advertising feature in the
June issue. The advertisement costs $870.
June
20
Issued a credit memorandum CM301 to the Browns Ravine Jet Skiers for $422.65.
Accessories valued at $395.00 (plus sales tax) were returned for credit.
June
20
Sold on account the special order, custom built T-model from Kawasaki, USA to
customer Charles Grubonski.The sales amount including tax is $12,267.55.
[To obtain the sales tax, divide the sales amount by 1.07]
June
21
Issued check #22122 in payment to Yancy Sprintcraft for the June 11 purchased.
Terms offered by Yancy Sprintcraft was 1/10, n30.[Hint: don't forget the debit
memo of June 13 and the qualification for the purchase discount.]
June
21
Issued check #22123 in payment to Less Inc. for the June 11 purchased.
June
22
Received a check fro $850 from Wesmouth, Inc as payment for six (6) months
rent (June 24 to December 24) on their storage space.
June
22
Sold a Sprintcraft Superjet at a special sale price of $6,611 OTD (out the door).
This special price includes sales tax. The customer paid in full using a Bank Credit
Card (3% bank fee).
June
22
Discovered that check #22107, issued for $54.24 on June 14, and debited to the
Tools Expense account, had been recorded in error for $52.44.
June
22
Received a check for $321 from Kelly Ingalls as payment in full on her purchase of
May 22.
June
24
Sold parts and accessories to customer Roger Elliott for $175.00 and charged
Mr. Elliott for 2.75 hours of labor ($56.00 per hour) for work on his Jet Ski.
Mr. Elliott paid cash for this merchandise and services.
June
24
Issued check #22124 for $187.17 to the Newscastle TV Repair for service work
on the television satellite system in Aaron Larson's home. [Hint: Is this a business
operating expense?]
June
24
Sold a Kawasaki Jet Ski and a deluxe trailer to customer Jennie McKinsey. Total
sales including sales tax was $8,725.85. The selling price of the Jet Ski was $7,360
and the trailer price was $795. Jennie paid $2,725.85 cash as down payment and
gave Holiday Jet Ski a short-term promissory note (IOU) for the balance.Holiday
Jet Ski accepted the note.
June
24
Received a check for $8,830.45 from the Western National Credit Card Company
as payment in full on credit card invoices that had been received through June 20.
The invoices totaled $9,103.56 and the credit card company charged a 3% fee for
the use of their system.
June
24
Issue check #22125 to Albright Supply for the balance due on June 14
purchase, less the debit memo of June 15.
June
25
Received a check for $500.00 from Emma Larson as partial payment on her
account.
June
25
Aaron Larson withdrew $1,650 (check #22126) from the business for personal use.
June
25
Repaired hull damage and replaced an impeller for customer David Parkson.
Mr. Parkson was charged 4.25 hours of labor ($56 per hour), parts totaling $362,
plus sales tax. The bill was paid with a Western National Credit Card.
June
26
Purchased additional store fixtures for better display of the new Kawasaki Jet Skis
and issued check #22127 for $2,150 as payment in full to Attwater Business
Equipment.
June
26
Issued check #22128 for $995 to AIA Insurance for additional liability insurance
for the business.
June
27
Received a check for $4,342.50 from Waterrippers, Inc, as payment in full for the
May 28 purchases.
June
27
Through telephone order, sold to the Round Hill Ski Club, a Kawasaki X-2 model
Jet Ski and accessories for $5,575 plus sales tax. The purchase was charged to
the club account (accounts payable)
June
28
The Placerville Ski Club used a bank credit card (3% fee) to pay storage fees of
$855 for the six-month period beginning July 1.
June
28
Paid the shipping costs to transport the Kawasaki X-2 model Jet Ski to the
telephone customer, Round Hill Ski Club by issuing check #22129 for $45.50
to the DHL Logistic and Transport Company.
June
28
Issued check #22130 to the State Board of Business Tax for the balance of Sales
Tax collected through the close of the work day on June 22.Check the ledger card
for the balance in the account to this date. [Hint: sum all the sales tax amount until
June 22.]
June
28
Billed customer Cindy Dunne for 3.6 hours of labor for repairing racing damage
to her Jet Ski.
June
28
Issued check #22131 to Kawasaki, USA as payment in full on the June 18
purchase. [Hint: Remember that discounts are not taken on freight charges.]
June
29
Received a check for $102 from customer Alice Berry as payment in full of June 1
purchase.
June
29
Issued check #22132 for $30.76 (which includes sales tax) to Roger Elliott as a
cash refund for parts and accessories he returned. The check is for a $28.75
merchandise return plus sales tax.
June
29
Issued check #22133 098 for 50.60 to replenish the Petty Cash Fund. A total of
$24.40 remains in the petty cash box at this time. A summary of the receipts shows
the following expenditures have been made to date from Petty Cash.:
Store & Shop Supplies Expense$36.50
Tools Expense8.35
Miscellaneous Expense4.75
June
29
Purchased five (5) Clear Water Sprint watercraft and watercraft accessories from
Clear Water, Incorporated of Alameda. The purchase totaled $23,899, lists of cash
terms of 2/10, n30 and FOB destination shipping terms.
June
29
Sold two (2) Trail-Swift trailers plus accessories to the Browns Ravine Jet Skiers
for $1,923.86, which includes sales tax. Received a cash payment of $1,000 and
the balance was charged to the club account.
June
29
Issued check #22134 John Douglas, the part-time repair and sales person for the
business. John is paid $9.65 per hour and worked 31.5 hours during the past
two-week period ended June 28.
Holiday Jek Ski
Unadjusted Trial Balance
June 1, 2019
Account Title
Dr
Cr
Cash
$11,875.65
Petty Cash
75.00
Accounts Receivable
29,595.35
Accounts Receivable - Credit Card Companies
4,343.00
Merchandise Inventory
125,130.00
Prepaid Insurance
4,375.00
Prepaid Rent
12,000.00
Store Equipment and Fixtures
49,700.00
Acc. Depreciation - Store Equipment and Fixtures
$14,520.00
Shop Equipment
14,250.00
Acc. Depreciation - Shop Equipment
3,750.00
Trucks
22,500.00
Acc. Depreciation - Trucks
4,000.00
Accounts Payable
12,042.00
Sales Tax Payable
317.40
Unearned Storage Fees
8,700.00
Aaron Larson, Capital
188,202.45
Aaron Larson, Withdrawals
12,000.00
Watercraft, Accessories & Parts Sales
122,400.00
Sales Returns and Allowances
1,398.00
Service Fees Earned
3,215.00
Purchases of Merchandise
64,300.00
Purchases Returns and Allowances
2,450.00
Purchases Discounts
510.00
Transportation-In
585.00
Store & Shop Supplies Expense
2,039.00
Salaries & Wages Expense
1,416.50
Truck Operating Expense
911.95
Advertising Expense
1,692.00
Delivery Expense
388.00
Credit Card Expense
515.00
Tools Expense
42.00
Professional Services Expense
472.00
Electric and Gas Expense
416.00
Telephone Expense
318.00
Bank Service Charges
32.00
Cash Short & Over
12.00
Miscellaneous Expense
37.40
Interest Earned
312.00
$360,418.85
$360,418.85
Expert Answer:
