Intermediate Accounting

Accounting Cycle Project

Cherry & White Bike Company

The Cherry & White Bike Company is a small closely-held company with two owners. Its two owners, Sophia and Jackson, have decided to expand the business. They need to raise additional financing to rent space for another store and to purchase inventory. You are CWBs accountant. Your responsibilities include maintaining all accounting records and preparing annual financial statements. Cherry & White Bikes started on January 2, 2017. CWBs year end is December 31^st. During the year, the company had the following transactions:

January 2: The owners invested $22,000 into the business and acquired 22,000 shares of capital stock in return.

March 1: Cherry & White Bikes took out a loan of $8,000 from the 14^th Street Bank. The loan will be payable on January 14, 2018. The annual interest rate of 10%.

March 1: CWB used the loan proceeds to buy store equipment including a cash register, computer and printer.

April 1: Cherry & White Bikes rented a store for $7,400 for two years. The landlord demanded full payment at the time of rental.

April 20: Cherry & White Bikes purchased 90 standard bikes for $85 each.

May 1: Cherry & White Bikes took out an annual insurance policy, which it paid cash for in the amount of $1,500.

May 1: Cherry & White opens its store. Broad has three employees. It pays them on the 1^st of every month, starting in June. Monthly payroll is $860.

May 5: Cherry & White purchased store supplies in the amount of $420, all of which it was on credit with the supplier.

May 16: Cherry & White sold 29 standard bikes for $310 each. Cherry & White uses a perpetual inventory system, so it reduces inventory and records cost of goods sold when each sale is made.

June 1: Paid employees monthly payroll for May.

June 2: CWB prepaid the Temple Ledger, a monthly print and on-line magazine, for 6 consecutive monthly advertisements to be run staring in the month of September. By prepaying, CWB paid only $200 per ad compared to paying $250 if it had bought an ad each month.

June 9: Cherry & White paid $200 owed to a supplier for the purchase made on May 5.

June 16: Cherry & White sold 17 standard bikes for $325 each.

July 1: Paid employees monthly payroll for June.

July 12: Cherry & White sold 22 standard bikes for $325 each.

July 19: The company paid it utility bills for the months of April, May and June of $770.

August 1: Paid employees monthly payroll for July.

August 11: The company purchased store supplies in the amount of $300, all of which was on credit.

September 1: Paid employees monthly payroll for August.

September 24: The company paid $275 to its supplier of office supplies.

October 1: The company paid its monthly payroll.

October 20: The company paid its utility bill for the months of July, August, and September of $1,400.

November 1: Paid employees monthly payroll for October.

November 20: Cherry & White sold 8 standard bikes for $290 each.

December 1: Paid employees monthly payroll for November.

December 31: Cherry & White declared and paid a $75 dividend.

Your first step is to analyze each transaction during Cherry & White Bikes first year of business and enter them into the accounting system. Specifically, you first perform the following tasks.

Journalize the transactions for the year. Use account names from the attached Chart of Accounts. (26 points)

Post the transactions to the general ledger. (5 points)

Prepare an unadjusted trial balance as of December 31. (5 points)

Next, you begin to prepare the annual financial statements. Before preparing the statements, you identify the following additional information.

Insurance under the 12-month insurance policy expires monthly.

Depreciation should be recorded on the equipment purchased. The equipment has a 4-year life and no residual value. Depreciation will be recorded on a straight-line basis. CWB will take a full month of depreciation in the month the equipment is purchased.

Interest expense should be accrued on the loan payable.

Wages for December must be accrued at year end to be paid in January.

Utilities of $950 for the months of October, November and December must be accrued at year end to be paid in January.

Four of the six advertisements were run in the Temple Ledger during the year.

$85 of store supplies remain on-hand on December 3st.

CWBs tax rate is 30%

Using this additional information, you are able to make required adjusting journal entries, prepare the financial statements and close the books for the year. To accomplish these tasks, you must perform the following:

d. Journalize adjusting journal entries for Cherry & White Bikes. (18 points)

e. Post adjusting journal entries. (2 points)

f. Prepare an adjusted trial balance as of December 3. (5 points)

g. Prepare the financial statements including:

- single-step income statement (8 points)

- a statement of changes in shareholders equity (5 points)

- a balance sheet (8 points)

- a statement of cash flows (8 points)

h. Journalize and post the necessary closing entries at year-end. (5 points)

i. Prepare a post-closing trial balance as of December 31, 2016. (5 points)

You prepare the following chart of accounts on the following page for Cherry & White Bikes.

Chart of Accounts
Group	Account #	Account Title
100: Assets	101	Cash
	102	Accounts receivable
	103	Store supplies
	104	Prepaid rent
	105	Prepaid insurance
	106	Prepaid advertising
	110	Inventory standard bikes
	111	Inventory racing bikes
	112	Inventory childrens bikes
	115	Inventory bike supplies
	120	Equipment
	122	Accumulated depreciation - equipment
200: Liabilities	201	Accounts payable
	205	Utilities payable
	210	Unearned sales revenue
	215	Unearned service revenue
	220	Salaries payable
	225	Taxes payable
	230	Interest payable
	240	Loans payable
300: Equity	301	Capital stock
	310	Retained earnings
	320	Dividends declared
400: Revenues	401	Sales revenue
	405	Sales returns
	410	Service revenue
500: Expenses	500	Cost of goods sold
	505	Cost of bike supplies
	511	Salaries expense
	512	Utilities expense
	513	Selling expense
	514	Administrative expense
	515	Rent expense
	516	Insurance expense
	517	Store supplies expense
	518	Advertising expense
	520	Depreciation expense
	530	Interest expense
	540	Tax expense
600: Other	601	Income summary