Intermediate Accounting Mini-Project #1:

Small Business Accounting

STUDENT ROLE: You are a recent accounting graduate and have just been hired by Johnson Accounting Firm as an entry-level accountant. Johnson Accounting is a public accounting firm that provides bookkeeping, accounting, payroll, audit, tax and consulting services to local residents and businesses. Today you have been assigned your first client Daphne Design, Inc. CLIENT PROFILE: Daphne Design, Inc. is a local retail store that sells home furnishings and interior design consulting services. The business sells a wide range of products, including furniture, art, and home dcor. Daphne Design, Inc. is a privately held corporation and has one shareholder Daphne Smith. The company began operations on March 1, 2018, and Ms. Smith has been completing all bookkeeping, accounting and payroll services herself. Daphne first met with your supervisor on September 25, 2018, to inquire about accounting services. As her first business tax year was coming to a close she felt it was important to meet with an accountant. She was not exactly sure what services Johnson Accounting Firm could offer, or what help she needs, but your supervisor conducted a client interview and was able to provide some advice. Johnson Accounting has recommended monthly compilation services (using accrual accounting), payroll and sales tax consultation, and corporate and individual tax return preparation. ASSIGNMENT: You have been assigned the task of completing Daphne Designs compilation work for the 2018 year. Remember that Daphne was performing her own accounting work through the end of September. Your supervisor has already taken Daphnes records for March 1, 2018 through September 30, 2018, and made necessary corrections. Thus, you have access to a complete and correct Trial Balance for March 1, 2018 through September 30, 2018. Your assignment is to complete the compilation for the last quarter (October, November and December). Thus, you will be journalizing for a quarter at a time and will present Financial Statements for March 1 through December 31, 2018. Starting in January 2019, Johnson Accounting will complete monthly compilations (meaning that the firm will prepare her financials at the end of each month, rather than at the end of the quarter). But, we are not concerned, yet, with the 2019 year. Johnson Accounting Firm has developed its own training program for new accountants learning the compilation process. Below, your supervisor has identified each process that you must complete (in the order in which they are to be completed). Use the training program available in Blackboard/Course Content/Mini-Projects Folder/Mini-Project #1/Johnson Accounting Firms Training Materials to locate the client data, instructions, guidance and forms you need to complete the work. You will complete the compilation using manual accounting. Once you master manual accounting, your supervisor will train you to use software. Remember, Johnson Accounting Firm is very excited about accepting Daphne Design as a new client. You are expected to complete the work in a timely fashion, and in a format that is professional and appropriate to present directly to the client. Time management is a very important characteristic for successful accountants! Waiting until the last minute often leads to errors and omissions which can result in the loss of a client or even legal liability. Your supervisor recommends that you develop a time management plan for the project. Start by reviewing the processes (listed below) that need to be completed before the due date. Also glance at the Training Program (in Blackboard) to develop an understanding of the type of materials available. Page 2 ASSIGNMENT PROCESSES: Remember this is just a list of all tasks you will complete. You must access the Blackboard training program to locate the forms, examples, data, etc. In general, you should not have to use Google to complete the assignment and you are not expected to conduct research outside of the Training Program. The Training Program provides everything you need. However, you are welcome to do so if you believe it will lead to a better work product. PROCESS #1: Complete the Training Program unit called What is a Compilation? PROCESS #2: Complete a proper Engagement Letter. PROCESS #3: Prepare General Journal Entries for the transactions that occurred in October, November and December. PROCESS #4: Post the General Journal Entries to the ledger. (We use T-accounts for our ledger.) PROCESS #5: Prepare a Trial Balance. PROCESS #6: Prepare Adjusting Entries for the period October 1 through December 31. PROCESS #7: Post Adjusting Entries to the ledger. PROCESS #8: Prepare an Adjusted Trial Balance. PROCESS #9: Prepare an Income Statement, Retained Earnings Statement and Balance Sheet for the year ended 2018. PROCESS #10: Prepare Closing Entries PROCESS #11: Post Closing Entries to the ledger. PROCESS #12: Prepare a Post-Closing Trial Balance. PROCESS #13: Prepare a Compilation Letter PROCESS #14: Compile the clients documents. PROJECT SUBMISSION: To receive full credit, you must submit your assignment IN CLASS, on the assigned date, NO LATER THAN 12:40 p.m. To receive full credit, your project must be compiled in accordance with the following instructions. (1) All documents must be typed and prepared in accordance with instructions provided in the Training Program. (2) Print on the front side of the paper only. I recommend that you print your work at least two days before the due date to allow for printer error, lack of paper, lack of ink, inoperable computer lab, etc. Remember: your client expects you to meet the due date and will not be impressed with excuses. Anticipate technology issues and plan in advance. (3) Attach documents together. Your client will not be satisfied if you hand them a lengthy document that is not professionally compiled. You may use a staple or a three-ring binder. Page 2 You may not use the dog ear method or a binder clip. Ask yourself Does this look professional? Will this document stay assembled for my client, or is it likely to fall apart? Assembling the documents in class on the due date (i.e. in the presence of the client) is not acceptable/professional. (4) Compile documents in the following order. a. Cover Page with student name, name of class, assignment name, due date b. Engagement Letter c. Compilation Letter d. Financial statements e. General Journal Entries f. Adjusting Journal Entries g. Closing Entries h. Trial Balance i. Adjusted Trial Balance j. Post-Closing Trial Balance k. Ledger (T-accounts) showing beginning balance (as of October 1), all posted entries and final balances.

CASH dr$ 62,000 ACCOUNTS RECEIVABLE dr8,350 INVENTORY dr10,320 PREPAID ADVERTISING dr825 SUPPLIES dr1,615 EQUIPMENT dr5,000 ACCUMULATED DEPRECIATION-EQUIPMENT cr$ 287 SALARIES AND WAGES PAYABLE cr2,050 COMMON STOCK cr30,000 PAID IN CAPITAL IN EXCESS OF PAR cr10,000 SERVICE REVENUE cr41,835 SALES REVENUE cr67,000 COST OF GOODS SOLD dr22,000 RENT EXPENSE dr7,000 ADVERTISING EXPENSE dr1,925 SALARIES AND WAGES EXPENSE dr28,700 UTILITIES EXPENSE dr1,750 DEPRECIATION EXPENSE dr287 PHONE/INTERNET EXPENSE dr1,400 TOTAL $ 151,172 $ 151,172 DAPHNE DESIGN, INC. Adjusted Trial Balance September 30, 2018

CHART OF ACCOUNTS
Account Code	Account Title
100	Cash
101	Accounts Receivable
103	Inventory
104	Prepaid Advertising
105	Prepaid Insurance
106	Supplies
107	Land
108	Building
109	Accumulated Depreciation Building
110	Equipment
111	Accumulated Depreciation Equipment
200	Accounts Payable
201	Notes Payable
202	Unearned Service Revenue
203	Interest Payable
204	Salaries and Wages Payable
205	Utilities Payable
300	Common Stock
301	Paid-in Capital in Excess of Par
302	Retained Earnings
303	Dividends
304	Income Summary
400	Service Revenue
401	Sales Revenue
402	Interest Revenue
500	Cost of Goods Sold
501	Rent Expense
502	Insurance Expense
503	Interest Expense
504	Salaries and Wages Expense
505	Supplies Expense
506	Utilities Expense
507	Depreciation Expense
508	Phone/Internet Expense
509	Advertising Expense

Daphne Design, Inc. had the following monthly transactions for October 1 through December 31. Remember, do not record any adjusting entries yet.

October 1 Daphne Design, Inc. issued 5,000 shares to Daphne in exchange for $5,000 cash and equipment valued at $15,000. The common stock had a par value of $2.50 per share.

October 1 Purchased a new insurance policy for the business property. Paid $1,200 for a 12- month policy that begins coverage on October 1, 2018.

October 5 Paid office rent of $1,000.

October 6 Sold merchandise for $800 cash. The merchandise had a cost of $450.

October 10 Purchased $4,200 of inventory on account, from Home Dcor Suppliers.

October 11 Sold merchandise on account, for $1,820. The merchandise had a cost of $1,000.

October 15 Paid monthly wages; $1,900 to employee Maggie Taylor, and $2,200 to Daphne Smith. (HINT: Employees are paid on the 15^th of each month. This payment represents work from both September and October. In this client project, your supervisor prepared adjusting entries up through September 30. So you must ask yourself whether any of these wages have already been recorded as an expense and liability. See September 30 adjusted trial balance for help answering this question. Ignore payroll taxes.)

October 17 Paid phone/internet bill, $200

October 20 Paid utilities, $250

October 30 Client hired Daphne Design to provide interior design consulting services. The client paid $2,100, but Daphne Design wont have the consulting report ready until December or January.

November 1 Daphne Design, Inc. borrowed $12,000 from the bank, signing a 6-month note payable. The note has a 8% rate of interest. The principal and interest will be paid at the end of 6-months.

November 5 Paid office rent of $1,000.

November 10 Sold merchandise for $3,500. The merchandise had an original cost of $1,200.

November 15 Paid monthly wages; $1,900 to employee Maggie Taylor, and $2,200 to Daphne Smith. (HINT: This entry will look different than the wages journal entry from July. Why? Because you did not prepare adjusting entries at the end of July. Remember, you are journalizing for the quarter, so you will prepare adjusting entries at the end of the quarter.)

November 17 Paid phone/internet bill, $200

November 20 Paid utilities, $250

November 25 Purchased $400 of supplies on account.

December 5 Paid office rent of $1,000.

December 15 Paid monthly wages; $1,900 to employee Maggie Taylor, and $2,200 to Daphne Smith.

December 17 Paid phone/internet bill, $200

December 20 Paid utilities, $250

December 22 Paid $1,200 on account to Home Dcor Suppliers

December 23 Daphne Design, Inc. borrowed $10,000 from the bank, signing a 90-day note payable. The note has a 10% rate of interest.

December 24 Daphne Design, Inc. wrote a $680 check to pay for Daphnes personal credit card bill. This credit card is not used for business purposes.

Adjusting Entry Information

(a) Employees were last paid on December 15. For the time period December 16 through December 31, employees earned $2,050 in wages. These wages will not be paid until next payday (January 15).

(b) Supplies used as of December 31 equals $1,370.

(c) As of December 31, Daphne Design has $1,350 of unearned revenue from design consulting services.

(d) Total depreciation on Equipment for the year equals $1,200.

(e) Design consulting fees earned, but not yet billed equal $7,000.

(f) Daphne Design, Inc. estimates is has incurred $250 of utilities that will not be paid until January.

(g) On March 1, 2018, Daphne Design, Inc. prepaid $2,750 for 10 months of advertising. The advertisements began running in the month of March. (HINT: don't forget adjustments for March 1 through September 30 were already made by your supervisor).

(h) Make the necessary adjustments related to the Notes Payable.

Instructions:

1. You will create your ledger. You create a formal ledger. You cannot use T-accounts. (see textbook, Chapter 3 for example).

2. Start with the Adjusted Trial Balance from September 30, 2018. The account balances will be entered into the ledger as beginning balances for October 1, 2018.

3. Then, post your general journal entries, in chronological order, for the months October, November and December.

Prepare Trial Balance

4. Using your ending balances from the ledger, create a trial balance. Remember, there are three different types of trial balances (Trial Balance, Adjusted Trial Balance and Post-Closing Trial Balance). In this step, you are creating the Trial Balance.

5. Accounts must be listed in the trial balance in the following order: Assets, Liabilities, Owners' Equity, Revenues and Expenses. This is the same order as the Chart of Accounts, so you might reference the Chart of Accounts for help.

6. Make sure your debit column equals your credit column!! If not, revisit your general journal entries and postings to identify and correct your mistake.

7. Post your adjusting entries to your existing ledger.

8. Using your ending balances from the ledger, create an adjusted trial balance.

9. Accounts must be listed in the trial balance in the following order: Assets, Liabilities, Owners' Equity, Revenues and Expenses. This is the same order as the Chart of Accounts, so you might reference the Chart of Accounts for help. Accounts with zero balances should not be shown in the adjusted trial balance.

10. Make sure your debit column equals your credit column!! If not, revisit your adjusting entries and postings to identify and correct your mistake.

11. Prepare the following financial statements for 2018. When creating your headings, remember that the client was only in business from March 1 through December 31. The financials must be typed and prepared in good form. Please double check your headings for accuracy. Your financial statements should be prepared from your adjusted trial balance.

(1) Single Step Income Statement

(2) Retained Earnings Statement

(3) Balance Sheet

12. Resources: Chapter 3 provides examples of all three statements. If you desire additional examples, see Chapter 4 (Income Statement and Retained Earnings) and Chapter 5 (Balance Sheet).

13. Using the journal/ledger paper provided in Process #3, journalize closing entries for your client. Remember, you must close all temporary accounts.

14. Be sure your journal entries are prepared in proper format, as explained in the Process #3 folder.

15. Chapter Three provides explanations on closing entries.

16. Post the closing entries from Process #10 to your existing ledger.

17. Prepare a Post-Closing Trial Balance in good form.

WELL THIS IS THE INFORMATIONS I HAVE ABOUT THE PROJECT, I REALLY DON'T KNOW WHAT YOU WANT.