Make the changed to the Accounting Log for the Utah Valley Lumber Company

Accounting 2010 Section 08 Final Problem Set UTAH VALLEY LUMBER COMPANY MONTH OF OCTOBER Oct 4 On this day an entrepreneur (Kermit) created the Utah Valley Lumber Company and purchased 25,000 shares of its common stock for $25,000. The corporation will operate a lumberyard and building materials business in a medium sized city not far from your school. The business will prepare financial statements on a monthly basis. Oct 4 Later in the day two other investors purchase shares. Investor #2 (Larry) purchases 2,500 shares for $2,500 and investor #3 (Annette) purchases 1,500 shares for $1,500. Oct 4 Later that afternoon the lawyer who performed the incorporation submits a bill for $500 fee and $37.18 in expenses. Oct 6 The investors (and, at present, the sole owners) of the Utah Valley Lumber Company elect three prominent businesspersons to the company's Board of Directors. The board will meet once every quarter to review operations and set overall policy for the company, but it will not be involved in the day to day operations. The company's founder is appointed CEO of the corporation. The board appoints a clerk-secretary. Oct 15 An investor supplies 20 acres of land in exchange for stock and a mortgage note. The land has been appraised at $70,000 and the investor receives 15,000 shares of stock and a note with a face value of $55,000. The note requires Utah Valley to pay interest at the rate of 10% per year and the principal (face amount) is due in 5 years. Oct 15 Larry sells 500 shares of Utah Valley stock to a younger sister (Kathy) for $500. Oct 17 Utah Valley agrees to rent a trailer which it will use as a temporary office. The rental cost, as determined by AtoZ, the lessor, will be $200 per month. AtoZ will pro-rate this month's rent, using an Oct18th start date. Utah Valley pays the rent. In the future, rent will be due the first of the month. Oct 17 Utah Valley applies for credit from Big Sky Lumber Supply (BSLS). Since Utah Valley is a brand new business and has no history of operations the credit manager for the BSLS is at first reluctant to approve the request. Eventually, after heated discussions, she agrees to a $10,000 limit, provided that the company's ratio of Debt to Total Assets does not rise above .70, and that its Current Ratio does not fall below 2.45. Oct 17 Utah Valley purchases 20,000 board feet (bd. ft.) of framing lumber from BSLS at a cost of $.90/bd. ft., (ninety cents per board foot). After reaching its credit limit, it paid cash for the balance of the purchase. Oct 17 Utah Valley hires an Office Manager and two yard personnel. The yard personnel will each earn $12.00 per hour and the manager will earn $17.00 per hour. All employees will work an eight-hour day. Oct 18 Parker Construction Company purchases 3,000 bd. ft. of lumber on account for $4,800.00. (Hint: remember to make an entry for Cost of Goods Sold (COGS) 3,000 board feet at $.90 per board foot.) Oct 18 The Strong Construction Company purchases 6,000 bd. ft. of lumber on account for $9,600.00. Oct 18 The Reliance Homes purchases 4,000 bd. ft. of lumber on account for $6,400.00. Oct 20 The Nocturnal Departures Home Improvement Co. purchases 1,000 bd. ft. of lumber for $1,600, paying cash. Oct 22 John Tielking, a homeowner purchases 2,000 bd. ft. of lumber for $3,500, paying cash. He does not have a sales tax exemption certificate. By law, Utah Valley must collect 8.25% sales tax and remit this to the state at the end of each quarter. Oct 26 Customers Parker, Strong & Reliance all send checks totaling $18,000 for payment on account. Oct 26 Utah Valley writes a check for $10,000 to the Big Sky Lumber Supply for payment on account. Oct 30 Utah Valley pays a total wage expense of $3,608 to its workers for the month of October. The above entries are reflected/summarized in the trial balance provided, so don't make them again. MONTH OF NOVEMBER Nov 1 Utah Valley purchases a general liability insurance policy for $1,200, paying cash. The term of the policy is one year, from Nov 1, 2012 through Oct 31, 2012. Nov 1 Utah Valley purchases a forklift for $10,000, paying half in cash and half with a 5 year, 12% note. The forklift is an American Machine & Foundry product, and it is expected to last for 10 years. Nov 1 Utah Valley purchases office equipment for $2,000, paying cash. The equipment has an expected life of 5 years. Nov 3 Utah Valley purchases 30,000 bd. ft. of lumber from BSLS for $27,000. Again, after reaching its credit limit it paid cash for the remaining amount. Utah Valley uses the FIFO Inventory Costing Method. Nov 3 On this day Utah Valley sent a check to pay for November's rent for the office trailer. Nov 6 Utah Valley signs a contract with SCORE Construction to have a warehouse built on its property. The warehouse will cost $20,000. Utah Valley will pay SCORE by issuing $10,000 worth of stock, paying $5,000 in cash and issuing a note for the balance. Nov 6 Utah Valley pays $300 for three months of advertising on a web site. The ad will run from Dec 15, 2009 through March 15, 2010. Nov 6 The sister of investor #2 purchases the balance of investor #2's Utah Valley stock for $3,000 (see General Journal, Oct 15). Nov 7 Utah Valley pays the lawyer's bill received on Oct 4. Nov 15 Mark Peltz, a local sculptor, agrees to rent 1 acre of land at the rear of Utah Valley's lot to use as an outdoor studio. He pays $600 for 4 months of rent. The lease will start on Nov 15. Nov 15 On this day Utah Valley sells 3 acres of land for $15,000. It receives $5,000 in cash and a mortgage note for the rest. The note carries interest at 10% and the principal amount is due in 8 years. Assume that all the land had a uniform cost per acre when it was purchased by Utah Valley. Nov 18 The office manager purchases $250 worth of office supplies with cash. Nov 29 Girl Scouts sneak into the lot Friday night and start a campfire. The fire gets out of control and destroys $1,800 worth of inventory. (In order to avoid embarrassment to the Girl Scouts, the company does not file charges with the police or make an insurance claim. Instead it asks the Girl Scouts to perform 200 hours of community service.) Nov 29 The Board of Directors declares a cash dividend of $.05 per share, payable in December. Verify that the amount of the dividends equals $2,200. Nov 30 This is the last payday for the month of November. The next payday will occur in December. Payroll checks for the month of November total $5,248. (For the time being you can ignore taxes.) Nov 30 Total sales on account for the month of November were $45,600. Utah Valley sold all merchandise at a uniform selling price of $1.60 per board foot. All sales were tax exempt. Nov 30 By the end of the month Utah Valley had collected cash payments from its account holders of $36,700. Required Adjusting Entries for November A. The two yard personnel and the office manager worked on November 28, 29, and 30. On November 30th they were paid for work through the 27th. The yard personnel are paid $12.00 per hour and the office manager receives $17.00 per hour. All employees work an eight-hour day. B. A review of the office supplies locker shows that $180 worth of supplies are on hand. C. Compute and record the insurance expense for the month of November. Assume that the insurance coverage expires at an even rate throughout the year. Refer to the general journal for Nov 1 and verify that the expense should equal $100. D. Compute and record depreciation on the forklift acquired on Nov 1. Assume straight-line depreciation method. E. Compute and record depreciation on the office equipment acquired on Nov 1. Use the same method for this equipment as you did for the forklift. F. Compute and record the advertising expense for the month of November. G. Compute and record the rental revenue from sculptor Mark Peltz. H. Compute and record the accrued interest revenue on the note received as partial payment for the 3 acres of land sold earlier in the month. I. Compute and record all the accrued interest expense on (a) the note given to the investor who supplied 20 acres of land on Oct. 15 and (b) the forklift. Use a 360-day year and verify a total of $737.50 for both notes. J. The office manager realizes that the check written for office supplies was made for $200, and not $250 as initially recorded. The cash account and supplies expense account should be corrected to show their proper amounts. MONTH OF DECEMBER Dec 3 Strong Construction purchases 2,000 bd. ft. on account for $3,200. Dec 4 The manager pays the BSLS for November 3rd purchases. Dec 4 Utah Valley personnel are broke after the holidays. The manager pays accrued salaries. Dec 4 A large person driving an AtoZ tow truck drives up to the office. The office manager hastily writes out a check for December's rent. Dec 4 Joe Strong of Strong Construction calls to complain that 600 bd. ft. of framing lumber shipped in a recent order was defective. The office manager investigates the problem and agrees to grant a Sales Allowance of $200. Dec 4 John Tielking has realized that he miscalculated the amount of lumber he needed for his home improvement project and asks the store manager if he can return 200 bd. ft. of framing lumber. Utah Valley accepts the return. Dec 4 Utah Valley announces a revision to its credit policies. All account holders will be allowed a 2% discount if they pay their bills within 10 days. Other balances will continue to be due in 30 days. Dec 10 Utah Valley receives a check from Strong for full payment of the Dec 3 purchase. Dec 10 Utah Valley has recently negotiated a $10,000 increase in its credit limit with BSLS and purchases 20,000 board feet of inventory, for $18,000. It pays $4,000 cash and charges the remaining $14,000. BSLS will grant a 2% discount for bills paid within 10 days. Dec 10 Parker Construction has recently been awarded a large new job and its purchasing agent negotiates a volume discount on the purchase of 20,000 bd. ft. Parker will pay $1.50 / bd. ft. Parker charges the amount to its account. Dec 17 Utah Valley receives a check from Parker in full payment of its Dec 10 purchase. Dec 17 The Utah Valley Office Manager meets with a representative of the BSLS to discuss the defective lumber which Utah Valley had purchased from BSLS and sold to Strong Construction. BSLS agrees to a Purchase Return and Allowance of $112.50. BSLS will allow Utah Valley to apply this to purchases made in December. Dec 17 Utah Valley mails a check to BSLS to pay the balance due on its purchase of 20,000 bd. ft. Dec 20 Utah Valley purchases 100 bd. ft. of Purple Heart, an exotic rainforest hardwood. Utah Valley's cost is $6.00 bd. ft. and, in addition, it pays a $35 shipping charge. Utah Valley writes two checks for this purchase. Dec 21 Utah Valley ships 100 bd. ft. of Purple Heart to the Cool Construction Co., a new account. Utah Valley invoices Cool $1,019.40 for the purchase, which includes $1,000 for the lumber and $19.40 for a UPS charge that Utah Valley pays at the time the order is picked up at its warehouse. Dec 25 Dividends declared in November were paid on this day. Dec 26 Utah Valley purchases 30,000 board feet of inventory at $.90/bd. ft. paying $14,000 in cash and charging the balance of the purchase amount to its BSLS account. Dec 31 During the month of December Utah Valley pays wages expense of $6,232. Dec 31 Utah Valley remits the sales tax it collected. ADJUSTING ENTRIES AND STATEMENT PREPARATION A. A physical inventory of office supplies showed that $70 worth of office supplies remained on hand. B. Compute and record the monthly insurance expense. C. Compute and record monthly depreciation expense for the forklift. D. Compute and record monthly depreciation expense for the office equipment. E. Compute and record monthly advertising expense. F. Compute and record the monthly rental income from Mark Peltz. G. Compute and record the monthly interest revenue from the note received in connection with the sale of 3 acres of land on November 15. H. Compute and record the monthly interest expense on the note given in connection with the acquisition of land on October 15, and the forklift acquired Nov 1. I. There are two days of accrued salary and wage expense for the month of December. DO THE FOLLOWING: 1. (50 Points) Post all journal entries and adjustments for November and December. 2. (25 Points) Prepare a Trial Balance, Income Statement, a Retained Earnings Statement, and a Balance Sheet for the three months ended December 31, 2012. Utah Valley Lumber Supply Balance Sheet December 31, 2012 Cash Accounts Receivable Allowance for Doubtful Accounts Interest Receivable Merchandise Inventory Prepaid Advertising Office Supplies Prepaid Insurance Total Current Assets - Notes Receivable Land Buildings Accum Depr - Building Equipment Accum Depr - Equipment Total Long Term Assets Total Assets - $ Accounts Payable Unearned Rent Revenue Salaries & Wages Payable Sales Tax Payable Interest Payable Dividends Payable Notes Payable - Current Total Current Liabilities - Notes Payable Total Long Term Liabilities Total Liabilites - Common Stock Retained Earnings Total Equity Total Liabilities & Equity - $ Utah Valley Lumber Supply Income Statement For the 3 months ended December 31, 2012 Sales Sales Returns & Allowances Sales Discounts Total Sales - Cost of Goods Sold Purchase Returns & Allowances Purchase Discounts Total Cost of Goods Sold Gross Margin - Advertising Expense Store Wages Expense Freight Out Depreciation Expense Interest Expense Insurance Expense Office Supplies Expense Rent Expense Utilities Expense Legal Services Expense Total Expenses - Gain on Sale of Land Interest Revenue Rent Revenue Losses Total Other Revenues & Expenses Net Income - $ Utah Valley Lumber Supply Statement of Retained Earnings For the 3 months ended December 31, 2012 Beginning Retained Earnings Net Income Dividends Ending Retained Earnings $ - $ - Utah Valley Lumber Supply Statement of Cash Flows For the 3 months ended December 31, 2012 Cash Flows From Operating Activities: Net Income Adjust for Noncash Transactions: Depreciation Losses Gain on Sale of Land Increase in Accounts Receivable Increase in Interest Receivable Increase in Inventory Increase in Prepaid Advertising Increase in Office Supplies Increase in Prepaid Insurance Increase in Accounts Payable Increase in Unearned Rent Revenue Increase in Salaries & Wages Payable Increase in Interest Payable Net Cash Used by Operating Activities - Cash Flows From Investing Activities: Purchased Forklif Purchased Office Equipment Sold Land Net Cash Used by Investing Activities - Cash Flows From Financing Activities Issued Stock Paid Dividend Net Cash Provided by Financing Activities - Net Change in Cash Beginning Cash Ending Cash - $ Summary of Non Cash Transactions: - Utah Valley Lumber Supply Trial Balance December 31, 2012 Cash Accounts Receivable Allowance for Doubtful Accounts Notes Receivable Interest Receivable Merchandise Inventory Prepaid Advertising Office Supplies Prepaid Insurance Land Buildings Accum Depr - Building Equipment Accum Depr - Equipment Accounts Payable Unearned Rent Revenue Salaries & Wages Payable Sales Tax Payable Interest Payable Dividends Payable Notes Payable Common Stock Retained Earnings Dividends Sales Sales Returns & Allowances Sales Discounts Rent Revenue Cost of Goods Sold Purchase Returns & Allowances Purchase Discounts Advertising Expense Store Wages Expense Freight Out Depreciation Expense Interest Expense Insurance Expense Office Supplies Expense Rent Expense Utilities Expense Legal Services Expense Gain on Sale of Land Interest Revenue Losses Debit 30,690.75 2,800.00 3,600.00 70,000.00 - Credit 537.18 288.75 55,000.00 44,000.00 25,900.00 14,400.00 3,608.00 90.00 537.18 125,725.93 - 125,725.93 Date 10/4/2012 10/4/2012 10/4/2012 10/6/2012 10/15/2012 10/15/2012 10/17/2012 10/17/2012 10/17/2012 10/18/2012 10/18/2012 10/18/2012 10/20/2012 10/22/2012 10/26/2012 10/26/2012 10/30/2012 41,213.00 11/1/2012 11/1/2012 11/1/2012 11/3/2012 11/3/2012 11/6/2012 11/7/2012 11/15/2012 11/15/2012 11/18/2012 11/29/2012 11/29/2012 11/30/2012 11/30/2012 11/30/2012 11/30/2012 11/30/2012 11/30/2012 11/30/2012 11/30/2012 11/30/2012 11/30/2012 11/30/2012 11/30/2012 12/3/2012 12/4/2012 12/4/2012 12/4/2012 12/4/2012 12/4/2012 12/10/2012 12/10/2012 12/10/2012 12/17/2012 12/17/2012 12/17/2012 12/20/2012 12/21/2012 12/25/2012 12/26/2012 12/31/2012 12/31/2012 12/31/2012 12/31/2012 12/31/2012 12/31/2012 12/31/2012 12/31/2012 12/31/2012 12/31/2012 12/31/2012 Description Sold Kermit CS Sold More Stock Attorney Fees No Entry 20 Acres Land Purchase No Entry Rent for October Purchase Lumber No Entry Sold to Parker Sold to Strong Sold to Reliance Sold To Nocturnal Tielking Purchase A/R Collections on Acct Pay Lumber Bill Pay Employees Totals For October Liability Ins Forklif Office Equipment Purchase Lumber November Rent Advertising Pay Lawyer Sculptor rents land Sold Land Purchase Office Supplies Inventory Loss from Fire Declare Dividend Payroll Sales on Account Receipts on Account Accrue 3 Days Wages Supplies Used Insurance Expense Depr Forklif Depr Office Equipment Rental Revenue Interest Rev on Note Rec Accrue Interest on N/P Mess up with Supplies Sold 2,000 bd f - Strong Pay BSLS account Pays accrued salaries Pays December rent Lumber complaint - Allowanc Tielking Return Strong Payment Purchase Lumber Lumber Sold - Parker Parker Payment Purchase Allowance Pay BSLS account Purchase Exotic Wood Sold Exotic Wood Paid Dividend Purchase Lumber Paid Wages Paid Sales Tax collected Adjust Supplies on hand Insurance Expense Depr Forklif Depr Office Equipment Advertising Expense Rental Revenue Interest Rev on Note Rec Accrue Interest on N/P Accrue 2 Days Wages Total 0.00 - Cash 25,000.00 4,000.00 Accounts Receivable Allowance for Doubtful Accounts Notes Receivable Interest Receivable Merchandise Inventory Prepaid Advertising Office Supplies Prepaid Insurance Land Accum Depr Building Buildings Equipment Accum Depr Equipment Accounts Payable (537.18) 70,000.00 (90.00) (8,000.00) 18,000.00 4,800.00 9,600.00 6,400.00 1,600.00 3,788.75 18,000.00 (10,000.00) (3,608.00) 30,690.75 30,690.75 (10,000.00) (2,700.00) (5,400.00) (3,600.00) (900.00) (1,800.00) (18,000.00) 10,000.00 2,800.00 - - - 3,600.00 - - - 70,000.00 - - - - (537.18) 2,800.00 - - - 3,600.00 - - - 70,000.00 - - - - (537.18) Unearned Rent Salaries & Revenue Wages Payable Sales Tax Payable Interest Payable Dividends Payable Notes Payable Common Stock (25,000.00) (4,000.00) (55,000.00) Retained Earnings Dividends Sales Sales Returns Cost of Goods & Allowances Sales Discounts Rent Revenue Sold Purchase Returns & Allowances Purchase Discounts Advertising Expense Store Wages Expense Freight Out Depreciation Expense Interest Expense Insurance Expense Office Supplies Expense (15,000.00) (4,800.00) (9,600.00) (6,400.00) (1,600.00) (3,500.00) (288.75) 2,700.00 5,400.00 3,600.00 900.00 1,800.00 - - (288.75) - - (55,000.00) (44,000.00) - - (25,900.00) - - - 14,400.00 - - - 3,608.00 3,608.00 - - - - - - - (288.75) - - (55,000.00) (44,000.00) - - (25,900.00) - - - 14,400.00 - - - 3,608.00 - - - - - Rent Expense Utilities Expense Legal Services Gain on Sale of Expense Land Interest Revenue Losses 537.18 90.00 90.00 - 537.18 - - - 90.00 - 537.18 - - - Utah Valley Lumber Company Depreciation Schedule As of December 31, 2012 Date Forklif Office Equipment Life Method Cost Monthly #DIV/0! #DIV/0! #DIV/0! Accum Depr #DIV/0! #DIV/0! #DIV/0! Start at $10,000 Max 20,000 Balance - Accounts Payable Total 10/17/2012 Purchased 20,000 bd f @ $0.90 10/26/2012 Payment on account 11/3/2012 Purchased 30,000 bd f @ $0.90 12/4/2012 Payment on account 12/10/2012 Purchased 20,000 bd f @ $0.90 Renegotiated terms to $20,000 12/17/2012 Purchase Return & Allow 12/17/2012 Payment on account 12/26/2012 Purchased 30,000 bd f @ $0.90 Cash Account - - - Common Stock 10/4/2012 Kermit 10/4/2012 Larry 10/4/2012 Annette 10/15/2012 Land Investor 10/15/2012 Larry to Cathy 500 Shares 11/6/2012 Cathy buys out Larry for $3,000 Balance Shares Cost 1.00 1.00 1.00 1.00 Extend - No entry No entry - Kermit Larry Annette Cathy Land Investor - 1.00 1.00 1.00 1.00 1.00 - - Inventory Date Type 10/17/2012 Purchase 10/18/2012 Sale 10/18/2012 Sale 10/18/2012 Sale 10/20/2012 Sale 10/22/2012 Sale 11/3/2012 Purchase 11/29/2012 Loss 11/30/2012 Sale 12/3/2012 Sale 12/4/2012 Return 12/10/2012 Purchase 12/10/2012 Sale 12/26/2012 Purchase Boardfeet Cost - Extended - 0.90 - Note Payable Forklif Land November December - Note Receivable Land November December Total - Wage Accural November December Office Yard Total - Balance