On January 1, Kevin Reynolds,  student a State U, decides to start a business. Kevin has noticed that various student organizations around campus are having more and more need for mass- produced copies of programs on CDs. While a lot of students have a CD drive on their computers that can write to CDs, it is a slow process when a high volume of CDs is needed.

 

Kevin believes that with beginning investment in specialty equipment, he can provide a valuable product to the college community and earn some profit. On January 1, Year One, Kevin officially begins "Kevin's CD Kopies."

 

Part 1

 

The following occurs during January:

Kevin Deposits $500 of hos own money into the company's checking account as his capital contribution.

As president of the company, Kevin signs a note payable in the amount of $1,000.00 from Neighborhood Bank. The note is due from the company in one year.

KCDK (Kevin's CD Kopies) purchases a CD duplicator (a piece of equipment), which can copy seven CDs at one time. The cost is $1,300.00 and he pays cash.

KCDK purchases 500 blank CDs for $150 on account.

KCDK pays $20.00 cash for flyers that are used as advertising.

KCDK quickly catches on with the student groups on campus. KCDK sells $400.00 CDs to various groups for $0.80 per CD. KCDK receives cash payment for $300.00 of the CDs, and the student groups owe for the other 100 CDs.

KCDK pays $100 on its accounts payable.

KCDK receives $40.00 in advance to copy 50CDs for a student group. He will not begin work on the project until February.

KCDK incurs $40.00 in tax expenses.  The taxes will be paid in February.

 

 

Required:

Prepare  journal entries for the previous events as needed.

Post the journal entries to T-accounts.

Prepare  adjusted trial balance for KCDK for January.

Prepare adjusting entries for the following and post them to the company's T-accounts.

Kevin's roommate, Mark, helps with copying and delivering the CDs. KCDK pays Mark a salary of $50.00 per month. Mark will get his first check on Feb 1.

 

KCDK incurs $10.00 in interest expense. The interest will be paid with the note at the end of the year.

 

Prepare adjusted trial balance at the end of January.

Prepare financial statement for KCDK for January.

Prepare closing entries for the month of January.

Part 2

The following occur in February:

Kevin decided to expand outside the college community. On the first day of the month, KCDK pays $20.00 in advance for the advertising in the local newspaper. The advertisement will run during February and March.

The student group paid for the 100 CDs not paid for in January.

KCDK paid off its remaining account payable, salaries payable, taxes payable and interest payable.

KCDK purchases 450 CDs for $135.00 on account.

KCDK sell 500CDs during the month for $0.80 each. KCDK receives cash for 450 of them and is owed for the other 50.

KCDK completes and delivers the advance order for the 50 CDs described in January

KCDK incurs $80 in tax expense. The taxes will be paid in March.

Required:

 

Prepare journal entries for the previous events is needed.

Post journal entries to the T-accounts.

Prepare  unadjusted trial balance for KCDK for February.

Prepare adjusting entries at the end of February for the following, and post them to your T-accounts.

Mark continues to earn his salary of $50.00, and the next payment will be made on March 1.

An adjustment is made for advertising in the first transaction in February.

KCDK incurs $10.00 in interest expense. The interest will be paid with the note.

Prepare adjusted trial balance for KCDK for February.

Prepare the financial statement for February.