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Comprehensive Problem for Chapters 8, 9, and 10 Top Quality Appliance-Long Beach has just purchased a franchise from Top Quality Appliance (TOA). TOA is a manufacturer of kitchen appliances. TOA markets its products via retail stores that are operated as franchises. As a TOA franchisee, Top Quality Appliance-Long Beach will receive many benefits, including having the exclusive right to sell TOA brand appliances in Long Beach. TOA appliances have an excellent reputation and the TOA name and logo are readily recognized by consumers. TOA also manages national television advertising campaigns that benefit the franchisees. In exchange for these benefits, Top Quality Appliance-Long Beach will pay an annual franchise fee to TOA based on a percentage of sales. The annual franchise fee is a separate cost and in addition to the purchase of the franchise In addition to purchasing the franchise, Top Quality Appliance-Long Beach will also purchase land with an existing building to use for its retail store, store fixtures, and office equipment. The business will purchase appliances from TQA and resell them in its store, primarily to local building contractors for installation in new homes. Following is the chart of accounts for Top Quality Appliance-Long Beach. As a new business, all beginning balances are $0. Cash Petty cash Accounts Receivable Allowance for Bad Debts Merchandise Inventory Office Supplies Prepaid Insurance Interest Receivable Notes Receivable Land Top Quality Appliance-Long Beach Chart of Accounts Baker Capital Baker Withdrawals Sales Revenue Interest Revenue Cost of Goods Sold Franchise Fee Expense Salaries Expense Utilities Expense Insurance Expense Supplies Expense Bad Debt Expense Building 72F Clear Building Bad Debt Expense Accumulated Depreciation Building Bank Expense Store Fixtures Credit Card Expense Accumulated Depreciation Store Fixtures Depreciation Expense-Building Office Equipment Depreciation Expense-Store Fixtures Accumulated Depreciation Office Equipment Depreciation Expense-Office Equipment Franchise Amortization Expense-Franchise Accounts Payable Interest Expense Interest Payable Cash Short and Over Notes Payable Top Quality Appliance--Long Beach completed the following transactions during 2018, its first year of operations: 3. Received $500,000 cash from owner, T. Baker, in exchange for capital Opened a new checking account at Long Beach National Bank and deposited the cash received from the owner b. Paid $50,000 cash for a TQA franchise. Paid $200,000 cash and issued a $400,000, 10-year, 5% notes payable for land with an existing building. The assets had the following market values: Land, $100,000; Building, $500,000. d. Paid $75,000 for store fixtures. e Paid $45,000 for office equipment. f. Paid 5600 for office supplies. 9. Paid $3,600 for a two-year insurance policy. h. Purchased appliances from TOA (merchandise inventory) on account for $425,000 1. Established a petty cash fund for 5150 Sold appliances on account to B&B Contractors for $215,000, terms 1/30 (cost, 586,000). k. Sold appliances to Davis Contracting for $150,000 (cost, $65,000), receiving a 6-month, 8% note. 1. Recorded credit card sales of $80,000 (cost, $35,000), net of processor fee of 2% m. Received payment in full from B&B Contractors. d. Paid $75,000 for store fixtures e. Paid $45,000 for office equipment f. Paid 5600 for office supplies - Paid 53,600 for a two-year Insurance policy. In Purchased appliances from TOA (merchandise inventory) on account for $425,000. 1. Established a petty cash fund for 5150 Sold appliances on account to B&B Contractors for $215,000, terms 1/30 (cost $86,000). k. Sold appliances to Davis Contracting for $150,000 (cost, $65,000), receiving a 6-month, 8% note Recorded credit card sales of $80,000 (cost, 535,000), net of processor fee of 2% m. Received payment in full from B&B Contractors, n. Purchased appliances from TOA on account for $650,000 o. Made payment on account to TOA $300,000 p. 5old appliances for cash to LB Home Builders for $350,000 (cost, $175,000). 4. Received payment in full on the maturity date from Davis Contracting for the note. 1. Sold appliances to Leard Contracting for $265,000 (cost, 5130,000), receiving a 9-month 8% note 5. Made payment on account to TOA, 5500,000 t. Sold appliances on account to various businesses for $985,000, terms 1/30 (cost. 5395,000) u. Collected $715,000 cash on account. Paid cash for expenses: Salaries. $180,000; Utilities, $12,650 . Replenished the petty cash fund when the fund had 562 in cash and petty cash tickets for $85 for office supplies Baker withdrew 55.000 y Paid the franchise fee to TOA of 5% of total sales of $2,045,000 Requirements 1. Record the transactions in the general joumal. Omit explanations. a 1. Record the transactions in the general journal. Omit explanations 2. Post to the general ledger 3. It is a common business practice to reconcilo the bank accounts on a monthly basis. However, in this problem, the reconciliation of the company's checking account will be done at the end of the year, based on an annual summary Reconcile the bank account by comparing the following annual summary statement from Long Beach National Bank to the Cash account In the general ledger. Record journal entries as needed and post to the general ledger. Use transaction z as the posting reference. Beginning Balance, January 1, 2018 Deposits and other credits: $ 500,000 78,400 215,000 350,000 715,000 1,565 1,859,965 Interest Revenue Checks and other debits: EFT to Bank Checks Checks: 125 50,000 200,000 45,000 75,000 150 3.600 600 300,000 500,000 192,650 2,340 Bank service charge Ending balance, December 31, 2018 (1,369,465) 5 490, 500 9 4. In preparation for preparing the adjusting entries, complete depreciation schedules for the first five years for the depreciable plant assets, assuming the assets were purchased on January 2, 2018: a. Building, straight-line, 30 years, $50,000 residual value b. Store Fixtures, straight-line, 15 years, no residual value. c. Office Equipment, double-declining-balance, 5 years, $5,000 residual value. 5. Record adjusting entries for the year ended December 31, 2018: a. One year of the prepaid insurance has expired. b. Management estimates that 5% of Accounts Receivable will be uncollectible. c. An inventory of office supplies indicates $475 of supplies have been used. d. Calculate the interest earned on the outstanding Leard Contracting note receivable. Assume the note was received on October 31. Round to the nearest dollar. e. Record depreciation exponse for the year. f. Record amortization expense for the year on the franchise, which has a 10-year life. g. Calculate the interest owed on the note payable. Assume the note was issued on January 1 6. Post adjusting entries and prepare an adjusted trial balance. 7. Prepare a multi-step income statement and statement of owner's equity for the year ended December 31, 2018 Prepare a classified balance sheet as of December 31, 2018. Assume Interest Receivable is a current asset and Interest Payable is a current liability 8. Evaluate the company's success for the first year of operations by calculating the following ratios. Round to two decimal places Comment on the results, a. Liquidity: i. Current ratio ili Acid-test ratio Cash ratio US x Here Page AO 2010 Principlex Courses x University of Virgin Islane Putid/5/26838vndystre OPT001013770000000000000000007A06/27001013770 2064P700101377 ADP 700101000000 5. Record adjusting entries for the year ended December 31, 2018: a. One year of the prepaid insurance has expired. b. Management estimates that 5% of Accounts Receivable will be uncollectible. c. An inventory of office supplies indicates $475 of supplies have been used. d. Calculate the interest earned on the outstanding Leard Contracting note receivable. Assume the note was received on October 31. Round to the nearest dollar, e. Record depreciation expense for the year. f. Record amortization expense for the year on the franchise, which has a 10-year life. g. Calculate the interest owed on the note payable. Assume the note was issued on January 1. 6. Post adjusting entries and prepare an adjusted trial balance. 7. Prepare a multi-step income statement and statement of owner's equity for the year ended December 31, 2018. Prepare a classified balance sheet as of December 31, 2018. Assume Interest Receivable is a current asset and interest Payable is a curren liability 8. Evaluate the company's success for the first year of operations by calculating the following ratios. Round to two decimal placos. Comment on the results. a. Liquidity: 1. Current ratio ii. Acid-test ratio iii. Cash ratio b. Efficiency 1. Accounts receivable turnover i. Day's sales in receivables til. Asset turnover Iv. Rate of return on total assets