Print Close a. Background Assume it is currently June 1, 2022. You are working for the temporary accounting employment agency known as Acctempo. Today you have been asked to wo at Disc-O-Tech, a small music store that operates in inner city Houston and is owned by Celia Ginzburg. Your task here is to complete the accounting cycle for Disc-O-Tech for the month of June 2022. To assist you in this task, Celia tells you to read the company's accounting policies and procedures. Note that you will be required to follow these policies and procedures when completing the accounts for Disc-O-Tech. Accounting policies Business operations: Disc-O-Tech is set up as a private non- listed corporation based in Houston with Celia Ginzburg as the sole stockholder. The business derives its main source of revenue from retail sales of music related goods. To assist in managing the business, Disc-O-Tech rents a small office space. Note that the business is required to pay for the rent for this premises in advance. The electricity and water expenses incurred during the month relate to the running of the office. Additional expenses include an insurance policy to protect the equipment in the office in th event of theft or fire. All costs associated with the office are classified as general and administrative expenses. Celia is the only full-time employee and her role is to handle al administrative tasks. Celia's salary is paid once at the end of each month. All other employees are sales staff who are employed on a part-time basis. The sales staff receive their wages every two weeks. b. e Accounting cycle: The business adopts a monthly accounting cycle. Purchases: Purchases are recorded when the business receives the goods. All items purchased are received on the same day as recorded in the transaction list, except for purchase orders which are received at a later date. Note that the business uses the gross method of recording purchases and receives trade discounts and early payment discounts from some suppliers. .. Purchase returns: To allow Celia to separately track and analyze the value of goods returned to suppliers, all purchase returns are recorded in the Purchase Returns and Allowances account rather than directly in the Purchases account. Revenue recognition: The business recognizes revenues when goods sold are delivered to customers. All items sold are delivered on the same day as recorded in the transaction list except for sales orders, which are delivered at a later date as agreed with the customer. Note that the business uses the gross method of recording sales and sometimes grants trade discounts to customers. Past experience has shown that offering early payment discounts did not increase the likelihood of accounts receivable being paid promptly. Therefore, discounts for early payment of accounts are not normally offered to credit customers except in exceptional circumstances. Sales returns: So that the business can easily track the level of sales returns in relation to overall sales, all sales returns are recorded using a contra revenue account (Sales Returns and Allowances) rather than being recorded directly in the Sales Revenue account. Sales tax: Celia has advised you to ignore the effect of sales tax. [ASIDE: This is an assumption to make the practice set easier for you to complete. In the real world, sales tax cannot be ignored.) Cash: The business accepts cash and checks and uses checks to pay for the majority of its expenses. On the day checks are received, Celia deposits them at the bank. It may take a number of days for the checks to be cleared by the bank. The business holds its checking account with BitiBank. Short-term investments: The business holds a six-month term deposit account with BitiBank at a simple interest rate of 6%. Interest is calculated on a monthly basis and received at the end of the deposit term. The monthly interest earned is calculated as the yearly interest divided by the number of months in a year. Note that when the deposit matures, Celia usually rolls over the principal and interest received at the end of the term. The term deposit account was rolled over on June f. 9 h. 1 2022 1, 1. k. I. Inventories: The business uses the periodic inventory system and and records all purchases of inventory in the Purchases account, rather than recording them directly in the Merchandise Inventory account. At the end of the reporting period, the Purchases account and the opening balance of the Merchandise Inventory account are closed to the Income Summary account and Merchandise Inventory is restated to its ending balance. Note that the company does not use a Cost of Goods Sold account. * Prepayments: The business has a policy of recording prepayments, including office supplies, as assets. At the end of the month, adjustments are made to the relevant accounts to recognize the expense incurred during the accounting period. Property, plant and equipment: Property, plant and equipment items are depreciated over their estimated useful life using the straight line method to calculate the depreciation charge. Depreciation is allocated on a monthly basis and the monthly depreciation charge is calculated as the yearly depreciation expense divided by the number of months in a year. Long-term liabilities: The business obtained an interest only loan from MRMC Bank on June 1, 2022 at a simple interest rate of 6% per year. The first interest payment is due at the end of August 2022 and the principal on the loan is due on June 1, 2026. Accounting procedures Disc-O-Tech adopts a manual accounting system and uses the general journal and special journals for the recording of individual transactions. Celia Ginzburg has tailored the design of those journals to meet the specific needs of the business so the format of those journals may be slightly different to those you have seen before. However, she advises you that the general principles of how to use special journals are followed in her business. The table below shows the journals used by the business and the types of transactions that can be recorded in each of these journals: m Journal Code General journal GJ Sales journal SJ Transaction type All transactions that are not able to be recorded in the special journals below. Credit sales of inventory Credit purchases of inventory Cash inflows to the business Cash outflows from the business PJ Purchases journal Cash receipts journal Cash payments journal CRJ CPJ To summarize the effects of transactions recorded in those journals, Celia maintains the general ledger and the following subsidiary ledgers: accounts receivable subsidiary ledger, and accounts payable subsidiary ledger. To summarize the effects of transactions recorded in those journals, Celia maintains the general ledger and the following subsidiary ledgers: accounts receivable subsidiary ledger, and accounts payable subsidiary ledger. Celia then indicates that she is aware other businesses using a manual accounting system may post transactions from journals to ledgers at different times (i.e. daily or monthly). Although the posting procedures used in her business may be different to what you have seen before, she asks that you specifically follow her company's accounting policies and procedures. The information below explains when transactions are required to be posted from the journals to the appropriate ledger accounts: Posting of entries recorded in the general journal All transactions that are entered in the general journal are posted on a daily basis. Note that if a transaction recorded in the general journal involves both a control account and a subsidiary ledger account, that journal entry will need to be posted to both ledgers. Posting of entries recorded in the special journals When a transaction is recorded in a special journal, part of the journal entry may need to be posted daily and part of that entry is to be posted monthly. Daily: . If a transaction affects a subsidiary ledger account, then the entry that involves a subsidiary ledger account is to be posted to that subsidiary ledger on a daily basis. However, the same amount posted to the subsidiary ledger account is not posted to the related control ledger account immediately. This procedure allows the business to keep track of supplier and customer balances on a daily basis. In the cash receipts journal or the cash payments journal, if a transaction is recorded in the Other Accounts column, then the amount recorded in the Other Accounts column is to be posted to the appropriate general ledger account daily. Monthly: At the end of the month, the totals of each column in the special journals are manually calculated. Those totals, with the exception of the total e Other Accounts columns in the cash journals, are po. the appropriate general ledger accounts at the end vi the month. b. Print Close Transactions - Week 1 - Now that you have reviewed information about Disc-O-Tech, you are ready to begin the first step in the accounting cycle, recording transactions. On this page of the practice set, you are asked to record transactions that occurred during the first week of June into the company's journals and post the appropriate entries to the ledger accounts. The following transactions occurred throughout the first week of June: N N Week 1 Date Transaction description 1 Obtained a loan of $57,000 from MRMC Bank at a simple interest rate of 6% per year. The first interest payment is due at the end of August 2022 and the principal of the loan is to be repaid on June 1, 2026. 2 Purchased 55 The Pixie Chicks CDs from Mapster records for $12 each, terms net 30. Purchased 40 The Oblique References CDs from Toadstool records for $12 each, terms 2/10, n/30. 2 Purchased 170 Best of the 1870s, 80s & 90s Albums with cash for $18 each, Check No. 603. 3 Sold 10 The Oblique References CDs to Brashs world records for $27 each, Invoice No. 501. Made cash sales of $4,796 during the first 3 days of the month. 5 Paid the full amount owing to Shack records, Check No. 604. Payment fell within discount period. 6 Paid the full amount owing to UML records, Check No. 605. Payment fell within discount period. UW W N 3 Show All Special Journals General Journal Subsidiary Ledgers General Ledger (Q=301.sales JournalWeek1) SALES JOURNAL Date Account Invoice No. Post Ref. Amount Jun (select) Jun select) Jun (select) Jun select) (Q=302.purchases JournalWeek1) PURCHASES JOURNAL Date Account Terms Post Ref. Amount Jun (select) Jun (select) Jun (select) Jun (select) (Q=303.cashReceipts JournalWeek1) CASH RECEIPTS JOURNAL Note: In order to receive full points, for each transaction you must select an account under the column labeled 'Account', as indicated under the additional instructions above. Since all transactions in this journal affect the Cash account, you are asked to enter the name of the appropriate account credited in these transactions into the Account column so that the type of transaction can be determined by the name of the account entered into this column. Debit Credit Date Account Post Ref. Cash Sales Discounts Sales Revenue Accounts Receivable Other Accounts Jun (select) Jun select) Jun (select) Jun IIIIII (select) Jun (select) Jun select) (O=304 cashPavments. JournalWeek 1) Both journals and ledgers: . Most journals and ledgers will have blank rows left at the end of the page. . Some journals and ledgers may not require any entries. Show All Special Journals General Journal Subsidiary Ledgers General Ledger (Q=310-110-3.AcctsRec3_week1) SUBSIDIARY LEDGERS Account: ARC - Brashs world records Account No. 110-3 - Date Ref. Debit Credit Description 31 Balance Balance 3,294 DR May Jun Jun Jun (Q=310-210-1.AcctsPay1_week1) Account: APC - Toadstool records Account No. 210-1 Date Ref. Debit Credit Balance Description 31 Balance May 3,478 CR Jun V Jun v V Jun (Q=310-210-2.AcctsPay2_week1) Account: APC - UML records Account No. 210-2 Date Description Ref. Debit Credit Balance May 31 Balance 2,219 CR Jun Jun Jun v (Q=310-210-3.AcctsPay3_week1) Account: APC - Mapster records Account No. 210-3 Date Ref. Debit Credit Balance Description 31 Balance May 4,864 CR Jun Jun Jun (Q=310-210-4.AcctsPay4_week1) Account APC-Shack records Account No. 210-4 Date Description Ref. Debit Credit Balance May 31 Balance 3,590 CR Jun v Jun Jun GENERAL LEDGER Account: Cash Account No. 100 Date Description Ref. Debit Credit Balance May 31 | Balance 24,904 DR Jun Jun Jun (Q=320-110.AcctsRecco Account: ARC - Accounts Receivable Control Account No. 110 Date Description Ref. Debit Credit Balance May 31 | Balance 11,407 DR Jun Jun Jun (Q=320-120.Inver Account: Merchandise Inventory Account No. 120 Date Description Ref. Debit Credit Balance May 31 Balance 76,436 DR Jun Jun Jun (Q=320-210.Accts PayCo Account: APC - Accounts Payable Control Account No. 210 Date Description Ref. Debit Credit Balance May 31 Balance 15,693 CR Jun Jun II Jun (Q=320-250.Loan Pay Account: Bank Loan Payable Account No. 250 Date Description Ref. Debit Credit Balance Mav 31 || Ralance n CASH PAYMENTS JOURNAL Note: In order to receive full points, for each transaction you must select an account under the column labeled 'Account', as indicated under the additional instructions above. Since all transactions in this journal affect the Cash account, you are asked to enter the name of the appropriate account debited in these transactions into the Account column so that the type of transaction can be determined by the name of the account entered into this column. Debit Credit Date Account Check No. Post Ref. Accounts Payable Purchases Other Accounts Cash Purchase Discounts Jun Kselect) Jun Kselect) Jun Kselect) Jun select) Jun (select) Jun select Show All Special Journals General Journal Subsidiary Ledgers General Ledger (Q=305.generalJournalWeek1) GENERAL JOURNAL Date Account and Explanation Post Ref. Debit Credit Jun select) (select) Jun select select) Jun (select) select) Jun (Q=320-250 Account: Bank Loan Payable Account No. 250 Date Description Ref. Debit Credit Balance May 31 | Balance Jun Jun Jun (Q=320-400 Account: Sales Revenue Account No. 400 Date Description Ref. Debit Credit Balance May 31 | Balance Jun Jun Jun (Q=320-- Account: Sales Discounts Account No. 402 Date Description Ref. Debit Credit Balance May 31 Balance 0 Jun Jun Jun (Q=320-5 Account Purchases Account No. 500 Date Ref. Debit Credit Balance Description 31 Balance May 0 Jun Jun Jun (Q=320-502. Account: Purchase Discounts Account No. 502 Ref . Date Description Debit Credit Balance May 31 Balance 0 Jun 10 Jun Jun Submit answers