Question
PURPOSE The purpose of Comprehensive Problem 1 is to review and reinforce your understanding of the accounting cycle. The number of transactions included in this
PURPOSE The purpose of Comprehensive Problem 1 is to review and reinforce your understanding of the accounting cycle. The number of transactions included in this comprehensive problem has been kept to a minimum so that you can simulate what might happen in actual practice without unnecessary redundancy or excessive time requirements. BACKGROUND Larry Looker is an avid hiker, and always wanted to combine his love of the outdoors with a way to earn a living. He decided that a way to do this would be to use llamas, which he raised as a hobby, to carry gear for hikers on long distance hikes in remote sections of northern Arizona that are not accessible by vehicle. This is a livery service, providing guaranteed transport and delivery of camping gear to the hikers final destination for each days hike. The fees charged will be based on a combination of the distance covered, the number of llamas required to carry the gear and the number of employees required to manage the llamas. Larry started his new business on July 1, 20XX as Larrys Llama Livery Service. Larry has hired you to perform the accounting and record-keeping for the business. He expects your work as an accounting professional to be neat and properly formatted. You have established the following chart of accounts for Larrys Llama Livery: ACCT # Account Title ACCT # Account Title 111 Cash 311 Larry Looker, Capital 112 Accounts Receivable Transports R Us 312 Larry Looker, Drawing 113 Supplies 313 Income Summary 114 Prepaid Insurance 411 Service Revenue 141 Building 511 Wages Expense 142 Accumulated Depreciation Building 512 Advertising Expense 143 Equipment 513 Utilities Expense 144 Accumulated Depreciation Equipment 514 Supplies Expense 211 Loan Payable Mountain High Bank 515 Insurance Expense 212 Accounts Payable Office Supplies R Us 521 Depreciation Expense 213 Accounts Payable Llama Equipment Company Chart of Accounts 214 Wages Payable USE THESE ACCOUNT TITLES FOR YOUR JOURNAL ENTRIES!!!
DISCOVERY OF ERRORS If your TRIAL BALANCE doesn't balance: (1) Determine the difference between the totals. (2) Possible sources of the error: (a) If difference is 10, 100, 1,000, etc., it may be the result of an addition error. (b) Look for an omission of a dr. or cr. posting in the amount of the difference. (c) If difference is evenly divisible by 2, half of the difference may be the result of a dr. posted as a cr. or vice versa. (d) If difference evenly divisible by 9, it could be a: ==> transposition error (erroneous arrangement of digits; e.g. 542 instead of 452). ==> slide error (entire number moved 1 or more spaces to right or left; e.g. 542 instead of 5,420). If error not found, retrace steps of accounting process beginning with the last and working backwards: (1) Double check trial balance column totals. pg. 3 Larrys Llama Livery (2) Compare listings in trial balance with balance in account also make sure items in dr. column have dr. balance; same for cr. items). (3) Recompute each balance in the ledger accounts. (4) Trace postings in ledger back to journal, placing a check by each item; then look for unchecked items in the journal. (5) Verify equality of dr. and cr. in journal by computing total of all debits and total of all credits. If your FINANCIAL STATEMENT amounts do not agree with the check figures (and your trial balance balanced): (1) Look for accounts that are: (a) included but should not be on that statement, or (b) omitted. (2) Reexamine your journal entries; you may have recorded a transaction incorrectly.
COMPREHENSIVE PROBLEM REQUIREMENTS (1) Prepare journal entries to record the July 20XX transactions listed on the following page (refer to the chart of accounts for the appropriate account titles to use). Leave a space after each entry! Check figure: Total Debits = $370,785. (2) Post the journal entries to the General Ledger and calculate the account balances. Check figure: Cash Balance = $52,335. (3) Prepare an unadjusted trial balance. Check figure: Total Debits = $301,020. (4) Prepare adjusting journal entries in the general journal based on the following information (adjustments dated July 31 for simplicity): (a) The building (barn and office space) has an estimated useful life of 25 years. Record depreciation for one month. (b) The equipment has an estimated useful life of 7 years. Record depreciation for one month. (c) Record insurance expired for one month. (d) Supplies on hand at the end of July have a cost of $310. (e) Accrue employee wages for 4 days from Tuesday July 28 through Friday July 31 (payroll is $3,600 for the two week pay period totaling 10 days for a Monday-Friday workweek). (5) Post the adjusting entries to the General Ledger and calculate the account balances. (6) Prepare an adjusted trial balance. (7) Prepare the financial statements: (a) Income Statement: (b) Statement of Owners Equity: (c) Balance Sheet: (8) Prepare the closing entries in the general journal (all CJEs are dated July 31 for simplicity). (9) Post the closing entries to the General Ledger and calculate account balances. (10) Prepare a post-closing trial balance. pg. 4 Larrys Llama Livery Transactions: July 1 Larry invested $100,000 of personal funds into the business. 1 Found the perfect building with barn and office space in which to locate the business. Negotiated a price of $225,000; Larrys Llama Livery paid $45,000 in cash and signed a loan for the $180,000 remainder to Mountain High Bank. 2 Purchased equipment for the business for $10,920 on account (credit) from Llama Equipment Company. 2 Paid the $2,100 premium for a 1-year insurance policy. 3 Paid $700 for advertising in the Tree Tops Press Newspaper to run throughout the month. 5 Purchased $1,150 of supplies on account. 13 Paid $5,000 on account to Llama Equipment Company for the equipment purchased on July 2. 13 Employee wages are paid bi-weekly on the Monday following the payroll period (Monday-Friday workweek). Paid employee wages of $2,880 for the payroll period ending July 10. 14 Gear transport services provided to Transports R Us on Account totaled $3,900. 16 Gear transport services provided to customers for cash during the first half of July totaled $4,750. 17 Received $1,825 cash from Transports R Us for services performed. 23 Paid utility bills (water, electric, telephone) for the month totaling $460. 24 Received $1,700 from Transports R Us for payments on their account. 27 Paid employee wages of $3,600 for the payroll period ending July 24. 30 Gear transport services provided to customers for cash during the second half of July totaled $5,300. 30 Withdrew Cash for Personal Use, $1500
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