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Run For Your Life, Inc. is a wholesaler of high-end running gear. The founders, Zoey Smith and Brooke Johnson, have done their research with regards

Run For Your Life, Inc. is a wholesaler of high-end running gear. The founders, Zoey Smith and Brooke Johnson, have done their research with regards to product development, marketing, customers, and brand recognition, however, they did not keep valid accounting records. Now, one year later, the founders realize that they need to prepare some financial statements to understand how the business performed. You have run a few races with Zoey and Brooke in the past and have developed a friendship. You have decided to help them develop their financial statements.

Start-Up Funding:

On the date of incorporation, each founder invested $25,000, for 250 shares of common stock each. In addition they borrowed $175,000 from Obelisk Bank and Trust with interest terms of 2.5% payable annually, and principal due in full at the end of eight years. Incorporation costs (legal fees, etc.) amounted to $1,200.

Expenses and Purchases:

Based on the stack of receipts the founders maintained and their bank statements, Run For Your Life had the following cash disbursements during the year.

Rent (Office and Warehouse)

8,000

Security Deposit (Office and Warehouse)

1,000

Wages and salaries

11,000

Furniture, fixtures and equipment

15,000

IT hardware and software

13,000

Utilities, phone, internet

5,000

Office supplies

1,200

Insurance

4,200

Advertising

3,000

Additional notes for expenses and purchases:

The office and warehouse space was leased on 1/1/2020 and a full year of rent expense and the security deposit were paid for on 1/1/2020.

The furniture, fixtures and equipment are expected to last for 6 years with no salvage value. The IT hardware and software is expected to last for 4 years and they hope to sell it for $1,000.

Insurance premiums are due every 6 months. Run For Your Life paid insurance premiums on 1/1/2020, 7/1/2020 and 12/31/2020 (to prepay insurance premiums for the first 6 months of 2021). There were no insurance premium increases.

Inventory:

The company made the following purchases of inventory in 2020:

Date

Item #

Item Description

Cost

Price

Quantity

1/1/2020

1310

Motion Control Shoes

$95.00

$150.00

80

2/1/2020

1311

Stability Shoes

$105.00

$175.00

60

3/15/2020

1312

Cushioning Shoes

$105.00

$210.00

50

7/15/2020

1313

Wool Socks

$15.00

$24.00

100

8/12/2020

1314

Compression Socks

$25.00

$41.00

75

10/1/2020

1315

Foam Roller

$20.00

$35.00

20

12/15/2020

1316

GPS Tracker (Smart Watch)

$185.00

$250.00

90

Run For Your Life purchased all inventory on credit. At 12/31/2020, all purchases had been paid except for the GPS Trackers (Item #1316) purchased on 12/15/2020.

Sales:

Sales records needed to be rebuilt as the founders did not document these transactions and even lost some of their records. Based on the inventory left at year-end, below is what is assumed to have been sold during the year.

Item #

Item Description

Quantity Sold

1310

Motion Control Shoes

70

1311

Stability Shoes

45

1312

Cushioning Shoes

35

1313

Wool Socks

80

1314

Compression Socks

70

1315

Foam Roller

10

1316

GPS Tracker (Smart Watch)

85

Bank records indicate, however, that payment has been received for all purchases except for 30 of the GPS Trackers and 5 of the Foam Rollers which were sold during the last week of the year.

General Ledger:

The founders of Run For Your Life had a CPA help them develop their general ledger back in 2019 when the company was just a concept. The owners understand the purposes of these accounts and would like for you to use these accounts only as you create their manual AIS system.

Account Number

Account Description

10000

Cash

11200

Accounts receivable

11300

Inventory

11400

Security deposits

11500

Prepaid insurance

15000

Furniture, fixtures, and equipment

15500

IT hardware and software

16000

Accumulated depreciation FF&E

16500

Accumulated depreciation IT H&S

20000

Accounts payable

25000

Loan payable

30000

Common stock

40000

Revenue

50000

Cost of goods sold

60000

Legal expense

60100

Rent expense

60200

Utilities, phone, internet expense

60300

Office supplies expense

60400

Insurance expense

60500

Advertising expense

60600

Wages and salaries expense

65000

Depreciation expense FF&E

65500

Depreciation expense IT H&S

70000

Interest expense

complete the accounting cycle for this company since inception through year-end (2020). This includes:

  1. Journal entries and adjusting journal entries
  2. T-accounts
  3. Trial Balance
  4. Complete set of Financial Statements (Income Statement, Balance Sheet,)

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