The Business This practice set is designed to be five parts. In the first part, the student will complete the journal entries by writing the journal entries for Bailey's Balloon Bouquet , Inc. in the back of the Practice Set and then entering the entries into Blackboard. For part two, the student will write the adjusting journal entries in the back of the practice set and then enter them into Blackboard. For part three, students will enter all journal entries into the corresponding T-Accounts and then enter the balances into Blackboard. In the fourth part, the student will complete a bank reconciliation using the bank statement in the practice set and will then record the bank's reconciling cash journal entries. The answers to the bank reconciliation will be entered into Blackboard along with any journal entries written on behalf of the company. Part five consists of the student completing an adjusted Trial Balance, then completing an Income Statement, a Statement of Retained Earnings and then a Balance Sheet. After everything is complete, the student will turn in the practice set along with all financial statements in the correct order for credit. Background Bailey's Balloon Bouquet is a gift shop started in September of 2018 by Bailey Boone. She has saved over $20,000 to invest in the business. She has had a meeting with her lawyer and her Certified Public Accountant (CPA) and they have determined that the business should be organized as a corporation. The CPA has agreed to help Ms. Boone set up her accounting system. He provided to Ms. Boone a chart of accounts. Numbering System 1xxxx 15xxx 17xxx 2xxxx 27xxx 39xxx 4xxxx 5xxxx 60xxx Current Asset Property, Plant & Equipment Accumulated Depreciation Current Liabilities Long-term Liabilities Stockholders' Equity Revenues Cost of Goods Sold Operating Expenses Stockholders' Equity 39003 Common Stock 39005 Retained Earnings 39007 Dividends Current Assets 10000 Cash 11000 Accounts Receivable 12000 Inventory - Balloons - 12100 Inventory - Helium 13100 Prepaid Supplies 13200 Shipping Supplies 18000 Prepaid Rent 18100 Prepaid Insurance 18200 Prepaid Advertising Revenue 40000 Sales Long-Term Assets 15000 Computer Equipment 17000 Accumulated Depreciation -Computer Equipment 15100 Delivery Van 17100 Accumulated Depreciation-Delivery Van Expenses 50000 60100 60150 60200 60300 60350 60400 60500 Cost of Goods Sold Legal Expense Supplies Expense Shipping Supplies Expense Insurance Expense Wages Expense Credit Card Expense Advertising and Promotion Expense Utility Expense Rent Expense Depreciation Expense Interest Expense Bank Service Fee 60550 60600 60650 60700 60750 Current Liabilities 20000 Accounts Payable 21100 Note Payable-Wells Fargo Bank Current Liabilities 20000 Accounts Payable 21100 Note Payable - Wells Fargo Bank 21200 Note Payable - Office Mart 23100 Wages Payable 23200 Interest Payable 23300 Sales Tax Payable 23400 Utility Payable Long-Term Liabilities 27000 Mortgage Payable 27100 Notes Payable Part One, Two and Three Instructions Record the September 2018 transactions in the general journal (last section of this practice set) using the following events. Skip a line between each entry and number the entries to match the number of the transaction. In the general journal record the transaction number, the date, and the account numbers. After all journal entries are entered into the practice set, enter the adjusting journal entries. Next, create a T-Account for each account that is used in the Chart of Accounts and record the transactions and end with an ending balance. All ending balances should be on the normal balance side even if the account has a zero balance. If there is a number that is uneven round to the nearest cent. You will need the ending balance in the cash account for the bank reconciliation. All instructions for Blackboard start on page 9. Date 1. 9/02/18 2. 9/02/18 Deposit No. Description / Check No. Bailey Boone met with her lawyer and CPA for advice on starting the business. They decided that Ms. Boone would organize the business as a corporation. The lawyer told Ms. Boone to register the company name, Bailey's Balloon Bouquet, with the County of El Paso. In addition, Ms. Boone will get an employer identification number (EIN) from the Internal Revenue Service and get a sales tax permit from the state of Texas. The lawyer agreed to prepare the Articles of Incorporation to be filed with the Secretary of State of Texas. The CPA has agreed to help Ms. Boone set up her accounting system Deposit #1 Ms. Boone opened a business checking account at Wells Fargo Bank by depositing the personal check she gave her company for $20,000. The corporation issued her a stock certificate for 1,000 shares of common stock with $1 par value. Ck #1001 Ms. Boone signed a one-year rental agreement with Reynolds Realtors for shop space. She was required to pay $2,400 for rent for the months of September 1, 2018 - December 31, 2018 Ck #1002 Arranged for a general business liability insurance policy and paid $2,800 to State Penn Insurance. This premium is for six months coverage. Purchased a new register/computer system that cost $3,600 from Office Mart for use in the business. Ms. Boone signed a six- month, 12% installment note payable for the cost of the system. The 3. 9/03/18 4. 9/03/18 5. 9/03/18 6 Page 6. 9/05/18 Deposit #2 7. 9/05/18 Ck #1003 8. 9/06/18 Ck #1004 computer system has an estimated useful life of 4 years and the residual (salvage) value is $0. This will be recorded as Computer Equipment, and depreciated using the Straight-Line Depreciation method accordingly. Signed a note payable to borrow $5,000 from Wells Fargo Bank. Interest is 9% annually and the note is to be repaid with interest in six months. Purchased a delivery van for $16,000 from Marvin's Motors. The estimated service life of this asset is 5 years. The residual (salvage value) is $1,000. This will be recorded as Delivery Van and depreciated using the Straight-Line Depreciation Method. Paid $600 to have Bailey's logo painted on the side of the van. This should be added to the cost of the van and depreciated over the life of the van. Paid $500 for business cards, flyers, and posters. This will be recorded as prepaid advertising. Purchased $900 of inventory-helium from Hector's Helium on account. The vendor extended credit terms of 2/15, n/30. Purchased $6,200 of inventory-balloons from Balloon Blast on account. The vendor extended credit terms are 2/15 n/30. M. Boone received and paid the $800 charge from her lawyer. Bailey's Balloon Bouquet is now open for business. Sales will be both retail and wholesale. Retail customers will purchase online and at the shop and will be charged an 8.25% sales tax. Ms. Boone will allow major customers to charge their purchases on account and then pay later. Sold balloon arch to UTEP for homecoming on account for $4,000. The cost of the balloons is $1,700. The cost of the helium is $500. UTEP does not have to pay sales tax on the purchase. 9. 9/06/18 Ck #1005 10. 9/08/18 11. 9/08/18 Ck #1006 12. 9/13/18 13. 9/18/18 14. 9/18/18 15. 9/18/18 16. 9/18/18 17. 9/19/18 Deposit #3 Purchased $300 of string (used in making the arrangements) on account. This is to be treated as prepaid supplies. Purchased additional balloons from Balloon Blast on account, for $7,500. Credit terms were 2/10, n/30. Recorded cash sales for the first five days of operation Sales totaled $6000 and the sales tax collected totaled $495. A total of $6,495 was deposited in the bank. The cost of merchandise sold was $4,200. (Balloons were $3,900 and helium was $300) Received and paid the $300 invoice for supplies, string, purchased on 9/18/18. Paid the invoice from Hector's Helium from 9/18/18. Ordered $700 of helium on account. 18. 9/20/18 Ck #1007 Ck #1008 19. 9/22/18 20. 9/22/18 21. 9/23/18 22. 9/23/18 Deposit #4 23. 9/23/18 Ck #1009 24. 9/23/18 25. 9/23/18 Ck #1010 Deposit #5 Ms. Boone donated a balloon bouquet to the Humane Society fund raiser. She felt that this was a good way to advertise her new business. Her business was listed as a sponsor and a large ad was put in the fund raiser program. Cost of the balloons were $600 and the helium was $100. Ms. Boone considers this an advertising expense. Received payment in full from UTEP. The payment was deposited in the bank. Ms. Boone paid her credit card bill for the month. The total was $350 which was for gas for the delivery van and $50 was for decorative ribbons used for the Humane Society balloon arrangement. Purchased and paid for $50 of shipping supplies. Internet and retail sales totaled $7,000 and sales taxes of $560 was collected. The cost of the merchandise sold was $4,500 (Balloons $4,000; Helium $500). The money was deposited in the bank. Paid the balance due to Balloon Blast. There are two invoices; one on 9/8/18 and the other on 9/18/18. Collected and deposited $2,300 of payments. Sales tax totaled $189.75. The cost of the merchandise sold was $1,050. (Balloons $1,000; Helium $50). Received but did not pay the utility bill for the month, $120. Paid the first monthly installment on the computer equipment. The payment amount is $636. Of this amount, $36 is for interest and $600 is for principal. Make the check payable to Office Mart. Recorded internet sales for the last week of the month. Sales of $3,400 were deposited. The cost of the merchandise sold was $1.250 (Balloons $1 200; Helium $50. Sales tax collected is $280.50. 26. 9/23/18 Ck #1011 27. 9/25/18 Deposit #6 28. 9/28/18 29. 9/30/18 Ck #1012 30. 9/30/18 Deposit #7 30. 9/30/18 Deposit #7 Recorded internet sales for the last week of the month. Sales of $3,400 were deposited. The cost of the merchandise sold was $1,250 (Balloons $1,200; Helium $50). Sales tax collected is $280.50. Paid all sales tax owed for September to the Comptroller of Public Accounts. Declared and paid a cash dividend of $100 to Bailey Boone. 31. 9/30/18 Ck #1013 32. 9/30/18 Ck #1014 Once all the journal entries are recorded in the practice set, record the nine adjusting journal entries with the date being September 30, 2018. The following are the adjusting journal entries for the month of September Record Adjusting Entries: Record the following month end adjusting entries for the month of September. Write the journal entries in the practice set after the original journal entries and round to the nearest cent a. $50 of supplies remained on hand. 8 Page b. $10 of shipping supplies remained on hand. C. $1,000 of wages for the part-time help from Irene's Temp Services for September should be accrued. Do not worry about payroll taxes; Temp Services Inc. will handle these. d. Make the necessary adjusting entry for one month's depreciation for the van using Straight Line Depreciation. e. Make the necessary adjusting entry for the computer equipment using Straight Line Depreciation. f. One month of the prepaid insurance has expired. g. One month of the prepaid rent has expired. h. $300 of prepaid advertising remains on hand 1. Record the interest on the loan from Wells Fargo. Make sure you prepare the journal entries, and the adjusting entries, and write them in the practice set. All T-accounts with the correct balances should be prepared. There is an example of how to set up the T-Accounts in Excel at the end of the practice set. Make sure to include all accounts even if they have a zero balance and make sure that the zero is on the normal balance side of the account. Once all the balances are in the T-accounts and the answers have been inputted into Blackboard please staple your T-Account page to the back cover of the practice set. Part Four Instructions In this part of the practice set, the student will prepare a Bank Reconciliation for the month of September. Start by using the ending balance in your cash account for the cash for your books and the ending balance on the bank statement for the bank balance. Requirements 1. Correct Errors: Correct any errors that you made on the journal entries. Both the debits and the credits must equal each other. 2. Bank Reconciliation: Using the cash balance per books and the bank statement, prepare a bank reconciliation 3. Record Bank Reconciliation Adjustments: After you have prepared the bank reconciliation you must make any adjusting journal entries to your cash account by entering them in the general Journal of the practice set so that the general ledger cash account agrees with the bank reconciliation 4. Assume that any errors are made by the bank. 5. After preparing the bank reconciliation answer the questions in Blackboard and then staple the bank reconciliation to the back cover