The Corner Dress Shop This Mini Practice Set will help you review all the key concepts of the accounting cycle for a merchandising company, along with the integration of payroll. Betty Loeb took over the business now known as The Corner Dress Shop on January 1, 2022. Betty purchased the business name and all assets except cash from her Aunt Marion, who had run it for over ten years. Certain liabilities were assumed by Betty's new busi- ness as part of the deal. You are the bookkeeper of The Corner Dress Shop and have gathered the follow- ing information. It is your task to complete the accounting cycle for March 2022. Mini Practice Set Estimated time 5 hours THE CORNER DRESS SHOP TRIAL BALANCE FEBRUARY 28, 2022 Account Titles and Description Cash Petty Cash Accounts Receivable. Dr. Cr. 30 7 7 5 31 50 00 829185 Office Supplies Prepaid Rent Prepaid Insurance GST Prepaid Inventory 62430 180000 100000 436 34 830900 Computer and Office Equipment 500000 Acc. Dep'n Computer & Office Equipment 261 12 Computer Software 73900 Acc. Dep'n Computer Software 61 58 Delivery Truck 1200000 Acc. Dep'n-Delivery Truck 340 00 Accounts Payable 478899 Income Taxes Payable 110882 El Payable 40879 CPP Payable Medical Plan Payable Charitable Donations Payable GST Collected Rent Received in Advance Betty Loeb, Capital Betty Loeb, Withdrawals Sales Cost of Goods Sold 81030 11200 18000 730000 231365 60000 48 07880 59 865 05 Wages Expense CPP Expense El Expense Insurance Expense Rent Expense Dep'n Expense-Computer & Office Equipment Dep'n Expense-Software Dep'n Expense-Delivery Truck Accounting Expense 1907 338 18 12000 81030 476921 20000 180000 26112 6158 340 00 146000 118 929 10 118 92910 ACCOUNTING FOR BAD DEBTS 579 Balances in subsidiary ledgers as of February 28: Accounts Receivable* Accounts Payable* Ronald Co. $5,538.00 Blew Co. $2,543.77 Sally's Store 2,753.85 Dresses by Shelley 1,510.22 Silk Magic 735.00 "Includes 5% GST. Payroll is paid monthly, and employee claim codes are unchanged. The payroll register for January and February is provided on pages 582-583. In March, salaries are as follows (all deductions are the same unless indicated): Mel Case $ 1,860 Jane Holl 2,900 Assume all income taxes are calculated as 20% of gross wages. For CPP and El assume 0.0495 and 0.0188, respec- tively. (Remember to include the calculation for CPP exemption of $3,500 per year.) Jackie Moore 4,300 Required a. Set up a general ledger, accounts receivable ledger, accounts payable ledger, aux- iliary petty cash record, and payroll register. (Before beginning, be sure to update the ledger accounts on the basis of information given in the trial balance for February 28.) b. Journalize all transactions during March, using the special journals discussed in the text. Assume this company uses the perpetual inventory method. The practice set can be completed using either method of accounting for inventory. If no specific method is indicated by your instructor, use the perpetual method. Assume the cost of all inventory is 75% of its selling price. c. Prepare the payroll register for March. d. Update the accounts payable and accounts receivable subsidiary ledgers for March. e. Post to the general ledger. f. Prepare a trial balance on a worksheet and complete the worksheet as of March 31, 2022. g. Prepare an income statement, statement of owner's equity, and classified balance sheet. h. Journalize the adjusting and closing entries. i. Post the adjusting and closing entries to the ledger. j. Prepare a post-closing trial balance. The chart of accounts for The Corner Dress Shop is provided on the next page. Assets Chart of Accounts Liabilities 2100 Accounts Payable 1110 Cash 1115 Petty Cash 2200 Accrued Wages 1120 Accounts Receivable 2330 Income Taxes Payable 1135 Office Supplies 2335 El Payable 1140 Prepaid Rent 2340 CPP Payable 1145 Prepaid Insurance 2350 Medical Plan Payable 1150 HST Prepaid 2360 Charitable Donations Payable 1210 Inventory 2400 HST Collected 1330 Computer and Office Equipment 2500 Rent Received in Advance 1335 Acc. Dep'n.-Computer & Office Equipment 1340 Computer Software 1345 Acc. Dep'n.-Computer Software 1350 Delivery Truck 1355 Acc. Dep'n.-Delivery Truck Owner's Equity 3110 Betty Loeb, Capital 3120 Betty Loeb, Withdrawals Cost of Goods Sold 5040 Cost of Goods Sold Revenue 4110 Sales 4140 Sales Discounts 4150 Sales Returns & Allowances Expenses 5400 Wages Expense 5430 El Expense 5440 CPP Expense 5500 Postage Expense 5510 Insurance Expense 5520 Cleaning Expense 5530 Rent Expense 5540 Delivery Expense 5550 Dep'n. Expense-Computer and Office Equipment 5560 Dep'n. Expense-Software 5570 Dep'n. Expense-Delivery Truck 5590 Accounting Expense 5595 Miscellaneous Expense ACCOUNTING FOR BAD DEBTS 581 Transactions 2022 Mar. 1 Paid rent cheque No. 121 to Smithstone Realty, $900.00 + HST of 13%. Purchased merchandise from Jones Company, invoice No. JC 59087: @$10 each + HST CT-01 50 CY-01 50 @ $10 each + HST 4 Paid $6 from petty cash fund for doughnuts, voucher No. 01 (miscellaneous expense, NO HST). Sold merchandise on account to Morris Company, invoice No, CD 1081 (cost of goods sold is calculated as 75% of sales before GST): @ $39.99 each + HST PO-01 5 PO-02 5 @ $39.99 each + HST SIC-01 6 @ $89 each + HST 5 Paid Dresses by Shelley $1,510.22 (invoice No. DS 12895), cheque No. 122. PAYROLL JOURNAL-JANUARY Federal Provincial Gross Cumulative Employee Claim Claim Earnings CPP IT-Fed IT-Prov IT-Total Mel Case 4 4 186000 Jane Holl 1 1 290000 4427 255 52 000 44 27 12503 38055 Jackie Moore 3 3 430000 45984 224 16 684 00 1108 82 582 CHAPTER 12 9060 00 JANUARY (continued) CPP Deductions Net Cheque Health Charitable 77 63 3497 28 00 2000 Pay 165513 No. 12911 54 52 42 00 3000 226382 19841 8084 4 200 4000 325475 40515 17033 112 00 9000 717370 PAYROLL JOURNAL-FEBRUARY Federal Employee Claim Provincial Gross Claim Earnings Cumulative CPP IT-Fed IT-Prov IT-Total Mel Case 4 4 186000 4427 000 44 27 Jane Holl 1 1 290000 25552 12503 38055 Jackie Moore 3 3 430000 45984 22416 68400 110882 Mar. 5 8 8 %22 11 12 12 906000 FEBRUARY (continued) Deductions Net CPP EL Health Charitable Pay Cheque No. 7763 34 97 2800 2000 1655 13 12911 54 52 4200 3000 22 6382 198411 8084 4200 4000 325475 40515 17033 11200 9000 717370 Received payment from Ronald Company, $5,538.00 (invoice No. CD 1078). Paid $12.60 (including GST) from petty cash fund for postage, voucher No. 02. Paid Blew Company $2,543.77, cheque No. 123 (invoice No. BC 1795). Received payment from Sally's Store (invoice No. CD 1076), $2,753.85. Paid $5 for delivery expense from petty cash fund, voucher No. 03. Received amount due from Morris Company, less 2% discount. Purchased from Dresses by Shelley, invoice No. DS 12947: @$19 each + HST CD-01 75 CD-02 75 @$19 each + HST 12 12 13 Paid cleaning service $300 + HST, cheque No. 124 (cheque was issued to Cleaners Inc.). Purchased from Blew Company, invoice No, BC 1896: DI-01 20@$48 each + HST DS-01 20 @$80 each + HST PO-01 75 @ $12.50 each + HST PO-02 75 @ $12.50 each + HST 15 15 Sold to Bing Company, invoice No. CD 1082 (cost of goods sold is calculated as 75% of sales): SD-01 5 @$29.99 each + HST Paid CRA for income tax, CPP, and El for February, cheque No. 125. (Note: Record as a compound entry in the cash payments journal.) ACCOUNTING FOR BAD DEBTS 583 584 CHAPTER 12 Mar. 15 15 18 CD-01 30 Paid CRA for HST due (net) end of February, cheque No. 126.* Paid the Government of Ontario for medical premiums due for the month of February, cheque No. 127. Cash sales, summarized on invoice No. CD 1083 (cost of goods sold is calculated at 75% of sales): @$59.95 each + HST CD-02 45 @$59.95 each + HST CT-01 15 @$30 each + HST CY-01 21 @ $30 each + HST DI-01 10 @$150 each + HST DS-01 6 @ $250 each + HST SIC-01 4 @ $89 each + HST WD-01 5 @ $750 each + HST 18 19 19 20 21 DI-01 CD-01 26 CD-01 CD-02 28 26 29 30 Additional Data Paid Jones Company amount owed (invoice No. JC 59087), cheque No. 128. Bing Company received an allowance for its purchase on invoice No. CD 1082. Credit memo No. 001 was issued. No inventory was returned. Paid Dresses by Shelley amount due, less 2% discount (invoice No. DS 12947), cheque No. 129. Betty Loeb withdrew $1,000 for her personal use, cheque No. 130. Sold to Sally's Store, invoice No. CD 1084: 10 @ $150 each + HST 10 @ $59.95 each + HST Purchased from Dresses by Shelley, invoice No. DS 13062: 50 @ $19 each + HST 50 @ $19 each + HST Paid $10 from the petty cash fund for first aid emergency, voucher No. 04. Recorded and paid employees, cheques No. 131, No. 132, and No. 133 (cash payments journal). Issued cheque to Jane Holl for replenishment of petty cash fund, cheque No. 134 (compound entry in cash payments journal). a. Physical count of merchandise inventory is $6,500. b. Rental income earned, $300 (one month's rent from subletting; received in advance in February). c. Depreciation (straight-line): Delivery truck Computer Computer Software = Residual value $1,800, expected life of 5 years = Residual value $ 300, expected life of 3 years Residual value = $ 0, expected life of 2 years d. One month of insurance has expired. "Two steps are usually needed here. Step 1 (done in the G/L) is to transfer the debit balance in the HST Prepaid account to the HST Collected liability account. The net credit balance, then, is reduced by posting the cheque (recorded in the cash payments journal) that pays this net amount (step 2)