Top Quality ApplianceLong Beach has just purchased a franchise from Top Quality Appliance (TQA). TQA is a manufacturer of kitchen appliances. TQA markets its products via retail stores that are operated as franchises. As a TQA franchisee, Top Quality ApplianceLong Beach will receive many benefits, including having the exclusive right to sell TQA brand appliances in Long Beach. TQA appliances have an excellent reputation and the TQA name and logo are readily recognized by consumers. TQA also manages national television advertising campaigns that benefit the franchisees. In exchange for these benefits, Top Quality ApplianceLong Beach will pay an annual franchise fee to TQA based on a percentage of sales. The annual franchise fee is a separate cost and in addition to the purchase of the franchise.

In addition to purchasing the franchise, Top Quality ApplianceLong Beach will also purchase land with an existing building to use for its retail store, store fixtures, and office equipment. The business will purchase appliances from TQA and resell them in its store, primarily to local building contractors for installation in new homes. Following is the chart of accounts for Top Quality ApplianceLong Beach. As a new business, all beginning balances are $0.

Top Quality ApplianceLong Beach Chart of Accounts

Cash, Petty Cash, Accounts Receivable, Allowance for Bad Debts, Merchandise Inventory, Office Supplies, Prepaid Insurance, Interest Receivable, Notes Receivable, Land, Building, Accumulated DepreciationBuilding, Store Fixtures, Common Stock, Retained Earnings, Dividends, Sales Revenue, Interest Revenue, Cost of Goods Sold, Franchise Fee Expense, Salaries Expense, Utilities Expense, Insurance Expense, Supplies Expense, Bad Debt Expense, Bank Expense, Accumulated DepreciationStore Fixtures, Credit Card Expense, Office Equipment, Depreciation ExpenseBuilding, Accumulated DepreciationOffice Equipment, Depreciation ExpenseStore Fixtures, Franchise, Accounts Payable, Interest Payable, Notes Payable, Depreciation ExpenseOffice Equipment, Amortization ExpenseFranchise, Interest Expense, Cash Short and Over

Top Quality ApplianceLong Beach completed the following transactions during 2018, its first year of operations:

a. Received $500,000 cash and issued common stock. Opened a new checking account at Long Beach National Bank and deposited the cash received from the stockholders.

b. Paid $50,000 cash for a TQA franchise.

c. Paid $200,000 cash and issued a $400,000, 10-year, 5% notes payable for land with an existing building. The assets had the following market values: Land, $100,000; Building, $500,000.

d. Paid $75,000 for store fixtures.

e. Paid $45,000 for office equipment.

f. Paid $600 for office supplies.

g. Paid $3,600 for a two-year insurance policy.

h. Purchased appliances from TQA (merchandise inventory) on account for $425,000.

i. Established a petty cash fund for $150.

j. Sold appliances on account to B&B Contractors for $215,000, terms n/30 (cost, $86,000).

k. Sold appliances to Davis Contracting for $150,000 (cost, $65,000), receiving a 6-month, 8% note.

l. Recorded credit card sales of $80,000 (cost, $35,000), net of processor fee of 2%.

m. Received payment in full from B&B Contractors.

n. Purchased appliances from TQA on account for $650,000.

o. Made payment on account to TQA, $300,000.

p. Sold appliances for cash to LB Home Builders for $350,000 (cost, $175,000).

q. Received payment in full on the maturity date from Davis Contracting for the note.

r. Sold appliances to Leard Contracting for $265,000 (cost, $130,000), receiving a 9-month, 8% note.

s. Made payment on account to TQA, $500,000.

t. Sold appliances on account to various businesses for $985,000, terms n/30 (cost, $395,000).

u. Collected $715,000 cash on account.

v. Paid cash for expenses: Salaries, $180,000; Utilities, $12,650

w. Replenished the petty cash fund when the fund had $62 in cash and petty cash tickets for $85 for office supplies

. x. Paid dividends, $5,000.

y. Paid the franchise fee to TQA of 5% of total sales of $2,045,000.

Requirements

1. Record the transactions in the general journal. Omit explanations.

2. Post to the general ledger.

3. It is a common business practice to reconcile the bank accounts on a monthly basis. However, in this problem, the reconciliation of the companys checking account will be done at the end of the year, based on an annual summary. Reconcile the bank account by comparing the following annual summary statement from Long Beach National Bank to the Cash account in the general ledger. Record journal entries as needed and post to the general ledger. Use transaction z as the posting reference.