The company maintains its financial records manually. “The books” consist of special journals for sales, purchases of merchandise (made on account), cash receipts, cash disbursements, and a general journal (for all transactions that do not fit into one of the above categories), a general ledger, and subsidiary ledgers for accounts receivable and accounts payable (for merchandise purchases). Grady’s policy is to post entries made in the general journal to the general ledger on a daily basis. Entries made to the special journals (sales, purchases, cash receipts, and cash disbursements) are posted to the general ledger at the end of the month. However, the subsidiary ledgers are updated on a daily basis. Check numbers, sales order numbers, and invoice numbers are used as the reference numbers for posting purposes.
Grady’s fiscal year-end is December 31. Adjusting entries are only prepared at the end of the fiscal year. The trial balance (taken from the general ledger) as of November 30, 2009 follows:
101 Cash $ 350,000
102 Accounts Receivable 120,150
103 Note Receivable 5,000
104 Interest Receivable 0
105 Inventory 850,000
106 Office Supplies 16,250
107 Prepaid Insurance 12,000
108 Building 2,400,000
109 Furniture and Equipment 650,000
301 Allowance for Uncollectible Accounts $ 25,000
302 Accumulated Depreciation – Building 1,360,000
303 Accumulated Depreciation – Furn. & Equip. 390,000
201 Accounts Payable 178,100
202 Salaries Payable 0
203 Interest Payable 0
204 Utilities Payable 0
205 Payroll Taxes Payable 0
206 Income Taxes Payable 0
207 Note Payable – Long Term 500,000
208 Common Stock – no par value; 10,000 shares issued and outstanding 1000000
209 Retained Earnings 443,597
501 Sales 2,825,000
502 Interest Revenue 0
601 Cost of Goods Sold 1842000
603 Depreciation Expense 0
604 Salary Expense 374,000
605 Insurance Expense 0
606 Supplies Expense 0
607 Utilities Expense 17,500
608 Advertising Expense 8,450
609 Interest Expense 45,000
610 Payroll Tax Expense 29,172
611 Miscellaneous Expense 2,175
612 Income Tax Expense 0
Transactions for December, 2009 are as follows:
2 Received a check in the amount of $8,560 from Computers by Kayla in full payment of invoice No. 275, dated November 16.
3 Purchased 21 computers from Fasttrack Computer Systems for inventory for a total of $32,000 on terms of n/30 – purchase order No. 21231.
4 Purchased 10 monitors from Starbright Monitors for inventory for a total of $2,500 on terms of n/30 – purchase order No. 21232.
4 The Payrolls Unlimited provided the following information relating to the payroll for the period November 16 – November 30:
Gross Salary $17,000
Employer’s share of payroll taxes 1,326
Check No. 1741 was issued in the amount of $18,326 to cover the payroll. This amount was not accrued at the end of November, 2009.
5 Received a check in the amount of $1,250 from The Computer Boutique in full payment of invoice No. 271, dated November 12.
8 Issued check No. 1742 in the amount of $27,125 to Sidebar Peripherals in payment of purchase orders No. 0211181 and 0211142.
8 Purchased software from Sedonna Software for inventory for a total of $22,450 on terms of n/30 – purchase order No. 21233.
8 Received a check in the amount of $11,600 from Evanne’s Electronics in full payment of invoice No. 263, dated November 9.
9 Sold various computer equipment to Kenny’s Komputers. Invoice No. 292 was in the amount of $23,000. The cost of the equipment sold was $19,900.
9 Issued check No. 1743 in the amount of $675 to the office manager in repayment for the purchase of office supplies.
9 Issued check No. 1744 in the amount of $75 to the vice president of marketing in repayment for a business lunch. (The receipt was submitted.)
11 Sold various computer equipment to Computers by Kayla. Invoice No. 293 was in the amount of $8,475. The cost of the equipment sold was $7,125.
12 Received a check in the amount of $6,425 from The Computer Boutique in full payment of invoice No. 279, dated November 19.
12 Received a check in the amount of $9,500 from Evanne’s Electronics in full payment of invoice No. 281, dated November 19.
15 Issued check No. 1745 in the amount of $16,950 to Sedonna Software in payment of purchase order No. 21223.
15 Issued check No. 1746 in the amount of $1,650 to Central Utilities in payment for the November utility bill.
16 Received a check in the amount of $45,625 from Kenny’s Komputers in full payment of invoice No. 280, dated November 19.
16 Sold various computer equipment to The Computer Boutique. Invoice No. 294 was in the amount of $2,750. The cost of the equipment sold was $1,200.
16 Issued check No. 1747 in the amount of $17,600 to Sedonna Software in payment of purchase order No. 0211222.
17 Sold various computer equipment to Kenny’s Komputers. Invoice No. 295 was in the amount of $24,750. The cost of the equipment sold was $21,250.
17 Purchased 4 computer systems from Fasttrack Computer Systems for inventory for a total of $7,500 on terms of n/30 – purchase order No. 21234.
18 Purchased peripherals from Sidebar Peripherals for inventory for a total of $6,250 on terms of n/30 – purchase order No. 21235.
19 The Payrolls Unlimited provided the following information relating to the payroll for the period December 1 – December 15:
Gross Salary $17,000
Employer’s share of payroll taxes 1,326
Check No. 1748 was issued in the amount of $18,326 to cover the payroll.
22 Issued check No. 1749 in the amount of $17,675 to Starbright Monitors in payment of purchase order No. 0211231.
22 Issued check No. 1750 in the amount of $75,200 to Fasttrack Computer Systems in payment of purchase order No. 21228.
29 Issued check No. 1751 in the amount of $1,450 to the Bay Area Observer for advertising that appeared in the current month’s newspapers (their invoice no. 4576).
31 Issued check No. 1752 in the amount of $400 to Payrolls Unlimited for preparation of the December, 2009 payroll (their invoice No. 2715). This is considered a miscellaneous expense.
All sales to customers are made on account. No sales discounts are offered, and payments are due in 30 days. Bad debt expense is recorded at year-end at an amount equal to ½ of 1% (0.005) of sales.
A year-end examination of the accounts receivable determined that the receivable from Software Unlimited was not collectible and was written off.
On October 1, 2009, Grady accepted a $5,000, 1-year, 12% note from Kenny’s Computers. Interest will be paid when the note matures.
On January 2, 2009, Grady purchased (and paid for) a two-year fire insurance policy for $12,000.
The Company owns the building that serves as the company’s headquarters and warehouse, as well as the furniture and equipment within that building. All of these items were purchased several years ago, and no items are expected to have any salvage value at the end of their lives. At the time of purchase, the life of the building was determined to be 30 years, and the furniture and equipment’s life was estimated at 10 years. Grady uses straight-line depreciation for all of its assets.
Employees are paid twice monthly, with checks distributed on the 20th and the 5th of the following month (five days after the end of the pay period). The payroll is outsourced to Payrolls Unlimited, a company that not only makes all salary-related computations (gross wages, all deductions, and net wages) and prepares the paychecks, but also makes the payments to all third parties on behalf of the company. On the 4th and 19th of the month, the company notifies Grady of the amount of the gross payroll and any payroll taxes to be paid by the employer. Grady then remits a check for that amount, takes delivery of the paychecks and distributes them to the employees. The payroll summary indicates that the gross payroll for the period December 16 – December 31 was $17,000, and the employer’s share of the payroll taxes $1,326. A check for this amount will be written on January 4, 2010.
Grady uses a perpetual inventory system.
A year-end inventory of the office supplies showed a balance of $4,500.
In 2005, Grady borrowed $500,000 to expand their operations. The note is due on October 1, 2010, and carries an annual interest rate of 12%, payable on March 31 and September 30.
December, 2009 utility usage is $1,875. This bill is expected to be paid on January 15, 2010.
Grady’s income tax expense for 2009 is $97,340.
The November 30, 2009 balances in the accounts receivable and accounts payable are comprised of the following:
001 - Evanne’s Electronics 22,600
002 - Kenny’s Komputers 55,275
003 - Computers by Kayla 27,525
004 - The Computer Boutique 10,500
005 - Software Unlimited 4,250
001 - Sedonna Software $ 45,700
002 - Starbright Monitors 22,675
003 - Fasttrack Computer Systems 75,200
004 - Sidebar Peripherals 34,525
1. Prepare entries in the appropriate journals to record each transaction. Omit explanations.
2. Post the entries to the appropriate ledger(s).
3. Prepare an unadjusted trial balance as of December 31, 2009.
4. Prepare and post any necessary adjusting journal entries.
5. Prepare an adjusted trial balance.
6. Prepare an income statement for 2009.
7. Prepare and post closing entries.
8. Prepare a balance sheet as of December 31, 2009.