Question

Dolly and Madison Ford is a partnership that sells automobiles. The company has two dealerships—Baytown Ford and Liberty Ford. Each dealership sells two makes of automobiles—Mustang and Taurus.

Additional information:

■  Neither dealership maintains a parts inventory.

■  Each dealership owns its equipment, furniture and fixtures, but rents its location.

■  Each dealership has a manager, a bookkeeper, and four salespeople, all of whom are paid a salary.

■  Each dealership collects state sales tax on automobile sales.

■  The accounting system uses accrual-basis accounting.

■  The accounting system uses a perpetual inventory system for automobiles.

Required:

Prepare an appropriate chart of accounts for the company’s computerized accounting system using either a spreadsheet or word processing program. The chart of accounts should enable the accounting system to report the following:

a.  For both dealerships combined:

  1.  Report operating profit.

  2.  Report automobile inventory accounts for each make of automobile and for both makes combined.

b.  For each dealership:

  1.  Report operating profit.

  2.  Report sales and cost of sales for each make of automobile.

  3.  Report inventory accounts for each make of automobile.

Use the appropriate block codes given in the chapter in the “Coding Schemes” section. Include not only the accounts needed to accomplish the above reporting requirements but all other accounts that are needed for recording typical day-to-day transactions involved in operating an automobile dealership (except for parts inventory, as noted above).

Answer 1

When assets are separate then we assume that it will be possible to bifurcate debt and capital also on business segment and we provide following chart of accounts. We have not included numerical accounting numbers for chart of account which can be defined appropriately. We recommend to use "Mu" prefix to identify chart of account for Mustang business and "Ta" prefix for Tauras business

Broad class of Account	Mustang - Charts of Account	Tauras - Chart of Accounts
Cash & Bank Account	Mu-Petty Cash Fund	Ta-Petty Cash Fund
Cash & Bank Account	Mu-Cash in Bank	Ta-Cash in Bank
Receivable	Mu-Receivable for Vehicles	Ta-Receivable for Vehicles
Receivable	Mu-Allowance for Doubtful Accounts	Ta-Allowance for Doubtful Accounts
Receivable	Mu-Other Receivable	Ta-Other Receivable
Inventories	Mu-Demonstrations Inventory	Ta-Demonstrations Inventory
Inventories	Mu-Automobile Inventory	Ta-Automobile Inventory
Prepaid	Mu-Prepaid expenses	Ta-Prepaid expenses
Prepaid	Mu-Prepaid Rent	Ta-Prepaid Rent
Fixed Asset	Mu-Equipment	Ta-Equipment
Fixed Asset	Mu-Furniture & Fixtures	Ta-Furniture & Fixtures
Fixed Asset	Mu-Accumulated depreciation - Equipment	Ta-Accumulated depreciation - Equipment
Fixed Asset	Mu-Accumulated depreciation - Furniture & Fixtures	Ta-Accumulated depreciation - Furniture & Fixtures
Account Payable	Mu-Accounts Payable	Ta-Accounts Payable
Sales tax payable	Mu-Sales Tax Payable	Ta-Sales Tax Payable
Accrued Expenses	Mu-Accrued Expenses	Ta-Accrued Expenses
Accrued Expenses	Mu-Accrued Payroll Expenses	Ta-Accrued Payroll Expenses
Taxes Payable	Mu-Federal Income tax Payable	Ta-Federal Income tax Payable
Taxes Payable	Mu-State/local Income tax payable	Ta-State/local Income tax payable
Tax Asset / Liabilities	Mu-Deferred tax Asset/ Liabilities	Ta-Deferred tax Asset/ Liabilities
Debt	Mu-Notes Payable	Ta-Notes Payable
Capital	Mu-Dolly's Capital Account	Ta-Dolly's Capital Account
Capital	Mu-Medison Ford's Capital Account	Ta-Medison Ford's Capital Account
Capital	Mu-Pain in Capital	Ta-Pain in Capital