Question

ACC 101

After graduating from Phoenix College with the most valuable degree in Accounting,

Michelle and Mary join together to form a new partnership named The Vintage Audio Company

(VAC). They sell two items to a specialty market – 8 Track Tapes (8TT), and Cassette Tapes

(CT). They use a LIFO system of inventory. The partnership operating agreement states that each

partner will receive a monthly distribution of $1,000, then commissions for their own sales, then

12% APR return on their beginning equity, and then split the remaining profit 60% for Michelle

/40% for Mary (in this order). The monthly distribution and commissions are taken during the

month as a draw and the journal entries have already been made at the time of payment.

During the month, VAC received a letter from the attorney of Jenny (one of their customers). The letter informed VAC that Jenny had declared bankruptcy and will not be paying the outstanding

balance of her account ($300).

Another month is finally over!! Time to “close the books”. Your assignment in that process is to

create the first two required financial statements for the previous month. To accomplish this

assignment, you will use the provided information to calculate the following:

1. Create the Income Statement in the proper format, including net sales, COGS, gross profit,

expenses and net income.

2. Create a Statement of Owners Equity

3. Provide an ending inventory schedule (schedule should include in good order, details by

transaction)

4. Provide the Net Book Value for the equipment

5. Provide only the journal entries for the following:

a. Income allocation between partners

b. Record the monthly bad debt expense

c. Record the monthly depreciation expense

d. Recognize the bad debt write-off for Jenny

Provided information:

Beginning Inventory Schedule (listed in the order they were purchased):

Beginning Inventory 8TT

Units        Cost          Amount

130          $5.00         $650.00

135          $5.20          $702.00

156           $5.50        $858.00

421                               $2,210.00

Beginning Inventory CT

Units       Cost            Amount

140         $7.00           $980.00

160          $7.50            $1,200.00

256         $8.00             $2,048.00

556                                $4,228.00

? You estimate that VAC will write off 2% of their sales in bad debt.

? Outbound freight to customers is calculated at $0.50 per unit sold.

? Shipping supplies (boxes, tape, etc.) are calculated at $0.20 per unit sold.

? Commission expense is 10% of net sales. For the previous month Michelle sold 60% of the

product. Mary sold the rest.

? Office supplies were $500 for the month.

? VAC is depreciating their packaging equipment on a straight-line basis. The equipment

was purchased two years ago on Jan 1. It cost $46,000 and has a useful life of 7 years, with

a salvage value estimated at $4,000.

Inventory Purchases during the month:

Apr 1 Purchased 50 8TT @ $5.00 each

Paid inbound freight of $25 for Apr 1 purchase

Apr 5 Purchased 50 CT @ $8.00 each

Apr 8 Purchased 50 8TT @ $5.00 each

Paid inbound freight of $25 for Apr 8 purchase

Apr 10 Purchased 50 CT @ $8.00 each

Apr 12 Purchased 50 CT @ $8.00 each

Apr 13 Returned 40 CT found to be defective. Purchase price was $7.00 each

Apr 17 Purchased 50 8TT @ $5.00 each

Paid inbound freight of $25 for Apr 17 purchase

Apr 20 Purchased 50 CT @ $8.00 each

Apr 24 Purchased 100 8TT @ $5.00 each

Paid freight bill of $50.00 for Apr 24

Apr 27 Purchased 75 CT @ $8.00 each

Apr 28 Purchased 75 8TT @ $5.50 each

Paid freight bill of $37.50 for Apr 28 purchases

Apr 29 Purchased 150 CT @ $8.20 each

Apr 30 Returned 20 CT found to be defective. Purchase price was $8 each

Credit Sales during the month:

Apr 3 Sold 65 8TT @ $10 each

Apr 3 Sold 75 CT @ $13 each

Apr 9 Sold 125 8TT @ $10 each

Apr 9 Sold 155 CT @ $13 each

Apr 12 Sold 75 8TT @ $10 each

Apr 13 Sold 196 CT @ $13 each

Apr 18 Sold 120 8TT @ $10 each

Apr 18 Sold 180 CT @ $13 each

Apr 23 Sold 56 8TT @ $10 each

Apr 23 Sold 75 CT @ $13 each

Apr 27 Sold 140 8TT @ $10 each

Apr 28 Sold 55 CT @ $13 each

Apr 30 Sold 130 8TT @ $10 each

Apr 30 Sold 140 CT @ $13 each

Beg. Capital- April 1^st

Michelle: $10,000.00

Mary: $5,000.00

Total: $15,000.00

ACC 101

Ending Inventory $502

Net Income $5,266.14

Total Ending Capital $16,416.34

Answer 1

1)

THE VINTAGE AUDIO COMPANY

Income Statement for the month ended April

Sales Revenue 18498

Less : Cost of Goods Sold

Opening Stock 6438.00

                +     Purchases 5092.50

                +     Inbound Freight 162.50

- Purchase Returns 440.00

- Closing Stock              502.00 10751

Gross Profit 7747

Less : Expenses

                Freight Outbound 793.50

                Shipping Supplies 317.40

                Office Supplies 500.00

                Bad Debts Prov. 369.96

                Depreciation 500.00 2480.86

Net Income   5266.14

Working Notes :

Stock & Sales of 8TT

April						Clg Stock
	Op. Bal.	130	5	650		130	5	650
		135	5.2	702		135	5.2	702
		156	5.5	858		156	5.5	858
1	Purchases	50	5	250		130	5	650
						135	5.2	702
						156	5.5	858
						50	5	250
3	Sales	-65	10	650		130	5	650
						135	5.2	702
						141	5.5	775.5
8	Pur	50	5	250		130	5	650
						135	5.2	702
						141	5.5	775.5
						50	5	250
9	Sales	-125	10	1250		130	5	650
						135	5.2	702
						66	5.5	363
12	Sales	-75	10	750		130	5	650
						126	5.2	655.2
17	Pur	50	5	250		130	5	650
						126	5.2	655.2
						50	5	250
18	Sales	-120	10	1200		130	5	650
						56	5.2	291.2
23	Sales	-56	10	560		130	5	650
24	Pur	100	5	500		130	5	650
						100	5	500
27	Sales	-140	10	1400		90	5	450
28	Pur	75	5.5	412.5		90	5	450
						75	5.5	412.5
30	Sales	-130	10	1300		35	5	175

  

Stock & Sales of CT

		140	7	980
		160	7.5	1200
		256	8	2048
3	Sales	-75	13	975		140	7	980
						160	7.5	1200
						181	8	1448
5	Pur	50	8	400		140	7	980
						160	7.5	1200
						181	8	1448
						50	8	400
9	Sales	-155	13	2015		140	7	980
						160	7.5	1200
						76	8	608
10	Pur	50	8	400		140	7	980
						160	7.5	1200
						76	8	608
						50	8	400
12	Pur	50	8	400		140	7	980
						160	7.5	1200
						76	8	608
						50	8	400
						50	8	400
13	Goods Returned	-40	7			100	7	700
						160	7.5	1200
						76	8	608
						50	8	400
						50	8	400
13	Sales	-196	13	2548		100	7	700
						140	7.5	1050
18	Sales	-180	13	2340		60	7	420
20	Pur	50	8	400		60	7	420
						50	8	400
23	Sales	-75	13	975		35	7	245
27	Pur	75	8	600		35	7	245
						75	8	600
28	Sales	-55	13	715		35	7	245
						20	8	160
29	Pur	150	8.2	1230		35	7	245
						20	8	160
						150	8.2	1230
30	Goods Returned	-20	8			35	7	245
						150	8.2	1230
30	Sales	-140	13	1820		35	7	245
						10	8.2	82

Total Sales 8TT 711 units $7110

CT 876 units $ 11388

Total Sales 1587 units $ 18498

Depreciation calculation : (46000-4000)/7 = 6000 p.a. or 500 p.m.

2.

		Michele	Mary
Opening Capital		10000	5000
Monthly Distribution		1000	1000
Commission		1109.88	739.92
APR		1200	600
Less:
Monthly Distribution		-1000	-1000
Commission		-1109.88	-739.92
APR		-230.2	-153.46
		10969.8	5446.54	16416.34

3. From working notes above