Question

Happy Harry Pets was incorporated on January 1st. The business maintains a retail pet store, providing gourmet dog food and

treats, and also provides a full range of pet care services, including grooming, dog-walking, and boarding.

The following transactions occurred during the first twelve months of operations:

January 1st Common stock is issued in exchange for cash in the amount of ………….………….……………………… 295,000

February 8th The company purchases and pays for 160 units of gourmet dog food at a price of $25 per unit ………….. 4,000

March 1st The company pays cash for a one-year insurance policy in the amount of ……………….………………………..….. 9,300

March 31st Rent on a retail space for 12 months is paid in the amount of …..……….……………………………………… 12,480

April 1st Grooming and boarding equipment with a useful life of 2 years is purchased for cash in the amount of …… 18,000

April 10th Grooming supplies purchased on account in the amount of …………..…………………………………………… 1,450

May 15th The company purchases and pays for another 370 units of gourmet dog food at a price of $29 per unit ….. 10,730

May 30th Grooming services are performed on account in the amount of …………………………………………………………..………… 13,625

June 1st The company pays for advertisements to be run for the next 12 months in the amount of ………………………. 864

June 30th The company issues a 5-year bond with a face value of $100,000 and a stated annual rate of 6%.

Interest is due on June 30th each year. The market rate is 8% on the date of issuance ……………………………. 100,000

July 25th Dog-walking services are performed on account in the amount of …...……………………………..………… 14,225

July 31st 95 units of gourmet dog food are sold for $70 per unit with terms 2/10, n/30. The sale is recorded using

the gross method in the amount of (see note c for cost flow assumptions) ……………………………………………………………………………………. 6,650

August 2nd Boarding services are provided on account in the amount of ………………………………………………………………. 6,280

August 6th The company receives full payment from the customer for the July 31st sale ……………………………………… 6,517

September 15th Pet sitting services are performed on account in the amount of ……………………..…………………………….………….. 6,245

September 29th Customer payments are received for services previously provided in the amount of ……………………………….. 1,250

October 13th 100 units of gourmet dog food are sold for $73 per unit with terms 2/10, n/30. The sale is recorded using

the gross method in the amount of ………………………………………………………………………………………. 7,300

October 29th The company receives payment for half of the October 13th sale ……………………………………………………… 3,650

November 1st Equipment originally purchased on April 1st for $2400 is sold for $2000 cash

November 15th A bookkeeper is hired to help the company with daily accounting taxes and annual tax preparation

December 15th The bookkeeper is paid $3,500 for the previous month's services 3,500

Additional information:

a. Grooming supplies on hand at the end of the month are as follows: ……………………………………. 870

b. The year-end balance reported at the end of the year for the Allowance for Doubtful Accounts

is estimated as 4% of outstanding receivables at the end of the year

c. The Company uses a perpetual inventory system and accounts for costs using the First-In-First-Out cost

flow assumption. On December 31st, a count of ending inventory reveals that there are 335 bags of dog

food on hand.

d. All revenue is recorded in the "Sales Revenue" account and reported net of cash discounts on the income statement.

e. The effective interest method is used to amortize bond premiums and discounts

f. Adjustments are made at the end of the year for prepaid insurance, rent, advertising, depreciation, and interest expense.

g. The bookkeeper is paid a salary of $3,500 on the 15th of every month.

h. The company declared dividends of $650 for the year

i. Assume selling expenses include advertising and supplies expense. All other expenses, other than depreciation

and interest expense, are considered general & administrative.

REQUIRED:

1. Prepare journal entries for each transaction listed above (with descriptions).

2. Post journal entries to the general ledger accounts.

3. Prepare an unadjusted trial balance.

4. Prepare all necessary adjusting journal entries (with descriptions)

and post to the general ledger.

5. Prepare an adjusted trial balance on December 31st.

6. Prepare closing entries, post to the general ledger, and carryforward balances to January 1st of the next year.

7. Prepare the following financial statements on December 31st (ignore income taxes):

a. Income Statement (multi-step, see Example 5.2 in textbook)

b. Statement of Stockholders' Equity

c. Balance Sheet (classified)

d. Statement of Cash Flows (indirect method)

Answer 1

Journal entries

Jan 1	Cash	295000
	Common stock		295000
Feb 8	Gournment dog food	4000
	Cash		4000
March 1	Insurance	9300
	Cash		9300
March 31	Rent	12480
	Cash		12480
April 1	Equipment	18000
	Cash		18000
April 10	Supplies	1450
	Accounts payable		1450
May 15	Purchase	10730
	Cash		10730
May 30	Accounts receivable	13625
	Service revenue		13625
June 1	Advertisement	864
	Cash		864
July 25	Accounts receivable	14225
	Service revenue		14225
July 31	Cash	6650
	Sales revenue		6650
Aug 2	Accounts receivable	6280
	Service revenue		6280
Aug 6	Cash	6517
	Accounts reveivable		6517
Sep 15	Accounts receivable	6245
	Service revenue		6245
Sep 29	Cash	1250
	Cash advance		1250
Oct 13	Cash	7300
	Sales revenue		7300
Oct 29	Cash	3650
	Accounts receivable		3650
Nov 1	Cash	2000
	Sales revenue		2000
Dec 15	Book keeper	3500
	Cash		3500