Question

I only would like to verify the adjusting entries, the total balance is supposed to be $122,002. Current balance $121,274.00 but Im off by $728.

Account Balances as of December 31^st

		Debit Balance		Credit Balance
100000	Bank Account	$277,518
110100	Accounts Receivable (Direct Posting Account)	92,670
110150	Allowance for Bad Debts			2,500
200600	Inventory-Operating Supplies	8,832
200900	Inventory-Raw Materials (Direct Post)	52,000
200910	Inventory-Finished Goods (Direct Post)	281,298
200920	Inventory-Trading Goods (Direct Post)	66,474
210000	Prepaid Insurance	5,000
212000	Prepaid Advertising	1,100
220110	Land (Direct Post)	425,000
220210	Production Machinery, Equip & Fixtures (Dir.Post)	915,000
220310	Accumulated Depreciation-Machinery (Direct Post)			305,000
300200	Accounts Payable (Direct Posting Account)			48,000
300700	Payables-Salaries and Wages			94,313
300800	Accrued Expenses			1,200
320000	Accrued Tax – Output			3,000
329000	Common Stock			1,000,000
329100	Additional Paid-in-Capital			52,870
330010	Retained Earnings (Direct Posting)			618,009

Events During January

Event              Date                                    Description of Event

1	January 3	Employees are paid monthly on the first business day of the month for work done in the previous month. (Ignore payroll taxes for this assignment.) Accounting wrote and distributed the paychecks.
2		GBI received $60,000 in safety product inventory and $40,000 in raw materials from Dallas Bike Basics.  This inventory was ordered on December 28.  The payment terms for the invoice total of $100,000 are net 10 days.  GBI paid the CWX shipping company $500 with a manual check for the shipment of the goods. The bill of lading showed that the safety product inventory arrived in 6 boxes with a total weight of 50 lbs. and the raw materials came on a pallet and weighed 60 lbs.
3		Windy City Bikes in Chicago, IL ordered $22,000 of bicycle accessories from GBI.  The cost of the accessories (to GBI) is $15,000.  The goods were shipped to Windy City immediately via UPS using Windy City’s UPS shipping number.  The terms of payment for Windy City’s order are 3/10 net 30 days.
4	January 7	GBI received payment of $14,000 from Northwest Bikes in Seattle, WA for the balance due on their account.
5	January 10	GBI’s account on the utility company website is updated at the end of each month when the meter is read.  GBI uses this data to accrue the expenses at the end of each month (in this case on December 31st.)  This allows recognition of the expense in the correct period.  Expenses are usually accrued at the end of the month as “Accrued Expenses”. GBI paid the December utility bill via the company’s automatic electronic bill pay program.
6		GBI’s advertisement in the English language edition of Italian Cycling Journal was published today.  This ad was prepaid at the end of July for six months of advertising, August through January, (Five months of advertising have already been used.)
7	January 11	The office manager in San Diego ordered $432 of office (operating) supplies from Staples. While on the way back from a delivery, one of the warehouse staff picked up the Staples order and brought it to GBI’s office.  GBI has an account with Staples and payment terms are net 10. Operating supplies expense is figured at the end of the month determined by the amount of supplies used during the month.
8		GBI ordered $75000 in raw materials from Space Bike Composites in Houston, TX. Terms of payment to Space Bikes are net 30.
9		GBI received payment from Windy City Bikes for their order from January 3. Windy City paid the invoice amount less the discount for paying within 10 days.
10	January 12	GBI paid $92,820 via bank transfer for the inventory order that they received from Dallas Bike Basics January 3.
11	January 13	In order to better track inventory, GBI ordered a bar-coding and tracking system which will be installed and tested by Computer Specialists, Inc. (CSI). The system will allow employees to track inventory using mobile devices and special software which will link into their new computerized accounting system. The barcode system costs $6,000 (including sales tax) and CSI will charge GBI $1,300 for the installation and tests. GBI paid a deposit of $2,000 on the system and the remainder is due and payable when the system is installed. GBI will classify the bar-coding system as “Production Machinery, Equipment and Fixtures”.
12	January 17	GBI paid an invoice from Lightbulb Accessory Kits for ordered goods that were received on December 20.  The amount of the invoice from Lightbulb is $15,890 due net 30.
13		The city of Denver will be hosting a decathlon at the end of February. The event is expected to create demand for high quality bikes. Rocky Mountain Bikes in Denver, CO placed an order with GBI for $128,000 worth of bicycles to be delivered immediately. Rocky Mountain will pay the shipping. The bikes cost GBI $78000.  GBI shipped the order immediately so that Rocky Mountain can start promoting the bikes. Because Rocky Mountain is a good customer, GBI is giving them special terms of net 45 days on this order.
14		GBI received raw materials inventory ordered from Space Bike Composites January 11. Shipping charges of $600 were included in the invoice from Space Bike.
15		GBI received notice that Bunky’s Bicycle Emporium had declared section 13 bankruptcy which meant GBI would not be able to collect the $3,350 that Bunky’s owed them.
16	January 18	GBI received a $90,000 funds transfer from Silicon Valley Bikes in Palo Alto for the balance due on their account.
17	January 19	GBI paid Staples for the office supplies they received January 11.
18		SoCal Bikes in Irvine, CA placed an order for $2500 in bicycle helmets for a special event in February. The merchandise cost GBI $1,300. SoCal sent a truck to the GBI distribution center in San Diego, CA and picked up the merchandise directly from GBI’s warehouse. Terms of payment are net 30. (Don’t forget to charge sales tax of 6.25% for this order.)
19	January 24	Beantown Bikes in Boston, MA placed an order with GBI for $27,000 in bicycles.  The cost of the bicycles is $17,000. Beantown Bikes is a new customer.  Its buyers saw GBI’s booth at a trade show. Because Beantown is a new customer, they must either wait until their credit can be approved or pay for the order before GBI will ship the bikes to them.
20	January 25	GBI has been offered the opportunity to advertise in the Bicycle Times online magazine for a reduced price if they pay for three months in advance. In light of the upcoming Tour de France, the advertising is a great opportunity for GBI to get additional recognition. The advertising will start in February. GBI wrote a check for $9,000 for three months of advertising.
21	January 26	GBI received notification from their bank that Beantown Binkes had transferred funds into their account for their prior order, so GBI’s warehouse personnel shipped Beantown’s order. Beantown will be responsible for paying Fed-X $400 for shipping the order.
22	January 27	The county approved GBI’s building plans for their new warehouse. Estimated building costs are $1,100,000 which will be funded via a mortgage from Bank of America. GBI plans to break ground on the new building April 18th of this year.
23		GBI sent a $31,000 check to Night Rider Aluminum Products for an order of bicycle parts GBI received December 30th.
24		Big Apple Bikes in New York City is expanding to another location in New York and needs to stock the new location. GBI received a phone order from Big Apple for $230,000 in bicycles and $108,500 in bicycle accessories and safety gear at special discount prices. The cost of the bicycles in this order is $170000 and the cost of the accessories is $65,000.  Big Apple will have a contract trucking company pick up the order when it is ready. The order is sent to GBI’s warehouse for picking and packing, which may take a couple days. Payment terms to Big Apple for this order are net 30.
25	January 31	GBI pays sales tax once a quarter via the state’s electronic filing and payment system. GBI filed its return and paid its sales tax for the quarter ending December 31.
26		GBI paid February’s rent of $4,000 for the office and warehouse space in San Diego.
27		CSI installed and tested the new barcode system. The warehouse manager approved the installation and commented that she thinks it works great. GBI wrote a check to CSI for the balance owed and gave it to the installer.
28		Big Apple’s truck arrived at GBI’s warehouse and picked up the order from January 27th.

Adjustment information as of January 31, not already given in the original transaction(s):

1.   Based on prior experience, GBI estimates that approximately 2 % of the accounts receivable balance will become bad debt. GBI writes off bad debts as they occur and recognizes bad debt expense based on analyzing accounts receivable as an adjusting entry each month.  

2.   As a control measure, physical inventories are taken on a periodic basis alternating between the raw materials inventory, finished goods inventory and trading goods inventory. Physical inventory of the finished goods inventory was taken at the end of January. It was determined that the value of the finished goods merchandise on hand was $17,000.

  

3.   GBI counted the office (operating) supplies on hand after the close of business on the last day of the month and determined the cost of the unused office supplies to be $1000.

4.   Production Machinery, Equipment and Fixtures were placed in service on January 1, 2013, with no salvage value. The useful life of the Machinery, Equipment and Fixtures is 15 years. The bar-code system has a 5-year life and no salvage value. GBI depreciates fixed assets on a straight-line basis and those assets acquired in the first half of the months are depreciated for the entire month, while fixed assets placed in service during the last half of the month are not depreciated until the second month. Depreciation is rounded to the nearest dollar and assets are depreciated on a monthly basis (i.e. number of days in the month is not of consequence).

5.   GBI used the Internet to review the monthly charges for utilities the business consumed during January. Based on the Internet report, the amount to be billed by the utilities company for January usage is the same as was billed for December.

6.   Liability insurance for the six-month period ending on February 28 was paid last September on the first of the month. Liability insurance is assumed to be utilized uniformly over the six-month policy period.

7.   GBI needs to recognize the wages expense for the month.  Since all employees are paid salaries and no changes have been made, this amount is the same as the previous month salaries. (For purposes of this assignment, ignore manufacturing and assume all labor costs will be expensed.)

Answer 1

No.	Date	Account Title	Debit	Credit
1	3-Jan	Payables-Salaries and Wages	94,313
		Cash		94,313
2		Inventory- Safety product	60,000
		Inventory-Raw Materials	40,000
		Accounts payable		100000
		(Terms--Net 10 days)
		Inventory- Safety product	227
		Inventory-Raw Materials	273
		Cash		500
3		Accounts Receivable	22000
		Sales Revenue		22000
		(Terms -- 3/10 net 30 days)
		COGS	15000
		Inventory-Trading Goods		15000
4	7-Jan	Cash	14000
		Accounts Receivable		14000
5	10-Jan	Accrued Expenses	1,200
		Cash		1200
6		Advertising expense	1100
		Prepaid Advertising		1,100
7	11-Jan	Inventory-Operating Supplies	432
		Accounts payable		432
		(Terms net 10 )
8		NO ENTRY
9		Cash(Bal.)	21340
		Sales Discounts(22000*3%)	660
		Accounts Receivable		22000
10	12-Jan	Accounts payable	92820
		Cash		92820
11	13-Jan	Production Machinery, Equipment and Fixtures	7300
		Cash		2000
		Accounts payable		5300
12	17-Jan	Accounts payable	15890
		Cash		15890
13		Accounts Receivable	128000
		Sales Revenues		128000
		COGS	78000
		Inventory-Finished Goods		78000
14		Inventory-Raw Materials	75600
		Accounts payable		75600
		(Terms net 30)
15		Allowance for Bad Debts	3350
		Accounts Receivable		3350
16	18-Jan	Cash	90000
		Accounts Receivable		90000
17	19-Jan	Accounts payable	432
		Cash		432
18		Accounts Receivable	2656
		Sales Revenue		2500
		Sales tax payable		156
		COGS	1300
		Inventory-Trading Goods		1300
19	24-Jan	NO ENTRY
20	25-Jan	Prepaid Advertising	9000
		Cash		9000
21	26-Jan	Cash	27000
		Sales Revenue		27000
		COGS	17000
		Inventory-Finished Goods		17000
		Accounts Receivable	400
		Accounts payable		400
22	27-Jan	NO ENTRY
23		Accounts payable	31000
		Cash		31000
24		NO ENTRY
25	31-Jan	Accrued Tax – Output	3,000
		Sales tax payable	156
		Cash		3156
26		Prepaid Rent	4000
		Cash		4000
27		Accounts payable	5300
		Cash		5300
28		Accounts receivables	338500
		Sales Revenue		338500
		COGS	235000
		Inventory-Finished Goods		170000
		Inventory-Trading Goods		65000
		(Terms net 30)
			1,436,250	1,436,249
		ADJUSTMENT ENTRIES
	1	Bad debts	9948
		Allowance for Bad debts		9948
	2	Inventory appreciation	702
		Inventory-Finished Goods		702
	3	Operating office supplies expense	8264
		Operating office supplies		8264
	4	Depreciation expense	5205
		Accumulated Depreciation-Machinery		5205
		(915000/15)/12=5083+(7300/5/12)=122
	5	Utilities expense	1200
		Accrued expense		1200
	6	Insurance expense	833
		Prepaid Insurance		833
	7	Salaries and Wages	94,313
		Payables-Salaries and Wages		94,313
			120465	120465

WORKINGS:
ADJ. JE 1
Op.bal	92670
Accounts Receivable	2656
Accounts Receivable	400
Accounts Receivable	22000
Accounts Receivable		14000
Accounts Receivable		22000
Accounts Receivable	128000
Accounts Receivable		3350
Accounts Receivable		90000
Accounts receivables	338500
Bal.c/d		454876
2% Allowance		9098
All.for b/d
Op.bal		2500
Write-off	3350
New Bad debts		9948
Bal.c/d	9098
ADJ. JE 2
Op.bal	281298
Inventory-Finished Goods		78000
Inventory-Finished Goods		17000
Inventory-Finished Goods		170000
Bal. c/d		16298
Plug-in fig.		702
Apprised value		17000
ADJ. JE 3
Op. bal.	8,832
Inventory-Operating Supplies	432
Op. supplies exp.(Bal.fig.)		8,264
Bal.c/d		1000