Students are to complete journal entries for each month, including adjusting and closing, trial balances, and financial statements consisting of Income Statement, Statement of Retained Earnings, and Balance Sheet in classified format. The minimum chart of accounts for the Peavy Cleaning Corporation practice case is the following (more or less may be used):
|
Date |
Event |
|
November 1, 2017 |
Mark Peavy created Peavy’s Cleaning Service Corporation and hired a lawyer to perform the incorporation for a fee of $500. The par value of the common stock will be $1 per share and 50,000 shares are authorized in the charter of incorporation. Mark purchased 20,000 shares of the corporation’s common stock for $20,000 using his personal funds. The corporation will operate an office cleaning service business in Pike Road, Alabama. The business will prepare financial statements on a monthly basis and calculate depreciation/amortization at June 30 and December 31, respectively, using the straight-line method. Any fixed assets purchased during the month are treated as if purchased at beginning of month. Interest is accrued at year-end and when paid. Mark paid the lawyer the incorporation fee. |
|
November 1, 2017 |
The investors of the Peavy’s Cleaning Service appointed three individuals to the company’s Board of Directors. The board will meet once every quarter to review the operations and set overall policy for the company, but it will not be involved in the day to day operations. Mark is appointed CEO of the corporation. The board appointed a clerk-secretary to assist Mark in his duties. The clerk-secretary will not receive any compensation. Mark is allowed to draw up to $1500 per month as a personal dividend but the Board will decide to pay shareholders a normal dividend. |
|
November 1, 2017 |
Later in the day, two other investors purchased common shares of Peavy’s Cleaning Service Corporation. Investor #2 purchased 2,000 shares for $2,000 and Investor #3 purchased 3,000 shares for $3,000. |
|
November 1, 2017 |
Peavy purchased a 1-year insurance policy effective immediately. The policy is for the bonding of employees ($1300 annually) and insurance for the business and temporary headquarters ($500 annually). Peavy pays for the insurance policy in cash. |
|
November 1, 2017 |
A new investor supplied 2 acres of land in exchange for common stock and a mortgage note. The land has been appraised at $70,000 and the investor received 10,000 shares of stock and a note with a face value of $60,000. The note requires Peavy’s Cleaning Service to pay interest at a rate of 10% per year and the principal is due in five years. Interest is due each year on Nov 1. |
|
November 1, 2017 |
Peavy purchases a used truck for $10,000 paying $2,000 cash and the balance in a notes payable. The terms of the note are monthly payments for 4 years with a 5% annual interest rate. Mark fills up the truck with gasoline at a cost of $47. Mark decides that the truck will be useful for 4 years with a residual value of $1000. Simple interest is used for calculation of monthly payments and is not accrued until the 1st of the month when the payment is made. Mark purchases annual insurance for truck at a cost of $600 which he paid in cash. |
|
November 6, 2017 |
Peavy signs up 14 weekly customers at a rate of $120 per week and 8 customers who will require cleaning every 2 weeks for a rate of $160 per service. Customers are to be billed on 15th of month and at end of month with a 2% cash discount if paid within 3 days of billing, otherwise, the balance is due with 10 days of billing. Cleaning will be split between Vic and Emelia equally. Weekly and bi-weekly cleaning will commence on November 16, 2017 after Mark hires employees. |
|
November 13, 2017 |
After going through several interviews, Mark hires an office manager, Linda, and two cleaning staff, Emelia and Vic. The cleaning personnel will each earn $12.00 per hour and the manager will earn $800 at every payday. All employees will work an eight-hour day, 5 days per week and will be paid on the 15th and last day of the month. Employees are aware that they may have to work weekends for overtime rate at 1.5 times their hourly wages. At present, the employees will be treated as if they are contract employees and no taxes will be taken out of payroll. Employees are scheduled to begin work on November 16, 2017. |
|
November 15, 2017 |
Peavy’s Cleaning Service agrees to rent a trailer that it will use as a temporary office. The rental cost, as determined by Ferry Company, the lessor, will be $250 per month. Ferry will prorate this month’s rent using a November 15 start date. Peavy pays November rent. In the future, rent will be due and paid at the first of the month. |
|
November 15, 2017 |
Investor #2 sells 500 shares of Peavy’s Cleaning Service stock to his younger sister for $500. |
|
November 15, 2017 |
Mark hires Ingram Home Improvement Store to quickly outfit the trailer with office furniture and chairs and laptop at a cost of $1800 on account. Peavy’s payment terms are n/eom. The laptop is less than $600 so Mark decides to expense the laptop in accordance with current Section 179 IRS rules instead of capitalizing the asset. |
|
November 15, 2017 |
Mark purchases shirts for himself and company employees from Graphic Designs for $75. |
|
November 15, 2017 |
Peavy’s Cleaning Service applies for credit to Big Sparkle Company. Since this is a brand new business and has no history of operations, Big Sparkle agrees to a $5,000 limit. |
|
November 17, 2017 |
Mark purchases cleaning supplies from Big Sparkle Company totaling $6,200. After reaching the set credit limit, Peavy paid cash for the balance of the purchase. Terms are n/eom. Supplies will be a prepaid expense and inventory of supplies taken at June 30 and December 31. |
|
November 17, 2017 |
Mark receives the company’s first large corporate cleaning job cleaning the Warhawk Gym for $2,800 after a basketball game. Vic and Emelia provide cleaning that night and Warhawk Gym is billed for the service with terms of 1/10, n/eom. Both Vic and Emelia work 4 hours overtime for this job. |
|
November 17, 2017 |
Mark is contacted to clean up for a local church after a wedding party on November 18, 2017. Since the job was last-minute notice, Peavy negotiates a $3000 fee and tells both Emelia and Vic to handle the job the same day. Since Vic needed to polish the floors, Vic works 3 hours and Emelia works 2 hours after the wedding. The church wires Peavy’s Cleaning Corporation’s bank account $3000 the same day as the job. The church has a floor polishing machine. |
|
November 20, 2017 |
Mark fills up the company truck with gasoline at a cost of $39. |
|
November 20, 2017 |
Mark is contacted by Lane who will be hosting an Iron Bowl party at his residence on Saturday, November 25, 2017. Lane needs cleaning services on Sunday, November 26, 2017. Mark negotiates a $750 fee and Lane pays Mark on November 20, 2017. |
|
November 23, 2017 |
Mark gives personnel a paid holiday. Since the company does not have a leave policy in place yet, this holiday will not affect payroll at end of month. |
|
November 26, 2017 |
Vic and Emelia work 3 hours each to clean up after the Iron Bowl party. |
|
November 27, 2017 |
Mark purchases gas for the truck for $46. On the way home, Mark decides he needs to pay his own personal bills so he draws $1200 for personal use from the business. Linda calls Mark to inform him that Warhawk Gym has paid their bill within the discount period. |
|
November 29, 2017 |
Mark negotiates a deep cleaning of a bathtub at the home of the Smith family for that afternoon. He is paid $250 for this service. Mark purchases a special tool to complete this cleaning at Lowe’s for $2000 and pays cash. Vic completes the service by 5:00 pm. Mark asks one of the store managers their opinion on the useful life of the tool and they give him an estimate of 3 years with $0 residual value. Mark determines that he will use that estimate for depreciation purposes for the tool. |
|
November 30, 2017 |
The office manager completes payroll for Mark’s review including the overtime pay for jobs after hours for Vic and Emelia. Mark pays the office manager and cleaning crew for their time work since November 16, 2017. |
|
November 30, 2017 |
The office manager bills weekly and bi-weekly customers for service, pays accounts payable balances due, and completes adjusting and closing end of month journal entries and prepares a trial balance and financial statements for Mark’s review. Check figures – Retained Earnings balance for balance sheet is equal to $4126 and Total Assets are $107,126 |
In: Accounting
In: Accounting
A proposal to purchase a new lathe machine is to be subjected to these initial screening processes. The machine will cost Sh2,200,000 and has an estimated useful life of five year at the end of which the disposal value will be zero.
Sales revenue to be generated by the new machine is estimated as follows:
|
YEAR |
REVENUE (Shs. 000) |
|
1 |
1,320 |
|
2 |
1,440 |
|
3 |
1,560 |
|
4 |
1,600 |
|
5 |
1,500 |
Additional operating costs are estimated to be Shs700,000 per annum. Tax rates may be assumed to be 30% payable in the year in which revenue is received for taxation purpose the machine is to be written off at a fixed annual rate of 20% on cost.
The financial accounting statement issued by the company in recent years show that profits after tax have averaged 18% on total assets.
Required
Present a report which will indicate to management whether or not the proposal to purchase the lathe machine meets each of the selection criteria.
In: Finance
The Bradford Company issued 10% bonds, dated January 1, with a
face amount of $80 million on January 1, 2021 to Saxton-Bose
Corporation. The bonds mature on December 31, 2030 (10 years). For
bonds of similar risk and maturity, the market yield is 12%.
Interest is paid semiannually on June 30 and December 31. (FV of
$1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of
$1)
Required:
1. to 3. Prepare the journal entries to record the
purchase of the bonds by Saxton-Bose on January 1, 2021, interest
revenue on June 30, 2021 and interest revenue on December 31, 2021
(at the effective rate). (Enter your answers in whole
dollars. If no entry is required for a transaction/event, select
"No journal entry required" in the first account
field.)
Please help with preparing the journal entries.
In: Accounting
The Bradford Company issued 8% bonds, dated January 1, with a
face amount of $50 million on January 1, 2021 to Saxton-Bose
Corporation. The bonds mature on December 31, 2030 (10 years). For
bonds of similar risk and maturity, the market yield is 10%.
Interest is paid semiannually on June 30 and December 31. (FV of
$1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)
(Use appropriate factor(s) from the tables
provided.)
Required:
1. to 3. Prepare the journal entries to record the
purchase of the bonds by Saxton-Bose on January 1, 2021, interest
revenue on June 30, 2021 and interest revenue on December 31, 2021
(at the effective rate). (Enter your answers in whole
dollars. If no entry is required for a transaction/event, select
"No journal entry required" in the first account
field.)
In: Accounting
The Bradford Company issued 8% bonds, dated January 1, with a
face amount of $50 million on January 1, 2018 to Saxton-Bose
Corporation. The bonds mature on December 31, 2022 (5 years). For
bonds of similar risk and maturity, the market yield is 10%.
Interest is paid semiannually on June 30 and December 31. (FV of
$1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)
(Use appropriate factor(s) from the tables
provided.):
Required:
1. to 3. Prepare the journal entry to record the
purchase of the bonds by Saxton-Bose on January 1, 2018, interest
revenue on June 30, 2018 and interest revenue on December 31, 2018
(at the effective rate). (Enter your answers in whole
dollars. If no entry is required for a transaction/event, select
"No journal entry required" in the first account
field.)
In: Accounting
|
Account title |
Amount(Debit) |
Amount(Credit) |
|
Cash |
19,470 |
- |
|
Accounts Receivable |
6,922 |
- |
|
Prepaid rent |
2,280 |
- |
|
Equipment |
18,050 |
- |
|
Accumulated Depreciation |
- |
4,895 |
|
Notes Payable |
- |
5,700 |
|
Accounts Payable |
- |
5,472 |
|
Common Stock |
- |
20,000 |
|
Retained Earnings |
- |
11,310 |
|
Dividends |
3.000 |
- |
|
Service Revenue |
11,590 |
|
|
Salaries Expense |
6,840 |
|
|
Rent Expense |
2, 260 |
- |
|
Depreciation Expense |
145 |
- |
|
Interest Expense |
83 |
- |
|
Interest Payable |
83 |
|
|
Total |
59,050 |
59,050 |
Instructions:
Prepare an Income Statement, Statement of Retained Earnings and Balance Sheet after taking the following adjustments.
In: Accounting
1. Goods in transit which are shipped f.o.b. destination should
be
A. included in the inventory of the seller.
B. included in the inventory of the buyer.
C. included in the inventory of the shipping company.
D. none of these answers are correct.
2. What is the primary difference between an ordinary annuity
and an annuity due?
A. Annuity due only relates to present values.
B. The timing of the periodic payment.
C. Ordinary annuity only relates to present values.
D. The interest rate.
3. Which of the following properly describes a
deferral?
A. Cash is paid in the same time period that an expense is incurred.
B. Cash is paid after expense is incurred.
C. Cash is received after revenue is recognized.
D. Cash is received before revenue is recognized.
4. What is the quality of information that is capable of making
a difference in a decision?
A. Materiality
B. Timeliness
C. Faithful representation
D. Relevance
In: Accounting
1. Assume that you are the economist for a coal mining company and have estimated the
demand curve facing your firm to be
?????
? = ?, ??? − ?????? + ????+. ???
where Png is the price of natural gas, which is assume to be $3/MMBtu and Pw is the price
of wind power, which is assumed to be $70/MWh.
A. What is the own price elasticity of demand when Pc = $80/ton? Is demand elastic or
inelastic at this price? What would happen to the firm's revenue if it decided to charge a
price below $80?
B. What is the own price elasticity of demand when Pcoal = $160. Is demand elastic or
inelastic at this price? What would happen to your firm’s revenue if it decided to charge a
price above $160?
C. What is the cross-price elasticity of demand between coal and natural gas at the original
prices in part a? Are coal and natural gas complements or substitutes? Answer the same
questions for wind, as well.
2.
In: Economics
Basic Cost-Volume-Profit Concepts
Klamath Company produces a single product. The projected income statement for the coming year is as follows:
| Sales (69,600 units @ $35.00) | $2,436,000 |
| Total variable cost | 1,388,520 |
| Contribution margin | $ 1,047,480 |
| Total fixed cost | 1,131,760 |
| Operating income | $ (84,280) |
Required:
1. Compute the unit contribution margin and the units that must be sold to break even.
| Unit contribution margin | $ |
| Break-even units | units |
2. Suppose 10,000 units are sold above
breakeven. What is the operating income?
$
3. Compute the contribution margin ratio. Use the contribution margin ratio to compute the break-even point in sales revenue.
| Contribution margin ratio | % |
| Break-even sales revenue | $ |
Suppose that revenues are $200,000 more than expected for
the coming year. What would the total operating income
be?
$
In: Accounting