DESCRIPTION OF THE BUSINESS Sophia LeBron’s vast experience in interior design provided her the opportunity to open a business of her own. She organized a corporation named My Place, House of Décor that offers decorating services to customers but subcontracts the manufacture of the merchandise needed. These subcontractors are to deal directly with the customers. After three months of successful operations, Sophia thought it would be an excellent idea to expand her business into the sale of antique furniture. She started buying inventory from a company named Golden Antiques for resale to retail stores. Beginning on page 25, you are presented with the events that occurred in the business over a six-month period. Your responsibility is to record the transactions on a monthly basis, prepare adjusting entries, issue the interim financial statements, prepare closing entries, and finalize the accounting cycle with the preparation of the postclosing trial balance. OPERATIONS: The chart of accounts on the inside front cover lists the accounts that should be used in the preparation of all journal entries. The business has cash sales and sales on account. The terms given on the credit sales depend on the credit history of the particular customer. Sales of merchandise are FOB shipping point. The salary assigned to My Place, House of Décor is recorded gross for the first four months, in order to follow the basic chapters of the accounting textbooks. However, the effect of payroll taxes is illustrated during the last two months in this practice set. The company is using the perpetual inventory system and the specific identification method to value its inventory and determine the cost of goods sold. All purchases of inventory are FOB destination. Events affecting various areas of the business have been selected for the purpose of showing you their treatment in the accounting records. This will give you a more practical view of how a company’s books and records are kept in the business world. MANUAL INSTRUCTIONS FOR JANUARY Journalize the transactions listed below and on the next page and post to the ledger accounts. Omit explanations. 2) Prepare an unadjusted trial balance. 3) Journalize the adjusting entries and post to the general ledger. Adjustment data are provided on the next page. 4) Prepare an adjusted trial balance. 5) Prepare a schedule of accounts receivable. List the balance of each customer account with a balance and total the balances. Compare the total to the balance of Accounts Receivable in the general ledger. 6) Prepare an income statement for the month ended January 31, 20Y8. 7) Prepare a retained earnings statement for the month ended January 31, 20Y8. 8) Prepare a balance sheet as of January 31, 20Y8. 9) Complete the analysis test for January. TRANSACTIONS FOR JANUARY: General Entries: Jan. 5 Received $60,000 from Sophia LeBron and issued 12,000 common shares of $5 par value. Jan 5 Paid $6,000 of general liability and property insurance. The disbursement by Check No. 100 was for a complete year of service. Jan 6 Rented an office and furniture for $2,000 per month. Issued Check No. 101 for $6,000, representing the first and last months’ rent and the security deposit. [The security deposit (debit Deposits), the last month’s rent, and the current rent are to be classified separately.] Jan 7 Issued Check No. 102 for $1,600 for the purchase of office supplies. Jan 7 Issued Check No. 103 for $7,000 for advertising to be run in local newspapers and magazines in the month of January. Jan 10 Roxana Perini engaged My Place, House of Décor to renovate her oceanfront condominium. Received $10,000 from Roxana Perini after services were completed. Jan. 12 Recorded $6,000 (net 30) decorating fees earned on account from Maribel Thompson to remodel her office. Jan 20 Received $8,000 from Frederick Lombart, a customer. These fees were related to services rendered to improve his office’s lobby. Jan 25 Recorded $12,000 (net 60) decorating fees revenue earned on account from Roberto Andriani, a long-time customer who wanted to enhance his residence’s decor. Jan 30 Issued Check No. 104 for $190 to pay the utilities bill for the month. Jan 30 Issued Check No. 105 for $300 in payment of the telephone bill for the month. Jan 30 Issued Check No. 106 for $200 for postage. Jan 30 Issued Check No. 107 for $450 for business automobile expenses. Jan 30 Issued Check No. 108 for $5,600 to Sophia LeBron for salary. (Payroll taxes are not considered in this entry. Transactions in later months will show you how to journalize payroll tax deductions and expenses.) Adjusting Entries a) Expired insurance for the period, $500. b) Supplies on hand at the end of the month, $1,000
DESCRIPTION OF THE BUSINESS Sophia LeBron’s vast experience in interior design provided her the opportunity to open a business of her own. She organized a corporation named My Place, House of Décor that offers decorating services to customers but subcontracts the manufacture of the merchandise needed. These subcontractors are to deal directly with the customers. After three months of successful operations, Sophia thought it would be an excellent idea to expand her business into the sale of antique furniture. She started buying inventory from a company named Golden Antiques for resale to retail stores. Beginning on page 25, you are presented with the events that occurred in the business over a six-month period. Your responsibility is to record the transactions on a monthly basis, prepare
OPERATIONS: The chart of accounts on the inside front cover lists the accounts that should be used in the preparation of all
MANUAL INSTRUCTIONS FOR JANUARY Journalize the transactions listed below and on the next page and post to the ledger accounts. Omit explanations. 2) Prepare an unadjusted trial balance. 3) Journalize the adjusting entries and post to the general ledger. Adjustment data are provided on the next page. 4) Prepare an adjusted trial balance. 5) Prepare a schedule of
TRANSACTIONS FOR JANUARY:
General Entries:
Jan. 5 Received $60,000 from Sophia LeBron and issued 12,000 common shares of $5 par value.
Jan 5 Paid $6,000 of general liability and property insurance. The disbursement by Check No. 100 was for a complete year of service.
Jan 6 Rented an office and furniture for $2,000 per month. Issued Check No. 101 for $6,000, representing the first and last months’ rent and the security deposit. [The security deposit (debit Deposits), the last month’s rent, and the current rent are to be classified separately.]
Jan 7 Issued Check No. 102 for $1,600 for the purchase of office supplies.
Jan 7 Issued Check No. 103 for $7,000 for advertising to be run in local newspapers and magazines in the month of January.
Jan 10 Roxana Perini engaged My Place, House of Décor to renovate her oceanfront condominium. Received $10,000 from Roxana Perini after services were completed.
Jan. 12 Recorded $6,000 (net 30) decorating fees earned on account from Maribel Thompson to remodel her office.
Jan 20 Received $8,000 from Frederick Lombart, a customer. These fees were related to services rendered to improve his office’s lobby.
Jan 25 Recorded $12,000 (net 60) decorating fees revenue earned on account from Roberto Andriani, a long-time customer who wanted to enhance his residence’s decor.
Jan 30 Issued Check No. 104 for $190 to pay the utilities bill for the month.
Jan 30 Issued Check No. 105 for $300 in payment of the telephone bill for the month.
Jan 30 Issued Check No. 106 for $200 for postage.
Jan 30 Issued Check No. 107 for $450 for business automobile expenses.
Jan 30 Issued Check No. 108 for $5,600 to Sophia LeBron for salary. (Payroll taxes are not considered in this entry. Transactions in later months will show you how to journalize payroll tax deductions and expenses.)
Adjusting Entries a) Expired insurance for the period, $500. b) Supplies on hand at the end of the month, $1,000
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