Acc201 Intermediate Accounting 1: Accounting Practice Set – Grady Wholesale Corporation

Acc201 Intermediate Accounting 1Grady Wholesale Practice Set: Review of the Accounting Cycle Grady Wholesale Corporation is a reseller of electronics equipment such as personal computers, peripherals, and software. Grady purchases items in bulk from various manufactures, repackages them into smaller lots and resells them to retailers for ultimate sale to consumers. The company maintains its financial records manually . “The books” consist of special journals for sales, purchases of merchandise (made on account), cash receipts, cash disbursements, and a general journal (for all transactions that do not fit into one of the above categories), a general ledger, and subsidiary ledgers for accounts receivable and accounts payable (for merchandise purchases). Grady’s policy is to post entries made in the general journal to the general ledger on a daily basis. Entries made to the special journals (sales, purchases, cash receipts, and cash disbursements) are posted to the general ledger at the end of the month. However, the subsidiary ledgers are updated on a daily basis. Check numbers, sales orders numbers, and invoice numbers are used as the reference numbers for posting purposes. Grady’s fiscal year-end is December 31. Adjusting entries are only prepared at the end of the fiscal year. The trial balance (taken from the general ledger) as of November 2009 follows: Account # Account Title Debit Credit101 Cash 350,000 102 Accounts Receivable 120,150 103 Note Receivable 5,000 104 Interest Receivable – 105 Inventory 850,000 106 Office Supplies 16,250107 Prepaid Insurance 12,000108 Building 2,400,000 109 Furniture and Equipment 650,000 301 Allowance for Uncollectible Accounts 25,000302 Accum. Depreciation-Building 1,360,000303 Accum. Depreciation- Furniture and Equip 390,000201 Accounts Payable 178,100202 Salaries Payable – 203 Interest Payable – 204 Utilities Payable – 205 Payroll taxes payable – 206 Income tax payable – 207 Note payable- long term 500,000208 Common stock- no par value; 10,000 shares issued and outstanding 1,000,000209 Retained Earnings 443,597501 Sales 2,825,000502 Interest revenue – 601 Cost of goods sold 1,842,000 602 Bad debt expense – 603 Depreciation expense – 604 Salary expense 374,000 605 Insurance expense – 606 Supplies Expense – 607 Utilities expense 17,500608 Advertising expense 8,450 609 Interest expense 45,000610 Payroll tax expense 29,172611 Misc. Expense 2,175 612 Income tax expense – 6,721,697 6,721,697 Transactions for December are as follows: Date Transaction 2 Received a check in the amount of 8,560 from Computers by Kayla in full payment of invoice No. 275 dated Nov. 16th.3 Purchased 21 computers from Fasttrack computer Systems for inventory for a total of 32,000 on terms of n/30 –purchase order No.21231 4 Purchased 10 monitors from Starbright Monitors for inventory for a total of 2,500 on terms of n/30-purchase order No.212324 The Payroll Unlimited provided the following information relating to the payroll for the period November 16- November 30 Gross Salary 17,000 Employer’s share of payroll taxes 1,326 Total 18,326 Check No. 1741 was issued in the amount of 18,326 to cover the payroll. This amount was not accrued at the end of November.5 Received a check in the amount of 1,250 from The Computer Boutique in full payment of invoice No. 271, dated November 12.8 Issued check No. 1742 in the amount of 27,125 to Sidebar Peripherals in payments of purchase order No. 0211181 and 0211142.8 Purchased software from Sedonna Software for inventory for a total of 22,450. 8 Received a check in the amount of 11,600 from Evanne’s Electronics in full payments on invoice No. 263, dated November 9. 9 Sold various computer equipment to Kenny’s Komputers. Invoice No. 292 was in the amount of 23,000. The cost of the equipment sold was 19.900. 9 Issued check No. 1743 in the amount of 675 to the office manager in the repayment for the purchase of office supplies. 9 Issued check No.1744 in the amount of 75 to the vice president of marketing in repayments for a business lunch. (The receipt was submitted.) 11 Sold various computer equipment to Computers by Kayla. Invoice No.293 was in the amount of 8,475. The cost of the equipment sold was 7,125. 12 Received a check in the amount of 6,425 from The Computer Boutique in the full payment of invoice No.279, dated November 19.12 Received a check in the amount of 9,500 from Evanne’s Electronics in the full payment of invoice No. 281, dated November 19.15 Issued check No. 1745 in the amount of 16,950 to Sedonna Software in payment of purchase order No. 21223. 15 Issued check No. 1746 in the amount of 1,650 to Central Utilities in payment for the November utility bill. 16 Received a check in the amount of 45,625 from Kenny’s Komputer in full payment of invoice No. 280, dated November 19.16 Sold various computer equipment to The Computer Boutique. Invoice No. 294 was in the amount of 2,750. The cost of the equipment sold was 1,200. 16 Issued check No. 1747 in the amount of 17,600 to Sedonna Software in payments of purchase order No. 0211222. 17 Sold various computer equipment to Kenny’s Komputer. Invoice No. 295 was in the amount of 24,750. The cost of the equipment sold was 21,250. 17 Purchase 4 computer systems from Fasttrack Computer Systems for inventory for a total of 7,500 on terms of n/30- purchase order No. 21234. 18 Purchased peripherals from Sidebar Peripherals for inventory for a total of 6,250 in terms of n/30- purchase order No. 2123519 The Payroll Unlimited provided the following information relating to the payroll for the period December 1- December 15: Gross Salary 17,000 Employer’s share of payroll taxes 1,326 Total 18,326 Check No. 1748 was issued in the amount of 18,326 to cover the payroll. 22 Issued check No. 1749 in the amount of 17,675 to Starbright Monitors in payment of purchase order No. 0211231.22 Issued check No. 1750 in the amount of 75,200 to Fasttrack Computer Systems in payment of purchase order No. 2122829 Issued check No. 1751 in the amount of 1,450 to the Bay Area Observer for advertising that appeared in the current month’s newspapers (their invoice no. 4576). 31 Issued check No. 1752 in the amount of 400 to Payrolls Unlimited for preparation for the December 2009 payroll (their invoice No. 2715). This is considered a Miscellaneous expense. Additional information: All sales to customers are made on account. No sales discounts are offered, and payments are due in 30 in 30 days. Bad debt is recorded at year-end at the amount equal to ½ of 1% (0.005) of sales. A year-end examination of the accounts receivable determined that the receivable from Software Unlimited was not collectible and was written off. On October 1, Grady accepted a 5,000, 1-year, 12% note from Kenny’s Computers. Interest will be paid when the note matures. On January 2, Grady purchased (and paid for) a two-year fire insurance policy for 12,000. The company owns the building that serves as the company’s headquarters and warehouse, as well as the furniture and equipment with in the building. All of these items were purchased several years ago, and no items are expected to have any salvage value at the end of their lives. At the time of purchase, the life of the building was determined to be 30 years, and the furniture and equipment’s life was estimated at 10 years. Grady uses straight-line depreciation for all of its assets. Employees are paid twice monthly, with checks distributed on the 20th and the 5th of the following month (five days after the end of the pay period). The payroll is outsourced to Payrolls Unlimited, a company that not only makes all salary-related computations (gross wages, all deductions, and net wages) and prepares the paychecks, but also makes the payments to all third parties on behalf of the company. On the 4th and 19th of the month, the company notifies Grady of the amount of the gross payroll and any payroll taxes to be paid by the employer. Grady remits a check for that amount, takes delivery of the paychecks and distributes them to the employees. The payroll summary indicates that the gross payroll for the period of December 16- December 31 was 17,000, and the employer’s share of the payroll taxes 1,326. A check for this amount will be written on January 4th. Grady uses a perpetual inventory system. A year-end inventory of the office supplies showed a balance of 4,500. In 2005 Grady borrowed 500,000 to expand their operations. The note is due on October 1st and carries an annual interest rate of 12%, payable on March 31st and September 30th. December utility usage is 1,875. This bill is expected to be paid on January 15th. Grady’s income tax expense for 2009 is 97,340. The November 30, 2009 balances in the accounts receivables and accounts payable are comprised of the following: Accounts Receivable: 1 Evanne’s Electronics 22,6002 Kenny’s Komputers 55,2753 Computers by Kayla 27,5254 The Computer Boutique 10,5005 Software Unlimited 4,250 120,150 Accounts Payable: 1 Sedonna Software 45,7002 Starbright Monitors 22,6753 Fasttrack Computer Systems 75,200 4 Sidebar Peripherals 34,525 178,100 Required : 1. Prepare entries in the appropriate journals to record each transaction. Omit explanations. 2. Post the entries to the appropriate ledgers. 3. Prepare an unadjusted trial balance as of Dec. 31st. 4. Prepare and post any necessary adjusting journal entries. 5. Prepare an adjusted trial balance. 6. Prepare an income statement for 2009. 7. Prepare and post-closing entries. 8. Prepare a balance sheet as of Dec. 31st.