Accounting Information Systems

        Poor Sooners, Inc. was established on January 1, 2004, and opened its doors for retail business on January 2, 2004, as a karaoke studio and supply company.  Three studio rooms are available, each equipped with an identical karaoke playback and recording setup.  Customers can rent a studio by the hour or buy a block of several hours, payable in advance at a substantial discount.  In addition, a line of equipment, microphones, tapes, and supplies are sold to both retail and wholesale customers.  Poor Sooners has selected your accounting firm as its accountant.  Your task in this problem is to set up a system for use, record the first month's transactions, and perform the necessary closing operations.

 

You receive information from Poor Sooners periodically, so you will treat the information in batches.

 

The following is the Chart of Accounts for Poor Sooners, Inc:

 

 

Account #      Account Name                                  Account #      Account Name

4100                            Sales: Studio

1110                                                                                                                Cash                                                    4200                Sales: Merchandise (Mdse.)

1120                                                                                                                Accounts Receivable                          4300                Sales: Other

1130                                                                                                                Inventory                                             4400                Sales Discounts

1140                                                                                                                Prepaid Rent                                       4500                Sales Returns

1210                                                                                                                Office Equipment                                5100                Cost of Goods Sold

1220                                                                                                                Studio Equipment                               5110                Freight

1229                                                                                                                Accumulated Depreciation                 5119                Purchase Discounts

2110                                                                                                                Accounts Payable                               5201                Depreciation Expense

2120                                                                                                                Sales Tax Payable                             5202                Wage and Salary Expense         

2130                                                                                                                Unearned Revenue                            5203                Rent Expense

2140                                                                                                                Interest Payable                                  5204                Utilities Expense                    

2210                                                                                                                Notes Payable                                    5205                Office Expense                      

3100                                                                                                                Contributed Capital                             5206                Advertising Expense              

3110                                                                                                                Retained Earnings                              5304                Interest Expense

3119                                                                                                                Dividends Paid                                   

3120                                                                                                                Income Summary                              

                                                                                   

POOR SOONERS will sell the following items:

 

Item Code      Description                            Reorder Point            Unit Cost

MIMICA                                                                                              Chertain gold microphone      4                                 $90.00

MIMICB                                                                                              Chertain silver microphone    5                                   60.00

MIMICC                                                                                              Chertain bronze microphone  6                                   40.00

MIMIST                                                                                               Microphone stand                   10                                  15.00

MITA60                                                                                               60 minute tape                        20                                    2.00

MITA90                                                                                               90 minute tape                        20                                    3.00

 

The sales price of the above items is on the next page.       

Here is Poor Sooners' retail price list:

 

Item Code      Description                                        Unit Price

SR01                                                                                       Studio: 1 hour rental                           $ 20.00

SR05                                                                                       Studio: 5 hour coupon book                  75.00

SR10                                                                                       Studio: 10 hour coupon book             130.00

MIMICA                                                                      Chertain gold microphone                  150.00

MIMICB                                                                      Chertain silver microphone                   90.00

MIMICC                                                                      Chertain bronze microphone                 50.00

MIMIST                                                                       Microphone stand                                  25.00

MITA60                                                                       60 minute tape                                         4.00

MITA90                                                                       90 minute tape                                         6.00

 

The approved vendors are:

 

Seattle Property Management

Northwest Office Supply Co.

Pacific Electric

Sound Wholesale

Ready Copy

Pat Dorr, CPA

 

 

REQUIREMENT #1

 

Record each of the following batches of transactions in the appropriate journals.  At the end of the month, post the journal entries or totals (whichever is necessary) to the general ledger accounts.

 

January 3        Elvis contributed $25,000 in cash.  Additionally, he pledged his personal residence as collateral to secure a long-term note payable for another $50,000.  All proceeds were deposited in the cash account.  (Record in Cash Receipts Journal; use Miscellaneous column)

 

January 9        Vendor Invoices: Make certain you post to the subsidiary ledgers too!!

Vendor	Invoice	Date	Terms	Description	PO #	Amount
Seattle Property Management	none	1/1	On Receipt	Rent for January (debit to Prepaid Rent account)	n/a	$2,000.00
Northwest Office	7004	1/5	Net 30	Computer systems	2	5,100.00
Northwest Office	7016	1/7	Net 30	Office Supplies	3	245.00
Sound Wholesale	1706	1/7	Net 10	Studio Systems	1	20,000.00
Pacific Electric	129435	1/8	Net 30	Electric bill	n/a	1,225.00
Ready Copy	33434	1/8	Net 10	Print Advertising	4	464.00

Hint:  Record first in the Voucher Register.  Then post to the appropriate Accounts Payable subsidiary ledger account.

 

January 12. Starting with check number 4000, checks were written for all vendor invoices that would be due before January 21.  The checks were all dated 1/12/04.  Record in the Check Register; Then post to the appropriate Accounts Payable subsidiary ledger account.

 

January 14      Vendor Invoices

Vendor	Invoice	Date	Terms	Description	Quantity	PO #	Amount
Sound Wholesale	1732	1/12	2/10 net 30	MITA60 MITA90 MIMICA MIMICB MIMICC MIMIST	30 30  6  8  9 15	5	$     60.00        90.00      540.00      480.00      360.00      225.00 $1,755.00
Northwest Office	7066	1/13	Net 30	Office Supplies		6	245.00
Ready Copy	33482	1/13	Net 10	Print Advertising		7	842.00

 

Record your entries in the Voucher Register.  Then post to the appropriate Accounts Payable subsidiary ledger account.  Inventory purchased from Sound Wholesale must be posted to the Inventory Subsidiary ledger.

 

January 21      All Vendor Invoices that would be due before February 10 were paid.  Checks were dated 1/21/04. Note:  Pay the Sound Wholesale Inv# 1732 on this date and take the sales discount.  Also pay the Ready Copy invoice.  Record in the Check Register; Then post to the appropriate Accounts Payable subsidiary ledger account.

 

January Cash Sales

Customer	Date	Payment	Invoice #	Amount	Tax	Item	Qty
Ben Cohen	1/15	check	10,000	$ 20.00	1.00	SR01	1
Ben Cohen	1/27	check	10,004	75.00      6.00	3.25   .30	SR05 MITA90	1 1
Bruce Roberts	1/24	VISA	10,007	130.00	6.50	SR10	1
Will Iglincky	1/25	cash	10,010	20.00	1.00	SR01	1

 

Record in Cash Receipts Journal; then post inventory items that were sold (based on unit cost) to the applicable Inventory Subsidiary Ledger account.

 January Credit Sales

Customer	Date	Terms	Invoice #	Amount	Tax	Item	Qty
Jimmy Stewart	1/15	3/10,n/30	10,001	$ 20.00	1.00	SR01	1
Robert Mitchum	1/17	2/10,n/30	10,002	20.00 4.00	1.00 .20	SR01 MITA60	1 1
Ujiro Utaeke	1/18	2/10,n/30	10,003	20.00	1.00	SR01	1
Chuck Albert	1/19	2/10,n/30	10,005	75.00 90.00 12.00	3.25 4.50 .60	SR05 MIMICB MITA90	1 1 2
John Gabianelli	1/23	2/10,n/30	10,006	75.00	3.75	SR05	1
Sherri Abby	1/24	2/10,n/30	10,008	130.00 150.00	6.50  7.50	SR10 MIMICA	1 1
Robert Mitchum	1/25	2/10,n/30	10,009	20.00	1.00	SR01	1
Sherri Abby	1/26	2/10,n/30	10,011	20.00	1.00	SR01	1
Jimmy Stewart	1/27	3/10,n/30	10,012	130.00 50.00	6.50 2.50	SR10 MIMICC	1 1

Record in the Sales Journal; then post receivable to applicable Accounts Receivable Subsidiary Ledger account; and finally post the cost of inventory sold to the applicable Inventory Subsidiary Ledger account.

 

Collections on Account

1.    On January 24, 2004, Jimmy Stewart paid Invoice# 10001.  (Remember discount)

2.    On January 26, 2004, Robert Mitchum paid Inv.# 10002.

 

Enter in the Cash Receipts Journal and then post to applicable A/R Subsidiary Ledger account.

 

REQUIREMENT #2 

 

Post the totals of your columns in your special journals to the General Ledger.  Remember you also have to post the entries in your miscellaneous columns to the specific accounts.

 

REQUIREMENT #3

 

Prepare a Pre-Adjustment Trial Balance from the General Ledger to make sure your debits

equal your credits.  Do this using the spreadsheet file I sent you and it will be much

easier to do and to modify if you don’t balance the first time

 

NOTE:  If you do not balance, you could have made one or more errors in recording and/or posting your transactions.  Work backwards to try to find your error.  Perform the following steps until you find your error or errors.

 

1.      Re-add your Trial Balance to make sure your totals are correct.

2.      Check to make sure that you transferred the correct amounts from the General Ledger on to your Trial Balance.  Make sure that you did not write down a Debit balance as a Credit balance and vice versa.

3.      Check to make sure that you transferred the amounts properly from your journals to your General Ledger.

4.      Re-Add the totals of the columns in your journals.

5.      Check to make sure that the total debits in each journal equal the total credits in each journal.

6.      Check each transaction in each journal to make sure that the debits for the transaction equal the credits for the transaction.

 

If you still have not found your problem, you have made additional mistakes in following the above check procedures.  You will not get that many additional points for having a Trial Balance that is in balance, so use reason in determining how much time to spend.  Certainly, no more that an hour.

 

  

REQUIREMENT #4

 

Adjusting Entries

January 31      Record depreciation expense of $4,000 for the month. 

January 31      Recognize accrued Interest Payable of $4,000 for January.

January 31      Adjust the Prepaid Rent account to expense one month of rent for January. 

January 31      Robert Mitchum used only 15 minutes of studio time (invoice #10009).  He will use the remainder in Feb.

(Hint:  the above adjusting entries are recorded in the General Journal.

 

Post the adjusting entries to the General Ledger.  

 

REQUIREMENT #5

 

Prepare a Post-Adjustment Trial Balance.  Hint:  Simply add to your existing trial balance in Excel to create this post-adjustment trial balance.

 REQUIREMENT #6

 Prepare the following financial statements (in the worksheet I sent you):

        a)  Income Statement for the month ended January 31, 2004.

        b)  Balance sheet as of January 31, 2004.

             (See examples provided)

 

REQUIREMENT #7

Close all nominal (revenue and expense accounts) accounts.  Make an entry in the General Journal debiting all revenue accounts and crediting the Income Summary account.  Then make another entry in the General Journal, crediting all expense accounts and debiting the Income Summary account.

Finally make an entry that zeroes out the Income Summary account and record the other side of the entry to the Retained Earnings account.

 

Now, post the above entries to your General Ledger.

 

REQUIREMENT #8

 Prepare a post-closing trial balance as of February 1, 2004.  There should be no revenue or expense account balances. 

 REQUIREMENT #9 - Turn in your case stapled together in the following order.  Also, your worksheet needs to be sent to Blackboard.

 

 

 ACCOUNTS PAYABLE SUBSIDIARY LEDGER

A/C #101 - Seattle Property Management, Inc.

Date	Item	Post Ref.	Debit	Credit	Balance Debit         Credit
1-1	Rent expense			2,000		2,000
1-12	Cash		2,000

 

A/C #102 - Northwest Office Supply Co.

Date	Item	Post Ref.	Debit	Credit	Balance Debit         Credit
1-5	Office equipment			5,100		5,100
1-7	Office Supplies expense			245		5,345
1-13	Office Supplies expense			245		5,590
1-21	Cash		5,345			245

 

A/C #103 - Pacific Electric

Date	Item	Post Ref.	Debit	Credit	Balance Debit         Credit
1-7	Utilities expense			1,225		1,225
1-21	Cash		1,225		----

 

A/C #104 - Sound Wholesale

Date	Item	Post Ref.	Debit	Credit	Balance Debit         Credit
1-7	Studio Equipment			20,000		20,000
1-12	Cash		20,000			－
1-12	Merchandise Inventory		1,755		1,755
1-21	Cash			1719.9	35.1

 

 A/C #105 - Ready Copy

Date	Item	Post Ref.	Debit	Credit	Balance Debit         Credit
1-9	Advertising expense			464		464
1-12	Cash		464			-----
1-13	Advertising expense		842		842
1-21	Cash			842		-----

 

A/C #106 - Pat Dorr, CPA

Date	Item	Post Ref.	Debit	Credit	Balance Debit         Credit

 

ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER

 

A/C #10 - Sherri Abby

Date	Item	Post Ref.	Debit	Credit	Balance Debit         Credit
1-24	Merchandise Inventory: SR10		136.5		136.5
1-24	Merchandise Inventory: MIMICA		157.5		294
1-26	Merchandise Inventory: SR01		21		315

 

A/C #11 - Chuck Albert

Date	Item	Post Ref.	Debit	Credit	Balance Debit         Credit
1-19	Merchandise Inventory: SR05		78.25		78.25
1-19	Merchandise Inventory: MIMICB		94.5		172.75
1-19	Merchandise Inventory: MITA90		12.6		185.35

  

A/C #12 - John Gabianelli

Date	Item	Post Ref.	Debit	Credit	Balance Debit         Credit
1-23	Merchandise Inventory: SR05		78.75		78.75

 

A/C #13 - Robert Mitchum

Date	Item	Post Ref.	Debit	Credit	Balance Debit         Credit
1-17	Merchandise Inventory: SR01		21		21
1-17	Merchandise Inventory: MITA60		4.2		25.2

 

1-25

Merchandise Inventory: SR01

21

46.2

 

A/C #14 - Jimmy Stewart

Date	Item	Post Ref.	Debit	Credit	Balance Debit         Credit
1-15	Merchandise Inventory: SR01		21		21
1-27	Merchandise Inventory: SR10		136.5		157.5

 

1-27

Merchandise Inventory: MIMICC

52.5

210

 

A/C #15 - Ujiro Utaeke

Date	Item	Post Ref.	Debit	Credit	Balance Debit         Credit
1-18	Merchandise Inventory: SR01		21		21

 

 INVENTORY SUBSIDIARY LEDGER

 

A/C #201- MIMICA  Certain gold microphone    Reorder point=4.

Date	Item	Post Ref.	Debit	Credit	Balance Debit         Credit
1-12	6 units: Bought		540		540
1-24	1 unit: Sold			90	450

 

A/C #202 - MIMICB Chertain silver microphone    Reorder point=5

Date	Item	Post Ref.	Debit	Credit	Balance Debit         Credit
1-12	8 units: Bought		480		480
1-19	1 unit: Sold			60	420

 

A/C #203 - MIMICC Chertain bronze microphone   Reorder point=6

Date	Item	Post Ref.	Debit	Credit	Balance Debit         Credit
1-12	9 units: Bought		360		360
1-27	1 unit: Sold			40	320

 

A/C #204 - MIMIST Microphone Stand    Reorder point=10

Date	Item	Post Ref.	Debit	Credit	Balance Debit         Credit
1-12	15 units: Bought		225		225

 

 A/C #206 - MITA60 60-minute tape     Reorder point=20

Date	Item	Post Ref.	Debit	Credit	Balance Debit         Credit
1-12	30 units: Bought		60		60
1-17	1 unit: Sold			2	58

 

A/C #207 - MITA90   90-minute tax     Reorder point=20

Date	Item	Post Ref.	Debit	Credit	Balance Debit         Credit
1-12	30 units: Bought		90		90
1-27	1 unit: Sold			3	87
1-19	1 unit: Sold			6	81

 

 GENERAL LEDGER

 

Cash 1110

Date	Item	Post Ref	Debit	Credit	Balance
1-3	Contributed Capital		25,000		25,000
1-3	S1 Long-term notes payable		50,000		75,000
1-12	Cash			22464	52536
1-21	Cash			9131.9	43404.1
1-31	Cash		263.05		43667.15
1-31	Cash		45.07		43712.22

 

Accounts Receivable 1120

Date	Item	Post Ref	Debit	Credit	Balance
1-31	Credit Sales		856.3		856.3
1-31	Cash			46.2	810.1
1-31	Unused: 45 minutes			15.435	794.665

 

 Inventory 1130

Date	Item	Post Ref	Debit	Credit	Balance
1-12	Purchases		1755		1755
	CGS			201	1554

 

Prepaid Rent 1140

Date	Item	Post Ref	Debit	Credit	Balance
1-1	Prepaid Rent		2000		2000
1-31	Rent expense			2,000	0

  

 

GENERAL LEDGER

 

Office Equipment 1210

Date	Item	Post Ref	Debit	Credit	Balance
1-5	Cash		5100		5100

 

Studio Equipment 1220

Date	Item	Post Ref	Debit	Credit	Balance
1-7	Cash		20,000		20,000

 

Accumulated Depreciation 1229

Date	Item	Post Ref	Debit	Credit	Balance
1-31	Depreciation expense			1000		1000

 

Accounts Payable 2110

Date	Item	Post Ref	Debit	Credit	Balance
1-12	Cash		22464		22464
1-21	Sales Cash		9167		31631
1-21	Purchases		31876		245

 

 Sales Tax Payable 2120

Date	Item	Post Ref	Debit	Credit	Balance
1-31	Sales Tax expense			52.35		52.35

Interest Payable 2140

Date	Item	Post Ref	Debit	Credit	Balance
1-31	Interest expense			4,000		4,000

 

Notes Payable 2210

Date	Item	Post Ref	Debit	Credit	Balance
1-3	Long-term notes payable			50,000		50,000

 

Contributed Capital 3100

Date	Item	Post Ref	Debit	Credit	Balance
1-3	Contributed capital			25,000		25,000

 

Retained Earnings 3110

Date	Item	Post Ref	Debit	Credit	Balance
1-31	Income Summary		12,069.18		12,069.18

 

Income Summary 3120

Date	Item	Post Ref	Debit	Credit	Balance
1/31	Retained Earnings			12,069.18		12,069.18

 

Sales: Studio 4100

Date	Item	Post Ref	Debit	Credit	Balance
1-31	Sales			791.25		791.25
1-31	Unused		15.435			775.815
1-31	Income Summary		775.82			0