Accounting cycle project

MBA 502A—Financial Accounting Accounting Cycle Project (KidKare, Inc. 2012S)

You have been asked to do the bookkeeping for KidKare Inc. for the last few days of December while their regular bookkeeper is ill. KidKare Inc. began operations on July 1, 2011. It provides childcare services Monday through Friday, except for holidays. End of month adjusting entries have been made for July through November. No entries have been made since Friday, December 23rd. KidKare has a December 31st fiscal year end, but prepares monthly interim financial statements. Laken Henry, manager and principle shareholder, provides you with the following:

Trial Balance as of December 23, 2011

Ref. #

Account Title

Debit

Credit

101

Cash

$ 12,094

110

Accounts Receivable

240

112

Allowance for Uncollectible Accounts

$ 122

120

Supplies on Hand

1,025

135

Prepaid Insurance

420

145

Other Prepaids

150

150

Office Equipment

3,120

155

Accumulated Depreciation—Office Equipment

325

160

Play Equipment

9,200

165

Accumulated Depreciation—Play Equipment

375

170

Van

25,000

175

Accumulated Depreciation—Van

1,600

190

KidKare Trademark

210

201

Accounts Payable

280

240

Income Taxes Payable

200

260

Notes Payable, 6% due through 2014

15,687

310

Common Stock, $1 par value (20,000 shares)

20,000

315

Additional Paid-in Capital

10,000

410

Childcare Revenue

60,600

425

Interest Revenue

61

515

Salaries & Wages Expense

42,500

525

Rent Expense

5,400

530

Utilities Expense

940

532

Insurance Expense

300

535

Supplies Expense

5,040

540

Bad Debt Expense

202

550

Depreciation Expense

2,300

560

Miscellaneous Expense

132

570

Interest Expense

427

580

Income Tax Expense

550

Totals

$109,250

$109,250

An examination of the Chart of Accounts revealed the following additional accounts:

140 Prepaid Rent

210 Revenue Received in Advance

215 Utilities Payable

220 Salaries & Wages Payable

235 Interest Payable

245 Dividends Payable

250 Other Short-term Obligations

340 Retained Earnings

380 Dividends

390 Income Summary

430 Miscellaneous Revenue

Information after December 24th:

a. On December 26, KidKare received $2,400 ($40 per day per child for 12 children for 5 days) from parents for child care services for the week of December 26 - 30.

b. On December 27, KidKare ordered 10 folding chairs for $28 each from Seats-Here Company to be delivered and paid for on January 2nd.

c. On December 28, KidKare paid $270 for the purchase of food snacks (supplies) for the children.

d. On December 28, KidKare’s Board of Directors declared a $.05 per share dividend on the 20,000 shares outstanding. The dividend will be paid on January 11, 2012.

e. On December 30, KidKare received a $200 check from the parents of one of the children for care the week of January 2th through 6th.

f. On December 30, KidKare paid $900 rent for the building for the month of January 2012.

g. On December 30, KidKare received the electricity bill of $230 for December. The bill was paid January 3, 2012.

h. On December 30, Kidcare noted that the parents of two children had not paid the $400 they owed for child care services for the week of December 26-30 ($40/day per child for five days). Kidcare billed the parents.

i. A physical count revealed $300 of supplies was left on hand on December 30.

j. On January 3, KidKare received and paid the phone bill of $72 for December.

k. On Monday, January 2, KidKare paid payroll of $1,200 in wages and $500 in salary for the week of December 26 through 30.

l. On January 4, KidKare received its December bank statement from National Sovereign Bank. The $10 monthly checking account fee had been deducted and the $4 of interest earned on its savings account had been added to KidKare’s accounts.

m. The December 23rd balance in “Other Prepaids” contains $150, paid December 1, for water and sewer service for the three months of December 2011, January 2012 and February 2012.

n. The van was purchased July 1, 2011 for $25,000 by paying $7,000 down in cash and signing a three-year, 6%, $18,000 note. The note requires monthly payments of $548 due by the 2nd of each month which includes the interest on the outstanding balance. The payments are made by automatic transfer on the 1st day of the month. The van has a 50,000 mile estimated useful life and an estimated salvage value of $5,000. KidKare uses the units of activity method of depreciation. The van was driven 600 miles in December.

o. The office equipment was put into use on July 1, 2011. It has a eight-year estimated useful life and a $300 estimated salvage value. Kidcare uses the double-declining balance method to depreciate it. (Round depreciation to the nearest month.)

p. The play equipment was purchased July 1, 2011. It has a ten-year estimated useful life and a $200 estimated salvage value. Kidcare depreciates it using the straight-line method. (Round depreciation to the nearest month.)

q. Prepaid Insurance represents the remaining seven months (December 2011 through June 2012) on a one-year liability policy purchased July 1, 2011 for $720.

r. KidKare estimates uncollectible accounts at .4% (or .004) of total childcare revenue. (Hint: Calculate bad debt expense for the entire six months. Then subtract the amount already recognized to calculate the amount to be added to bad debt expense for December.)

s. KidKare is subject to a 30% income tax rate on net earnings.

t. The December 23rd balance in Account Receivable is related to the care of two children, who abruptly stopped care in late November and whose home address is no longer valid. Attempts to collect are still being made.

u. The Account Payable amount is related to a supplies purchase made earlier in December. It is expected to be paid in early January.

v. For financial reporting purposes $5,792 of the remaining balance on the note is considered “current,” the rest is considered “long-term.”

Required: Using either the MS Word file provided or the MS Excel file provided. (Round all final results to the nearest dollar amount.)

1. Make the appropriate journal entries for December 24 through 31. Use journal page G15. (You may exclude explanations.)

2. Post the journal entries to the general ledger.

3. Journalize and post the adjusting entries. Use journal page G16. (Show calculations as the explanation in the journal.)

4. Prepare an adjusted trial balance as of December 31, 2011.

5. Prepare an Income Statement and Retained Earnings Statement for the six months fiscal period ending December 31, 2011 and a Balance Sheet as of December 31, 2011, in good form (including an income statement with operating income and income before taxes subtotals shown and a classified balance sheet).

6. Journalize and post closing entries for December 31, 2011. Use journal page G17.

7. Prepare a post-closing trial balance as of December 31, 2011.

8. Submit your journal, general ledger, adjusted trial balance, financial statements and post-closing trial balance to the Accounting Cycle Project dropbox by the due date.