Perdisco answers pdf

© 2006-2010 Perdisco Coffee and Café Supplier Accounting Practice Set, US GAAP Edition 3

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© 2006 Perdisco. Coffee and Café Supplier Accounting Practice Set US GAAP Edition 1 published in 2006.

© 2008 Perdisco. Coffee and Café Supplier Accounting Practice Set US GAAP Edition 2 published in 2008.

© 2010 Perdisco. Coffee and Café Supplier Accounting Practice Set US GAAP Edition 3 published in 2010.

About the authors Raechel Wight (B.Bus., B.V.A) is an educator and author who has taught undergraduate accounting at a number of universities. She has many years experience writing educational resources for accounting students and, in her prior professional career, worked as an auditor for Deloitte.

Julyana Cahyadi (B.Com., M.Bus.) teaches financial accounting and financial statement analysis to undergraduate students. She previously worked as a researcher for the National Centre for Banking and Capital Markets and has since then undertaken various consulting roles in Australia and overseas.

Contents Study time guidelines ................................................................................................................................ 2 Overview .................................................................................................................................................... 3

Background information .......................................................................................................................................... 3 Accounting policies................................................................................................................................................... 3 Accounting procedures ............................................................................................................................................ 4

Instructions................................................................................................................................................ 6 Transactions ............................................................................................................................................................... 6 End of month posting.............................................................................................................................................. 6 Bank reconciliation ................................................................................................................................................... 6 Unadjusted trial balance ........................................................................................................................................... 6 Worksheet................................................................................................................................................................... 6 Adjusting entries........................................................................................................................................................ 7 Schedules of accounts............................................................................................................................................... 7 Financial statements.................................................................................................................................................. 7 Closing entries ........................................................................................................................................................... 7 Post-closing trial balance.......................................................................................................................................... 7 Reversing entries ....................................................................................................................................................... 7

Further information ................................................................................................................................... 8 Chart of accounts ...................................................................................................................................................... 8 Schedule of accounts receivable ~ May................................................................................................................. 9 Schedule of accounts payable ~ May..................................................................................................................... 9 Post-closing trial balance ~ May........................................................................................................................... 10 Bank reconciliation statement ~ May .................................................................................................................. 11 Bank statement ~ June........................................................................................................................................... 12

Transactions ............................................................................................................................................ 13 General journal ........................................................................................................................................ 16 Special Journals ....................................................................................................................................... 21

Sales journal.............................................................................................................................................................. 21 Purchases journal..................................................................................................................................................... 21 Cash receipts journal............................................................................................................................................... 22 Cash payments journal ........................................................................................................................................... 23

Ledgers .................................................................................................................................................... 25 Accounts receivable subsidiary ledger.................................................................................................................. 26 Accounts payable subsidiary ledger ...................................................................................................................... 28 General ledger.......................................................................................................................................................... 30

Final statements ...................................................................................................................................... 45 Bank reconciliation statement ............................................................................................................................... 46 Worksheet................................................................................................................................................................. 48 Schedule of accounts receivable............................................................................................................................ 50 Schedule of accounts payable................................................................................................................................ 50 Income statement.................................................................................................................................................... 51 Statement of stockholders' equity......................................................................................................................... 52 Balance sheet............................................................................................................................................................ 53 Post-closing trial balance........................................................................................................................................ 54

Study time guidelines Your accounting practice set is a large activity that will take approximately 18 hours or more of study. As such, you will not complete the whole practice set in one sitting. The timeframes that we are suggesting on this page measure study time spent directly working with this practice set.

Depending on the submission guidelines set by your instructor, your study time may be spread over many days or weeks. The study times below are provided only to give you a general guide as to how to allocate your time when completing the sections in your practice set. Breaking your study time into blocks will help maintain your concentration while performing the tasks required.

Some students will take less time to complete their accounting practice set, other students will take longer. That is OK. Subject to the deadlines set by your instructor, please take as much or as little time as you need.

Accounting cycle step

Approximate study time

Reading time Up to 0.5 hour

Transactions - week 1 Up to 2 hours

Transactions - week 2 Up to 1 hour

Transactions - week 3 Up to 1 hour

Transactions - week 4 Up to 1 hour

Transactions - week 5 Up to 1 hour

End of month posting Up to 1.5 hours

Bank reconciliation Up to 1.5 hours

Unadjusted trial balance Up to 1 hour

Worksheet Up to 2 hours

Adjusting entries Up to 1 hour

Schedules of accounts Up to 0.25 hour

Financial statements Up to 1.5 hours

Closing entries Up to 1.5 hours

Post-closing trial balance Up to 0.25 hour

Reversing entries Up to 1 hour

TOTAL all steps (approximate) Up to 18 hours

2 PERDISCO ACCOUNTING PRACTICE SET (PCU3e)

Overview Background information

Assume it is currently June 30, 20XX.

You are working for the temporary accounting employment agency known as Tempters. Today you have been asked to work at Moondollars, a small coffee supplies store that operates in the city and is owned by Adrian Bartos. Your task here is to complete the accounting cycle for Moondollars for the month of June 20XX. To assist you in this task, Adrian tells you to read the company's accounting policies and procedures. Note that you will be required to follow these policies and procedures when completing the accounts for Moondollars.

Accounting policies Business operations: Moondollars is set up as a private non-listed corporation based in the city witha. Adrian Bartos as the sole stockholder. The business derives its main source of revenue from retail sales of coffee supplies.

To assist in managing the business, Moondollars rents a small office space. Note that the business is required to pay for the rent for this premises in advance.

The electricity and water expenses incurred during the month relate to the running of the office. Additional expenses include an insurance policy to protect the equipment in the office in the event of theft or fire.

All costs associated with the office are classified as general and administrative expenses.

Adrian is the only full-time employee and his role is to handle all administrative tasks. Adrian's salary is paid once at the end of each month. All other employees are sales staff who are employed on a part-time basis. The sales staff receive their wages every two weeks.

Accounting cycle: The business adopts a monthly accounting cycle.b.

Purchases: Purchases are recorded when the business receives the goods. All items purchased are received on thec. same day as recorded in the transaction list, except for purchase orders which are received at a later date. Note that the business uses the gross method of recording purchases and receives trade discounts and early payment discounts from some suppliers.

Purchase returns: To allow Adrian to separately track and analyze the value of goods returned to suppliers, alld. purchase returns are recorded in the Purchase Returns and Allowances account rather than directly in the Purchases account.

Revenue recognition: The business recognizes revenues when goods sold are delivered to customers. All itemse. sold are delivered on the same day as recorded in the transaction list except for sales orders, which are delivered at a later date as agreed with the customer. Note that the business uses the gross method of recording sales and sometimes grants trade discounts to customers. Past experience has shown that offering early payment discounts did not increase the likelihood of accounts receivable being paid promptly. Therefore, discounts for early payment of accounts are not normally offered to credit customers except in exceptional circumstances.

Sales returns: So that the business can easily track the level of sales returns in relation to overall sales, all salesf. returns are recorded using a contra revenue account (Sales Returns and Allowances) rather than being recorded directly in the Sales Revenue account.

COFFEE & CAFÉ SUPPLIER - US GAAP EDITION 3 (PCU3e) 3

Sales tax: Adrian has advised you to ignore the effect of sales tax. [ASIDE: This is an assumption to make theg. practice set easier for you to complete. In the real world, sales tax cannot be ignored.]

Cash: The business accepts cash and checks and uses checks to pay for the majority of its expenses. On the dayh. checks are received, Adrian deposits them at the bank. It may take a number of days for the checks to be cleared by the bank. The business holds its checking account with BitiBank.

Short-term investments: The business holds a six-month term deposit account with BitiBank. Interest isi. calculated on a monthly basis and received at the end of the deposit term. Note that when the deposit matures, Adrian usually rolls over the principal and interest received at the end of the term. The term deposit account was rolled over on June 1, 20XX.

Inventories: The business uses the periodic inventory system and and records all purchases of inventory in thej. Purchases account, rather than recording them directly in the Merchandise Inventory account. At the end of the reporting period, the Purchases account and the opening balance of the Merchandise Inventory account are closed to the Income Summary account and Merchandise Inventory is restated to its ending balance. Note that the company does not use a Cost of Goods Sold account.

Prepayments: The business has a policy of recording prepayments, including office supplies, as assets. At the endk. of the month, adjustments are made to the relevant accounts to recognize the expense incurred during the accounting period.

Property, plant and equipment: Property, plant and equipment items are depreciated over their estimated usefull. life using the straight line method to calculate the depreciation charge.

Long-term liabilities: The business obtained an interest only loan from MRMC Bank on June 1, 20XX. The firstm. interest payment is due at the end of August 20XX and the principal on the loan is due at the beginning of June four years later.

Accounting procedures Moondollars adopts a manual accounting system and uses the general journal and special journals for the recording of individual transactions. Adrian Bartos has tailored the design of those journals to meet the specific needs of the business so the format of those journals may be slightly different to those you have seen before. However, he advises you that the general principles of how to use special journals are followed in his business.

The table below shows the journals used by the business and the types of transactions that can be recorded in each of these journals:

Journal Code Transaction type

General journal GJ All transactions that are not able to be recorded in the special journals below.

Sales journal SJ Credit sales of inventory

Purchases journal PJ Credit purchases of inventory

Cash receipts journal CRJ Cash inflows to the business

Cash payments journal CPJ Cash outflows from the business

To summarize the effects of transactions recorded in those journals, Adrian maintains the general ledger and the following subsidiary ledgers:

▪ accounts receivable subsidiary ledger, and ▪ accounts payable subsidiary ledger.

4 PERDISCO ACCOUNTING PRACTICE SET (PCU3e)

Adrian then indicates that he is aware other businesses using a manual accounting system may post transactions from journals to ledgers at different times (i.e. daily or monthly). Although the posting procedures used in his business may be different to what you have seen before, he asks that you specifically follow his company's accounting policies and procedures.

The information below explains when transactions are required to be posted from the journals to the appropriate ledger accounts:

Posting of entries recorded in the general journal

All transactions that are entered in the general journal are posted on a daily basis. Note that if a transaction recorded in the general journal involves both a control account and a subsidiary ledger account, that journal entry will need to be posted to both ledgers.

Posting of entries recorded in the special journals

When a transaction is recorded in a special journal, part of the journal entry may need to be posted daily and part of that entry is to be posted monthly.

Daily:a.

▪ If a transaction affects a subsidiary ledger account, then the entry that involves a subsidiary ledger account is to be posted to that subsidiary ledger on a daily basis. However, the same amount posted to the subsidiary ledger account is not posted to the related control ledger account immediately. This procedure allows the business to keep track of supplier and customer balances on a daily basis.

▪ In the cash receipts journal or the cash payments journal, if a transaction is recorded in the Other Accounts column, then the amount recorded in the Other Accounts column is to be posted to the appropriate general ledger account daily.

Monthly:b.

▪ At the end of the month, the totals of each column in the special journals are manually calculated. Those totals, with the exception of the totals of the Other Accounts columns in the cash journals, are posted to the appropriate general ledger accounts at the end of the month.

COFFEE & CAFÉ SUPPLIER - US GAAP EDITION 3 (PCU3e) 5

Instructions Now that you have reviewed information about Moondollars, you are ready to complete the accounting cycle for Moondollars for the month of June. To start with, Adrian gives you the transaction list for the month of June and all the journals, ledgers and final statements you will need to complete this task. He also mentions that you will be required to record reversing entries at the beginning of July. Adrian provides the following list of tasks you are required to perform for June and the beginning of July:

1. Transactions Record all transactions in the relevant journals. Note that special journals must be used where applicable. Anya. transaction that cannot be recorded in a special journal should be recorded in the general journal. Post entries recorded in the journals to the appropriate ledger accounts according to the company's accountingb. policies and procedures.

Remember to enter all answers to the nearest whole dollar. When calculating a discount, if a discount is not a whole number, round the discount to the nearest whole dollar. Then, to calculate the Cash amount, subtract the discount from the original amount.

2. End of month posting Total the columns in the special journals.a. Post the totals of the columns in the special journals to their corresponding ledger accounts. To confirm that theb. posting has been performed, a posting reference is recorded in the last row of the special journals. If the total of a column is not required to be posted (because the entries in that column have already been posted on a daily basis) you need to record an X in the post reference field for that column.

3. Bank reconciliation Prepare the bank reconciliation statement as at June 30.a. Identify and record the relevant reconciling items in the general journal, and post them to the relevant accounts.b.

4. Unadjusted trial balance Complete the unadjusted trial balance as at June 30 on the worksheet provided.

5. Worksheet Use the following information to record adjustments in the Adjustments column of the worksheet:a.

▪ furniture: Depreciation on the furniture owned by the business for the month of June is $156. ▪ equipment: Depreciation on the equipment owned by the business for the month of June is $366. ▪ Electricity expense for the month of June is estimated to be $874. ▪ The water usage for the month of June is estimated to be $235. ▪ The amount of wages incurred during the month of June but not yet paid to sales staff is $1,320. ▪ Interest expense incurred during the month of June but not yet paid to MRMC Bank for the bank loan is

$275. ▪ Interest earned from short-term investments in BitiBank for the month of June is $100. ▪ The value of office supplies used during the month of June is $4,037. ▪ $3,000 worth of prepaid rent expired during the month of June. ▪ $3,000 worth of prepaid advertising was used up in June. ▪ $590 worth of prepaid insurance expired during the month of June.

Complete the remaining columns of the worksheet. After taking a physical count of inventory, the balance ofb. inventory on hand as at June 30 is $60,857. You will need to use this information to complete both the Income Statement and the Balance Sheet columns of the worksheet. Note that Merchandise Inventory is recorded in the Income Statement columns. Hint: This information will assist you in calculating cost of goods sold under the periodic inventory system.

6 PERDISCO ACCOUNTING PRACTICE SET (PCU3e)

6. Adjusting entries Use the worksheet to help journalize adjustments for June.

Record adjusting entries in the general journal.a. Post the adjusting entries from the general journal to the relevant ledgers.b.

7. Schedules of accounts Create a schedule of accounts receivable balances as at the end of June.a. Create a schedule of accounts payable balances as at the end of June.b.

8. Financial statements Prepare an income statement for the month of June.a. Prepare a statement of stockholders' equity for the month of June.b. Prepare a balance sheet as at the end of June.c.

9. Closing entries Journalise closing entries in the general journal.a. Post the closing entries from the general journal to the relevant ledger accounts.b.

10. Post-closing trial balance Prepare a post-closing trial balance as at the end of June.

11. Reversing entries On the first day of July, record in the general journal any entries that are required to reverse the followinga. adjusting entries from the month of June:

▪ Water expense incurred but not paid ▪ Electricity expense incurred but not paid ▪ Wages owed to the employees but have not yet been paid in cash ▪ Interest expense incurred but not paid to the lender ▪ Interest earned but not received in cash

Post the reversing entries from the general journal to the relevant general ledger accounts.b.

After completing the tasks for Moondollars, you should double check your work and ensure that you have completed all of the accounting records before submitting them for review.

COFFEE & CAFÉ SUPPLIER - US GAAP EDITION 3 (PCU3e) 7

Further information Chart of accounts

Account No. Name

100 Cash 102 Short-term Investments 110 ARC - Accounts Receivable Control 112 Interest Receivable 120 Merchandise Inventory 130 Office Supplies 140 Prepaid Rent 141 Prepaid Advertising 142 Prepaid Insurance 150 Office Furniture 151 Accum Depn: Office Furniture 160 Office Equipment 161 Accum Depn: Office Equipment 210 APC - Accounts Payable Control 220 Wages Payable 221 Electricity Payable 222 Water Payable 225 Interest Payable 250 Bank Loan Payable 300 Common Stock 301 Retained Earnings 310 Income Summary 400 Sales Revenue 401 Sales Returns and Allowances 402 Sales Discounts 403 Interest Revenue 500 Purchases 501 Purchase Returns and Allowances 502 Purchase Discounts 511 Advertising Expense 516 Wages Expense 540 Rent Expense 541 Electricity Expense 542 Water Expense 543 Insurance Expense 544 Office Supplies Expense 545 Salary Expense 560 Depn Expense: Office Furniture 561 Depn Expense: Office Equipment 571 Interest Expense 572 Admin.