Accounting Cycle Review
Project A
This problem is designed to enable you to apply the knowledge you have acquired in the preceding chapters. In accounting, the ultimate test is being able to handle data in real-life situations. This problem will give you valuable experience.
Chart of AccountsAssets / Revenue
111 Cash / 411 Income from Services
112 Accounts Receivable / 412 Concessions Income
113 Supplies / Expenses
114 Prepaid Insurance / 511 Pool Maintenance Expense
121 Land / 512 Wages Expense
122 Building / 513 Advertising Expense
123 Accumulated Depreciation, Building / 514 Utilities Expense
124 Pool/Slide Facility / 515 Interest Expense
125 Accumulated Depreciation, Pool/Slide Facility / 516 Supplies Expense
126 Pool Furniture / 517 Insurance Expense
127 Accumulated Depreciation, Pool Furniture / 518 Depreciation Expense, Building
Liabilities / 519 Depreciation Expense, Pool/Slide Facility
221 Accounts Payable / 520 Depreciation Expense, Pool Furniture
222 Wages Payable / 521 Miscellaneous Expense
223 Mortgage Payable
Owner’s Equity
311 Common Stock
312 Dividends
313 Retained Earnings
314 Income Summary
You are to record transactions in a two-column general journal. Assume that the fiscal period is one month. You will then be able to complete all the steps in the accounting cycle.
When you are analyzing the transactions, think them through by visualizing the T Accounts or by writing them down on scratch paper. For unfamiliar types of transactions, specific instructions for recording them are included. However, reason them out for yourself as well. Check off each transaction as it is recorded.
July1Taylor deposited $156,000 in a bank account for the purpose of buying Summer Fun Waterslides. The business is a public recreation area offering three large waterslides (called “tubes”), one children’s slide, an inner tube run, and a hot tub area.
2Bought Summer Fun Waterslides in its entirety for a total price of $540,800. The assets include pool furniture, $2,500; the pool/slide facility (includes filter system, pools, pump, and slides), $147,800; building, $95,500; and land, $295,000. Paid $133,000 down and signed a mortgage note for the remainder. (Debit the assets, and credit Cash and Mortgage Payable.)
2Received and paid the bill for a one-year premium for insurance, $10,036.
2Bought 125 inner tubes from Wright’s Tires for $3,125, paying $1,500 down, with the remainder due in twenty days. (Debit Supplies instead of an Equipment account because inner tubes generally last only a month or so.)
3Signed a contract with a video game company to lease space for video games and to provide a food concession. The rental income agreed upon is 10 percent of the revenues generated from the machines and food, with the estimated monthly rental income paid in advance. Received cash payment for July, $380. (Debit Cash and credit Concessions Income.)
5Received bills totaling $1,190 for the grand opening/Fourth of July Party. The bill from Party Promotions for the promotional handouts, balloons, decorations, and prizes was $620, and the newspaper advertising bills from the City Star were $575. (These expenses should all be considered advertising expense.)
6Signed a year contract for the pool maintenance with Crystal Clean Maintenance and paid the maintenance fee for July of $506.
6Paid cash for employee picnic food and beverages, $103. (Debit Miscellaneous Expense.)
7Received $14,056 in cash as income for the use of the facilities.
9Bought parts for the filter system on account from Applewood Pool Supply, $956. (Debit Pool Maintenance Expense.)
14Received $9,182 in cash as income for the use of the facilities.
15Paid wages to employees for the period ending July 14, $10,080.
16Paid $1,190 on account for promotional expenses recorded on July 5.
16Dividends of $2,000 were paid.
17Bought additional pool furniture from Leisure Products for $2,126; payment due in thirty days.
18Paid cash to seamstress for alterations and repairs to the character costumes, $50. (Debit Miscellaneous Expense.)
21Received $12,150 in cash as income for the use of the facilities.
21Paid cash to Wright’s Tires as partial payment on account, $813.
23Received a $225 reduction of our account from Leisure Products for lawn chairs received in damaged condition.
25Received and paid telephone bill, $176.
30Paid wages for the period July 15 through 29 of $11,560.
31Received $13,970 in cash as income for the use of the facilities.
31Paid cash to Applewood Pool Supply to apply on account, $478.
31Received and paid water bill, $2,029.
July31Paid cash as an installment payment on the mortgage, $4,788. Of this amount, $1,710 represents a reduction in the principal, and the remainder is interest. (Debit Mortgage Payable, debit Interest Expense, and credit Cash.)
31Received and paid electric bill, $979.
31Bought additional inner tubes from Wright’s Tires for $536, paying $100 down, with the remainder due in thirty days.
31Dividends of $2,500 were paid.
31Sales for the video and food concessions amounted to $5,670, and 10 percent of $5,670 equals $567. Since you have already recorded $380 as concessions income, record the additional $187 revenue due from the concessionaire (cash was not received).
Instructions
1. Journalize the transactions, starting on page 1 of the general journal.
2. Post the transactions to the ledger accounts.
3. Prepare a trial balance in the first two columns of the work sheet.
4. Data for the adjustments are as follows:
a. Insurance expired during the month, $836 (rounded off).
b. Depreciation of building for the month, $350.
c. Depreciation of pool/slide facility for the month, $570.
d. Depreciation of pool furniture for the month, $50.
e. Wages accrued at July 31, $589.
f. Inner tubes on hand (supplies) at July 31, $1,960.
5. Journalize and post adjusting entries.
6. Prepare an adjusted trial balance.
7. Prepare the income statement.
8. Prepare the statement of stockholders’ equity.
9. Prepare the balance sheet.
10. Journalize closing entries.
11. Post closing entries to the ledger accounts.
12. Prepare a post-closing trial balance.
Check Figures
Trail balance total, $615,642.50
Net income, $15,122.16