FA Assignment 5

Ishani Sathish (PGP/25/331)

CASE 4-1 PC Depot

PC Depot was a retail store for personal computers and hand-held calculators,
selling several national brands in each product line. The store was opened in
early September 
 by Barbara Thompson, a young woman previously employed in direct computer
sales for a national firm specializing in business computers.
Thompson knew the importance of adequate records. One of her first
decisions, therefore, was to hire Chris Jarrard, a local accountant, to set
up her bookkeeping system.
Jarrard wrote up the store’s pre opening financial transactions in journal
form to serve as an example. Thompson agreed to write up the remainder of
the store’s September financial transactions for Jarrard’s later review.

Entry Amount
Number Account Debit Credit
1 Cash 65,000
Bank Loan Payable (15%) 100,000
Proprietor's Capital 65,000
2 Rent Expense (September) 1485
Cash 1485
3 Merchandise Inventory 137,500
Account Payable 137,500
4 Furniture and Fixtures (10- year life) 15,500
Cash 15,500
5 Advertising Expense 1,320
Cash 1,320
6 Wages Expense 935
Cash 935
7 Office Supplies Expense 1,100
Cash 1,100
8 Utilities Expense 275
Cash 275

At the end of September, Thompson had the following items to record:

 Account Amount Credit
Cash sales for September 38,000
Credit Sales for September 14,850
Cash received from credit customers 3,614
Bills paid to merchandise supplier 96,195
New merchandise received on credit from supplier 49,940
Ms. Thompson ascertained the cost of merchandise sold
was 38,140
Wages paid to assistant 688
Wages earned but unpaid at the end of September 440
Rent paid for October 1,485
Insurance bill paid for one year (September 1 - August 31) 2,310
Bills received, but unpaid from electric company 226
Purchased sign, paying $660 cash and agreeing to pay the
$1100 balance by December 31 1,760

Questions
1. Explain the events that probably gave rise to journal entries 1 through
8 of Exhibit 1.
2. Set up a ledger account (in T account form) for each account named in
the general journal. Post entries 1 through 8 to these accounts, using
the entry
number as a crows-reference.
3. Analyze the facts listed as 9 through 20 resolving them into their debit
and credit elements. Prepare journal entries and post to the ledger
accounts. (Do not prepare closing entries)
4. Consider any other transactions that should be recorded. Why are
these adjusting entries required? Prepare journal entries for them and
post to ledger accounts.
5. Prepare closing entries and post to ledger accounts. What new ledger
accounts are required? Why?
6. Prepare an income statement for September and a balance sheet as
of September 30.

Answers of Case 4-1 PC Depot

Answer No 1

1. In September Barbara Thompson as owner of PC Depot invested

$65,000 in the business and the firm borrowed $100,000 from a bank
on 15% note payable .
2. The firm paid $1,485 rent for the September period.
 3. Merchandise inventory was purchased on account $137,500
4. Furniture and fixtures were purchased with cash $15,500. The
expected life of these was 10 years
5. Advertising expense paid with cash $1,320
6. Wages of employee was paid by cash $935
7. Office supplies purchased by cash $1,100
8. Utilities expense (i.e water, telephone, electricity) paid with cash $275

Answer Number 3

Entry Amount
Number Account Debit Credit
9 Cash 38,000
Sales Revenue on September 38,000
10 Accounts Receivable 14,850
Sales Revenue on September 14,850
11 Cash 3,614
Accounts Receivable 3,614
12 Accounts Payable 96,195
Cash 96,195
13 Merchandise Inventory 49,940
Accounts Payable 49,940
14 Cost of Merchandise Sales 38,140
Merchandise Inventory 38,140
15 Wages Expense 688
Cash 688
16 Wages Expense 440
Accrued Wages Payable 440
17 Rent Expense (October) 1485
Cash 1485
18 Insurance Expense (September) 192.5
Prepaid Insurance 2117.5
Cash 2310
19 Utilities Expense (Electricity) 226
Accrued Utilities Payable 226
20 Sign 1760
 Cash 660
Notes Payable 1100

Answer Number 4

The case 4-1 PC Depot requires adjusting entries due to adjust account balances
into actual balances at the end of the period. The kind of transactions that are entered
to adjusting entries are deferred revenues, accrued revenues, deferred expenses and
accrued expenses. In this case, the transactions that are entered to journal adjusting
are rent expense, depreciation of furniture and fixtures, accrued wages expense,
prepaid insurance, accrued electricity expenses and accrued interest expense.

Journal Entries:

Amount
Entry Number Account Debit Credit
21 Rent Expense 1,485
Prepaid Rent 1,485
Depreciation of Furniture and
22 Fixture Expense 129.17
Accumulated Depreciation 129.17
23 Wages Expense 440
Accrued Wages 440
24 Insurance Expense 192.5
Prepaid Insurance 192.5
25 Electricity Expense 226
Accrued Electricity 226
26 Interest Expense 1250
Accrued Interest 1250

Trial Balance of PC Depot

On September 30

Balance
Account Debit Credit
Cash 84,661
Accounts Receivable 11,236
Merchandise Inventory 149,300
Sign 1,760
Prepaid Rent 1,485
Prepaid Insurance 2117.5
Furniture and Fixtures 15,500
Depreciation of Furniture and Fixtures 129.17
Accumulated Depreciation 129.17
Accounts Payable 92,345
Notes Payable 100,000
Accrued Wages Payable 440
Accrued Utilities (Electricity) Payable 226
Accrued Interest 1,250
Proprietor's Capital 65,000
Sales Revenue 52,850
Cost of Merchandise Sales 38,140
Advertising Expense 1,320
Wages Expense 2,063
Utilities Expense 501
Office Supplies Expense 1,100
Insurance Expense 192.5
Rent Expense 1,485
Interest Expense 1,250
Total 312,240.17 312,240.17

Answer Number 5

Yes, we require new ledger accounts that are an income summary. After we close
sales revenue accounts and credit it into the income summary and also close
expense accounts and debit them into it also. Total debit and total credit to income
summary should match with total revenue and total expense into the income
statement.
 Income Summary
(B) 38,140 (A) 52,850
(C) 1,320
(D) 2,063
(E) 1,100
(F) 501
(G) 192.5
(H) 1,485
(I) 129.17
(J) 1,250
46,180.67 52,850
6,669.33

Answer Number 6

Income Statement for the month of September

Sales Revenue $52,850

Cost of merchandise Sales $38,140
Gross margin $14,710

Expenses
Advertising Expense $1,320
Wages Expense $2,063
Utilities Expense $501
Office Supplies Expense $1,100
Insurance Expense $192.50
Rent Expense $1,485
Interest Expense $1,250
Depreciation of Furniture and
Fixtures $129.17
Total Expenses $8,041
Net Income $6,669.33
 Balance Sheet as of September 30

Assets Liabilities
Cash $84,661 Accounts Payable $92,345
Accounts Receivable $11,236 Notes Payable $100,000
Merchandise
Inventory $149,300 Accrued Wages Payable $440
Accrued Utilities (Electricity)
Sign $1,760 Payable $226
Prepaid Rent $1,485 Accrued Interest $1,250
Prepaid Insurance $2,117.50 Total Liabilities $194,261
Total Current
Assets $250,559.50 Owner's Equity
Furniture and
Fixtures $15,500 Proprietor's Capital $65,000
Accumulated
Depreciation $129.17 Retained Earnings $6,669.33
Total Fix Assets $15,370.83 Total Owner's Equity $71,669.33
Total Liabilities & Owner's
Total Assets $265,930.33 Equity $265,930.33