Energy Vending Inc (Journal Entries)

Accounting and Business Analysis (Business 2257)

ENERGY VENDING, INC.

© Ivey Business School
Any use of this material outside the
Business 2257 classroom is prohibited
by Ivey Business School.

JOURNAL ENTRIES

Entry Transaction Debit Credit

O/B (given)
Cash 24,000
Accounts receivable 32,500
Inventory 70,883
Building 310,000
Vending machines 198,750
Office equipment 18,000
Allowance for doubtful accounts 1,300
Accumulated depreciation –– building 14,250
Accumulated depreciation –– vending machines 24,844
Accumulated depreciation –– office equipment 1,883
Salaries payable 14,250
Current portion of bank loan 12,000
Bank loan 186,000
Common stock 300,000
Retained earnings 99,606

1. Cash 1,584,307
Sales (cash) 1,584,307

2. Accounts receivable 285,380

Sales (credit) 285,380

3. Sales discounts 2,283

Accounts receivable 2,283
$285,380 × 40% × 2% = $2,283

Alt. Sales discounts 2,283

3. Cash 111,869
Accounts receivable 114,152
$285,380 × 40% = $114,152

4. Allowance for doubtful accounts 2,050

Accounts receivable 2,050

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Entry Transaction Debit Credit

5. Note receivable 1,200

Accounts receivable 1,200

6. Accounts receivable 3,200

Allowance for doubtful accounts 3,200
$8,000 × 40% = $3,200

7. Cash 3,200
Accounts receivable 3,200

8. Cash 1,218
Note receivable 1,200
Interest revenue 18
$1,200 × 6% ÷ 12 months × 3 months = $18

9. Sales returns and allowances 140

Cash 140

10. Cash 475

Allowance for doubtful accounts 1,900
Accounts receivable 2,375
$475 ÷ 20% = $2,375
$2,375 – $475 = $1,900

11. Note receivable 6,020

Accounts receivable 6,020

12. Sales returns and allowances 2,143

Cash 2,100
Sales discounts 43
Gross sales: $2,100 ÷ 98% = $2,143
Discount received: $2,143 × 2% = $43

13. Cash 7,500

Accounts receivable 5,700
Unearned revenue 1,800
$7,500 – $5,700 = $1,800
(or two entries)

14. Interest receivable 25

Interest revenue 25
$6,020 × 5% ÷ 12 months × 1 month = $25

15. Cash 260,057

Accounts receivable 260,057
Cash collections: $269,432 – $3,200 – $475 – $5,700 = $260,057

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Entry Transaction Debit Credit

Alt. If Alt. 3 was done, Alt. 15 must be posted.

15. Cash 148,188
Accounts receivable 148,188
$269,432 – $3,200 – $475 – $5,700 – $111,869 = $148,188

16. Inventory –– purchases 178,750

Inventory –– duty 10,725
Inventory –– freight 2,475
Cash 191,950

Purchases: 275,000 × $0.65 = $178,750

Duty: $178,750 × 6% = $10,725
Freight: 275,000 ÷ 200 pkgs. × $1.80 = $2,475

17. Inventory –– purchases 404,580

Inventory –– duty 24,275
Inventory –– freight 5,517
Inventory –– discounts 16,183
Cash 418,189

Purchase: 613,000 × $0.66 = $404,580

Duty: $404,580 × 6% = $24,275
Freight: 613,000 ÷ 200 pkgs. × $1.80 = $5,517
Discount: $404,580 × 4% = $16,183

18. Inventory –– purchases 134,000

Inventory –– duty 8,040
Inventory –– freight 1,710
Inventory –– return 6,700
Inventory –– return duty 402
Cash 136,648

Purchase: 200,000 × $0.67 = $134,000

Duty: $134,000 × 6% = $8,040
Freight: 190,000 ÷ 200 pkgs. × $1.80 = $1,710
Return: 10,000 × $0.67 = $6,700
Return duty: $6,700 × 6% = $402

19. Inventory –– purchase 156,000

Cash 156,000
Purchase: 300,000 × $0.52 = $156,000

20. Inventory –– purchases 70,350

Inventory –– duty 4,221
Inventory –– freight 945
Accounts payable 75,516

Purchase: 105,000 × $0.67 = $70,350

Duty: $70,350 × 6% = $4,221
Freight: 105,000 ÷ 200 pkgs. × $1.80 = $945

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Entry Transaction Debit Credit

BUILDING

Sept. 1/07 Aug. 31/08

12 months

FYB FYE
Depreciation

21. Depreciation expense 14,250

Accumulated depreciation –– building 14,250
($310,000 – $25,000) ÷ 20 years = $14,250

VENDING MACHINES

Sept. 1/07 Jan. 2/08 Feb. 1/08 Aug. 31/08

4 months 1 month 7 months

FYB Minor repairs Purchase FYE

$950 160 machines Depreciation
Old: 12 mos.
New: 7 mos.

22. Repairs expense 950

Cash 950

23. Vending machines 228,000

Cash 228,000
($1,300 + $125) × 160 machines = $228,000

24. Depreciation expense 21,738

Accumulated depreciation –– vending machines 21,738
Fiscal 2006 depreciation: $198,750 × 1/8 yrs. × 12/12 = $24,844 (given)
($198,750 – $24,844) × 1/8 yrs. x 12/12 = $21,738

25. Depreciation expense 16,625

Accumulated depreciation –– vending machines 16,625
$228,000 × 1/8 yrs. × 7/12 = $16,625

OFFICE EQUIPMENT –– COPIER

Sept. 1/07 July 1/08 Aug. 31/08

3,750 copies 2 months

FYB Trade-in FYE

26. Depreciation expense 438

Accumulated depreciation –– office equipment 438
($1,500 – $100) ÷ 12,000 copies × 3,750 copies = $438

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Entry Transaction Debit Credit

27. Accumulated depreciation –– office equipment 671

Loss on trade-in 129
Office equipment 1,700
Office equipment 1,500
Cash 1,000
Fiscal 2006 dep’n: ($1,500 – $100) ÷ 12,000 copies × 2,000 copies = $233
Accumulated depreciation: $233 + $438 = $671
Book value: $1,500 – $671 = $829
Proceeds: $1,700 (list price) – $1,000 (cash paid) = $700
Loss: $829 – $700 = $129

28. Depreciation expense 67

Accumulated depreciation –– office equipment 67
($1,700 – $100) ÷ 4 years × 2 mos./12 mos. = $67

29. Depreciation expense 1,650

Accumulated depreciation –– office equipment 1,650
($18,000 – $1,500) ÷ 10 years × 12/12 = $1,650

30. Salaries payable 14,250

Cash 14,250

31. Salaries expense (sales) 54,000

Salaries payable 4,500
Cash 49,500
$54,000 ÷ 12 months = $4,500 per month

32. Operator wages 120,000

Cash 110,000
Wages or Salaries payable 10,000
$1,000/mo. × 10 operators × 12 mos. = $120,000

33. Salaries expense (secretary/bookkeeper) 40,000

Cash 40,000

34. Salaries expense (CEO) 120,000

Cash 120,000

35. Telephone expense 540

Internet expense 980
Office supplies expense (or asset) 330
Promotion expense 500
Cash 2,350

36. Current portion of bank loan 12,000

Interest expense 6,540
Cash 18,540

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Entry Transaction Debit Credit

Alt. Bank loan 12,000

36. Interest expense 6,540
Cash 18,450
If entry Alt. 36 is used, entry 37 is not required.

37. Bank loan 12,000

Current portion of bank loan 12,000

38. Service charge expense 180

Accounts receivable 122
Telephone expense 43
Cash 345

39. Cash 1,050

Interest revenue 1,050

40. Office supplies (asset) 40

Office supplies expense 40

Alt. (If students debited office supplies asset in #37.)

40. Office supplies expense 290
Office supplies (asset) 290

41. Cost of goods sold expense 926,662

Inventory 926,662
E/B (units): 452 boxes counted + 525 boxes in-transit = 977 boxes

Order Units Cost/Unit Total

(boxes)
#5 (in-transit) 525 $ 75,516
#4 (April 19) 452 $156,000 ÷ 1,500 × 452 47,008
Total 977 $122,524

COGS: COGAFS – E/B

COGS: $1,049,186 – $122,524 = $926,662

42. Bad debt expense 983

Allowance for doubtful accounts 983
E/B A/R: $38,317
E/B in AFDA: $38,317 × 4% = $1,533
Bad Debt Expense: $1,533 – $550 = $983

C1. Sales 1,869,687

Interest revenue 1,093
Sales discounts 2,240
Sales returns and allowances 2,283
Income summary 1,866,257

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Entry Transaction Debit Credit

C2. Income summary 1,326,565

Depreciation expense 54,768
Repairs expense 950
Loss on trade 129
Salaries expense 334,000
Telephone expense 583
Internet expense 980
Office supplies expense 290
Promotion expense 500
Interest expense 6,540
Service charge expense 180
COGS expense 926,662
Bad debt expense 983

C3. Income tax expense 161,908

Income tax payable 161,908
$539,692 × 30% = $161,908

C4. Income summary 161,908

Income tax expense 161,908

C5. Income summary 377,784

Retained earnings 377,784

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 INCOME STATEMENT
For the period ending August 31, 2008

Revenue
Gross sales $ 1,869,687
Less: Sales discounts $ 2,240
Less: Sales returns & allowances 2,283 (4,523)

Net Sales $ 1,865,164

Less: Cost of goods sold expense (926,662)

Gross Profit 938,502

Less: Operating Expenses

Depreciation 54,768
Repairs 950
Sales salaries 54,000
Operator wages 120,000
Secretary salary 40,000
CEO salary 120,000
Telephone 583
Internet 980
Office supplies 290
Promotion 500
Service charges 180
Bad debt expense 983 (393,234)

Other Revenue:
Interest revenue 1,093

Other Expenses:
Interest Expense (6,540)
Loss on trade-in (129)

Net income before tax 539,692

Less: Income tax expense (161,908)

Net Income After Tax $ 377,784

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 STATEMENT OF FINANCIAL POSITION
As at August 31, 2008

ASSETS
Current assets:
Cash $ 391,845
Accounts receivable $ 38,317
Less: Allowance for doubtful accounts 1,533 36,784
Inventory 122,524
Interest receivable 25
Office supplies 40
Notes receivable 6,020
Total current assets $ 557,238

Long-lived assets:
Building 310,000
Less: Accumulated depreciation 28,500 281,500
Vending Machines 426,750
Less: Accumulated depreciation 63,207 363,543
Office Equipment 18,200
Less: Accumulated depreciation 3,367 14,833
Total long-lived assets 659,876
Total Assets $ 1,217,114

LIABILITIES AND SHAREHOLDER’S EQUITY

Current liabilities:
Accounts payable $ 75,516
Salaries payable 14,500
Current portion of bank loan 12,000
Unearned revenue 1,800
Income tax payable 161,908
Total current liabilities $ 265,724
Bank loan 174,000
Total liabilities 439,724

Shareholder’s equity:
Common stock 300,000
Retained earnings 477,390 777,390

Total Liabilities and Shareholder’s Equity $ 1,217,114

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