Sally Brown has decided to go to business for herself by running the company Tapes 4 You. Tape 4 You will rent tapes, DVDs, VCRs, and DVD players. In addition, it will also rent video games and the necessary machinery. Finally, a small amount of inventory will be kept on hand of VCRs and DVD players for sale. The following transactions have occurred.
June 1 Sally contributes $20,000 cash and $500 in office equipment to the company.
June 1 Sally signs a 12 month lease for $6,000.
June 3 Sally purchases a new computer for the business for $5,500. It has a usable life of 5 years and will be depreciated under straight-line rules.
June 3 Sally purchases a return bin for outside the store. It cost $2,000, has a usable life of 10 years and will be depreciated under the double-declining balance rules.
June 4 Sally purchases 3 VCRs for the resale at $50 each and 5 DVD players for resale at $75 each. She plans on the FIFO method of inventory.
June 4 Customer rentals equal 75 rentals at $5 each. 90% of rentals are in cash. The remainder are credit.
June 5 Sally purchases 5 VCRs for resale at $45 each and 1 more DVD player for resale at $60.
June 5 Joan Brooks comes into the store and pays Sally upfront for 10 rentals ( at $5 a piece) but only takes 1 video home with her. She will be entitled to rent the other 9 movies at a future date.
June 6 Tina Johnson owns a daycare and needs to buy 4 VCRs and 2 DVD players. She pays $200 for each VCR and $275 for each DVD player. She pays on credit.
June 7 Customer rentals for the day equal 25 rentals at $5 each. All rentals were paid for in cash. The remainder are on credit.
June 10 Sally hires help. She will pay the new employee $20 per day for working 3 hours.
June 16 Joan Brooks rents 3 videos. Additional rentals for the day equal 150 at $5 each 50% were paid in cash.
June 17 Tina Johnson pays $300 of her amount owed to Tapes 4 You.
June 20 Sally purchases $500 of office supplies.
June 25 Customer rentals for the day equal 100 rentals at $5 each. 70% of sales were cash sales. The remainder are credit.
June 30 It is decided that an allowance for doubtful accounts needs to be set up. A percentage of credit sales method is to be used. It is deemed that 2% of all credit sales will be uncollectible.
Please help Sally by completing all necessary journal entries, adjusting entries, and closing entries. In addition, please prepare all t-accounts. You will need to prepare an unadjusted trial balance and an adjusted trial balance using the format in your book. Also , prepare a statement of owner's equity, an income statement, and a balance sheet as of 6/30/04.© BrainMass Inc. brainmass.com June 3, 2020, 8:31 pm ad1c9bdddf
Notes about the problem:
1. June 7 entry says all were cash sales and the remainder were on credit. Can't have it both ways. I used all cash sales.
2. June 10 - memo only. No payment made.
3. June 6 - the cost of sale entry could have been made as an adjusting entry but following the perpetual method would mean that inventory is relieved as the sale occurs.
4. adjusting entry for computer: 5500 / 60 = 91.67
5. adjusting entry ...
The solution presents a comprehensive example of a full set of accounting records for one month beginning with cash entries, adjustments, posting to T-accounts, trial balance, closing entries and financial statements for Tape 4 You. The solution also provides notes for explanation of entries and calculations.