Share
Explore BrainMass

The Colo Company: Multiple-Step Income Statement, Statement of Owner's Equity and Classified Balance Sheet

The Colo Company

Assume it is Monday, May 1, the first business day of the month, and you have just been hired as the accountant for Colo Company, which operates with monthly accounting periods. All of the company's accounting work is completed through the end of April and its ledgers show April 30 balances.
During your first month on the job, the company experiences the following transactions and events (terms for all its credit sales are 2_10, n_30 unless stated differently):

May 1 Issued Check No. 3410 to S&P Management Co. in payment of the May rent, $3,710. (Use two lines to record the transaction. Charge 80% of the rent to Rent Expense?Selling Space and the balance to Rent Expense?Office Space.)

2 Sold merchandise on credit to Hensel Company, Invoice No. 8785, for $6,100 (cost is $4,100). 2 Issued a $175 credit memorandum to Knox, Inc., for defective (worthless) merchandise sold on April 28 and returned for credit. The total selling price (gross) was $4,725.

3 Received a $798 credit memorandum from Peyton Products for the return of merchandise purchased on April 29.

4 Purchased the following on credit from Gear Supply Co.: merchandise, $37,072; store supplies, $574; and office supplies, $83. Invoice dated May 4, terms n_10 EOM.

5 Received payment from Knox, Inc., for the balance from the April 28 sale less the May 2 return and the discount.

8 Issued Check No. 3411 to Peyton Products to pay for the $7,098 of merchandise purchase on April 29 less the May 3 return and a 2% discount.

9 Sold store supplies to the merchant next door at their cost of $350 cash.

10 Purchased $4,074 of office equipment on credit from Gear Supply Co., invoice dated May 10, terms n_10 EOM.

11 Received payment from Hensel Company for the May 2 sale less the discount.

11 Purchased $8,800 of merchandise from Garcia, Inc., invoice dated May 10, terms 2_10, n_30.

12 Received an $854 credit memorandum from Gear Supply Co. for the return of defective office equipment received on May 10.

15 Issued Check No. 3412, payable to Payroll, in payment of sales salaries, $5,320, and office salaries, $3,150. Cashed the check and paid the employees.
15 Cash sales for the first half of the month are $59,220 (cost is $38,200). (Cash sales are recorded daily but are recorded only twice here to reduce repetitive entries.)

15 Post to the customer and creditor accounts. Also post individual items that are not included in column totals at the end of the month to the general ledger accounts. (Such items are posted daily but are posted only twice each month because they are few in number.)

16 Sold merchandise on credit to Hensel Company, Invoice No. 8786, for $3,990 (cost is $1,890).

17 Purchased $13,650 of merchandise from Fink Corp., invoice dated May 14, terms 2_10,n_60.

19 Issued Check No. 3413 to Garcia, Inc., in payment of its May 10 invoice less the discount.

22 Sold merchandise to Lee Services, Invoice No. 8787, for $6,850 (cost is $4,990), terms 2_10, n_60.

23 Issued Check No. 3414 to Fink Corp. in payment of its May 14 invoice less the discount.

24 Purchased the following on credit from Gear Supply Co.: merchandise, $8,120; store supplies, $630; and office supplies, $280. Invoice dated May 24, terms n_10 EOM.

25 Purchased $3,080 of merchandise from Peyton Products, invoice dated May 23, terms 2_10, n_30.

26 Sold merchandise on credit to Crane Corp., Invoice No. 8788, for $14,210 (cost is $8,230).

26 Issued Check No. 3415 to Perennial Power in payment of the May electric bill, $1,283.

29 The owner of Colo Company, Jenny Colo, used Check No. 3416 to withdraw $7,000 cash from the business for personal use.

30 Received payment from Lee Services for the May 22 sale less the discount.

30 Issued Check No. 3417, payable to Payroll, in payment of sales salaries, $5,320, and office salaries, $3,150. Cashed the check and paid the employees.

31 Cash sales for the last half of the month are $66,052 (cost is $42,500).
31 Post to the customer and creditor accounts. Also post individual items that are not included in column totals at the end of the month to the general ledger accounts. Foot and crossfoot the journals and make the month-end postings.

Required
1. Enter these transactions in a sales journal, a purchases journal, a cash receipts journal, a cash disbursements journal, or a general journal as illustrated in this chapter. Post when instructed to do so. Assume a perpetual inventory system.
2. Prepare a trial balance in the Trial Balance columns of the work sheet form provided with the working papers. Complete the work sheet using the following information for accounting adjustments:

a. Expired insurance, $553.
b. Ending store supplies inventory, $2,632.
c. Ending office supplies inventory, $504.
d. Depreciation of store equipment, $567.
e. Depreciation of office equipment, $329.

Prepare and post adjusting and closing entries.

3. Prepare a May 2005 multiple-step income statement, a May 2005 statement of owner's equity, and a May 31, 2005, classified balance sheet.

4. Prepare a post-closing trial balance. Also prove the accuracy of subsidiary ledgers by preparing schedules of both accounts receivable and accounts payable.

Attachments

Solution Preview

Thanks for using BrainMass.com. Have a great day.

In this project, follow the steps of the accounting cycle to process given transactions in a business environment. Then, synthesize special journals, a trial balance, financial statements
and a post-closing trial balance.

COLO COMPANY
Sales Journal
COGS
Inv. Trans. Debit
Date Account Debited No. No. Amount Inv. Credit
May 2 Hensel Company 8785 83 6,100 4,100
16 Hensel Company 8786 84 3,990 1,890
22 Lee Services 8787 85 6,850 4,990
26 Crane Corp. 8788 86 14,210 8,230
31 Totals 31,150 19,210

COLO COMPANY
Purchases Journal
Accounts Office Other
Inv. Trans. Payable Inventory Supplies Accounts
Date Account Date Terms No. Credit Debit Debit Debit
May 2 Store Supp./Gear Supp. 5/4 n/10, EOM 78 37,729 37,072 83 574
10 Off. Equip./Gear Supp. 5/10 n/10, EOM 79 4,074 4,074
11 Garcia, Inc. 5/10 n/30, n/30 80 8,800 8,800
17 Fink Corp. 5/14 2/10, n/60 81 13,650 13,650
24 Store Supp./Gear Supp. 5/24 n/10, EOM 82 9,030 8,120 280 630
25 Peyton Products 5/23 2/10, n/30 83 3,080 3,080
31 Totals 76,363 70,722 363 5,278

COLO COMPANY
Cash Receipts Journal

Sales Accts. Other COGS
Trans. Cash Discount Recv. Sales Accts. Debit
Date Account Cr. Explanation No. Debit Debit Credit Credit Credit Inv. Credit
May 5 Knox, Inc. Sale of April 28 81 4,459 91 4,550
9 Store Supplies Sold store supplies 82 350 350
11 Hensel Company Sale of May 2 83 5,978 122 6,100
15 Sales Cash sales, 84 59,220 59,220 38,200
May 1-15
30 Lee Services Sale of May 22 85 6,713 137 6,850
31 Sales Cash Sales, 86 66,052 66,052 42,500
May 16-31
31 Totals 142,772 350 17,500 125,272 350 80,700

COLO COMPANY
Cash Disbursements Journal

Purch. Other Accts.
Check Account Trans. Cash Disc. Accts. Pay.
Date No. Payee Debited No. Credit Credit Debit Debit
May 1 3410 S&P Mgmt. Co. Rent Exp., Selling 76 2,968 2,968
Rent Exp., Office 742 742
8 3411 Peyton Products Peyton Products 77 6,174 126 6,300
15 3412 Payroll Sales Salaries Exp. 78 5,320 5,320
Office Salaries Exp. 3,150 3,150
19 3413 Garcia, Inc. Garcia, Inc. 79 8,624 176 8,800
23 3414 Fink Corp. Fink Corp. 80 13,377 273 13,650
26 3415 Perennial Power Utilities Exp. 81 1,283 1,283
29 3416 Jenny Colo J. Colo, Withdrawals 82 7,000 7,000
30 3417 Payroll Sales Salaries Exp. 83 5,320 5,320
Office Salaries Exp. 3,150 3,150
Totals 57,108 575 28,933 28,750

COLO COMPANY
General Journal

Trans.
Date Description No. Debit Credit
May 2 Sales Returns and Allowances 65 175
Accounts Receivable-Knox, Inc. 175
3 Accounts Payable-Peyton Products 66 798
Inventory 798
12 Accounts Payable-Gear Supply Co. 67 854
Office Equipment 854

Adjusting entries
May 31 Insurance Expense 68 553
Prepaid Insurance 553
31 Store Supplies Expense 69 669
Store Supplies 669
31 Office Supplies Expense 70 289
Office Supplies 289
31 Depreciation Expense, Store Equip. 71 567
Accumulated Depr., Store Equip. 567
31 Depreciation Expense, Office Equip. 72 329
Accumulated Depr., Office Equip. 329

Closing entries
May 31 Income Summary 73 124,775
Sales Discounts 350
Sales Returns and Allowances 175
Cost of Goods Sold 99,910
Depr. Expense, Office Equipment 329
Depr. Expense, Store Equipment 567
Office Salaries Expense 6,300
Sales Salaries ...

Solution Summary

In this project, we follow the steps of the accounting cycle to process given transactions in a business environment. We then synthesize special journals, a trial balance, financial statements and a post-closing trial balance.

$2.19