Queta Johnson is about to open a new business Chocolate Nirvana Answer
Queta Johnson is about to open a new business Chocolate Nirvana Answer
Queta Johnson is about to open a new business – Chocolate Nirvana. It will be a small chocolate specialties store. She plans on selling a limited number of hand-made molded candies, some of which are holiday specific and others that are of a more generic nature, as well as carrying a line of top-end candy bars. The majority of her sales will come from walk-in customers which will all be on a cash only basis. In addition, she will also sell direct to two local businesses, on account, with terms 1/10,n/30. She anticipates working full-time at the store and needing the help of four part-time employees. She uses a perpetual FIFO (First-in, First-Out) method to account for her inventory. So, every time you record a sale of merchandise, whether on account or for cash, you must also figure out the cost of the goods while recording the sale in the inventory subsidiary.
The purpose of this practice set is to allow you the chance to see how each of the separate components we have worked on this semester fit together. As you complete the set, you may find it necessary to look back at what we learned in various chapters to help remember exactly what to do.
1. Record the transactions for Chocolate Nirvana found on the enclosed forms in one of the journals provided:
Cash Payments – any time you spend money
Cash Receipts – any time you receive money
Purchase – any time you purchase something on account
Sales – any time you sell something on account
General – only transactions that do NOT fit into one of the previous journals
Chocolate Nirvana uses Accounts Receivable, Accounts Payable, and Merchandise Inventory Subsidiary Ledgers as well as a check book
Remember to post to the subsidiary ledgers any time those accounts are used
The first work you will be doing will be do determine which journal each form belongs in. Each form will only go into one journal. If we can post it into one of the special journals, we will. If it does not belong in a special journal – that is the only time we will use the general journal for our transactions. This will be fairly rare. Pay attention to the words used on the forms. If it indicates that we have received money – FOR ANY REASON – we will record that in the Cash Receipts Journal. If it indicates that we need to write out a check – FOR ANY REASON – it must go into the Cash Payments Journal. If we sell something on account then it would go into the Sales Journal. And if we buy something on account or we receive a service on account, then it would go into the Purchases Journal. If it is a sales return, a purchase return, or the payroll entries it must go into the General Journal.
As we record the information from the forms into the journals we need to watch the columns where we record the information. If we record something in the Cash Receipts or the Cash Payments Journals, then we will have to affect cash. Any number we put in the Cash debit column from Cash Receipts we will also put into the check book as a deposit. Any number we put in the Cash credit column from Cash Payments we will also put into the check book as a check we write out. If we affect Accounts Receivable, Accounts Payable, or Merchandise Inventory in any of the special journals OR in the general journal, we must ALSO take that amount into that subsidiary ledger. If we debited it in the journal we will debit it in the subsidiary; if we credited it in the journal we will credit it in the subsidiary. If we purchased the merchandise inventory we will show it as a purchase in the inventory sheets, if we sold it we will show it under the cost of goods sold section – we will determine our cost for the sale by applying the FIFO rules and determining our cost in the goods we sold.
Payroll – record the payroll as instructed first into their employee earnings records, then transfer the information into the payroll register and after totaling the payroll register use that information to prepare a general journal entry. Specific data for each individual regarding their pay rate, status and number of allowances can be found on their earnings record sheets. Specific rates to be used for social security, medicare, and the unemployment amounts can be found down in the next section. Prepare the journal entries based off what we were taught in the textbook. You will need to debit the salary expense account for total gross wages and credit each of the things we withheld (as summarized on the payroll register). However you must credit Payroll Checking Account for the net pay because this business uses a separate checking account for normal checks and payroll checks.
When you are asked to transfer enough funds to cover payroll, you will debit the Payroll Checking account for the same amount you credited in the first payroll entry in the general journal (net pay) but now it will be in the Cash Payments Journal. This will give you a debit and a credit and will result in a zero balance (and nothing recorded in the Wages Payable account yet).
Keep in mind that after recording the general journal entry to record the actual payroll you must also prepare a journal entry to record the payroll tax expense for the business. Chocolate Nirvana is responsible for matching the Social Security and Medicare amounts withheld from its employees and also must pay in for Federal and State Unemployment. This means that when it comes time to post into the ledger you will have two identical amounts in the Social Security account and two identical amounts in the Medicare account. This entry was shown in the textbook so please follow the format we saw there. The following rates apply:
Social Security 6.2%, on the first $110,000 earned each year by each employee
FUTA .8%, on the first $7,000 earned each year by each employee
SUTA 9%, on the first $12,000 earned each year by each employee
We will NOT actually write out the individual payroll checks
Hint: If you are asked to write out a check to cover more than one thing you must take more than one line so that you properly record the affect to each account.
To this point you should NOT have anything recorded in the General Ledger. Wait until you have your journals completed, TOTALED, and corrected, before putting anything into the general ledger.
2. After completing all journals, TOTAL THEM and write the totals below the last number in the column, compare to the check figures, and post to the general ledger. For any journal column with the name of a specific account in the column heading you will post only the total from that column into that account in the general ledger. Journal columns shown as “Other” in the heading need to be posted individually into the general ledger. As you post remember that you have to use the post reference numbers. In the ledger you fill in the journal abbreviation and page number where you get your data and in the journal you put the ledger account number where you posted it. Cash Receipts is CR; Cash Payments is CP; Purchases is P; Sales is S; and General Journal is J. In the journal to show that you posted it into a subsidiary ledger you put a check mark.
3. Prepare an unadjusted trial balance. After getting your numbers to match the check figure transfer the information into the first columns of the worksheet.
4. Prepare month end adjusting entries based on the following data:
a) Record accrued interest on the long term note for 3 days – $16.77
b) Depreciation – calculate depreciation for JUST the month of October based on the following information:
Store Equipment – 5 year life, $2000 salvage value, purchased October 10, use straight line depreciation
Office Equipment – 5 year life, $200 salvage value, purchased October 10, use straight line depreciation
c) Record entry for expired insurance
d) Currently there are $75 worth of office supplies on hand
e) Currently there are $125 worth of store supplies on hand
f) Record entry amount of advertising expired for the period just ended
g) Record wages earned, but unpaid, on Oct 31 of $275
Adjusting entries need to be recorded in the general journal, posted into the general ledger (remember to indicate Adjusting Entry in the Item column), and added to the worksheet.
5. Complete the worksheet, schedule of accounts receivable/payable, Income Statement, Statement of Owners’ Equity, and Balance Sheet. Add any accounts not already found on the worksheet as needed to complete your adjusting entries.
The schedule of accounts receivable and schedule of accounts payable are prepared by listing every business owing us money at the end of the month and totaling them and listing every business we owe money to at the end of the month and totalling them. We use the two subsidiary ledgers to get this information.
Prepare the Income Statement using the Multiple step format and the Balance Sheet using the classified format. The Notes Payable – current balance on the Balance Sheet should be $15,000 and the Notest Payable – noncurrent balance on the Balance Sheet should be $13,750.
6. Prepare closing entries, post to the ledger, and prepare a post-closing trial balance
The easiest way to prepare your closing entries would be to use your completed worksheet. Close the credit amounts in the Income Statement column into income summary for the first entry. Close the debit amounts from the Income Statement columns into Income Summary for the second entry. Close the difference between the two income summary amounts (should equal net income) in to the Capital account in the third entry. Finally, close the drawing account into the capital account in the fourth entry. These entries are done in the General Journal and then posted into the General Ledger. Be sure to indicate Closing entry in the Item column. You will then prepare the post-closing trial balance by going through the ledger and listing every account that still has a balance and listing the balance (as either a debit or a credit – based on what it is in the ledger).
(Have you made sure that your balances in your subsidiary ledgers match their controlling accounts in the general ledger? Does the net income from your work sheet match the net income you reported on your Income Statement?)
In the Exhibit section you will find:
Chart of Account
Tax Withholding Chart
In the Forms section you will find:
The transactions forms you need to record in the various journals
In the Journals section you will find:
Sales Journal – begin with invoice 1001
Cash Receipts Journal – begin with invoice 101
Cash Payments Journal – begin with check 1001
General Journal (ONLY transactions that CANNOT go into one of the special journals)
In the Ledgers section you will find:
Accounts Receivable Subsidiary Ledger
Accounts Payable Subsidiary Ledger
Merchandise Inventory Subsidiary Ledger
In the Checkbook section you will find:
Checkbook – begin with check 1001
In the Payroll section you will find:
Individual Earnings Records
Payroll Register – Begin with check 101 (assign to employees in order – do not actually write out checks to the employees)
In the Financial Statement section you will find:
Unadjusted Trial Balance
Schedule of Accounts Receivable
Schedule of Accounts Payable
Income Statement (Multiple Step format)
Statement of Owners’ Equity
Balance Sheet (Classified format)
Post Closing Trial Balance
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