After graduating, Pepe and Mary join together to form a new partnership named The Vintage Audio Company
Question:
After graduating, Pepe and Mary join together to form a new partnership named The Vintage Audio Company (VAC). They sell two items to a specialty market - 8 Track Tapes (8TT), and Cassette Tapes (CT). They use a LIFO system of inventory. The partnership operating agreement states that each partner
- will receive a monthly distribution of $1,000
- a monthly commission allocation of 10 percent of their own sales
- a 1 percent return monthly on their beginning equity, and
- split the remaining profit/loss 60% for Michelle /40% for Mary (in this order).
The monthly distribution and commission allocation are taken during the month as a draw and the journal entries have already been made at the time of payment.
During the month, VAC received a letter from the attorney of Jenny (one of their customers). The letter informed VAC that Jenny had declared bankruptcy and will not be paying the outstanding balance of her account ($300).
Another month is finally over!! Time to "close the books". Your assignment in that process is to first prepare the inventory schedules for the 8TT and the CT, then create the first two required financial statements for the month. To accomplish this assignment, you will use the provided information to calculate the following:
- Provide the ending inventory schedules for the 8TT and CT in good order with details of each transaction.
- Create the Income Statement in the proper format, including net sales, COGS, gross profit, expenses, and net income.
- Create a Statement of Partner's Equity
- Provide the Net Book Value for the equipment as of April 30, 20xx
- Provide the journal entries for only the following:
- Income allocation between partners (Closing entry for the income summary)
- Record the monthly bad debt expense
- Record the monthly depreciation expense
- Recognize the bad debt write-off for Jenny
Provided information:
Beginning Inventory Schedule (listed in the order they were purchased):
Beginning Inventory 8TT | ||
Units | Cost | Amount |
130 | $5.00 | $650.00 |
135 | $5.20 | $702.00 |
156 | $5.50 | $858.00 |
421 | $2,210.00 |
Beginning Inventory CT | ||
Units | Cost | Amount |
140 | $7.00 | $980.00 |
160 | $7.50 | $1,200.00 |
256 | $8.00 | $2,048.00 |
556 | $4,228.00 |
- You estimate that VAC will write off 3% of their sales as bad debt.
- Outbound freight to customers is calculated at $0.50 per unit sold.
- Shipping supplies (boxes, tape, etc.) are calculated at $0.20 per unit sold.
- Commission expense is 10% of sales. For the month Michelle sold 60% of the total sales. Mary sold the rest.
- Office supplies were $500 for the month.
- VAC is depreciating their packaging equipment on a straight-line basis. The equipment was purchased two years ago on Jan 1. It cost $46,000 and has a useful life of 7 years, with a salvage value estimated at $4,000.
Inventory Purchases during the month:
Apr 1 Purchased 50 8TT @ $5.00 each
Paid inbound freight of $25 for Apr 1 purchase
Apr 5 Purchased 50 CT @ $8.00 each
Apr 8 Purchased 50 8TT @ $5.00 each
Paid inbound freight of $25 for Apr 8 purchase
Apr 10 Purchased 50 CT @ $8.00 each
Apr 12 Purchased 50 CT @ $8.00 each
Apr 13 Returned 40 CT found to be defective. Purchase price was $7.00 each
Apr 17 Purchased 50 8TT @ $5.00 each
Paid inbound freight of $25 for Apr 17 purchase
Apr 20 Purchased 50 CT @ $8.00 each
Apr 24 Purchased 100 8TT @ $5.00 each
Paid freight bill of $50.00 for Apr 24
Apr 26 Purchased 75 CT @ $8.00 each
Apr 28 Purchased 75 8TT @ $5.50 each
Paid freight bill of $37.50 for Apr 28 purchases
Apr 28 Purchased 140 CT @ $8.50 each
Apr 29 Returned 20 CT found to be defective. Purchase price was $8 each
Credit Sales during the month:
Apr 3 Sold 65 8TT @ $10 each
Apr 3 Sold 75 CT @ $13 each
Apr 9 Sold 125 8TT @ $10 each
Apr 9 Sold 155 CT @ $13 each
Apr 12 Sold 75 8TT @ $10 each
Apr 14 Sold 196 CT @ $13 each
Apr 18 Sold 120 8TT @ $10 each
Apr 18 Sold 180 CT @ $13 each
Apr 23 Sold 56 8TT @ $10 each
Apr 23 Sold 75 CT @ $13 each
Apr 27 Sold 140 8TT @ $10 each
Apr 27 Sold 55 CT @ $13 each
Apr 30 Sold 130 8TT @ $10 each
Apr 30 Sold 140 CT @ $13 each
Frank Woods Business Accounting Volume 1
ISBN: 9781292084664
13th Edition
Authors: Alan Sangster, Frank Wood