David and Richard Riley started up a company that sold DVDs and videos at a discount. They bought videos that were out of date in bulk, allowing them to sell them at low prices. They started out by just selling them online through their website and eventually grew to where they had a small store front.
They originally formed the company as a partnership, but when they decided to expand and have a store front, they incorporated and sold stock to some of their business associates to help finance their growth.
Operations:
Riley's buys videos and DVDs in bulk. When they opened up their store front, this allowed them to carry larger inventories and increase the volume of shipping. Riley uses perpetual inventory method on a first-in-first-out basis. Since everything is bought in bulk consisting of a variety of different movies, Riley makes no attempt to differentiate by type (DVD or VHS) or movie name.
Though the store front increased sales, the majority of sales come over the internet. There are not any consistent sales prices. Each movie sells at a different price, depending on demand. Riley also sells many movies on different auction sites. Thus, the prices can vary drastically.
In-state sales are charged a 6% sales tax. Out-of -state sales over the internet are not charged sales tax. Riley's also has started selling items to local stores who want to sell their products. Sales to other businesses for resale are not charges sales tax.
In order to deal with the volume of business, the brothers had to hire a few employees. They pay salaries only twice a month on the 15th and he 30th or 31st of each month, except February, which is on the 28th or 29th. Withholdings and sales taxes are paid before the 15th of the following month.
Riley's has a calendar year end. You are to record the transaction for January, the first month of the new fiscal year, prepare the monthly adjustments prepare the financial statements.
Directions:
1. Record the transactions for January.
2. Post the transactions for January
3. Prepare the Trial Balance (you may prepare the worksheet instead of a formal Trial Balance).
Jan. 3. Record sales for the week. To make things easier, we are going to only record cash sales weekly, though in a real business sales would be recorded more often. Internet sales are done for cash through PayPal. PayPal subtracts a fee from the amount that is received depending how the client paid PayPal's. In store sales are paid with cash. Remember a 6% sales tax is charged on all instate sales.

Jan. 3 Issued check 562 for $1,200 to pay rent for January.
Jan. 3 Issued check 563 to USPS for $365 for shipping for the above sales.
Jan. 3 Sold old computer (Office Equipment) costing $2,000 and having $800 of accumulated depreciation attached to it for $400 in cash.
Jan. 5 Received order of 5,000 DVDs from KLD Video. Invoice amount was for $18,367.35 which included shipping and handling. Terms of the order is 2/10, n/30. Riley policy is to take advantage of all discounts offered and records all purchases at the net amount, less the discount. If Riley fails to pay within the discounted period, the extra amount paid is charged to Discounts Lost and expensed as a finance charge.
Jan. 5 Issue check 564 to Custom DVD for the amount due on account.
Jan. 5 Received a $320 bill (Invoice number 312) from Morgan County Journal for advertising in this week's newspaper.
Jan. 6 Electronically transferred $1,250 to Google for a variety of internet advertising campaigns. (Confirmation # 1234G234)
Jan 7. Received $120 from Jason Cridal for amount owed on account.
Jan 7. Jay Finn, owner of Finn's Variety Shop stopped by the store to pick up more videos to be sold at his store. He purchased 250 DVDs on account for $1,500. Issued him invoice number 3321. Since Finn is buying the product to resale, he does not have to pay sales tax
Jan. 8 Purchased $650 of office supplies from Dan's Office Supply Company on account.
Jan 8 Issued the following checks to pay amounts owed on account.
565 S & S Shipping Supplies..........................$1,325
566 Wholesale Video..................................$3,800
Jan 9 Received a check from Glen Beckendale for $80 and H & C Groceries for $980 for payments on account.
Jan. 9 Purchased shipping supplies costing $640 from S & S Shipping Supplies on Account.
Jan. 10 Record sales for the week ending January 10.

Out-of-State Internet Sales 2,800 units $22,800
Instate Internet sales 230 units $ 2,100
In-Store Sales 559 units $ 5,800
PayPal fee $ 498
Jan. 10 Issued check 567 to USPS for $1,465 for shipping for the above sales.
Jan. 10 Electronically transferred the amount due to the federal government for withholdings and FICA for December.
Jan. 10 Electronically transferred the amount due to the state for withholdings and sales taxes from December.
Jan. 10 Electronically transferred the amount due for the fourth quarter unemployment to the federal government.
Jan. 10 Electronically transferred the amount due for the fourth quarter unemployment to the state.
Jan. 12 Received payment on account from Fury Video, $1,500.
Jan. 13 Delivered 500 videos to CK Video and delivered the invoice for $3,800. CK Video purchases the videos for resale. Thus, there is no sales tax.
Jan. 13 Received and recorded bill from City Energy for utilities for $265.
Jan. 13 Received and recorded bill from Topica Bell for telephone service for $212.
Jan. 14 Issued the following checks for bills:
568 KLD Video....................................................$18,000
569 Morgan County Journal......................................$ 320
Jan. 15 Processed payroll for the first half of the month. Details follow:
Officers' Salaries......................$10,000
Wage Expense .........................$ 4,250
Federal Withholdings....................2,975
FICA Withholdings.....................1,083
State Withholdings........................570
Jan. 15 Processed employer payroll taxes for the first half of the month. Details are below:
FICA .....................................$1,083
Federal Unemployment.....................114
State Unemployment........................540
Jan. 15 Issued check 570 for net amount of payroll. Amount is paid to a payroll account where checks are written for payroll.
Jan. 17 Record sales for the week ending January 17.

Out-of-State Internet Sales 2,600 units $20,800
Instate Internet sales 180 units $ 1,900
In-Store Sales 400 units $ 3,800
PayPal fee $ 448
Jan. 17 Issued check 571 to USPS for $1,265 for shipping for the above sales.
Jan. 19 Received $800 for payment on Helm's Depot account and $300 for payment on Larry Flintwood's account.
Jan. 19 Found out that Sterofonics declared bankruptcy and that you will most likely collect nothing and found out that Mary VanStruckle left the state. Decide to write off both accounts.
Jan. 20 Issued check 572 for new computer (Office Equipment) $2,600.
Jan. 21 Issued 2,500 more shares of the $1 par value stock for future store expansion at $25 per share.
Jan. 21 Took the $62,500 of cash from sale of stock and invested it into a variety of marketable equity securities. The cash was electronically transferred.
Jan. 22 Cut check 573 for $220 to Memix Computer Repairs for repairs done to computer.
Jan. 22 Received a bill from Larry's Janitorial Services for the month of January for $400.
Jan. 23 Issued the following checks for bills:
574 City Energy...................$265
575 Topica Bell.....................212
Jan. 24 Record sales for the week ending January 24.

Out-of-State Internet Sales 3,200 units $27,400
Instate Internet sales 120 units $ 1,200
In-Store Sales 320 units $ 3,300
PayPal fee $ 558
Jan. 24 Issued check 576 to USPS for $1,455 for shipping for the above sales.
Jan. 26 Received a check from Albert Finney for payment on his account for $215.
Jan. 27 Issued check 577 to S & S Shipping Supplies for $640 to pay off the account.
Jan. 29 Issued check 578 for $400 to R.J. Holmes, CPA for accounting services for the month of January.
Jan. 31 $500 was electronically transferred out of the checking account to pay interest for the month of January on the Note Payable.
Jan. 31 Record sales for the week ending January 24.

Out-of-State Internet Sales 2,700 units $28,000
Instate Internet sales 230 units $ 2,400
In-Store Sales 380 units $ 4,600
PayPal fee $538
Jan. 31 Issued check 579 to USPS for $1,223 for shipping for the above sales.
Jan. 31 Processed payroll for the second half of the month. Details follow:
Officers' Salaries...................................$10,000
Wage Expense.......................................$ 4,250
Federal Withholdings.................................2,975
FICA Withholdings...................................1,083
State Withholdings.......................................570
Jan. 31 Processed employer payroll taxes for the first half of the month. Details are below:
FICA...............................................$1,083
Federal Unemployment..........................114
State Unemployment.............................540
Jan. 31 Issued check 580 for net amount of payroll. Amount is paid to a payroll account where checks are written for payroll.
Jan. 31 Issued check 581 for $180 to replenish Petty Cash. Below are the receipts left in the fund.
Office Supplies.................$50
Janitorial Expense..............$40
Miscellaneous...................$90
Monthly Adjusting Entries
1. $200 of insurance has expired during January.
2. $5,300 of shipping supplies remained at the end of January.
3. $520 of office supplies remained at the end of January.
4. Riley estimates that the allowance for doubtful accounts should have a balance of $600 at the end of January.
5. Monthly Depreciation for Store Equipment is $500
6. Monthly Depreciation for Office Equipment is $250

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Out-of-State Intemet Sales 150 units $1,380 $ 100 10 units Instate Intemet sales 55 units In-Store Sales $ 600 $ 28 PayPal fee Out-of-State Intemet Sales 2,800 units $22,800 $ 2,100 Instate Internet sales 230 units In-Store Sales 559 units $ 5,800 PayPal fee $ 498