Chapter 3 Accounting Lab Assignment

P. Mont Camera (January)

Description & Instructions

You have decided to establish a camera repair business. You think it likely that you will also provide instruction for a fee about how to use the cameras. You name the company P. Mont Camera.

You will keep the accounting records yourself. (As part of the ACC 213 lab assignment, you will complete two months of accounting records for P. Mont Camera: January and February.)

You begin the company by obtaining a charter from the state, with authorization to issue 10,000 shares of $10 par value common stock. You decide to become an S corporation so that the corporation does not have to pay corporate tax. You will have to pay income taxes on your individual tax return.

You use the accrual basis of accounting. You close the books and prepare financial statements EACH MONTH!

You look for general ledger software to use. You decide to use a free online version of QuickBooks called QuickBooks Simple Start. (See instructions for how to use the software.)

Before recording transactions, you set up a Chart of Accounts. A chart of accounts is a list of the accounts that will be in the general ledger that they will likely use during January. As you enter transactions, if youve forgotten to include any account, you can simply add the account or accounts.

The list of accounts you will likely need as you begin to keep your accounting records is included in the instructions for using QuickBooks.

Once youve set up the Chart of Accounts, you are ready to begin recording transactions for January.

As you record events involving accounts receivable, accounts payable and inventory, please review the subsidiary ledger accounts we have created for you in January. In February, you will need to complete these subsidiary ledger records yourself after 2/9.

January Events for P. Mont Camera

The events for the first month of the companys operations are presented below.

We suggest that you print out these instructions and use the journal paper below each transaction to record by hand each entry using debits and credits. After you have prepared the entries for the month by hand, you must enter the information into QuickBooks. Follow the instructions for using QuickBooks provided in a separate document.

(If you would rather use another general ledger program, you may do so.)

January 2

1.1 You wrote a personal check to purchase 1000 shares of P. Mont Cameras common stock. Your check was for $10,000. The stock has a $10 par value per share. (Each share of stock is issued for the par value of $10 per share.) At this point, the new company has just one shareholder: You. (In future, if you decide to expand the business, you may issue stock to others.)

Thus, you must record that P. Mont Camera has received $10,000 by issuing 1000 shares of stock at $10 each to its first shareholder.

ACCT Titles (and Explanation beneath) Debit Credit

January 2

1.2 The company decided to lease shop space on the local outdoor mall. The rent is $800 per month. You were required to pay for 4 months rent in advance. You wrote a corporate check to pay for the 4 months of rent. (Check #1 your checks are sequentially numbered. This is the first check!)

Because the company is purchasing a resource (the rent) that it will consume in the future, you should record the cost as an asset and defer recognizing the rent expense until the resource produces revenue. You will adjust the books on January 31 to recognize one months worth of the rent as an expense of January.

January 3

1.. 3 The company paid $480 to Insurance Stars Co. for a one-year insurance policy. (Check #2) Again, the insurance will be used over multiple periods. Therefore, you should record the cost as an asset and defer recognizing the expense until the end of the month

January 3

1.4 The company purchased store equipment from Miller Equipment Co. The equipment cost $3,600. The company paid $300 in cash and agreed to pay the balance within 45 days. (Check #3) (Review your Accounts Payable Subsidiary Ledger to keep track of how much you owe Miller)

January 4

1.5 You purchased various office supplies for $500 from Office Supply Warehouse. You will not use all of the supplies during January, and therefore will record the supplies in an asset account and will adjust at the end of the month. You purchased the supplies with cash. (Check #4)

January 5

1.6 The company purchased various camera repair supplies from Williams Camera Supply Co. Again, you purchased enough supplies to last for at least several months. The cost of the supplies was $750. You purchased the supplies on account and will have to pay within 30 days. (Use the Repair Supplies account to record the new asset and adjust at the end of the month. Also, review your Accounts Payable Subsidiary Ledger to keep track of how much you owe Williams! )

January 7

1.7 To make the community aware of your new business and generate some customers, you ran an advertisement in the local newspaper, paying $150 in cash. (Check #5)

January 8

1.8 The first customer arrived! Kate Rooney brought in a camera needing a quick repair. She was willing to wait while you did the work. When you finished, you presented her with a bill for $28. She gave you a check for $28.

January 10

1.9 Another customer, Jim Schmidt, brought in several cameras needing repair. You told him that you would have the work done by January 13. You asked Jim for a deposit of $100.

January 10

1.10 The same day, a young woman, Fran Smith, came in to ask you to give her a lesson. You negotiated a price of $75 for the lesson and set up a date and time for the lesson. (January 15 at 9:00am)

January 13

1.11 You completed the work for Jim Schmidt. When he arrived at your store, you gave him a bill for $255. He paid you the balance due, and you presented him with the repaired cameras.

January 15

1.12 You gave Fran Smith her lesson. When you were done, you gave her a bill for $75. She asked if she could pay you $50 at that point and the remainder the following week. While you would have much preferred to collect all of the money right then, you agreed to let her pay you the remainder on January 22. (Review your Accounts Receivable Subsidiary Ledger to keep track of how much Fran Smith owes you! )

January 15

1.13 Jenny Chen came into your store to discuss an interesting proposal. She asked your store to provide camera consultations to her photography group. They said that they would like you to be on call for 3 months, and were willing to pay you in advance for 3 months. You negotiated a $300 per month fee, and will begin providing consulting services on 1/16. Jenny wrote your company a check for $900 for the work you will do for her photography group over the next 3 months. (On 1/16, you provided Jenny with several hours of consulting services.)

January 20

1.14 A check for the balance that Fran Smith owed you arrived, paying off her account in full. (Review the Fran Smith account in the Subsidary Ledger.)

January 29

1.15 & 1.16 Two bills arrived. One was for $120 for the telephone service for January. It was due on February 10 so you decided to wait until then to make payment to Southern Telephone. The other bill of $237 was for the electricity for January, and it was due pretty soon. So, you immediately wrote a check to Southern Electric for the utilities. (Check #6) (Review subsidiary ledger account again for A/P!)

January 30

1.17 You completed work for a number of cash-paying customers (other than those mentioned in the above transactions) during the month. Rather than record each of these cash-paying customers separately, you kept a record of all of the cash receipts in a separate journal. The total of the cash received for camera repair services provided was $1950.

January 31

1.18 You decided to pay Williams Camera Supply the amount you owed them since the payment was due soon. (Check #7) (Review Williams Camera Supply account in Appendix A.)

END OF REGULAR TRANSACTIONS FOR JANUARY!

Adjusting Entries for January

At this point, you prepare a number of adjusting entries.

First you should record the adjusting entries by hand on the printed-out journal paper. Then you will need to enter the adjusting entries into the software, following the same procedure you followed for recording regular entries.

Adjusting Entries:

January 31

1.19 The Prepaid Rent account on the trial balance you printed showed rent for the January through April period. You made an entry to adjust the appropriate accounts to show that one month of the rent was used in January.

1.20 The Prepaid Insurance account on the trial balance included insurance for the full year. Another adjusting entry was required.

1.21 Although some of the office supplies were used during January, you had not recorded individual transactions as each Office Supply item was taken from the Office Supply cabinet. When you counted the amount of office supplies left at the end of January, you found that $320 of supplies remained on hand. Another adjusting entry was required.

1.22 As with office supplies, you did not record each individual transaction as each Repair Supply item was removed from the Repair Supply Cabinet. When you counted the amount of Repair Supplies still on hand, you found that there was $640 of Repair Supplies in the cabinet. Another adjusting entry was required.

1.23 The Store Equipment purchased on January 3 was in use for almost a month. You knew that the Store Equipment wouldnt last forever. You estimated that it would have a four-year useful life and would have no salvage value at the end of the four-year period. Your accountant-friend told you that you should adjust for the using up of the equipment just as you adjust for the using up of the Prepaid Rent, Prepaid Insurance and Supplies. When Equipment is used up, accountants call the expense a depreciation expense. They also like to keep the historical cost of the equipment in its own account. Therefore, your friend told you that the entry to adjust for the using up of the equipment should look like this:

Depreciation Expense Store Equipment (an expense account)	75
Accumulated Depreciation Store Equipment (this is an asset account account)		75
(3600/4 years)/12 months

Dont forget to record this transaction in the general ledger software!

1.24 The Unearned Revenue Account on the trial balance showed that you still owed Jenny Chen three months worth of consulting services. However, you did work for half of January. Therefore, you made an adjusting entry to reflect that you completed part of the services for Jenny.

End of Adjusting Entries!

ACC 213_ Chapter 3 (P. Mont Camera- January)

1. For January, has your company reported a Profit/Loss? If so, how much is the dollar amount of the profit/loss? (To determine this amount, you must look at one of the financial statements.)
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2a. What is the dollar amount of the TOTAL assets that your company has at the end of January?
2b. What is the dollar amount of the creditors claims against those assets at the end of January?
2c. What is the dollar amount of the owners claims against the assets at the end of January?
2d. Which financial statement provided you with answers to these questions?
3. Your company is using ACCRUAL accounting. That is, you are recognizing revenues and expenses in the period in which they occur, regardless of when the cash is paid. What is the dollar amount of Cash Collected from Customers during January? (To calculate this amount, you will need review the transactions for January instead of reviewing the financial statements.)
4. If your company had been using the Cash Basis (instead of accrual basis), how much rent expense would have been recognized on the January Income Statement?
5. If you had not adjusted for the insurance used during the period, would the dollar amount of total assets have been overstated, understated or correct?
6. If you had not adjusted for the revenue earned during the period, would the amount of unearned revenue been overstated, understated or correct?
7. When you began your company, the balance in the retained earnings account was $0.00. What will the balance in retained earnings be when you prepare the formal Balance Sheet? (If using QuickBooks Simple Start, be sure to see software instructions. While Retained Earnings may still appear as $0.00, you will have to update when preparing formal statements.)