Chapter 4 Accounting Lab Assignment

P. Mont Camera (February)

Instructions

You were somewhat disappointed with the amount of income the company earned in January. You think that a business solely doing camera repairs and lessons will probably never be profitable enough to stay in business for long.

You listened to the customers who came into the store during January. Many of them have been considering purchasing new cameras. Some also mentioned needing lessons to learn how to use the more complex features of the new cameras.

A good engineering friend of yours has developed a new type of camera and would like to market it in a small store at first. You work out a contract with her to carry her Ultra model in your store beginning February 1. You also decide to carry the new Mini Camera.

You will continue to offer camera classes, but you hope to phase out the repair service

during the next two months, except for repairing the Ultra and Mini cameras that you sell.

You will use the perpetual method of accounting for inventory and cost of goods sold, and you have selected the FIFO (first-in, first-out) inventory approach. (Although inventory costing methods are discussed in Chapter 5, you should be able to apply the FIFO inventory costing approach. When you choose FIFO, you assume that for inventory costing purposes, the first items you purchase are the first items you sell.)

You will use the GROSS method to account for sales and purchase of inventory when discounts for payment within a discount period are involved. For trade discounts (reductions in price for reasons other than early payment), you will record the transactions NET of the discounts: what you actually charge or are charged.

The Subsidiary Ledger Appendix contains inventory cards in addition to the Accounts Receivable and Accounts Payable Subsidiary accounts. We have filled these cards in for you through February 9. After that, you should keep these cards up-to-date with purchases, returns and sales of inventory.

Before recording transactions for February, you realize that you will need to use a number of new accounts. If your chart of accounts needs updating, you should add the following accounts:

Account Name	Type	Detail Type
Merchandise inventory	Other Current Asset	Inventory
Sales Revenue	Income	Sales of Product Income
Sales Returns & Allowances	Income	Sales of Product Income
Cost of goods sold	Cost of Goods Sold	COS
Delivery Expense	Expense	Delivery

See separate Instructions for using QuickBooks Online.

The events for the second 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 transactions in the software you are using.

February 1

2.1You signed a contract with Ultra Supply Company to purchase Ultra cameras. You also signed a contract with Mini Wonders Company, for 30 Mini Cameras.

No entry is needed since cash has not been paid and no merchandise has been delivered.

February 2

2.2 Sandy Williams, another customer, came in to have her camera evaluated for repairs and paid $25. She decided not to have the camera fixed when she learned that it would cost $175 to fix her camera.

February 3

2.3 Received the merchandise ordered on February 1^st, from Ultra Supply Company. To encourage you to buy more in the future, there is a 10% trade discount on the cameras. Terms given are n/45, FOB destination, freight paid by Ultra. The invoice, dated February 1^st, was for:

5 Ultra Cameras at $500 each, less a 10% trade discount.

You decided not to track trade discounts in the general ledger, so you should record the items net of the discount. That is, record at 90% of the normal retail price! (See the perpetual inventory card and accounts payable subsidiary ledger located in Appendix A).

February 5

2.4 You unpacked and examined the condition of the items in the Ultra Supply Company order, and found one camera damaged. You notified Ultra Supply Company, and they instructed you to send the camera back. They covered the freight charges by allowing you to print a prepaid shipping label. You mailed the camera to them. (Review the Subsidiary Ledger Accounts in the Appendix.)

February 6

2.5 You provided 5 hours of consultations to Jenny Chens photography group. No journal entry is needed.

February 7

2.6 Received 30 Mini Cameras from Mini Wonders Company on account, wholesale price of $60 each, with terms of 5/15,net 30, fob destination. Remember that you should record the purchase of inventory at the gross price!

(Review the perpetual inventory card and accounts payable subsidiary ledger located in Appendix).

February 9

2.7 A local high school representative called on the phone to place an order for Piedmont High School and purchased 3 Ultra Cameras. While your normal selling price is $800, you gave a 15% trade discount (record at net) with the terms n/30, fob destination. Record the sale of the 3 Ultra Cameras.

(Review perpetual inventory card and the accounts receivable subsidiary ledger located in the Appendix. )

February 9

2.8 Shipped the items ordered by the local high school for a cost of $20 (check #8).

February 10

2.9 You paid Southern Telephone for the phone services of January, $120. (Check #9) (Update Accounts Payable subsidiary ledger in Appendix.)

February 14

2.10 Paid on account, to Mini Wonders Company, for the cameras received on February 7. Dont forget that you are paying within the discount period! (Check # 10) (Update accounts payable subsidiary ledger AND the Mini Cameras Inventory Card in Appendix.)

February 15

2.11 Sold 12 Mini Cameras at a retail price of $120 each for cash.

(Update the Perpetual Inventory Cards.)

February 15

2.12 One of the customers who purchased a mini camera claimed that there was a scratch on the camera body. You offered her a $20 allowance which she accepted. (check #11)

February 16

2.13 You ordered 6 more Ultra Cameras on account from Ultra Supply Co., (terms n/30, fob shipping point) since you are almost out of stock. The wholesale price increased to $510 apiece AND there are no discounts offered now. (Update perpetual inventory card and the accounts payable subsidiary ledger located in Appendix.)

February 16

2.14 Paid $30 cash for the delivery cost of the 6 Cameras purchased above. (Check #12)

February 17

2.15 You paid Miller Equipment Company the amount you owed them from the January 3^rd purchase. (Check #13) (Update the Accounts payable subsidiary ledger in Appendix.)

February 22

2.16 Sold four Ultra Cameras now retailing at $830 each, to a local camera club (LC Club), on account. The terms are n/30. Remember that you are assuming a FIFO (first-in, first-out) inventory cost flow.

(Update perpetual inventory card and the accounts receivable subsidiary ledger located in Appendix A.)

February 25

2.17 Gave a 2 hour lesson to Ann Spencer who recently purchased your Ultra Camera. She loves the camera but needed some help! She paid you $60 cash.

February 27

2.18 Received the February telephone bill for $125 from Southern Telephone which is due on March 9^th and decided to pay it now. (check # 14).

February 28

2.19 Record Cash Sales as follows:

5 Mini Cameras for cash at a retail price of $120 each.

1 Ultra Camera for cash at a retail price of $830.

(Update the perpetual inventory card in Appendix.)

February 28

2.20 Declared and paid a small cash dividend of $1,000 (check #15). (If you are using QuickBooks Online Simple Start software, you must use Retained Earnings instead of the Dividends Declared account to record the dividend.)

Adjusting Entries for February

After you review the Trial Balance for 2/28, you realize that you will need to prepare a number of adjusting entries.

February 28.

2.21 Adjusted for the cost of the repair supplies used. A physical count of supplies revealed a total of $400 on hand at the end of February.

February 28

2.22 Adjusted February for the cost of the office supplies used. A physical count of supplies revealed a total of $200 on hand at the end of February.

February 28

2.23 Adjusted February for the cost of any prepaid rent expired.

February 28

2.24 Adjusted February for the cost of any prepaid insurance expired.

February 28

2.25 Adjusted February for any cost of store equipment used up.

February 28

2.26 Adjusted February for one full months earnings from the camera consultations prepaid to you on January 15^th. (Hint: dont copy the January adjustment! In January, you only earned of a months revenue.)

February 28

2.27 The electric bill had not arrived in the mail by 2/28. You called Southern Electric on 2/28, and they estimated your bill to be $200 for February. You planned to pay this next month. (Update Accounts Payable Subsidiary Ledger.)