You have recently been hired to run the accounting department at a recently started law firm....

  
 
 
 

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You have recently been hired to run the accounting department at a recently started law firm. The company officially opened its doors on January 1, 2021. Exhibit one below is the balance sheet for the company as of December 31, 2020. The company has not made any journal entries or done any record keeping for the accounting department. This balance sheet came from a tax accountant which prepared the companies first two years tax returns. The company wants you to use Excel and do year end journal entries and financial statements for January 31. General Information: The company is a C-Corporation. The address will be made up by each person. The corporation is not a publicly traded law firm. It is made up of Megan, Alison, Dan, and Stacey (MADS). They own all the stock and our incorporated in Massachusetts. They have authorized 2,000,000 shares of common stock at a par value of $1 dollar. They have issued 400,000 shares which are already shown on your balance sheet below. Each owner has 100,000 shares and were issued at $30 dollars per share (already shown below). Unless noted differently, adjusting entries are made for every account that can be adjusted on a monthly basis. Balance sheet as of December 31, 2019. Assets Cash $11,500,000 $500,000 Land Equity Common Stock $400,000 $11,600,000 Paid In Capital C.S Please note that the law firm has done nothing except issue stock a buy some land the last two operation years. Now they are going to start running the business because they hired an accountant. Transactions January 1, 2021: The Law Firm is pretty solid in the cash area but wants to make sure that they have a good stash of cash to market the business effectively. They decide to issue bonds in increments of $10,000 dollars and they will issue 300 of them. The stated interest rate will be 12% and the interest will be paid annually. The bonds will have a 4 year life and the current market interest rate is 8%. Please assume all bonds were sold as one (make one journal entry), on January 1, 2021. First payment of interest will be on December 31, 2020. Assume the company uses the effect interest rate method. January 1, 2021: The bonds sold quickly so on the same day the company bought a state of the art computers along with a network system. The purchased all this with cash. The total cost of the computer system was $80,000 dollars. The useful life of the computer system is 5 years and the salvage value is $10,000 dollars. As noted before, the owners want you to make month adjusting entries for deprecation based on the straight line method. January 1, 2021: Still on the high created by selling the bonds quickly, the owners buy some amazing furniture to fit the office out. Because it's a law firm the furniture can only be the best. The company bought the furniture with cash in the amount of $300,000 dollars. The salvage value will be $20,000 dollars and the useful life will be 10 years. For the furniture, please use the double declining method. January 1, 2021: The Law Firm needs a place to set up all this nice computer equipment and office furniture. So they enter into a 2 year lease for some prime A commercial real estate. The company will have to pay rent (including this month) on the first of each month in the amount of $60,000 dollars. January 1, 2021: What a busy day. The law firm decided to break ground on their second location. They are going to build this building on the land listed on the balance sheet. You will need to make journal entries for each stage of the building project and possibly make a journal entry at the end of the year for capitalization of interest. The company decided to take out a loan to build the building in the amount of $2,000,000 dollars. The interest rate on the building loan is 8%. The only other debt the company has is the bonds they issued earlier in the day. The law firm will use some cash to build the building as well. Assume the building loan was issued today. The payments to the builders when as followed: January 31, $900,000 dollars, March 31, $1,400,000, and June 30, $1,750,000. Make journal entries to record payments to the builders. Also make a journal entry to record the loan. No deprecation will be taken on the building this year. Assume interest was paid at year end. This is a self-constructed asset. January 15, 2021: The Law after two years finally has its first sale. The sale was on account and it was for representation of Rex Ryan. The law suit was over something to do with talking too much. The total sale was for $100,000 dollars. February 1, 2021: The Law firm entered into a contract situation with the NHL. Our firm will provide legal services for 2 years for a set amount of $2,400,000 dollars. This amount was paid upfront and should be reported as unearned revenue. We will work equally over the next 24 months to earn this contract. We should make an adjusting entry each month accordingly. March 1, 2021: The Law firm received a bill from the National Grid for $10,000. The terms are 2/10, net 30. March 4, 2021: The Law firm received a bill from Charter Cable for internet service in the amount of $5,000 dollars. The terms were 3/10, net 30. March 8, 2021: The Law Firm paid the National Grid bill. March 12, 2021: The Law firm paid Charter Cable. April 1, 2021: The Law firm received a check from Rex Ryan for payment in full. May 1, 2021: The Law firm bought a 4 year prepaid insurance policy. This is an umbrella policy which will cover the firm in regards to any possible situations. The firm paid cash in the amount of $720,000. Please make an adjusting entry to record the use of the insurance at the end of each month going forward. May 15, 2021: The Law firm bought a patent in the amount of $300,000 dollars. This patent has a limited life of 10 years. Please amortize the patent at the end of each month. Please use the direct method. June 1, 2021: The Law Firm was hired to represent Ray Lewis. It is alleged that he killed someone. The amount of the sale is $1,400,000 dollars which Ray paid in cash. June 15, 2021: The Law Firm was hired to sue a pharmsutical company. It was proven that a drug they produced makes people say accounting over and over again without stopping for days. The Law firm won this case and takes a 30% fee from the case verdict. The verdict was $30,000,000. June 28, 2021: The Law Firm has a sale in the amount of $500,000 dollars to a local gas station that may have polluted a river. This sale was on account. July 1st, 2021: The law firm received a bill from National Grid for $20,000 dollars. The terms were 2/10 June 1, 2021: The Law Firm was hired to represent Ray Lewis. It is alleged that he killed someone. The amount of the sale is $1,400,000 dollars which Ray paid in cash. June 15, 2021: The Law Firm was hired to sue a pharmsutical company. It was proven that a drug they produced makes people say accounting over and over again without stopping for days. The Law firm won this case and takes a 30% fee from the case verdict. The verdict was $30,000,000. June 28, 2021: The Law Firm has a sale in the amount of $500,000 dollars to a local gas station that may have polluted a river. This sale was on account. July 1st, 2021: The law firm received a bill from National Grid for $20,000 dollars. The terms were 2/10 and net 30. July 9 2021: The law firm paid National Grid September 1, 2021: The Law Firm decides that it might be a good idea to set up an allowance account. The law firm decided to use the A/R approach. Based on historical and industry analysis the law firm sets the rate at 1% of accounts receivable. Make the adjusting entry as of September 1st. Instructions: Each month make sure you make all the necessary journal entries along with all the necessary adjusting entries. You must hand in the following: 1) You must submit through blackboard the following: A journal entry and adjusting entry sheet labeled so I know what the entry goes too....... this must be in excel 2) Year end income statement and balance sheet. You have recently been hired to run the accounting department at a recently started law firm. The company officially opened its doors on January 1, 2021. Exhibit one below is the balance sheet for the company as of December 31, 2020. The company has not made any journal entries or done any record keeping for the accounting department. This balance sheet came from a tax accountant which prepared the companies first two years tax returns. The company wants you to use Excel and do year end journal entries and financial statements for January 31. General Information: The company is a C-Corporation. The address will be made up by each person. The corporation is not a publicly traded law firm. It is made up of Megan, Alison, Dan, and Stacey (MADS). They own all the stock and our incorporated in Massachusetts. They have authorized 2,000,000 shares of common stock at a par value of $1 dollar. They have issued 400,000 shares which are already shown on your balance sheet below. Each owner has 100,000 shares and were issued at $30 dollars per share (already shown below). Unless noted differently, adjusting entries are made for every account that can be adjusted on a monthly basis. Balance sheet as of December 31, 2019. Assets Cash $11,500,000 $500,000 Land Equity Common Stock $400,000 $11,600,000 Paid In Capital C.S Please note that the law firm has done nothing except issue stock a buy some land the last two operation years. Now they are going to start running the business because they hired an accountant. Transactions January 1, 2021: The Law Firm is pretty solid in the cash area but wants to make sure that they have a good stash of cash to market the business effectively. They decide to issue bonds in increments of $10,000 dollars and they will issue 300 of them. The stated interest rate will be 12% and the interest will be paid annually. The bonds will have a 4 year life and the current market interest rate is 8%. Please assume all bonds were sold as one (make one journal entry), on January 1, 2021. First payment of interest will be on December 31, 2020. Assume the company uses the effect interest rate method. January 1, 2021: The bonds sold quickly so on the same day the company bought a state of the art computers along with a network system. The purchased all this with cash. The total cost of the computer system was $80,000 dollars. The useful life of the computer system is 5 years and the salvage value is $10,000 dollars. As noted before, the owners want you to make month adjusting entries for deprecation based on the straight line method. January 1, 2021: Still on the high created by selling the bonds quickly, the owners buy some amazing furniture to fit the office out. Because it's a law firm the furniture can only be the best. The company bought the furniture with cash in the amount of $300,000 dollars. The salvage value will be $20,000 dollars and the useful life will be 10 years. For the furniture, please use the double declining method. January 1, 2021: The Law Firm needs a place to set up all this nice computer equipment and office furniture. So they enter into a 2 year lease for some prime A commercial real estate. The company will have to pay rent (including this month) on the first of each month in the amount of $60,000 dollars. January 1, 2021: What a busy day. The law firm decided to break ground on their second location. They are going to build this building on the land listed on the balance sheet. You will need to make journal entries for each stage of the building project and possibly make a journal entry at the end of the year for capitalization of interest. The company decided to take out a loan to build the building in the amount of $2,000,000 dollars. The interest rate on the building loan is 8%. The only other debt the company has is the bonds they issued earlier in the day. The law firm will use some cash to build the building as well. Assume the building loan was issued today. The payments to the builders when as followed: January 31, $900,000 dollars, March 31, $1,400,000, and June 30, $1,750,000. Make journal entries to record payments to the builders. Also make a journal entry to record the loan. No deprecation will be taken on the building this year. Assume interest was paid at year end. This is a self-constructed asset. January 15, 2021: The Law after two years finally has its first sale. The sale was on account and it was for representation of Rex Ryan. The law suit was over something to do with talking too much. The total sale was for $100,000 dollars. February 1, 2021: The Law firm entered into a contract situation with the NHL. Our firm will provide legal services for 2 years for a set amount of $2,400,000 dollars. This amount was paid upfront and should be reported as unearned revenue. We will work equally over the next 24 months to earn this contract. We should make an adjusting entry each month accordingly. March 1, 2021: The Law firm received a bill from the National Grid for $10,000. The terms are 2/10, net 30. March 4, 2021: The Law firm received a bill from Charter Cable for internet service in the amount of $5,000 dollars. The terms were 3/10, net 30. March 8, 2021: The Law Firm paid the National Grid bill. March 12, 2021: The Law firm paid Charter Cable. April 1, 2021: The Law firm received a check from Rex Ryan for payment in full. May 1, 2021: The Law firm bought a 4 year prepaid insurance policy. This is an umbrella policy which will cover the firm in regards to any possible situations. The firm paid cash in the amount of $720,000. Please make an adjusting entry to record the use of the insurance at the end of each month going forward. May 15, 2021: The Law firm bought a patent in the amount of $300,000 dollars. This patent has a limited life of 10 years. Please amortize the patent at the end of each month. Please use the direct method. June 1, 2021: The Law Firm was hired to represent Ray Lewis. It is alleged that he killed someone. The amount of the sale is $1,400,000 dollars which Ray paid in cash. June 15, 2021: The Law Firm was hired to sue a pharmsutical company. It was proven that a drug they produced makes people say accounting over and over again without stopping for days. The Law firm won this case and takes a 30% fee from the case verdict. The verdict was $30,000,000. June 28, 2021: The Law Firm has a sale in the amount of $500,000 dollars to a local gas station that may have polluted a river. This sale was on account. July 1st, 2021: The law firm received a bill from National Grid for $20,000 dollars. The terms were 2/10 June 1, 2021: The Law Firm was hired to represent Ray Lewis. It is alleged that he killed someone. The amount of the sale is $1,400,000 dollars which Ray paid in cash. June 15, 2021: The Law Firm was hired to sue a pharmsutical company. It was proven that a drug they produced makes people say accounting over and over again without stopping for days. The Law firm won this case and takes a 30% fee from the case verdict. The verdict was $30,000,000. June 28, 2021: The Law Firm has a sale in the amount of $500,000 dollars to a local gas station that may have polluted a river. This sale was on account. July 1st, 2021: The law firm received a bill from National Grid for $20,000 dollars. The terms were 2/10 and net 30. July 9 2021: The law firm paid National Grid September 1, 2021: The Law Firm decides that it might be a good idea to set up an allowance account. The law firm decided to use the A/R approach. Based on historical and industry analysis the law firm sets the rate at 1% of accounts receivable. Make the adjusting entry as of September 1st. Instructions: Each month make sure you make all the necessary journal entries along with all the necessary adjusting entries. You must hand in the following: 1) You must submit through blackboard the following: A journal entry and adjusting entry sheet labeled so I know what the entry goes too....... this must be in excel 2) Year end income statement and balance sheet.

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