112 Chapter 2 Processing Accounting Information SERIAL PROBLEM: KATE\'S CARDS (N

Question

112 Chapter 2 Processing Accounting Information SERIAL PROBLEM: KATE'S CARDS (Note: This is a continuation of the Serial Problem: Kate's Cards from Chapter I.) SP2. Kate's Cards In September 2016, Kate incorporated Kate's Cards after investigating different organizational forms, and began the process of getting her business up and running. The following events occurred during 1. Kate deposited $10,000 that she had saved into a newly opened business checking account. She 2. Kate designed a brochure that she will use to promote her greeting cards at local stationery stores. the month of September 2016 received common stock in exchange 3. Kate paid Fred Simmons $50 to critique her brochure before undertaking her final design and printing 4. Kate purchased a new iMac computer tablet, specialized graphic arts software, and commercial printer for the company, paying $4,800 in cash. She decided to record all of these items under the same equipment account. 5. Kate purchased supplies such as paper and ink for $350 at the local stationery store. She opened a business account with the store and was granted 30 days credit on all purchases, including the one she just made 6. Kate designed her first 5 cards and prepared to show them to potential customers 7. The owner of the stationery store where Kate opened her account was impressed with Kate's work and ordered 1,000 of each of the five card designs at a cost of $1 per card, or $5,000 total. Kate tells the customer that she will have them printed and delivered within the week 8. Kate purchased additional supplies, on account, in the amount of $1,500 9. Kate delivered the 5,000 cards. Because the owner knows that Kate is just starting out, he paid her immediately in cash. He informed her that if the cards sell well that he will be ordering more, but would expect a 30-day credit period like the one he grants to his own business customers. 10. The cost to Kate for the order was $1,750 of the supplies she had purchased. (Hint: This cost should be recorded as a debit to an expense called Cost of Goods Sold.) 11. Kate paid her balance due for the supplies in full. 12. Kate decided that she should have special renters' insurance to cover the business equipment she now owns. She purchased a one-year policy for $1,200, paying the entire amount in cash. (Hint. Two accounts will need to be debited here, one for the current month expense and one for the prepaid amount.) 13. Kate determined that all of her equipment will have a useful life of 4 years (48 months) at which time it will not have any resale or scrap value. (Hint: Kate will expense 1/48th of the cost of the equipment each month to Depreciation Expense. The credit will be to Accumulated Depreciation.) 14. Kate paid herself a salary of $1,000 for the month Required a. Prepare a general ledger with the following accounts: Cash; Accounts Receivable; Supplies In ventory; Prepaid Insurance; Equipment; Accumulated Depreciation; Accounts Payable; Common Stock; Retained Earnings; Sales Revenue; Cost of Goods Sold; Consulting Expense; Insurance Expense; Depreciation Expense; Wages Expense. Prepare journal entries for the above transac- tions using these accounts. b. Post the accounting transactions for the month of September 2016 to the general ledger T-accounts Prepare a trial balance for Kate's Cards as of September 30, 2016 c.

Explanation / Answer

SP 2. a) Joural entries for the month of September:

b) General Ledgers:

Cash A/c

Accounts Receivables A/c

Supplies Inventory A/c

Insurance A/c

Equipment A/c

Accumulated Depreciation A/c

Accounts Payable A/c

Common Stock A/c

Retained Earnings A/c

Consulting Expenses A/c

Depreciation A/c

Wages A/c

c) Trial Balance as on 30th September, 2015

S. No Particulars Dr. ($) Cr. ($) 1. Cash A/c Dr. 10,000 To Common Stock A/c 10,000 2. No entry 3. Consulting Expenses A/c Dr. 50 To Cash A/c 50 4. Equipment A/c Dr. 4800 To Cash 4800 5. Supplies Inventory A/c Dr. 350 To Accounts Payable 350 6. No entry 7. No entry 8. Supplies Inventory A/c Dr. 1500 To Accounts Payable 1500 9. Accounts Receivable A/c Dr. 5000 To Sales 5000 Cash A/c Dr. 5000 To Accounts Receivable A/c 5000 10. Cost of goods sold A/c Dr. 1750 To Supplies Inventory 1750 11. Accounts Payable A/c Dr. 1850 To Cash A/c 1850 12. Insurance Expenses A/c Dr. 100 Prepaid Insurance A/c Dr. 1100 To Cash A/c 1200 13. Depreciation A/c Dr. 100 To Accumulated Depreciation 100 14. Wages A/c Dr. 1000 To Cash A/c 1000

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