Graham Roberts had always been interested in computers. After several years of s
ID: 442762 • Letter: G
Question
Graham Roberts had always been interested in computers. After several years of saving his money, he opened up his own computer retail and repair store, GR Computers. He invested $75,000 in the company in exchange for common stock. He found an empty building for sale that he could use for his warehouse, office and retail location. He spent the month of September 2014 getting ready and he opened for business on October 1, 2014.
At the end of December, he reviewed the results and was fairly pleased with his first quarter of operations. He determined that if he was going to succeed, he would need to make some additional investments in the company, including additional employees and a broader inventory base. He decided to go to his bank and request a loan to help fund some of these additional costs.
Graham prepared a business plan, including his results to date, and presented it to the bank. The bank was very impressed, but requested to see GAAP based financial statements before making a decision. Graham left the meeting a little deflated, but not completely discouraged. He had taken a financial accounting class in college and vaguely remembered the term, GAAP. However, it had been several years and he couldn’t remember how GAAP financial statements differed from what he had given the bank.
Graham calls you and asks you to help him create GAAP based financial statements. When you meet with Graham to talk about what needs to be done, he provides you with the financial statements that he prepared, a schedule of inventory purchases, a schedule of capital acquisitions and a schedule of investments. During your discussion, you also learn the following:
1.The prepaid insurance account consists of a one-year premium that covers the period of October 1, 2014 through September 30, 2015.
2.The Office Supplies of $3,250 were what had been purchased during the quarter. However, he had taken a count on December 31 and determined that only $225 worth of supplies was remaining.
3.Graham tells you that the payroll that was paid on January 5, 2015 included $2,100 related to work performed by his employees during the last week of December.
4.You suggest to Graham that he has some risk associated with his Accounts Receivable. He assures you that all of his customers are fine, upstanding citizens who pay their bills. You respond that, even so, unforeseen things happen and GAAP requires you to allow against possible bad debt expense. After discussion, you determine that 3% of total Accounts Receivable would be a reasonable estimate for doubtful accounts.
5.Graham tells you that he took an inventory of computers on hand at December 31 and there were 18 computers in the warehouse. When you ask him what costing method he is using to account for inventory and cost of goods sold, he looks at you blankly and responds, “What do you mean?” After explaining the different methods for accounting for inventory costs, the two of you decide to use the FIFO method.
6.Graham was not familiar with the concept of depreciation, but after lengthy discussion, you agreed that certain estimated useful lives and depreciation methods would be appropriate. The Capital Acquisitions schedule reflects your decisions.
REQUIREMENTS
1. set up general ledger accounts for each account in GR Computers Inc.’s trial balance.
2.Input the amounts for each account found on the trial balance into the general ledger accounts that you set up in part You should use 12-31-14 as the date and input the amount within the “Balance” section under the debit or credit column as appropriate. (The account for Cash is already set up as an example.)
3. Prepare journal entries for Items 1 - 3 above in the General Journal worksheet of the template.
4.Post the journal entries prepared in 1 to the General Ledger. You may be required to create an additional general ledger account if your entries require an account that was not in GR’s trial balance.
5.Prepare an updated adjusted trial balance using your new balances.
GR Computers, Inc. Trial Balance 12/31/2014 Debit Credit Cash $31,780 Accounts Receivable 10,600 Purchases 206,545 Prepaid Insurance 12,300 Office Supplies 3,250 Investment 17,500 Land 150,000 Building 320,000 Equipment 18,500 Furniture & Fixtures 7,500 Accounts Payable $12,375 Mortgage Payable 464,700 Common Stock, 15,000 Contributed Capital in Excess of Par 60,000 Dividends 3,000 Sales 243,000 Repair Revenue 18,500 Payroll Expenses 9,100 Advertising Expense 6,200 Electricity Expense 3,750 Telephone Expense 2,600 Legal Expense 5,100 Interest Expense 5,850 $813,575 $813,575Explanation / Answer
Trial Balance 12/31/2014 Debit Credit Journal Entries Particulars Debit Credit Cash $37,562 Accounts Receivable 10,600 Cash A/c $ 75,000 Provision for doubtful debts 318 To Graham Capital A/c $ 75,000 Purchases 206,545 Prepaid Insurance 9,225 Insurance $ 3,075 Office Supplies 225 To Prepaid Insurance A/c $ 3,075 Investment 17,500 Land 150,000 Prepaid Insurance A/c $ 3,075 Building 320,000 To Insurance $ 3,075 Equipment 18,500 Furniture & Fixtures 7,500 Supplies A/c $ 3,250 Accounts Payable $12,375 To Cash $ 3,250 Mortgage Payable 464,700 Common Stock, 15,000 Income statement $ 3,025 Contributed Capital in Excess of Par 60,000 To Supplies $ 3,025 Dividends 3,000 Sales 243,000 Repair Revenue 18,500 Outstanding salary A/c $ 2,100 Payroll Expenses 9,100 To Cash A/c $ 2,100 Advertising Expense 6,200 Electricity Expense 3,750 Telephone Expense 2,600 Income statement $ 318 Legal Expense 5,100 To provision for doubtful debts $ 318 Interest Expense 5,850 $813,575 $813,575
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