AC1220 ACCOUNTING I Project Part 1 | Complete Solution

Project Part 1: The Accounting Cycle
Karen Harris starts her own scooter retail business, City Rides, on December 1, 20x2. The business operates as a proprietorship from a rented space near a busy downtown area. Harris hires Jim Waters as the sales associate and assistant manager of the business. The following transactions take place during December 20x2.
Transactions

Dec. 1    Harris deposits $45,000 into the business bank account. In exchange, she receives capital in the proprietorship.    1

1    Harris writes and mails check #001 for $2,400 for rent. The rent payment covers rent for the three months ended February 28, 20x2.     1

2    Harris purchases office equipment for $1,800 by check #002.    0

2    Harris purchases office supplies for $420 by check #003.     0

2    Harris purchases 20 Model X mopeds at $500 each and 15 Model L mopeds at $800 each, costing a total of $22,000, on account from a supplier, Fun Brands:
•    Harris elects to use the first-in-first-out (FIFO) method to account for inventory.
•    Fun Brands provides an invoice with the following terms: 2/10 net 30.    0

9    In the first week of operation, City Rides sells 16 Model X mopeds at $750 each: 10 are sold on account, and the rest are sold for cash.    0

12    City Rides makes payment to Fun Brands in full settlement of accounts payable by check #004. Payment is net of the purchase discount. Hint: The terms are 2/10 net 30, and any purchase discount received reduces the cost of inventory.    0

13    City Rides purchases 10 Model X mopeds from Fun Brands on account at a cost of $520 each.    0

16    The sales for the week are as follows: 6 Model X mopeds sold on account for $750 each—inventory cost accounted using the FIFO method.    0

18    Cash receipts from customers on accounts receivable are $7,100.    0

30    Sales for the rest of December are as follows: 2 Model L mopeds sold for cash for $1,100 each.    0

30    Harris receives the utilities bill for December 20X2 for $650, still payable at month end.    0

30    Harris pays wages amounting to $1,800 by check #005.    0

30    Harris withdraws $2,500 in cash.    0

        
 The Chart of Accounts
The ledger of City Rides is composed of the following accounts. Classify each account by account type. Choose from among the following items:
Asset         Contra-asset         Liability    Owner’s equity
Account Name        Account Type
Cash    
Accounts Receivable    
Supplies    
Prepaid Rent    
Inventory    
Office Equipment    
Accumulated Depreciation—Office Equipment    
Accounts Payable    
Capital—Harris    
Withdrawals—Harris    
Income Summary     
Sales Revenue    
Cost of Goods Sold    
Wages Expense    
Rent Expense    
Depreciation Expense—Office Equipment    
Supplies Expense    

Complete the following schedule to track the purchase and sale of inventory items during December 20x2. Use the FIFO method to account for the cost of goods sold. The first inventory purchase and sale are included as an example.
MODEL X    MODEL L
Date    Purchase (sale)    Quantity    Cost per unit    Total    Date    Purchase (sale)    Quantity    Cost per unit    Total
Dec. 2    Purchase    20    $500    $10,000    Dec. 2    purchase    15    $800    $12,000
9    (Sale)    (16)    $500    ($8,000)    30                
13                                    
16                                    
16                                    
                                    

Task 1: Making Journal Entries
Journalize the transactions for December 20x2. The first three transactions are journalized already. Use the following template to make journal entries and check off transactions as they are entered, using the check boxes. Double-click each check box and select “checked” in the dialog box. Click the OK button to check.
Date     Account and Explanation    Debit    Credit
Dec 1    Cash    $45,000    
        Capital        $45,000
    To record owner contribution        
            
1    Prepaid Rent    $2,400    
        Cash        $2,400
    To record prepaid expense        
                  

Date
Account and Explanation    Debit    Credit
          

Task 2: Using the Accounting Worksheet
Adjustments

Dec. 31    Depreciation on office equipment, $360    0

31    Supplies used, $300    0

31    Recognized rent expense—prepaid rent account    0

        
Complete the worksheet provided on the next page by making the adjustments described. Compute adjusted trial balance amounts and enter account balances into the income statement and balance sheet columns, where necessary.

City Rides
Accounting Worksheet
For the Month Ended Dec. 31 20x2
Account    Trial Balance    Adjustments    Adjusted Trial Balance    Income Statement    Balance Sheet
    Debit    Credit    Debit    Credit    Debit    Credit    Debit    Credit    Debit    Credit
Cash    $19,020                                    
Accounts Receivable    12,000                                    
Prepaid Rent    2,400                                    
Supplies    420                                    
Inventory    15,720                                    
Office Equipment    1,800                                    
Accumulated Depreciation—Office Equipment    -                                    
Accounts Payable        $5,850                                
Capital—Harris        45,000                                
Withdrawals—Harris    2,500                                    
Sales Revenue        16,500                                
Cost of Goods Sold    11,040                                    
Wages Expense    1,800                                    
Rent Expense    -                                    
Depreciation Expense—Office Equipment    -                                    
Utilities Expense    650                                    
Supplies Expense    -                                    
Total    $67,350    $67,350                                
Net Income                                        
                        TOTAL                
 
Task 3: Preparing Financial Statements and Closing the Accounts
Using the following adjusted trial balance amounts, prepare the income statement, the statement of owner’s equity, and the balance sheet of City Rides for the month ended December 31, 20x2.

City Rides
Trial Balance
December 31, 20x2
Account    Debit    Credit
Cash    $19,020    
Accounts Receivable    12,000    
Prepaid Rent    1,600    
Supplies    120    
Inventory    15,720    
Office Equipment    1,800    
Accumulated Depreciation—Office Equipment        360
Accounts Payable        5,850
Capital—Harris        45,000
Withdrawals—Harris    2,500    
Sales Revenue        16,500
Cost of Goods Sold    11,040    
Wages Expense    1,800    
Rent Expense    800    
Depreciation Expense—Office Equipment    360    
Utilities Expense    650    
Supplies Expense    300    
    $67,710    $67,710

City Rides
Income Statement
For the Year Ended December 20x2
Sales Revenue        
Less Expenses:              
Net Income        
Preparing Financial Statements

City Rides
Statement of Owner’s Equity
For the Year Ended December 20x2
Beginning Capital    
    
    
    
Ending Capital, Harris    

City Rides
Balance Sheet
December 31, 20x2
Assets        Liabilities
                
                
                
            Owner’s Equity
                
                
                
Total Assets            Total Liabilities and Owner’s Equity    

Closing Temporary Accounts

Using the journal template given, make the following closing entries. Use the revenue, expense, and withdrawals balances given before.

Closing Entries

31    Closed Sales Revenues to Income Summary Account    0

31    Closed Expense Accounts to Income Summary Account    0

31    Closed Income Summary Account to Capital—Harris, Account    0

31    Closed Withdrawals—Harris Account to Capital Account    0
Date     Account and Explanation    Debit    Credit
Dec 31            
            
    To close sales revenue to income summary        
            
31            
          
    To close expenses to income summary        
            
31            
            
    To close income summary        
            
30            
            
    To close withdrawals account        
            

---End of Project Part 1---