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Acct 6031 – Fall 2016 Accounting Practice SetThis case is designed to reinforce certain technical accounting skills that are a prerequisite to a solid understanding of the generally accepted accounting principles that underlie preparation of general purpose financial statements.You are tasked with the preparation of a set of 2015 financial statements for BRONX BOMBERS, INC. a company that purchases merchandise inventory for resale.You will be required to prepare journal entries (utilizing a general journal along with a set of special journals), the posting of those entries to both general and subsidiary ledger accounts, and preparation of month-end adjustments, an adjusted trial balance, financial statements, and closing entries in order to ready the general ledger for 2015 activity. BRONX BOMBERS, INC. uses the following chart of accounts:Account NumberAccount Title100Cash110Accounts Receivable115Allowance for Doubtful Accounts (AFDA)120Interest Receivable130Inventory135Supplies140Prepaid Rent145Prepaid Insurance150Available for Sale Investments (non-current)160Land170Buildings175Accumulated Depreciation – Buildings180Equipment185Accumulated Depreciation – Equipment190Patents210Accounts Payable220Salaries Payable225Utilities Payable230Interest Payable235Unearned Rent240Income Taxes Payable245Dividends Payable250Notes Payable (non-current)300Common Stock310Additional Paid-In Capital320Retained Earnings325Dividends330Accumulated Other Comprehensive Income350Treasury Stock400Sales Revenue402Sales Returns & Allowances404Sales Discounts410Interest Revenue420Rent Revenue430Dividend Revenue500Cost of Goods Sold505Purchases507Purchase Returns & Allowances508Purchase Discounts510Salaries Expense515Bad Debt Expense520Rent Expense530Depreciation Expense – Buildings535Depreciation Expense – Equipment540Patent Amortization Expense550Utilities Expense555Supplies Expense560Insurance Expense570Interest Expense590Income Tax ExpenseBronx Bombers, Inc. is a calendar-year firm that has been in business in the USA for the past ten years. Your job is to maintain the accounting records of Bronx Bombers, Inc. for the month of December, prepare the annual financial statements (income statement, balance sheet, and statement of cash flows—using the direct method) as of December 31, 2015, and then close the nominal accounts to prepare the accounting records for 2015 entries.BRONX BOMBERS, INC. utilizes the following five journals:Sales journal – this journal is exclusively used to record all credit salesPurchases journal – this journal is exclusively used to record all purchases of inventory items on creditCash Receipts journal – this journal is exclusively used to record all transactions that involve a receipt of cashCash Disbursements journal – this journal is exclusively used to record all transactions that involve a cash paymentGeneral journal – this journal is used to record all transactions that are not recorded in one of the special journals aboveBRONX BOMBERS, INC. also maintains both a general ledger and two subsidiary ledgers:A/R Subsidiary ledger – this ledger contains the specific balances owed to BRONX BOMBERS, INC. by individual customersA/P Subsidiary ledger – this ledger contains the specific balances owed by BRONX BOMBERS, INC. to individual suppliers of merchandise inventoryA/R Subsidiary LedgerCustomerCustomer #Date of SaleBalance OwedM Krohngold110-127/20/15$8,000J Goar110-259/13/1522,000C Winters110-3310/25/1516,000J Tishman110-4411/22/1560,000P O’Malley110-4611/24/1524,000C Becker110-4711/28/1530,000 A/R Balance – 11/30/15$160,000All credit sales are made to customers on the following terms: 2/15, n/30. Payments received from customers are first credited towards the oldest balances in determining any applicable discount.A/P Subsidiary LedgerSupplierVendor #Date of PurchaseBalance OwedNole Industries210-1711/07/15$36,000TH, Inc.210-2011/18/1524,000DevilCo210-2211/27/1540,000 A/P Balance – 11/30/14$100,000All credit purchases of inventory are made from suppliers that offer different terms for prompt payment. For the existing balances (and any new purchases), terms are:Nole Industries: 2/30, n/60TH, Inc.: 3/15, n/30DevilCo: n/30Case Requirements:Please prepare the following for turn-in:1.Five journals (SJ, PJ, CRJ, CDJ, and the GJ) with December transactions, year-end adjustments, and closing entries recorded appropriately,2.The two subsidiary ledgers (A/R and A/P) and the General Ledger with December postings and year-end balances,3.An adjusted trial balance as of December 31, 20154.An Income Statement for the year ended December 31, 2015,5.A Balance Sheet as of December 31, 2015, and6.A Statement of Cash Flows (Direct Method) for the year ended December 31, 2015, with required supplementary disclosures.The General and Subsidiary ledger accounts have been updated to reflect correct Nov. 30, 2015 balances (except for Inventory and Retained Earnings, which are not adjusted until year-end). Your job is to journalize the December transactions that follow below, post these entries to the appropriate ledger accounts, prepare adjusting entries (for the month of December—all adjustments through Nov. 30 have been made) and post these to the appropriate ledger accounts, prepare an adjusted trial balance as of Dec. 31, 2015, prepare the three required financial statements, and then prepare and post-closing entries to prepare the general ledger for 2015.All students must prepare their own solution to this project. You may work with other students to solve issues and you may discuss your work with each other. However, every student must turn in an individual solution to the practice set.December Transactions for BRONX BOMBERS, INC. – Note that all payments to suppliers and receipts from credit customers are always net of any applicable purchase or sales discounts (assume these discounts are always taken if payments occur within the appropriate discount period).Dec 1Purchased 15,000 shares of previously issued BRONX BOMBERS, INC. common stock for $150,000 and placed in treasury.Paid weekly cash payroll of $5,000. December 1 is a Friday--$4,000 of salaries were accrued on November 30 and reported appropriately as part of salaries expense on the previous months’ income statement.Sold $30,000 of inventory to C Winters on credit (invoice #12010).Made cash sales of $18,000.Dec 4Received cash payment from J Tishman for balance owed.Paid Nole Industries invoice for balance owed.Accepted a sales return from P O’Malley for a $4,000 item. P O’Malley paid her balance due after the return.Dec 5Paid the November Utilities bill of $7,500 (this was recognized as an expense in November).Wrote off the balance owed by M Krohngold as uncollectible.Received a payment from C Winters that reduced his balance owed by $10,000.Dec 6Bought inventory from a new supplier, CavalierCorp (Vendor# 210-25) on credit in the amount of $75,000 (invoice #CC1206). Cavalier’s terms for repayment are 3/10, n/30.Received payment in full from C Becker.Made a credit sale to a new customer, S Riley (customer # 110-48), in the amount of $40,000 (invoice #12011).Dec 7Returned $18,000 of merchandise purchased from DevilCo (wrong items). Paid balance due after return.Received a check for payment in full from J Goar.Dec 8Recorded weekly cash sales of $20,000.Paid weekly cash payroll of $5,000.Dec 11Paid TH, Inc. balance owed.Paid CavalierCorp balance owed.Bought inventory items from Nole Industries on credit for $25,000 (invoice #NI1211).Dec 12Received a check from C Winters that reduced his balance owed by $20,000.Received dividends of $25,000 from our investment in Hokie, Inc (an AFS investment).Sold additional merchandise on credit to S Riley for $20,000 (invoice #12012).Dec 13Bought inventory from TH, Inc. for $35,000 on credit (invoice #TH1213).S Riley returned an item purchased on Dec 12 (amount = $5,000).Received a check from S Riley for 12/6 purchase. Amount fully satisfied balance owed for that purchase.Dec 14Sold merchandise to J Tishman ($8,000—invoice #12013) and C Becker ($12,000—invoice #12014)—both on credit.Returned $6,000 of merchandise to Nole Industries (wrong sizes) and paid balance due.Dec 15Recorded weekly cash sales of $32,000.Paid weekly cash payroll of $5,000.Received a check from S Riley in full settlement of balance owed.Dec 18Bought office supplies on credit for $15,000 from OfficeMin (open a new A/P in the subsidiary ledger--Vendor # 210-30). Invoice # is OM1218. OfficeMin’s terms are n/30.Purchased inventory from CavalierCorp on credit for $30,000 (invoice #CC1218).Purchased inventory from an independent artist for $12,000 cash.Dec 19Received the December Utilities bill (to be paid in January) in the amount of $8,000. No A/P account needs to be created—credit Utilities Payable for balance owed.The annual dividend of $1/share is declared. The dividend will be distributed to shareholders on January 19, 2016. BRONX BOMBERS, INC. recorded the declaration by debiting the Dividends account.Dec 20Paid staff a Holiday bonus of $8,000 (record as Salaries Expense).Received a check from C Becker for payment of balance owed.Dec 21Paid TH, Inc. balance due.Sold merchandise to C Winters on credit for $24,000 (invoice #12015).Purchased land for $600,000. A $120,000 cash down payment was required and a $480,000 note was accepted by the seller for the balance.Dec 22Paid weekly cash payroll of $5,000.Recorded weekly cash sales of $40,000.Closed for the Holidays—will reopen on January 2, 2016.Information for Adjusting Entries as of 12/31/15Rent Expense is $4,000/month and was prepaid on January 1, 2015 for two years.Insurance for the month of December was $2,500. A policy that expires in 2015 provided coverage.A physical count of inventory finds the 12/31/15 balance to be $275,000 (see * below for help).The AFS Investments account consists of two separate investments (both were purchased in a prior year) as follows (credit AOCI for increase in fair value):1) Hokie, Inc. common stock – fair market value at 12/31/15 = $160,000.2) Bonds issued by TerpCo. Fair market value at 12/31/15 = $140,000. Interest earned in December (to be received from TerpCo in June 2016) equals $3,600. An analysis of the A/R subsidiary ledger reveals that an allowance of $20,000 is necessary for anticipated uncollectible account balances.Depreciation on the Buildings is $4,000/month.Depreciation on the remaining Equipment is $1,800/month.The Patent was originally acquired on January 1, 2015 for $180,000 cash and has a ten-year life (from the acquisition date) and no salvage value.Supplies on hand at 12/31/15 were $10,000.Accrued interest on the $300,000 note payable and the new $480,000 note for the month of December totals $8,000 (to be paid in 2016).We are subleasing some extra office space to BC LLC for $8,000 month. BC prepaid twelve months rent on June 1, 2015.The income tax rate for 2015 is 35%.* BRONX BOMBERS, INC. is using a periodic inventory system that produces an amount for COGS indirectly. An adjusting entry is required at year-end to update the inventory account balance to the correct year-end amount (given) and to transfer the balances from other accounts to COGS. As an example assume that the inventory count at year-end (when compared to last year’s balance) indicates a decline of $5,000. Also assume that amounts recorded for purchases, purchase returns and allowances, and purchase discounts are as indicated in this example. The required adjusting entry is:COGS27,500(plug figure)Purchase Returns and Allowances2,000Purchase Discounts500Purchases25,000Inventory5,000Additional Information needed for Preparation of the Statement of Cash FlowsBalances at 1/1/14:Cash$848,600Dividends Payable$80,000A/R50,000A/P60,000AFDA(10,000)Salaries Payable-0-Inventory300,000 Utilities Payable7,000Prepaid Rent-0- Interest Payable25,000Prepaid Insurance-0- Unearned Rent-0-Interest Receivable-0- Income Taxes Payable99,000Supplies10,000The only change among the long-term assets (other than those described in the December activity) was the acquisition of a patent on 1/1/15 for $180,000 cash. The AFS investments were both purchased in 2011.There were no changes in any stockholders’ equity accounts during the months of January – November.The adjustment required to compute “Cash received from Customers” when there is a separate Allowance account needs special attention. Assume that A/R increased by $40,000 (from $300,000 to $340,000) and that AFDA also increased by $5,000 (from $10,000 to $15,000) over the year. In addition, assume that Bad Debt Expense recognized on the income statement equals $20,000 and Sales Revenue for the year was $500,000.Cash Received from Customers (Direct Method)Cash445,000(plug figure)A/R40,000Bad Debt Expense20,000AFDA5,000Sales Revenue (net)500,000For the indirect method, we can simply make an adjustment for the net change in A/R and ignore bad debt expense—using the numbers above, the required adjustment would be:A/R (net) – 1/1$290,000 ($300,000 A/R less $10,000 AFDA balance)A/R (net) – 12/31$325,000 ($340,000 A/R less $15,000 AFDA balance)Net increase = $35,000. This amount should be deducted from net income in converting to cash flow from operating activities. It is also unnecessary to make a separate adjustment for bad debt expense when following this approach.Using Special JournalsI have provided an example entry into each of the five journals based on the following activity:1.A credit sale in the amount of $2,000 is made to Customer X (invoice #123) on 1/1/14. Terms are: 2/15, n/30. This will be recorded in the sales journal. The sales journal is used to record all credit sales (but no other transactions).2.A credit purchase of merchandise inventory in the amount of $3,000 is made from Supplier Y (invoice #Y44) on 1/5/14. Terms are 3/10, n/30. This will be recorded in the purchases journal. All credit purchases of inventory are recorded in the purchases journal.3.Customer X returns $500 of merchandise (from 1/1 sale above) on 1/10/14. This will be recorded in the general journal. The general journal is reserved for transactions that do not involve cash (those will be recorded in either the cash receipts or cash disbursements journal) and are not credit sales or purchases.4.Customer X sends a check on 1/12/14 for the balance due. This will be recorded in the cash receipts journal. Since the payment is made within the applicable discount period the customer has reduced the check amount by the 2% discount offered for prompt payment.5.We send Supplier Y a check on 1/13/14 for the balance due. This will be recorded in the cash disbursements journal. Since the payment is made within the applicable discount period we have reduced the check amount by the 3% discount offered for prompt payment.EntriesSales Journal (SJ)DateA/R Subsidiary Acct #Customer NameInvoice #Amount1/1110-15Customer X1232,000This sale should be immediately posted to the subsidiary A/R ledger account for Customer X (“on the fly” so to speak). That way, a current balance for each customer is always at hand. Do not post to general ledger control account A/R until all transactions are journalized. Then, sum the amount column and post a single amount (the total credit sales for the period) to two GL accounts—debit A/R and credit Sales Revenue.Purchases Journal (PJ)DateA/P Subsidiary Acct #Supplier NameInvoice #Amount1/5210-27Supplier YY443,000This purchase of merchandise inventory should be immediately posted to the subsidiary A/P ledger account for Supplier Y. Wait and post to the GL control account A/P until after all transactions are journalized. Then, sum the amount column and post a single amount to two GL accounts—debit Purchases and credit A/P.General Journal (GJ)DateAccount Name/GL Account #DebitCredit1/10Sales Returns and Allowances/402500A/R – Customer X/110500Immediately post the credit to the subsidiary A/R ledger account for Customer X to maintain a current balance. Wait and post both the debit and credit to the two GL accounts (Sales Returns and Allowances and A/R) after all transactions have been journalized.Cash Receipts Journal (CRJ)DateExplanationCashA/RSalesOtherOther Acct Name/GL Acct #1/12Pmt received from X1,470(1,500)30Sales Discounts/404Post the $1,500 credit to the subsidiary A/R ledger account for Customer X immediately to maintain a current balance (now zero after the return and the payment). The $1,470 is calculated as: $1,500 x 2% discount = $30. $1,500 owed less $30 discount = $1,470 paid. Once all transactions have been journalized, post to GL accounts as follows: Sum the Cash, A/R and Sales columns and post these totals to Cash (debit), A/R (credit), and Sales Revenue (credit). Do not sum the “Other” column—these amounts must be individually posted to the GL account listed in the “Other Acct Name” column. In this example the $30 should be posted to the Sales Discounts account as a debit. It may help to jot down the entry on scratch paper in general journal style (but remember it does not appear in the general journal—only in the cash receipts journal):Cash1,470Sales Discounts30A/R1,500Cash Disbursements Journal (CDJ)DateExplanationCashA/PPurchasesOtherOther Acct Name/GL Acct #1/13Pmt made to Y(2,910)3,000(90)Purchase Discounts/508Post the $3,000 debit to the subsidiary A/P ledger account for Supplier Y immediately to maintain a current balance (now zero after the payment). The $2,910 is calculated as: $3,000 x 3% discount = $90. $3,000 owed less $90 discount = $2,910 paid. Once all transactions have been journalized, post to GL accounts as follows: Sum the Cash, A/P and Purchases columns and post these totals to Cash (credit), A/P (debit), and Purchases (debit). Do not sum the “Other” column—these amounts must be individually posted to the GL account listed in the “Other Acct Name” column. In this example the $90 should be posted to the Purchase Discounts account as a credit. As above, the “journal style” entry may help with debits/credits:A/P3,000Cash2,910Purchase Discounts90Bronx Bombers, Inc. - Sales JournalDateA/R Acct #Customer NameInvoice #AmountBronx Bombers, Inc. - Purchases JournalDateA/P Acct #Supplier NameInvoice #AmountBronx Bombers, Inc. – Cash Receipts JournalDateExplanationCashDRA/R(CR)Sales(CR)OtherDR/(CR)Other Acct. Name/GL Acct #Bronx Bombers, Inc. – Cash Disbursements JournalDateExplanationCash(CR)A/PDRPurchasesDROtherDR or (CR)Other Acct. Name/GL Acct #Bronx Bombers, Inc. – General Journal (December Transactions)DateAccount Name/GL Account #DebitCreditBronx Bombers, Inc. – General Journal (Adjusting Entries)DateAccount Name/GL Account #DebitCreditBronx Bombers, Inc. – General Journal (Adjusting Entries - continued)DateAccount Name/GL Account #DebitCreditBronx Bombers, Inc. – General Journal (Closing Entries)DateAccount Name/GL Account #DebitCreditBronx Bombers, Inc. – Subsidiary A/R LedgerCustomer NameCustomer #ExplanationDateDebitCreditBalanceKrohngold110-12Balance12/1$8,000Goar110-25Balance12/1$22,000Winters110-33Balance12/1$16,000Tishman110-44Balance12/1$60,000O’Malley110-46Balance12/1$24,000Becker110-47Balance12/1$30,000Riley110-48Bronx Bombers, Inc. – Subsidiary A/P LedgerSupplierVendor #ExplanationDateDebitCreditBalanceNole Industries210-17Balance12/1$36,000TH, Inc.210-20Balance12/1$24,000DevilCo210-22Balance12/1$40,000CavalierCorp210-25OfficeMin210-30Bronx Bombers, Inc. – General LedgerAcct #Acct NameSourceDebitCreditBalance – DR or (CR)100Cash600,000110Accounts Receivable160,000115AFDA(10,000)120Interest Receivable-0-130Inventory300,000135Supplies8,000140Prepaid Rent52,000145Prepaid Insurance15,000Bronx Bombers, Inc. – General LedgerAcct #Acct NameSourceDebitCreditBalance – DR or (CR)150AFS Investments250,000160Land450,000170Buildings800,000175Acc. Deprc. - Bldgs(120,000)180Equipment324,000185Acc. Deprc. - Eqpt(86,400)190Patent163,500210Accounts Payable(100,000)220Salaries Payable(4,000)Bronx Bombers, Inc. – General LedgerAcct #Acct NameSourceDebitCreditBalance – DR or (CR)225Utilities Payable(7,500)230Interest Payable(25,000)235Unearned Rent(48,000)240Income Taxes Payable(13,410)245Dividends Payable-0-250Notes Payable(300,000)300Common Stock ($1 par value)(100,000)310Add’l Paid-in Capital(1,497,000)320Retained Earnings(662,000)325Dividends-0-Bronx Bombers, Inc. – General LedgerAcct #Acct NameSourceDebitCreditBalance – DR or (CR)330AOCI(50,000)350Treasury Stock-0-400Sales Revenue(1,450,000)402Sales Returns &Allowances100,000404Sales Discounts40,000410Interest Revenue(14,400)Bronx Bombers, Inc. – General LedgerAcct #Acct NameSourceDebitCreditBalance – DR or (CR)420Rent Revenue(48,000)430Dividend Revenue-0-500Cost of Goods Sold-0-505Purchases700,000507Purchase Returns &Allowances(40,000)508Purchase Discounts(20,000)Bronx Bombers, Inc. – General LedgerAcct #Acct NameSourceDebitCreditBalance – DR or (CR)510Salaries Expense240,000515Bad Debts Expense28,000520Rent Expense44,000530Deprc. Exp. - Bldgs44,000535Deprc. Exp. - Eqpt19,800540Patent Amort. Exp.16,500550Utilities Expense80,000Bronx Bombers, Inc. – General LedgerAcct #Acct NameSourceDebitCreditBalance – DR or (CR)555Supplies Expense50,000560Insurance Expense27,500570Interest Expense30,000590Income Tax Expense53,410Bronx Bombers, Inc. – Adjusted Trial BalanceAs of December 31, 2015Account #Account NameDebit BalanceCredit BalanceBronx Bombers, Inc. – Adjusted Trial Balance (continued)As of December 31, 2015Account #Account NameDebit BalanceCredit BalanceBronx Bombers, Inc.Income StatementFor the year ended December 31, 2015Bronx Bombers, Inc. - Balance SheetAs of December 31, 2015Workspace for Accrual to Cash Conversions for Statement of Cash FlowsBronx Bombers, Inc.Statement of Cash Flows (Direct Method)For the year ended December 31, 2015Bronx Bombers, Inc.Required Reconciliation of Net Income to Cash Flow from Operating ActivitiesFor the year ended December 31, 2015
Solution: accounting practice set
Solution: accounting practice set