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Accounting 301 Project
Due December 5, 2013
Zippy Lines, Inc. is a small company based in Colorado. Zippy Lines, Inc. sells specialty outdoor sporting goods and equipment used by mountain climbers. Zippy Lines sells its goods to outdoor adventure firms and holds instructional classes. It is in its second year of operation.
Kirk Krazen, the accountant for the company was hurt in a climbing accident and the company has requested that you prepare the monthly close for January 2013, including preparation of the monthly financial statements. The company’s fiscal year coincides with the calendar year. The monthly financial statements should include a balance sheet, income statement and cash flow statement for the month.
The company’s president, Al Titude, has provided you with access to all of the company’s books and records and you have gathered the information that is discussed below.
The company has one bank account in which all of its operating expenses are paid and all of its cash receipts are deposited. The company’s general ledger records the cash disbursement transactions, and reflects the cash receipts. Exhibit 1 is a list of accounts and balances as of January 31, 2013 taken from the general ledger.
Exhibit 2 is a list of all of the transactions shown on the general ledger account for cash (Account 1010001).
A copy of the company’s bank statement for January is provided in Exhibit 3.
The company maintains a subsidiary ledger for accounts receivable. All of the company’s accounts receivable balances have been updated to reflect the cash receipt, and a journal entry to the cash account and the accounts receivable has been made. There are 20 outdoor adventure firms that have accounts with Zippy with terms N30, 10 of these firms had an open balance as of January. A copy of the accounts receivable subsidiary ledger is provided in Exhibit 4. The allowance for doubtful accounts was $1,500 as of December 31, 2012. The allowance is based on estimated default rates and set at 1% of balances currently due and balances past due less than 30 days, 2% on balances past due 30 to 60 days, 15% on balances past due over 60 but less than 90 days, and 30% of balances past due more than 90 days.
The company uses lower of cost or market to value its inventory. The company uses a periodic inventory system and applies FIFO cost flow assumption. Exhibit 5 contains information on its inventory.
The monthly adjusting entries have not been prepared. The following information has been gathered to support the closing process. The staff has done a physical count of inventory and supplies and found the following balances as of January 31, 2013:
– Supplies – $17,250
– Inventory – items shown in Exhibit 5 (valued at Lower of Cost or Market, FIFO) (see Exhibit 5)
Below are other items to consider for adjusting entries:
– The company has a note with TP Bank for $250,000 that is due on July 1, 2016. The note has an interest rate of 10%, which is payable on June 30th of each year.
– Employees earn $1,024 per day and have received payment through January 28th, so they are owed 3 days wages. There was no salary accrued as of December 31, 2012.
– The payment for health and all other benefits is $6,125 every two months. In December, the company issued the payment and it cleared in January. No payment was made in January.
– The prepaid insurance balance is for an annual property and liability policy with an annual cost of $36,000, which was purchased on July 1, 2012 and expires on June 30, 2013.
– The company visited Big Corporation on January 31st and held an instructional course for a team-building activity for Big Corporation. Zippy charges $10,000 for the class, but has not been paid, prepared the invoice or recorded the revenue.
– The accrued expense of $2,125 on December 31, 2012 represented unpaid consulting bills. The company paid the consultant $1,575 on January 14th and has an estimated balance of $3,250 open as of January 31, 2013.
– The company uses straight-line depreciation. The depreciation periods are 20 years for the building, 10 for the equipment and 5 for office equipment. There is no salvage value for any of the property, plant and equipment assets.
Requirements
1. Prepare a bank reconciliation and any journal entries.
2. Prepare a trial balances as of January 31, 2013
3. Calculate the allowance for doubtful accounts, inventory, monthly depreciation, interest, cost of goods sold etc., and prepare all necessary adjusting entries for the month of January.
4. Prepare an adjusted trial balance for the month of January.
5. Prepare the financial statements for the month of January (income statement, statement of retained earnings, balance sheet and statement of cash flow (either direct or indirect basis).
EXHIBIT 1
Below is a list of accounts with their balances as of January 31, 2013 and December 31, 2012:
| Account Number | Account Name | January 31, 2013 | December 31, 2012 |
| 1000001 | Cash | 60,660 | $45,125 |
| 1000002 | Accounts receivable | 27,200 | 17,500 |
| 1000003 | Allowance for doubtful accounts | 1,500 CR | 1,500 CR |
| 1000004 | Inventory | 33,150 | 33,150 |
| 1000005 | Supplies | 21,300 | 21,300 |
| 1000006 | Prepaid insurance | 18,000 | 18,000 |
| 1010001 | P,P & E –Store Equipment | 178,000 | 178,000 |
| 1010002 | Accumulated depreciation – Store Equipment | 17,800 CR | 17,800 CR |
| 1010003 | P,P & E –Office Equipment | 25,000 | 25,000 |
| 1010004 | Accumulated depreciation – Office Equipment | 5,000 CR | 5,000 CR |
| 1010005 | P,P & E – Building | 617,500 | 617,500 |
| 1010006 | Accumulated depreciation – building | 30,875CR | 30,875 CR |
| 2000001 | Accounts payable | 34,410 CR | 31,525 CR |
| 2000002 | Accrued expenses | 2,125 CR | 2,125 CR |
| 2000003 | Salaries payable | 0 CR | 0 CR |
| 2000004 | Interest payable | 12,500 CR | 12,500 CR |
| 2010001 | Notes payable | 250,000 CR | 250,000 CR |
| 3000001 | Common stock | 100,000 CR | 100,000 CR |
| 3000002 | Capital in excess of par | 400,000 CR | 400,000 CR |
| 3000003 | Retained earnings | 104,250 CR | 104,250 CR |
| 3000004 | Dividends | 0 | $0 |
| 4000001 | Sales Revenue | 121,000 CR | – $0 – |
| 5000001 | Purchases | 75,000 | $0 |
| 5000002 | Cost of goods sold | 0 | $0 |
| 5010001 | Salary expense | 20,480 | $0 |
| 5010002 | Benefits expense | 0 | $0 |
| 5010003 | Supplies expense | 0 | $0 |
| 5010004 | Insurance expense | 0 | $0 |
| 5010005 | Utilities expense | 895 | $0 |
| 5010006 | Travel expenses | 275 | $0 |
| 5010007 | Advertising expenses | 425 | $0 |
| 5010008 | Interest expense | 0 | $0 |
| 5010009 | Bank fees | 0 | $0 |
| 5010010 | Consulting expenses | 1,575 | $0 |
| 5010011 | Depreciation expense | 0 | $0 |
| 5010012 | Bad debt expense | 0 | $0 |
Exhibit 2 – Detail of transactions on ACCT 100001, Cash.
| Date | Description | Amount | DR/CR | Balance | DR/CR |
| 12/31/12 | Beginning Balance | DR | $45,125 | DR | |
| 1/4/13 | Cash receipts | $61,500 | DR | $106,625 | DR |
| 1/4/13 | Payment for inventory | $62,115 | CR | $44,510 | DR |
| 1/7/13 | Payment for salaries | $5,120 | CR | $39,390 | DR |
| 1/11/13 | Payment for utilities | $895 | CR | $38,495 | DR |
| 1/14/13 | Payment for salaries | $5,120 | CR | $33,375 | DR |
| 1/14/13 | Payment for consulting | $1,575 | CR | $31,800 | DR |
| 1/14/13 | Cash receipts | $26,525 | DR | $58,325 | DR |
| 1/21/13 | Payment for salaries | $5,120 | CR | $53,205 | DR |
| 1/27/13 | Cash receipts | $13,275 | DR | $66,480 | DR |
| 1/28/13 | Payment for salaries | $5,120 | CR | $61,360 | DR |
| 1/28/13 | Payment for travel | $275 | CR | $61,085 | DR |
| 1/28/13 | Payment for advertising | $425 | CR | $60,660 | DR |
Note: Entries for cash receipts on accounts receivables have not been made for January. The outstanding checks as of December 31, 2012 was $6,125. There were no outstanding deposits.
Exhibit 3 – Summary of Bank statement
TDC Bank
Denver, CO
Beginning balance…………………….$51,250
Deposits …………………………………..$61,300
Checks cleared………………………… (51,890)
Bank fees………………………………… (600)
Ending balance………………………..$60,060
Exhibit 4 – Accounts receivable subsidiary ledger
| Name | Balance
12/31/12 |
New Sales | Cash Receipts | Balance 3/31/13 | Aging Schedule | |||
| Due or < 30 | 31-60 | 61-90 | >90 | |||||
| Johnson Guides | $1,200 | 35,000 | 33,850 | $2,350 | $2,350 | |||
| Adirondack Adventures | $4,000 | 8,500 | 7,000 | $5,500 | $4,500 | $1,000 | ||
| Colorado Climbers | $2,000 | 12,500 | 12,000 | $2,500 | $2,500 | |||
| Outdoor Ways | $3,150 | $6,000 | $3,000 | $6,150 | $3,150 | |||
| Kincade Climbers | $650 | 950 | 600 | $1,000 | $950 | $50 | ||
| Spartan Adventures | $500 | 3,250 | 500 | $3,200 | $3,200 | |||
| Nature’s Highway | $750 | 500 | $1,250 | $500 | $750 | |||
| Billings Mountains | $2,250 | $2,250 | $250 | $2,000 | ||||
| Sky Adventures | $2,000 | 4,350 | 4,350 | $2,000 | $2,000 | |||
| Spirit Adventures | $1,000 | $1,000 | $1,000 | |||||
| Total | $17,500 | $71,000 | $61,300 | $28,100 | $20,400 | $4,000 | $2,000 | $800 |
Exhibit 5 – Inventory
I. Ending Counts:
| Item Name | Units | Replacement Cost | Selling Price | Selling Costs | Normal Profit % |
| Ropes | 100 | 10 | 25 | 5 | 30% |
| Climbing shoes | 800 | 35 | 60 | 5 | 25% |
| Climbing Hardware | 100 | 20 | 35 | 5 | 20% |
| Helmets | 600 | 25 | 40 | 5 | 30% |
II. Ropes
| Date | Units | Unit Cost | Total | |
| Beginning inventory | 1/1/13 | 50 | 9 | 450 |
| Purchase | 1/11/13 | 100 | 9.5 | 950 |
| Purchase | 1/18/13 | 200 | 10 | 2000 |
| Purchase | 1/25/13 | 200 | 10 | 2000 |
| End | 1/31/13 | 100 |
III. Climbing Shoes
| Date | Units | Unit Cost | Total | |
| Beginning inventory | 1/1/13 | 600 | 32 | 19,200 |
| Purchase | 1/11/13 | 1000 | 33 | 33,000 |
| Purchase | 1/18/13 | 200 | 34 | 6,400 |
| Purchase | 1/25/13 | 1000 | 35 | 35,000 |
| End | 1/31/13 | 800 |
IV. Climbing Hardware
| Date | Units | Unit Cost | Total | |
| Beginning inventory | 1/1/13 | 50 | 18 | 900 |
| Purchase | 1/11/13 | 100 | 19 | 1,900 |
| Purchase | 1/18/13 | 200 | 20 | 4,000 |
| Purchase | 1/25/13 | 200 | 20 | 4,000 |
| End | 1/31/13 | 100 |
V. Helmets
| Date | Units | Unit Cost | Total | |
| Beginning inventory | 1/1/13 | 500 | 24 | 12,000 |
| Purchase | 1/11/13 | 1,000 | 24 | 24,000 |
| Purchase | 1/18/13 | 800 | 25 | 20,000 |
| Purchase | 1/25/13 | 1,000 | 25 | 25,000 |
| End | 1/31/13 | 600 |
