Accounting 301 Project_Zippy Lines, Inc._Financial statement

    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  

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