The AC Speed Company is a well-established, publicly-held corporation, operating as a wholesaler in the auto parts industry. Specifically, AC Speed purchases auto parts from manufacturers and sells them to large business. During June, the last month of the accounting year, the following transactions were completed:
JUNE 1. Signed a one-year 18.5%, $180,000 note payable with First Bank.
1. Purchased 3,000 GPS units on Credit from Navistar for $35.00 per unit.
1. Issued 5,500 shares of common stock for $11 per share (Refer to General
ledger for description of common stock).
1. Sold 2,000 DVD players on account to Toyota for $75 per units, Invoice
2. Sold 3,500 GPS units on account to Kia for $52 per unit, Invoice #5556.
2. Purchases office supplies from Office Max on credit for $1,200.
2. Sold 900 docking stations for $64 per unit and 1950 GPS units for $83 per
unit on account to Nissan, Invoice #5560.
3. The Board of Directors declared a cash dividend of $5 per share for shareholders of record on June 5th, payable on June 12th.
4. Received payment from Toyota for May 11th sale
4. Rented part of the warehouse to a new tenant and received $4,900 for three months rent (June, July, August).
5. Paid $2,100 to Michigan Utility Co. for utilities bill that was recorded in May
as an Account Payable, Check #5278.
7. Received and paid expense reports for travel and entertainment totaling
$925, Check #5279.
8. Paid for office supplies purchased on June 2nd, Check #5280.
11. Paid in full for the June 1 purchase from Navistar, Check #5281.
11. Received a bill from the law firm of Larry, Moe & Curly for $5,400, payable upon receipt, for bond consulting fees, Check #5282.
12. Paid the dividend that was declared on June 3, Check #5283.
13. Took advantage of a special deal to purchase 3,250 DVD players on account from JVC for $48 per unit.
13. Purchased 850 GPS units on credit from Magellan for $33 per unit.
15 Sold 2,000 DVD players on credit to Fort Motor Co. for $89.00 per unit, Invoice 5557.
15 Check # 5284 was issued for payroll: $14,500 for salaried and $4,750 for wages.
16 Purchased 1,800 docking stations on credit from Samsung for $42 per unit.
17. Issued a credit to Kia for the return of 350 defective units from the June 2nd sale. These units has a cost basis of $35 per unit.
17. Returned the 350 defective units received from Kia to Navistar.
18. Received payment in full from Toyota for the June 1st sale.
20. While inspecting the June 13th purchase, it was discovered that the GPS units were programmed for South America instead of North America. AC Speed returned the entire order to Magellan.
20. A bankruptcy judge disallowed AC Speed’s claim for $5,000 due from General
Motors. Management Decided to write off this accounts receivable.
22. Sold 1,650 docking stations on credit to Kia for $64.50 per unit, Invoice #5559.
23. Paid $75,000 of the $162,500 owed to JVC from May 25, Check #5285.
23. Received payment from Ford Motor Co. for $175,000 of the $300,000 owed from
24. Purchased a $100 international phone card for one of the sales representative’s
upcoming European business trip, Check #5286.
25. Paid in full for the purchase from JVC on June 13, Check #5287
26. Purchased 1,250 docking station from Samsung for $41 per unit paying in cash,
27. Sold 1,500 docking stations on credit to Honda for $61 per unit, Invoice 5558.
27. Hired and paid a consultant $75,000 to devise a marketing plan. AC Speed’s
management felt this was necessary to develop brand awareness. Check #5289.
28. AC Speed is behind in its mortgage payments to Bank of America. Paid a total of
$10,000 ($2,000 principal and $8,000 interest), Check #5290.
29. Received payment in full from Honda for the June 27th transaction.
29. Paid in full for the purchase from Magellan on May 31st, Check #5291.
29. Check #5292 was issued for payroll: $14,500 for salaries and $4,750 for wages.
30. Paid the first month’s principal payment of $15,000 on the note payable. In
addition, paid one month’s interest, Check #5293
30. Issued bonds payable at face value for $350,000
*All purchases of inventory on account terms of 2/15, n/30
**All credit sales have terms of 2/30, n/45
Credit Terms & Inventory Accounting
a. When AC Speed purchases merchandise (inventory only) from a supplier or vendor on account, they receive credit terms of 2/15, net 30.
b. When AC Speed sells merchandise to a customer on account, they offer that customer credit terms of 2/30, net 45.
c. AC Speed accounts for the specific types of merchandise in their inventory with a set of subsidiary ledgers (inventory control cards). The balances in these subsidiary ledger records, in total, must equal the balance in the Merchandise Inventory account in the general ledger.
d. AC Speed uses a perpetual inventory accounting system and a last-in, first-out (LIFO) inventory costing method.
e. Subsidiary ledger records are kept for each customer and for each vendor. The balances in the customer subsidiary ledger records, in total, must equal the Accounts Receivable account balance in the general ledger. The balances in the vendor subsidiary ledger records, in total, must equal the Accounts Payable account balance in the general ledger.
1. Record each business transaction, in sequence by date, in the appropriate special journal or the general journal. Also, immediately record any transaction involving inventory, a customer, or a vendor in the appropriate subsidiary ledger record.
2. At the end of the month, post each entry in the general journal to the general ledger.
3. At the end of the month, total each column in each special journal and post that total to the general ledger. EXCEPT for entries in the “Other” columns, which must be posted individually to the general ledger.
4. When posting is completed, bring the balance in each general ledger account up to date.
5. When posting is completed, bring the balance in each subsidiary ledger account up to date.
6. At this point in the closing process, the balances of all subsidiary ledger accounts would be totaled and that total compared to the balance of the corresponding control account in the general ledger. That is, the total of inventory control cards would be compared to the Merchandise Inventory balance; the customer subsidiary ledger total to the Accounts Receivable balance; and the vendor subsidiary ledger total to the Accounts Payable balance. Any discrepancies would be investigated and corrected. Given the limited scope of this project scenario, reconciliation between subsidiary ledgers and control accounts is not possible.
7. List all general ledger account balances in the unadjusted trial balance columns of the worksheet. Use the sum function in Excel to total the debit and credit columns. These totals should be equal.
8. Prepare the end-of-month adjusting entries. Record these entries in the general journal and post them to the general ledger. Also record the adjusting entries in the designated columns in the worksheet and total the debit and credit columns. These totals should be equal.
9. Update general ledger account balances after posting adjusting journal entries.
10. Complete the unadjusted trial balance columns on the worksheet. Use Excel formulas to carry balances from the unadjusted trial balance columns, adjusting as necessary by entries in the adjustments columns. Check your results against the balances recorded in the general ledger.
11. Sort the dollars recorded in the adjusted trial balance columns into either the income statement or the balance sheet columns. Total these columns. The entry of net income should cause the debit and credit columns to equal one another.
12. Use the income statement information on the worksheet to prepare a multi-step income statement in good form. .
13. Prepare a statement of retained earnings in good form. Remember that net income from your just-completed income statement is a necessary component of this statement.
14. Use the balance sheet information on the worksheet to prepare a classified balance sheet. Remember that the ending retained earnings balance from the just-completed statement is a necessary component of the equity section of the balance sheet.
15. Prepare the end-of-month closing entries. Record these entries in the general journal and post them to the general ledger. Update balances in the general ledger accounts.
16. List the general ledger accounts that have balances other than zero on the post-closing trial balance. The totals of the debit column and the credit column should be equal.
Sales Journal CGS – Debit $ 583,600.00
Purchases Journal Inventory Debit $ 364,650.00
Cash Receipts Journal Cash – Debit $ 1,188,370.00
Cash Payments Journal Cash – Credit $ 890,530.00
Unadjusted Trial Balance Total $ 5,563,625.00