Assignment
Instructions: You may prepare this assignment with oneother student, for a maximum of two in a group. Resist the temptation to be a free rider - it will catch up with you on the exam. Hand in one assignment with all names at the top. Please bring two copies of the assignment to class, one to hand in and one to refer to as we review the solution at the start of class. Do not share your solution with another group in the class.
Facts: In August2016, Clever Foods opened a general store in a small community. Transactions for the period August2016 are below. Clever Foods applies US GAAP and reports in US dollars.
1. August 1, 2016: Clever Foods incorporates in the State of Delaware and files a corporate charter which permits it to sell 300,000 shares of no par common stock.
2. August 1, 2016: Receives $500,000 in cash from the single shareholder, along with store fixtures (shelves, copy machine, etc) with a fair market value of $150,000. Clever Foods issues 100,000 shares of common stock to the shareholder in exchange for the consideration given. The store fixtures have a 4-year life with zero salvage value and Clever Foods uses the straight-line method of depreciation.
3. August 1, 2016: Clever Foods enters into a note payable with a bank for$240,000 to be used for initial working capital needs and to renovate the storefront. The note bears interest at 6% per year and is repayable in 3 equal, annual installments every July 31 beginning on July 31, 2017. Interest is payable every July 31, along with the note payment.
4. August 1, 2016: Clever Foods pays for a one-yearproperty and casualty insurance policy effective on August 1, 2016. The cost of the policy is $18,000.
5. August 1, 2016: Signs a cancellable one-year lease to rent a storefront at a monthly rent of $1,000. All rent is due on the first day of the month. Clever Foods also pays a $3,000 security deposit, which is refundable to Clever Foods at the end of the lease if the premises are in good condition.
6. August3,2016: Places an order with a vendor in the amount of $120,000.
7. August6, 2016: Receives half of the store merchandise ordered in #6.Terms of the sale are 2/10, n/30. The order is inspected on receipt, and Clever Foods refuses to accept one carton of goodsthat was damaged in transit, representing merchandise with a cost of $10,000. The remainder of the merchandise received matches the order and is accepted by Clever Foods.
8. August8,2016: Clever Foods opens for business. Cash sales from August 18 through the end of August amounted to $20,000. Sales on account were $50,000.The cost of the merchandise sold was $35,000.
9. August16,2016: Pays the supplier in #7the net amount owed within the discount period and is able to take a 2% purchase discount (this means that they pay 98% of the amount due). Clever Foods records discounts as a reduction in inventory.
10. August 28, 2016: The attorney who filed the corporate charter with the state and reviewed the lease agreement sends Clever Foods a bill in the amount of $10,000. The attorney will be paid by September 28, 2016.
11. August 29 - August 31, 2016: Clever Foods takes pre-orders to reserve fresh fruit received from Indonesia. The customer pays a pre-order reserve cost, $5 which will be applied to the price of the fruit when the customer picks it up. If the customer does not pick up the fruit within one week after notice of the store's receipt, Clever Foods will sell the fruit to another customer if there is still demand. If that should happen, the $5 pre-order reserve fee is refundable. During the last three days of August, Clever Foods processes 900 pre-orders.
12. August 31, 2016: The remaining merchandise ordered in # 6 (above) is shipped FOB destinationfrom the supplier's warehouse (this means that Clever owns the inventory once it reaches Clever's warehouse, i.e. the destination); and the merchandise arrives at Clever Foods warehouseon September 2 in acceptable condition.
13. August 31, 2016: Pays employees compensation of $3,000.
14. August 31, 2016: Record an appropriate amount of interest expense on the loan for August.
15. August 31, 2016: Record an appropriate amount of insurance expense for the entire month of August.
16. August 31, 2016: Record an appropriate amount of rent expense for the entire month of August.
17. August 31, 2016: Record an appropriate amount of depreciation expense for the entire month of August.
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Entry
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DR
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CR
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1. Common Sock
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300,000
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Cash
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300,000
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2.Cash
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500,000
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Equipment
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150,000
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Common Stock
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500,00
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3. No Entry
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|
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4.Prepaid Insurance
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1,500
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Cash
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1,500
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5.Prepaid Rent
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1000
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Security Deposit
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3,000
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Cash
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4,000
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6. NO entry
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|
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7.Accounts Payable
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60,000
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Inventory
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50,000
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Accounts Receivable
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10,000
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8. Revenue
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20,000
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Accounts Receivable
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50,000
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Cost of Goods Sold
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35,000
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Inventory
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35,000
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9. Cash
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49,000
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Inventory
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1,000
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Aconts Payable
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49,000
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10. no entry
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|
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11. Advance from customer Cash
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4,500
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4,500 |
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12. No Entry
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|
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13. Salary Payable Cash
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3,000
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3,000 |
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14. Interest Expense
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1,200
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Interest Payable
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1,200
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15. Insurance Expense
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1,500
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Insurance Payable
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1,500
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16. Rent Expense
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1,000
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Rent Payable
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1,000
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17. Depreciation Expense
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37,500
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Accumulated Depreciation
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37,500
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Required:
1. Prepare journal entries in good form for each of the above transactions. Typed.
2. Post to T-Accounts and prepare a trial balance after you are done with the journal entries to make sure that debits are equal to credits. You do not have to hand this in so don't bother typing it.
3. Prepare an Income Statement for Clever Foods for August2016 in good form.Clever Foods pays taxes at the rate of 25% if it has income. If Clever Foods has a loss, there is no tax due. Prepare the journal entry to record income tax expense if Clever Foods is in a tax paying position. Typed.
4. Prepare a Statement of Retained Earnings for Clever Foods for August2016 (dated: for the month ended) in good form. Typed.
5. Prepare a Balance Sheet for Clever Foods at August2016 in good form. Typed.