ACC 101 After graduating from Phoenix College with the most valuable degree in A
ID: 2405504 • Letter: A
Question
ACC 101
After graduating from Phoenix College with the most valuable degree in Accounting,
Michelle and Mary join together to form a new partnership named The Vintage Audio Company
(VAC). They sell two items to a specialty market – 8 Track Tapes (8TT), and Cassette Tapes
(CT). They use a LIFO system of inventory. The partnership operating agreement states that each
partner will receive a monthly distribution of $1,000, then commissions for their own sales, then
12% APR return on their beginning equity, and then split the remaining profit 60% for Michelle
/40% for Mary (in this order). The monthly distribution and commissions are taken during the
month as a draw and the journal entries have already been made at the time of payment.
During the month, VAC received a letter from the attorney of Jenny (one of their customers). The letter informed VAC that Jenny had declared bankruptcy and will not be paying the outstanding
balance of her account ($300).
Another month is finally over!! Time to “close the books”. Your assignment in that process is to
create the first two required financial statements for the previous month. To accomplish this
assignment, you will use the provided information to calculate the following:
1. Create the Income Statement in the proper format, including net sales, COGS, gross profit,
expenses and net income.
2. Create a Statement of Owners Equity
3. Provide an ending inventory schedule (schedule should include in good order, details by
transaction)
4. Provide the Net Book Value for the equipment
5. Provide only the journal entries for the following:
a. Income allocation between partners
b. Record the monthly bad debt expense
c. Record the monthly depreciation expense
d. Recognize the bad debt write-off for Jenny
Provided information:
Beginning Inventory Schedule (listed in the order they were purchased):
Beginning Inventory 8TT
Units Cost Amount
130 $5.00 $650.00
135 $5.20 $702.00
156 $5.50 $858.00
421 $2,210.00
Beginning Inventory CT
Units Cost Amount
140 $7.00 $980.00
160 $7.50 $1,200.00
256 $8.00 $2,048.00
556 $4,228.00
? You estimate that VAC will write off 2% of their sales in bad debt.
? Outbound freight to customers is calculated at $0.50 per unit sold.
? Shipping supplies (boxes, tape, etc.) are calculated at $0.20 per unit sold.
? Commission expense is 10% of net sales. For the previous month Michelle sold 60% of the
product. Mary sold the rest.
? Office supplies were $500 for the month.
? VAC is depreciating their packaging equipment on a straight-line basis. The equipment
was purchased two years ago on Jan 1. It cost $46,000 and has a useful life of 7 years, with
a salvage value estimated at $4,000.
Inventory Purchases during the month:
Apr 1 Purchased 50 8TT @ $5.00 each
Paid inbound freight of $25 for Apr 1 purchase
Apr 5 Purchased 50 CT @ $8.00 each
Apr 8 Purchased 50 8TT @ $5.00 each
Paid inbound freight of $25 for Apr 8 purchase
Apr 10 Purchased 50 CT @ $8.00 each
Apr 12 Purchased 50 CT @ $8.00 each
Apr 13 Returned 40 CT found to be defective. Purchase price was $7.00 each
Apr 17 Purchased 50 8TT @ $5.00 each
Paid inbound freight of $25 for Apr 17 purchase
Apr 20 Purchased 50 CT @ $8.00 each
Apr 24 Purchased 100 8TT @ $5.00 each
Paid freight bill of $50.00 for Apr 24
Apr 27 Purchased 75 CT @ $8.00 each
Apr 28 Purchased 75 8TT @ $5.50 each
Paid freight bill of $37.50 for Apr 28 purchases
Apr 29 Purchased 150 CT @ $8.20 each
Apr 30 Returned 20 CT found to be defective. Purchase price was $8 each
Credit Sales during the month:
Apr 3 Sold 65 8TT @ $10 each
Apr 3 Sold 75 CT @ $13 each
Apr 9 Sold 125 8TT @ $10 each
Apr 9 Sold 155 CT @ $13 each
Apr 12 Sold 75 8TT @ $10 each
Apr 13 Sold 196 CT @ $13 each
Apr 18 Sold 120 8TT @ $10 each
Apr 18 Sold 180 CT @ $13 each
Apr 23 Sold 56 8TT @ $10 each
Apr 23 Sold 75 CT @ $13 each
Apr 27 Sold 140 8TT @ $10 each
Apr 28 Sold 55 CT @ $13 each
Apr 30 Sold 130 8TT @ $10 each
Apr 30 Sold 140 CT @ $13 each
Beg. Capital- April 1st
Michelle: $10,000.00
Mary: $5,000.00
Total: $15,000.00
ACC 101
Ending Inventory $502
Net Income $5,266.14
Total Ending Capital $16,416.34
Explanation / Answer
1)
THE VINTAGE AUDIO COMPANY
Income Statement for the month ended April
Sales Revenue 18498
Less : Cost of Goods Sold
Opening Stock 6438.00
+ Purchases 5092.50
+ Inbound Freight 162.50
- Purchase Returns 440.00
- Closing Stock 502.00 10751
Gross Profit 7747
Less : Expenses
Freight Outbound 793.50
Shipping Supplies 317.40
Office Supplies 500.00
Bad Debts Prov. 369.96
Depreciation 500.00 2480.86
Net Income 5266.14
Working Notes :
Stock & Sales of 8TT
Stock & Sales of CT
Total Sales 8TT 711 units $7110
CT 876 units $ 11388
Total Sales 1587 units $ 18498
Depreciation calculation : (46000-4000)/7 = 6000 p.a. or 500 p.m.
2.
3. From working notes above
April Clg Stock Op. Bal. 130 5 650 130 5 650 135 5.2 702 135 5.2 702 156 5.5 858 156 5.5 858 1 Purchases 50 5 250 130 5 650 135 5.2 702 156 5.5 858 50 5 250 3 Sales -65 10 650 130 5 650 135 5.2 702 141 5.5 775.5 8 Pur 50 5 250 130 5 650 135 5.2 702 141 5.5 775.5 50 5 250 9 Sales -125 10 1250 130 5 650 135 5.2 702 66 5.5 363 12 Sales -75 10 750 130 5 650 126 5.2 655.2 17 Pur 50 5 250 130 5 650 126 5.2 655.2 50 5 250 18 Sales -120 10 1200 130 5 650 56 5.2 291.2 23 Sales -56 10 560 130 5 650 24 Pur 100 5 500 130 5 650 100 5 500 27 Sales -140 10 1400 90 5 450 28 Pur 75 5.5 412.5 90 5 450 75 5.5 412.5 30 Sales -130 10 1300 35 5 175Related Questions
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