Adirondack Adventures

29 Jun Adirondack Adventures

Question
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