Document No. 1 Transactions List December 16-31, 2009 Complete each of the following transactions in accordance with the seven-step process on pages 11-12 of the Instructions, Flowcharts and Ledgers Book. Remember the importance of the systems flowcharts on pages 18-24 for details as to (a) documents to prepare, (b) approvals and other internal control procedures, (c) accounting entries, and (d) filing. Also, remember from the requirements that some of the following events require the preparation or modification of systems documents and some do not. You are to perform the roles of Ray Kramer, Nancy Ford and Jim Adams. Hints are provided in boxed areas like this. December 16 Received validated deposit receipt (Doc. No. 11) from the bank for $7,931.96 for deposit made December 15. Follow flowchart on page 21. No recording occurs at this time. Cash receipts prelist is Doc. No. 9. File Doc. No. 9 and Doc. No. 11 in the Temporary file tab. 16 Ordered the following inventory on account from Velocity Sporting Goods, using purchase order No. 328 (Doc. No. 16). Units Description 120 Basketball pole pad 50 Basketball bag 60 Portable inflation pump 75 Trainer s first aid kit Vendor address: 1285 Colgrove Ave., Pierre, SD 57501 Freight carrier: Interstate Motor Freight Freight charges: Collect (i.e., paid by Waren Sports Supply) Allowances: None Follow flowchart on page 22. Use purchase order No. 325 (Doc. No. 16) as a guide. Use the price list (Doc. No. 3). No receiving or recording occurs at this point for this transaction. Tear document apart and file following the flowchart guidance. A
December 16 Borrowed $70,000 from First American Bank and Trust by issuing a two-year note payable (Doc. No. 14) with a stated annual interest rate of 7%. Check No. 545 (Doc. No. 8) for $70,000 was received from the bank and deposited. Reviewed the terms and conditions of the note and signed it (Ray Kramer) as the borrower. Restrictively endorse means to write the following on the back of the check: For deposit only. Waren Sports Supply. See flowchart, page 21, for recording and depositing. Detach the bottom portion of the check and file in the Shipping/Banking file tab. File the note in the Shipping/Banking file tab. 19 Received customer purchase order No. 38607 (Doc. No. 4) in the mail from University of Southern Iowa, approved their credit and shipped the goods. All goods ordered were shipped, except that only 50 shoulder pad sets were available for shipment. Carrier & number: Allied Trucking; Carrier number 2154 Freight charges: FOB destination; Billed to shipper, after delivery of goods (i.e., paid by Waren) Route: Express Truck & driver: Truck 2961XZ, Linda Arensmeier Freight rate: $15.00 per 100 lbs. Shipment: 3 cartons/goal and rim sets @ 26 lbs./carton 6 cartons/backboards @ 125 lbs./carton 5 cartons/shoulder pad sets @ 40 lbs./carton 4 cartons/football helmets @ 24 lbs./carton See flowchart, pages 18 and 19; follow all steps carefully. You will use several documents and record an entry in the sales journal and the accounts receivable subsidiary ledger for this transaction. For guidance in preparing the bill of lading, see pages 35-36 of the Reference book. 20 Received sales return request No. R8034 (Doc. No. 12) in the mail from Eastern Wisconsin University (EWU). The request was approved and the acknowledgment copy mailed to EWU. Follow the flowchart steps on page 20. A
December No 20 Increased employee wage rates, and employees changed their federal income tax withholding amounts, both effective December 16. There were no changes in filing status or withholding allowances. New Wage Rate Withholding Amt. Ray Kramer $3,600.00 semimonthly $466.71 Jim Adams $22.00 per hour $365.06 Nancy Ford $18.00 per hour $136.90 No accounting entries are necessary, but you must update the pay rate history information in the Employee Earnings Subsidiary Ledger. 22 Received merchandise from Velocity Sporting Goods as listed on purchase order No. 328. All merchandise listed on the purchase order was delivered in good condition and in the quantities ordered, except that only 70 basketball pole pads (Item No. BB-019) were received. The goods were placed immediately in the inventory warehouse. Freight carrier: Freight bill: Interstate Motor Freight No. 26425 (Doc. No. 19), received with shipment Remember to follow the flowchart on page 22. You can t record a purchase yet because the invoice hasn t been received. No 22 Received check No. 28564 (Doc. No. 8) from Branch College for payment in full for charge invoice No. 730, and deposited the check. 22 Received legal notification from Benson, Rosenbrook and Martinson, P.C., attorneys at law, that Stevenson College will be unable to pay any of its outstanding debts to its suppliers. Write off the account as a bad debt. Remember that Waren Sports Supply uses the Allowance method rather than Direct write-off for accounting for bad debts. 23 Received all goods that Waren had authorized Eastern Wisconsin University (EWU) to return on EWU s return request No. R8034 for credit against their account balance. Process and record the sales return now. 23 Received check No. 49326 (Doc. No. 8) for $10,000 from Eastern Wisconsin University in partial payment of the remaining amount (after sales return) on charge invoice No. 729, and deposited the check. Do not finalize a deposit slip until you determine whether there are other cash receipts on the same day. A
December 23 Received vendor invoice No. 34719 (Doc. No. 18) from Velocity Sporting Goods for goods ordered December 16 and received December 22. Follow the flowchart steps on page 22. Upon receiving the invoice, you can now record the purchase using the date on which Waren incurred the liability for the goods, December 22. 23 Issued check (Doc. No. 20) to Interstate Freight for the amount of the freight bill (Doc. No. 19) for the Velocity Sporting Goods shipment received December 22. Follow the flowchart steps on page 23. 23 Received check No. 18418 (Doc. No. 8) for $10,240 and customer purchase order No. P79328 (Doc. No. 4) in the mail from Wright University for a cash sale. All goods ordered were shipped and the cash sale was processed and recorded. Carrier & number: Freight charges: Route: Truck & driver: Freight rate: Shipment: Interstate Motor Freight; Carrier number 62XY404 Collect (i.e., paid by Wright University) Direct Truck 64, Dale Hoch $15.00 per 100 lbs. 5 cartons/basketballs @ 23 lbs./carton 4 cartons/hip, tail, arm pad sets @ 36 lbs./carton 2 cartons/footballs @ 16 lbs./carton Start with the flowchart on page 21. 26 Received office supplies from Chicago Office Supply as listed on purchase order No. 327 (Doc. No. 16), a copy of which is being held in accounting. Chicago Office Supply s vendor invoice No. 2378 (Doc. No. 18) was received with the goods. All supplies ordered were received in good condition and taken directly to the office, but the invoice was not paid. 29 Issued check (Doc. No. 20) to Velocity Sporting Goods for payment in full of their invoice No. 34719 for goods received December 22. Consider the credit terms before making the payment. 31 Received payroll time cards (Doc. No. 21) from Ford and Adams for the time period ended December 31 and prepared the payroll for all three employees, including paychecks. Paychecks are considered Mailed/Given to Outsiders. Timecards are filed in the Accounting file tab. A
December 31 Received the laptop computers ordered on Waren s purchase order No. 325 (Doc. No. 16) and vendor s invoice No. 2423 (Doc. No. 18) from Chicago Office Supply. The computers were received in new and undamaged condition and taken directly to the office. The estimated useful life is 5 years with no salvage value. 31 Received vendor invoice No. 72654 (Doc. No. 18) from University Athletic News for advertisements Waren ran during the Christmas season and immediately issued a check (Doc. No. 20) for payment in full. Purchase orders are not issued for services that Waren purchases. MONTH-END PROCEDURES After you have recorded all the transactions, go to page 12 of the Instructions, Flowcharts and Ledgers Book and complete all the month-end procedures. An additional month-end requirement for this project is: Monthly Statement: Prepare a monthly statement (Doc. No. 15) for East Wisconsin University. YEAR-END PROCEDURES After completing all the month-end procedures, go to page 13 of the Instructions, Flowcharts and Ledgers Book and complete all the year-end procedures. Additional information for the year-end is: No No No Ending Inventory: Bad Debt Expense: Marketable Securities: A physical inventory was taken 1/1/10, before business began for the new year. Merchandise on hand cost $191,717.00. The expense for bad debts is estimated at the end of the year as one-quarter of one percent (0.0025) of net sales. At December 31, 2009, the market value of marketable securities held by Waren approximated the cost of the securities. The project is now complete. Good Work! Review your materials to make certain everything is finalized. Complete the filing of documents, records, and working papers using the file tabs and the envelope in which the Aid is packaged. File all materials as indicated in the flowcharts. A
PRICE LISTS CURRENT AS OF DECEMBER 1, 2009 Document No. 3 VELOCITY SPORTING GOODS Item No. Description Cost Selling Price Baseball items: BA-054 Premium aluminum bat $ 139.00 $ 210.00 BA-158 Baseballs 12 game balls 42.00 63.00 BA-199 Fielding glove 46.00 66.00 BA-281 60 lb. dry line marker 65.00 93.00 BA-445 Catcher s mask 48.00 66.00 BA-507 Baseball equipment bag 27.00 38.00 BA-667 Ball bucket with seat set of 3 23.00 31.00 BA-694 Batting gloves 1 pair 24.00 34.00 BA-807 Pitching machine 164.00 235.00 BA-859 Set of bases 111.00 170.00 Basketball items: BB-008 Basketball 25.00 35.00 BB-019 Basketball pole pad 94.00 135.00 BB-113 Scoreboard and timer 258.00 400.00 BB-267 Goal and rim set 95.00 136.00 BB-358 Backboard 83.00 106.00 BB-399 Basketball net 10.00 13.00 BB-431 Whistle and lanyard set of 6 25.00 36.00 BB-538 Basketball bag 26.00 41.00 BB-688 Portable inflation pump 69.00 100.00 BB-926 Trainer s first aid kit 30.00 39.00 Football items: FB-027 Shoulder pad set 89.00 126.00 FB-091 Hip, tail, arm pad set 39.00 58.00 FB-225 Football helmet 55.00 87.00 FB-344 Football 21.00 29.00 FB-513 Portable storage locker 135.00 206.00 FB-573 Kicking tees set of 6 16.00 24.00 FB-650 Football post pad 96.00 144.00 FB-812 Collapsible cones set of 8 27.00 39.00 FB-874 Sideline repair kit 83.00 116.00 FB-952 Portable hand warmer 26.00 36.00 CHICAGO OFFICE SUPPLY Item No. Description Cost 4126 Laser printer toner cartridge $ 46.50 4733 Copier paper box 19.50 5433 Rewritable CDs box of 10 12.50 8404 Diskettes box of 30 11.50 5302 Invoice forms 100 6.00 6211 Legal pad box of 5 3.95 8843 Time cards box of 50 6.90 2342 Black ink pens box of 12 4.50 6277 Pencils box of 24 2.25 7234 4-column paper pad box of 10 15.50 12302 Laptop computer $ 2,150.00 12489 Facsimile machine with scanner 195.00 15321 High-speed copier 6,950.00 Approved By Ray Kramer
Sales and Cash Receipts
VI. vii. File documents in the appropriate file tab in the envelope in accordance with the flowchart description. See pages 5 and 6 of this book for additional filing guidance. Proceed to the next transaction. Repeat this process until you have completed all transactions on the transactions list (Document No. 1), except month-end and yearend procedures. WAREN'S MONTH-END PROCEDURES Following are the procedures performed at the end of each month by Waren's employees after all transactions are recorded in the journals and subsidiary ledgers. You are to assume the roles of Ray Kramer, Nancy Ford, and Jim Adams and perform each of these month-end procedures for December. The only materials needed are this list of seven month-end procedures, all journals and ledgers, and four items from the loose document set: blank monthly statement (Doc. No. 15), bank reconciliation for November (Doc. No. 22), December bank statement (Doc. No. 23), and the list of items clearing with the bank statement (Doc. No. 24). Set all other documents and records temporarily aside. 1. Jim Adams foots and crossfoots each of the five special journals (sales, cash receipts, purchases, cash disbursements, and payroll). 2. Jim Adams posts the column totals and individual transactions in "Other" columns to the appropriate general ledger account and updates each general ledger account balance. He places a posting reference check mark [./] under each column total in the journals and by each of the individual transactions in the "Other" columns to show that the numbers have been posted. 3. Ray Kramer prepares a bank reconciliation on a separate working paper (not provided). After receiving the bank statement (Doc. No. 23) and list of items clearing with the bank statement (Doc. No. 24) from the bank, he performs the following procedures: a. Foots that month's cash receipts and cash disbursements journals and places his initials beside the cash column total in each journal. b. Compares each entry in the cash receipts prelist (Doc. No.9) to the cash receipts journal for name, date, and amount, and puts a check mark [./] by each entry in the prelist. c. Prepares a bank reconciliation using the procedures outlined in the Systems Understanding Aid Reference book on pages 61-63. You can also use November's bank reconciliation (Doc. No. 22) as a model. Deposits in transit and outstanding checks at November 30 are listed there. d. Adjusts the cash general ledger account using the general journal, regardless of materiality, for all reconciling items requiring an adjustment. e. Attaches together and files the bank reconciliation, bank statement, list of items clearing with bank statement, and the cash receipts pre list in the file labeled "Shipping/Banking. " 12
4. Jim Adams calculates and records the unemployment taxes paid by employers, and Waren's portion of the F.I.C.A. payroll tax. These payroll taxes are calculated at the end of the month on gross payroll and recorded in the general journal. The taxes are paid the following month. Unemployment taxes are imposed on the first $7,000 of wages paid to covered employees in 2009. Thus, a review of the employee earnings subsidiary ledger on pages 40 and 41 of this book indicates that only one of Waren's employees remains subject to this tax (i.e., has not yet exceeded the wage base maximum). The same wage base maximum is used in the project for both federal and state unemployment taxes to simplify the calculations. The state unemployment tax (SUT A) rate is 2.7 percent. Because employers are allowed credits against the federal unemployment tax (FUT A) rate for participation in state unemployment programs, the net FUTA rate is 0.8 percent. 5. Jim Adams posts transactions from the general journal to the general ledger (and subsidiary if applicable), places a posting reference check mark [./] in the general journal post reference column for each item posted, and updates each general ledger balance. 6. Nancy Ford foots the balances of each subsidiary for the accounts receivable, accounts payable, employee earnings, and fixed assets subsidiaries, and compares the total to the appropriate general ledger control account (GIL accounts 10200,20100,40500, 10800, and 10900, respectively). She initials each general ledger control account to indicate that she has made the comparison. 7. Jim Adams prepares a monthly statement (Doc. No. 15) for each customer with a balance. He includes information about each unpaid invoice including its aging status. Aging totals and the total amount due are shown at the bottom. He completes the remittance advice (attached to the monthly statement) in a similar fashion except that no aging is included. Ray Kramer reviews each statement and initials it before it is mailed to the customer. In this project, you are to prepare a December monthly statement for only one customer and file it in the "Mailed to Outsiders" file tab. The name ofthe selected customer is stated in the transactions list (Doc. No.1) provided with your loose document set in this package. After completing all seven month-end procedures for December, continue to the next section and perform Waren's year-end procedures. WAREN'S YEAR-END PROCEDURES Below are the procedures followed at the end of each year by Waren Sports Supply's employees. You are to assume the roles of Ray Kramer, Nancy Ford, and Jim Adams and perform each of these year-end procedures for 2009. The only materials needed are Waren's list of year-end procedures, general journal, ledgers, year-end worksheet (Doc. No. 25), and post-closing trial balance (Doc. No. 26). All other items can be permanently filed in the envelope. All December month-end procedures must be completed before the year-end procedures are done. 1. Jim Adams prepares an unadjusted trial balance as of December 31 using the year-end worksheet (Doc. No. 25) provided in your loose document set. Be sure to include the December month-end general journal transactions in the 12-31-09 unadjusted trial balance. 13
2. Jim Adams prepares year-end adjusting entries and posts each entry to the worksheet. Below are the normal adjusting entries. Refer to your Systems Understanding Aid Reference book for further help in preparing appropriate adjusting entries. Hint: Be sure to number each adjusting entry on the year-end worksheet to make it easier to complete year-end procedure 7 later. a. Monthly Adjustments. You should already have recorded and posted payroll F.I.C.A. and unemployment taxes, and the bank service charge as part of December month-end procedures. b. Depreciation Expense. Depreciation expense is calculated once annually at the end of each year and recorded in the general journal as of December 31. The depreciation methods, estimated lives, and salvage values are documented in the fixed asset subsidiary ledger. Depreciation in the year of sale or acquisition is calculated following a half-year convention, which means that six months of depreciation is taken regardless of the amount of time the assets were actually owned during these years. c. Interest Expense. Interest on loans is paid annually on the anniversary of the note. Interest accruals are calculated using a 365-day year with the day after the note was made counting as the first day. d. Bad Debt Expense. Bad debt expense is estimated once annually at the end of each year as a percent of net sales and is recorded as of December 31 in the general journal. The percentage estimate for 2009 is stated in the transactions list (Document No.1). Waren uses the allowance method for recording the estimate of bad debts. e. Ending Inventory. A physical inventory is taken on New Year's Day before business begins for the new year. The December 31, 2009 ending inventory as counted and priced by Waren's employees is stated in the transactions list (Document No.1). For an illustration of procedures used to record cost of goods sold and adjust the inventory balance for the year-end physical count, see page 75 of the Systems Understanding Aid Reference book. f. Federal Income Tax Expense. The adjusting entry for federal income tax expense must be saved until last, after the pre-tax net income has been calculated from the worksheet. This entry will be done later, as year-end procedure 4. The 2009 corporate income tax rates are provided there. 3. Jim Adams completes the year-end worksheet through the income statement and balance sheet columns. See page 18 of the Reference book for an example of a completed yearend worksheet. 14
4. Jim Adams calculates federal income tax expense from the income statement column on the year-end worksheet, enters it in the adjustments column of the worksheet, and extends the expense and liability amounts to their respective income statement and balance sheet columns. Corporate income tax rates are subject to change annua]]y, but for 2009, assume they are 15 percent of the first $50,000 of net income, plus 25 percent of the next $25,000 plus 36 percent of all income over $75,000. 5. Jim Adams prepares financial statements in good form: statement of income and retained earnings, comparative balance sheet, and statement of cash flows (indirect method). He uses the formats suggested in the Systems Understanding Aid Reference book. 6. Nancy Ford prepares three supplementary trial balances as of December 31, which will serve as valuable information for management and the external auditors: an aged trial balance of accounts receivable, a trial balance of accounts payable, and a trial balance of fixed assets. (See pages 45, 46, 59, and 60 of the Systems Understanding Aid Reference book for information to help you prepare these trial balances.) She reconciles each of these trial balances to the general ledger. She indicates that she has performed the reconciliations by putting her initials to the right of the total on each trial balance. 7. Jim Adams posts the adjusting entries from the general journal to the general ledger. Next, he prepares and records the appropriate closing entries in the general journal and posts them to the general ledger (See pages 22-23 of the Systems Understanding Aid Reference book for guidance). Finally, he prepares a post-closing trial balance (Doc. No. 26). Kramer compares the account balances on the post-closing trial balance to the year-end worksheet and initials the trial balance on the bottom right corner to document his control procedure. \ WRAPPING UP The project is now complete. Good Work!! Review your materials to make certain everything is fmalized. Complete the filing of documents, records, and working papers using the file tabs and the envelope in which the Aid is packaged. File all materials as indicated in\ the flowcharts. 15