Chapter XXVII.. Accrued Expenses:

Accrued Expenses: Salesmen’s salaries $485. Shipping clerks’ and chauffeurs’ wages $265. Unpaid garage bills $182.50. Freight bills $55.60. Office salaries $287.50. Lighting expense estimate $25. Watchman’s and cleaners’ wages $106. Taxes $300. Prepaid Expenses: Advertising $3,000. Rent $1,250. Insurance $790. Merchants’ Association dues $50. Interest on note payable to the order of the Associated Dry Goods Co. $57.21. Interest on the note due the Merchants’ National Bank $12.50.

Accrued Income: Interest on Liberty bonds $47.50. Interest on the note of Charles L. Sutton & Co. $46.67. Word has been received from the attorneys that the note of the Silk & Dress Goods Exchange, which had been extended and not paid when presented, will be met in full with accrued interest of $42.84. Out-freight for June, $169.70. Charge depreciation as follows: 10% per annum on office and store furniture and fixtures; 20% per annum on delivery equipment. Create a reserve for bad debts equal to ½% of gross sales. Inventories were: merchandise $102,560; office supplies $257.80; shipping supplies $387.60. Charge and credit the partners with interest as per the partnership agreement.

Instructions

Do not close the books of the firm nor draw up the formal statements.

Be content for this assignment with the making of the work sheet.

Close the work sheet as usual by the transfer of the net profit from the Profit and Loss columns to the credit column of the balance sheet.

Immediately following and on the same page with the work sheet, provide for showing the distribution of profits and interest and salary adjustments. The following illustration will indicate how this may be done.

============+===============+=============+=============+============= ITEMS | PROFIT & LOSS | X PER 36% | Y PER 44% | Z PER 20% ------------+---------------+-------------+-------------+------------- Net Profit | | | | as above | $18,364| | | | | | | Salary | | | | Allowances |$ 5,400 | $2,400| $3,000| | | | | Partners’ | | | | Drawings | |$3,000 |$3,100 |$1,500 | | | | Interest on | | | | Excess | | | | Drawings | 36| 18 | 3 | 15 | | | | Interest on | 3,000 | 900| 600| $1,500 Capitals | | | | | | | | Balance | | | | Distributed| | | | in Profit | | | | and Loss | | | | ratio | 10,000 | 3,600| 4,400| 2,000 | | | | Balance of | | | | Personal | | | | accounts | | | | to Loan | | | | accounts | |3,882 | 4,897 | 1,985 ----------+---------------+-------------+-------------+------------- |$18,400 $18,400|$6,900 $6,900|$8,000 $8,000|$3,500 $3,500 +===============+=============+=============+=============

The item “Net Profit as above” is taken from the work sheet. The Profit and Loss columns, in conjunction with the detailed distributions shown in the “Partners’ Personal” columns, contain all the data needed for the appropriation section of the profit and loss statement and also for distributing the net profit shown by the Profit and Loss account. By entering the drawings in the “Partners’ Personal” columns, those columns are made to develop the amount of undrawn profits of each partner. They thus contain the same information which the respective personal accounts will contain after the ledger is closed. The work sheet, with this appended analysis of profits and partners’ personal accounts, thus contains all of the information needed both for drawing up the formal statements and for adjusting and closing the books.

XVI

Draw up a pro forma balance sheet and a statement of profit and loss for the six months for Cotten, Wooster & Company. In drawing up the balance sheet, head it as follows:

Exhibit A COTTEN, WOOSTER & COMPANY BALANCE SHEET June 30, 19—

Show the total of all customers’ accounts as “Accounts Receivable (See Schedule A-1).” Attach to the balance sheet a list or schedule of all customers’ accounts to support the title “Accounts Receivable (See Schedule A-1),” carried in the balance sheet. Give to it as a formal heading:

Schedule A-1 COTTEN, WOOSTER & COMPANY LIST OF ACCOUNTS RECEIVABLE June 30, 19—

The data for the schedule come from the customers ledger list or trial balance for June 30.

Attach schedules also for the other groups of items appearing in the balance sheet, viz.: Deferred Charges to Operation under which include in addition to the other items listed, the office supplies and packing materials still on hand; Accrued Income; Accounts Payable; and Accrued Expenses.

The use of schedules relieves the balance sheet of much detail and renders it more intelligible; it also makes the detail available if desired.

Set up the net worth section as follows:

Net Worth Represented by: C. Allen Cotten: Capital $........ Undrawn Profits (See Schedule A-6) ........ $........ -------- Scott Wooster: Capital $........ Undrawn Profits (See Schedule A-6) ........ ........ -------- Etc.

Supporting Schedule A-6 will appear as follows:

Schedule A-6 COTTEN, WOOSTER & COMPANY UNDRAWN PROFITS, June 30, 19—

============================+=========+=========+========= DISTRIBUTIONS OF PROFITS | COTTEN | WOOSTER | WOOLSEY | 36% | 44% | 20% ----------------------------+---------+---------+--------- Salary for the half-year | $ | $ | Interest on capital | | | $ Share of Profit and Loss | | | | --------| --------| -------- Totals | $ | $ | $ | --------| --------| -------- Deduct: | | | Interest on overdrafts | $ | $ | $ Drawings for the half-year | | | | --------| --------| -------- Totals | $ | $ | $ | --------| --------| -------- Undrawn profits transferred | | | to Loan Accounts | $ | $ | $ +=========+=========+=========

The data for this schedule are secured from the “Profits Distribution” section of the work sheet.

In drawing up the profit and loss statement refer to the forms already shown. See Chapters XXVI and XXVII. The Miscellaneous Sales item should be added to the Net Sales short-extended and their total should be full-extended, from which should be deducted Cost of Goods Sold as usual.

After the item, “Net Profit for the period,” set up the appropriation section, showing the shares of each of the partners, somewhat as follows:

Net Profit for the period $........

Add: Interest charged to partners on overdrafts: C. Allen Cotten $........ Scott Wooster ........ Landsdowne Woolsey ........ ........ -------- -------- Amount to be distributed as: $........

Salary: C. Allen Cotten $........ Scott Wooster ........ $........ -------- Interest on Capitals: C. Allen Cotten $........ Scott Wooster ........ Landsdowne Woolsey ........ ........ -------- In Profit and Loss Ratio: C. Allen Cotten, 36% $........ Scott Wooster, 44% ........ Landsdowne Woolsey, 20% ........ $........ -------- ------- ========

Excepting for the Accounts Receivable and Accounts Payable schedules, the detailed data for balance sheet and profit and loss statements come from the work sheet drawn up for Assignment XV. Set up the formal statements on letter size (8½ × 11) paper. Typewrite them if possible.

XVII

Using the “Adjustment” columns of the work sheet as a guide, make the adjusting entries in the general journal.

Using the profit and loss statement (including the appropriation section) as a guide, set up the closing entries in the general journal. Use the “Profits Distribution” section of the work sheet as the source of the transfer of the balances of the partners’ personal accounts to the loan accounts.

Post the adjusting and closing entries. Rule the ledger accounts. Take a post-closing trial balance of the general ledger.

XVIII

This set comprises a general journal; a sales journal, a sales returns and allowances journal, a purchase journal, a purchase returns and allowances journal, and the cash journals, for convenience bound together in one book; a note journal to be used as a posting medium for notes receivable and notes payable; and a general ledger, a purchase ledger, and a sales ledger, bound together in one book. Of the subsidiary journal blank, page 1 is for the sales journal, page 2 the sales returns, page 3 the purchase journal, page 4 the purchase returns, and pages 6-9 the cash journals. Of the ledger blank, pages 1-15 comprise the general ledger, pages 16-19 the sales ledger, and pages 20-22 the purchase ledger. The general journal will be used as previously, i.e., for the record of all items not otherwise specially provided for. The sales journal provides for analysis of the sales, the first column being the total or general column; the others, Dept. A, Dept. B, and Out-Freight, respectively. The sales returns and allowances journal makes provision for the same analysis as the sales journal except that there is no Out-Freight column, that not being used; the purchase journal columns are respectively, Total, Dept. A, Dept. B, and In-Freight, with the same column headings for the purchase returns and allowances journal, except as to In-Freight. The cash book columns will be, on the debit, General, Accounts Receivable, Sales Discount, and Harding National Bank; and on the credit, General, Accounts Payable, Purchase Discount, and Harding National Bank. The note journal will be analyzed, summarized, and posted just as the other subsidiary journals.

The deposit account carried with the Coolidge National Bank is an inactive one. For this reason no extra column is provided for it in the cash book.

Daily posting of items affecting customers’ and creditors’ accounts should be made, carefully observing the terms of credit.

The general journal is provided with six money columns, three of which are to be devoted to charges and the other three to credits. The debit columns are to be headed, Accounts Payable, Accounts Receivable, and General, respectively. The credit columns will be headed similarly but in the reverse order, having the General column close to the ledger folio column. All amounts to be posted to accounts in the general ledger should be recorded in the General column, and those affecting a controlling account in its respective column. The latter amounts should be posted to the subsidiary account immediately, but will not be posted to the controlling account until the general journal is summarized at the end of the month. Record will be made of transactions for the last month of the fiscal year, the previous eleven months being summarized in the trial balance given to start with.

The Business Equipment Corporation was organized and incorporated under the laws of the state of New York. Its fiscal year closes on December 31. A trial balance from the general ledger on November 30, 19—, shows as follows:

1 Harding National Bank $ 6,521.25 1 Coolidge State Bank 5,000.00 1 Consignment Accounts Receivable 1 Petty Cash 200.00 1 Notes Receivable 8,419.80 2 Accounts Receivable 146,838.05 2 Reserve for Doubtful Accounts $ 2,574.85 2 Investments 12,750.00 2 Notes Receivable Special 3 Department A, Inventory 78,769.40 3 Department B, Inventory 52,918.25 3 Delivery Equipment 13,000.00 3 Depreciation Reserve Delivery Equipment 8,000.00 4 Store and Warehouse Furniture and Fixtures 4,500.00 4 Depreciation Reserve Store and Warehouse Furniture and Fixtures 2,000.00 4 Office Furniture and Fixtures 1,250.00 4 Depreciation Reserve Office Furniture and Fixtures 500.00 5 Buildings 60,000.00 5 Depreciation Reserve Buildings 15,000.00 5 Land 10,800.00 5 Mortgage on Real Estate 35,000.00 6 Notes Payable 6,472.50 6 Accounts Payable 94,969.17 6 Dividends Payable Common 6 Dividends Payable Preferred 7 Capital Stock Common 100,000.00 7 Capital Stock Preferred 100,000.00 7 Surplus 34,792.80 8 Profit and Loss 9 Department A, Purchases 478,860.00 9 Department A, Purchases Returns and Allowances 15,678.90 9 Department B, Purchases 397,725.00 9 Department B, Purchases Returns and Allowances 12,796.40 10 In-Freight and Cartage 9,642.57 10 Department A, Sales 567,819.60 10 Department A, Sales Returns and Allowances 10,649.30 10 Department B, Sales 471,932.40 11 Department B, Sales Returns and Allowances 7,427.80 11 Salesmen’s Salaries and Commissions 29,942.70 11 Salesmen’s Traveling Expenses 17,897.60 11 Advertising 22,000.00 12 Sales General Expense 23,649.30 12 Out-Freight 472.73 12 Insurance 7,562.40 12 Office Expense 2,890.78 13 Office Supplies 3,697.40 13 General Expense 12,897.48 13 General Salaries 32,894.72 13 Interest and Bank Expense 2,344.52 586.13 14 Sales Discount 15,849.50 14 Bad Debts 14 Depreciation 14 Purchase Discount 10,297.80 15 Taxes 15 Mortgage Interest 1,050.00 15 Consignment 15 Consignment-Out ------------- ------------ $1,478,420.55 $1,478,420.55 ============= =============

Instructions

Open all the above accounts in your general ledger, at the places indicated, and enter under date of December 1 the balances given in the trial balance. The number in front of the account title indicates the page on which to enter the accounts. Give each one-fourth of a page, except on page 2, where give Accounts Receivable two additional lines by shortening the space for Investments.

In the sales ledger (which is controlled by the Accounts Receivable account on the general ledger), beginning on page 16, open the following accounts, four to a page, and enter the balances as of December 1:

Alexander, Hill & Co. $ 10,187.60 Automatic Pencil Sharpener Co. 1,279.00 Browne Morse Co. 4,279.85 Clark & Smith 6,798.94 General Fireproofing Co. Hall, Walter & Co. 2,967.09 Franklin Moffit Co. 22,897.42 Peerless Motor Co. John B. Scrivener Standard Truck Co. 217.90 Second Third National Bank 650.00 Willis, Dickson, Inc. 14,679.80 Yonkers Carpet Works Sundry Customers 82,880.45 ----------- $146,838.05 ===========

In the purchase ledger (which is controlled by the Accounts Payable account on the general ledger), beginning with page 20, open the following accounts, four to a page, and enter the balances as of December 1:

American Banking Machine Co. $ 7,894.20 American Duplicator Co. 2,985.75 American Kardex Co. 6,732.84 Automatic Pencil Sharpener Co. 480.00 Apex Office Supply Co. 2,797.90 Dictation Devices Co. 5,724.75 Filing Systems & Cabinet Co. 6,894.80 Library Bureau 7,894.90 Protectograph Co. 2,147.35 Yawman & Erbe Mfg. Co. 10,897.50 Sundry Creditors 40,519.18 ----------- $ 94,969.17 =========== The two accounts, “Sundry Customers” and “Sundry Creditors,” are used to secure volume of transactions without involving too great detail. They should be treated in all respects as personal accounts.

In the notes receivable journal, enter the following notes:

No. 84, made by Clark & Smith in our favor, for merchandise, dated September 18, 19—, for three months at 6%, amount $1,987.50.

No. 87, made by Hall, Walter & Co., in our favor, for goods purchased, dated October 5, at 6% for two months, amount $2,500.

No. 88, draft drawn by the company on Willis, Dickson, Inc., dated October 28, at 60 days, amount $2,750.

No. 91, made by Franklin Moffit Co., in our favor, for merchandise, dated November 15, at 6% for 30 days, amount $1,182.30.

Total the “Amount” column and rule it off as this amount is already in your general ledger “Notes Receivable” account.

In the notes payable journal, enter the following notes:

No. 32, made by the company in favor of the Yawman & Erbe Mfg. Co., dated October 15, for two months for $1,472.50 at 6%.

No. 31, made by the company in favor of the Harding National Bank for discount, dated October 20, at 6% for 60 days, amount $5,000.

Enter these in the notes payable journal and treat as with notes receivable above.

Your books, general and subsidiary, will now show the condition as at the beginning of business December 1.

XIX

Make record in the various books of original entry of the following transactions for December, figures at left margin indicating day of month. Where needed, directions appear at the close of each assignment.

Dec. 1. Sold Browne Morse Co., 1/10, n/30, $1,538.40 (A), and $408.75 (B) on which the company prepaid freight and charged to them $58.85. Received on account from Willis, Dickson, Inc. $2,000. Paid cash on account to American Banking Machine Co., $2,000. 2. Bought of the Yawman & Erbe Mfg. Co., 2/5, n/20, $2,989.80 (A), and $3,347.65 (B). Sold Clark & Smith, 2/10, n/60, $3,276.40 (A), and $1,562.32 (B). Received cash on account from Alexander, Hill & Co., $3,500. Paid cash on account to Filing Systems & Cabinet Co. $2,000. 3. Sold General Fireproofing Co., 1/5, n/30, $2,190, (A). Received cash from Sundry Customers $5,547.80. Paid American Kardex Co. $3,500 on account. 5. Sold Hall, Walter & Co., 3/10, n/30, $1,279.60 (A), and $390.45 (B). Received payment on Hall, Walter & Co. note No. 84, with interest. Browne Morse Co. paid their bill of December 1, less 1%. Paid American Duplicator Co., November balance less 1%. Received $2,497.80 from Sundry Customers. 6. Bought of the Automatic Pencil Sharpener Co., 4/10, n/30, $679 (B). Bought from Apex Office Supply Co., 1/10, n/30, $1,497.80 (A), and $896.45 (B). Sold Peerless Motor Co., 1/10, n/60, $2,679.40 (A), and $1,243.70 (B), with prepaid freight charged them $22.90. Received $2,500 on account from Willis, Dickson, Inc. Gave our 30-day note No. 33, at 6%, in favor of Library Bureau, to apply on account, $3,000. Paid Sundry Creditors $8,191.75. 7. Sold Second Third National Bank, 1/5, n/60, $425 (B). Paid Yawman & Erbe bill of December 2, less 2%. Received from Sundry Customers $2,976.80 on account. Sold Browne Morse Co., 1/10, n/30, $1,215.60 (A), and $671.15 (B). Clark & Smith returned goods, invoice of December 2, $127.50 (A), and $16.18 (B). General Fireproofing Co. paid their invoice of December 3 less 1%. Second Third National Bank paid their November balance less 1%. 9. Bought of Dictation Devices Co., 1/10, n/30, $3,784.90 (A), and $1,781.19 (B). Paid cash for insurance $275. In making a deposit at the bank, a $20 note was found to be counterfeit. 10. A note receivable for $2,500 was received from the president, due in six months at 6% in return for a loan made to him by the company. Sold Automatic Pencil Sharpener Co. $896.40 (B), 1/5, n/30. Received cash on account from Franklin Moffit Co. $7,500. Browne Morse Co. paid $2,000 on account. Paid Apex Office Supply Co., $2,500 on account. 12. Bought of the Protectograph Co., n/60, $2,976.80 (B). Sold Alexander Hill & Co., 2/5, n/30, $1,569.70 (A), and $972.80 (B). Hall, Walter & Co. returned goods, invoice of December 5, $92.78 (A), and $121.47 (B). Received balance from Clark & Smith, invoice of December 2, less 2%. Paid Yawman & Erbe Mfg. Co. $5,000 on account; and Dictation Devices Co. $2,500. The Second Third National Bank paid their invoice of December 7, less 1%. 13. John B. Scrivener, the secretary, withdrew for his home use $125.80 (A), and $48.90 (B). Sold Browne Morse, 1/10, n/30, $894.65 (A) and $1,292.45 (B). Returned to Automatic Pencil Sharpener Co. $207 (B) of the invoice of December 6. Paid $890 for changing the partitions in the warehouse. Took from stock a new sofa, $275 (A) for use in salesrooms. 14. Purchased from American Banking Machine Co., 3/10, n/30, $1,472.85 (A), and $4,561.40 (B). Sold Standard Truck Co., 1/10, n/30, $684.90 (A), and $516.75 (B), with prepaid freight charged them $62.81. Received $2,500 on account from Franklin Moffit Co. Paid Protectograph Co. $2,000 on account. 15. Sent a consignment of Department A goods, $1,200 to G. A. Roberts, to be sold on a 5% commission basis. Drew a 30-day sight draft on Alexander Hill & Co. to apply on account, $2,500, which was accepted. Hall, Walter & Co. gave a 30-day 6% note for balance of their bill of December 5, less 3%. The Franklin Moffit Co. note was paid with interest. Received from Automatic Pencil Sharpener Co. in full settlement, the net balance due as shown by their two accounts, advantage being taken of the discounts both ways. Paid Yawman & Erbe note due today with interest.

Instructions

December 5. Record the interest received from Notes Receivable in the Interest and Bank Expense account.

December 10. Be sure to enter the note received from the president to the correct account.

December 13. For stock withdrawn for use of business, make entry in the general journal.

December 15. Transfer through the general journal the claim of the Automatic Pencil Sharpener Co. to their account in the sales ledger, taking into consideration the sales discount to be allowed and the purchase discount to be taken. Remember to record these amounts in the proper columns. The balance of the latter account will be offset by the credit from the cash receipts journal.

XX Dec.

16. Bought from American Kardex Co., 3/10, n/30, $629.50 (A), and $350.40 (B). Bought on account of the Yonkers Carpet Works, n/90, carpets and floor materials for showrooms. They charged $890 for the carpets, etc., and $125 for labor in laying them, with freight prepaid by them and charged to the company of $22.80. Returned to the Protectograph Co. $258 (B). Gave Apex Office Supply Co. 30-day note at 6%, for bill of December 6, less 1%. The Peerless Motor Co. paid their bill of December 6, less 1%. 17. Sold Franklin Moffit Co., 1/10, n/30, $987.40 (A), and $1,642.70 (B), with prepaid freight charged them $62.15. Paid in-freight and cartage bills to date $569.47. 19. Bought of American Duplicator Co. $4,897 (A), n/60, with prepaid freight $297.69. Sold Willis, Dickson, Inc., n/10, $892.50 (A), and $274.90 (B). The Clark & Smith note was paid with interest. Browne Morse Co. gave the company a 30-day 6% note for the bill of December 7, less 1%. Drew from stock for completing showrooms, furnishings $2,790 (A), and $650 (B). Hall, Walter & Co. paid the company $100 for the use of one of the motor trucks for the week. Alexander, Hill & Co. paid their bill of December 12, less 2%. Gave Dictation Devices Co. $2,500, 30-day note at 6% and the balance in cash, in settlement of invoice of December 9, less 1%. Paid note due at bank today. 20. Sold Sundry Customers to date receiving full cash payments $2,447.50 (A), and $1,679.35 (B). Sold Yonkers Carpet Works Co., 1/10, n/30, $889.70 (A), and $632.40 (B). Paid American Banking Machine Co. $5,000 on account. 21. Returned to American Banking Machine Co. $289.50 (A), and $186.70 (B), of invoice of December 14. The company accepted the draft, to apply on account, drawn by the American Kardex Co., at 60 days from December 18, for $2,500. Paid Filing Systems & Cabinet Co. $2,500 on account. 22. Bought from Filing Systems & Cabinet Co., 3/10, n/30, $3,695 (A), and $4,272 (B), with prepaid freight charges of $116.74. Sold Clark & Smith, 2/10, n/60, $1,462.80 (A), and $1,937.60 (B). Hall, Walter & Co. paid $1,000 on account. Browne Morse Co. returned goods $197.60 (A), and $59.70 (B). 23. Word was received that one of our Sundry Customers has gone into the hands of a receiver, owing $490, and settlement with creditors was made on the basis of 40% of all claims, cash being received for that amount. Bought of Library Bureau, 1/10, n/30, $2,897 (B). Sold Alexander, Hill & Co., 1/10, n/30, $1,785.90 (A), and $2,476.80 (B). Paid Library Bureau $3,000 on account. Browne Morse Co. paid balance of their bill of December 13, less 1%. 24. The company discounted its note at the Harding National Bank for 60 days at 6%, $5,000. Paid balance on American Banking Machine Co. bill of December 14, less 3%. Bought of Yawman & Erbe Mfg. Co., 2/5, n/20, $4,567.90 (A), and $976.50 (B). Received on cash sales $458.60 (A), and $1,124.70 (B). Received a check from Willis, Dickson, Inc., for $5,000. Paid Yawman & Erbe Mfg. Co. $5,000. Standard Truck Co. gave a 30-day note at 6% for bill of December 14, less 1%. 27. We called to the attention of Willis, Dickson, Inc. an undercharge of $100 in the bill of December 19 in the Department B sale. Returned merchandise to Sundry Creditors $1,910 (A), and $897.50 (B). Sundry Customers returned goods $619 (A), and $1,490 (B). Paid advertising $2,000. Paid cash for purchases $4,209 (A), and $2,010.70 (B). Franklin Moffit Co. paid $5,000 on account. The Willis, Dickson, Inc. draft was given to the bank for collection. 28. The Willis, Dickson, Inc., draft was sent back because of insufficient funds. Protest fees paid by the bank and charged to the company were $2.50. Sold Sundry Customers, n/30, $5,196.40 (A), and $8,927.30 (B). Paid the American Kardex Co. bill of December 16, less 3%. Received payment from Clark & Smith for bill of December 22 less 2%. Paid the Filing System & Cabinet Co.’s bill of December 22, less 3%.

Instructions

December 16. Record the purchase made from the Yonkers Carpet Works in the proper column of the general journal. Charge Sales General Expense.

December 19. Credit the income received for the use of the motor truck to Sales General Expense.

December 23. Refer to page 411 of the text as to the handling of the balance of the firm’s claim against the bankrupt customer.

December 24. Cash sales will be recorded in the sales journal and included in the debit to Accounts Receivable account at time of summary. To offset this inflated debit, at the time cash sales are recorded also in the cash book the amount will be entered there in the Accounts Receivable column—not the General Ledger—and will thus be included in the credit to the Accounts Receivable account.

December 27. Record the Willis, Dickson, Inc. undercharge in the sales journal.

The entry of cash purchases is similar to that of cash sales.

XXI Dec. 29. Upon presentation at the office of Willis, Dickson, Inc., the draft due December 27 was paid with the protest charge. Bought from Library Bureau, 1/10, n/30, $3,297 (B), with in-freight $269.87. Made partial payment to Yonkers Carpet Works $300. 30. Bought of Sundry Creditors, n/30, $11,816.80 (A), and $16,519.70 (B). Sold Sundry Customers, n/30, $32,279.90 (A), and $26,819.40 (B). Yonkers Carpet Works paid their invoice of December 20 less 1%. Received cash from sale of old showroom fixtures $1,450. The fixtures cost $2,500 five years ago and have been depreciated at the rate of 10% per annum since that time. Received a check for $317.90 from Standard Truck Co.; and checks and cash from Sundry Customers $53,606.97, less $897.48; to one of whom we issued check for $25 due to inability to make change. 31. Reimbursed petty cash for cash vouchers $116.80, and distributed same: $62.40 to Sales General Expense; $23.10 to Office Expense; and the balance to General Expense. Paid Sundry Creditors, invoices of $29,467.45, less $842.90 discount. Paid sales salaries $4,200; salesmen’s traveling expense $3,872.80; sales general expense $748.45; general salaries $3,764.90; advertising for January $2,000; general expense $1,714.92; office expense $482.70; interest and bank expense $86.80; office supplies $287.95.

The statement from the bank as of December 31 showed the following:

Items not entered on the Business Equipment Corporation books:

Interest credited, $24.79 Collection charges, 2.36

Checks outstanding: #1296, $1,347.60 #1314, 75.80 #1315, 16.82 #1318, 192.47 #1329, 181.64 #1331, 296.70 #1342, 897.60

A check from a sundry customer for $100, deposited on December 30, was returned by the bank as uncollectible. The company had not yet been informed of this.

Balance by bank was $14,848.73.

Reconcile the bank statement with the cash book balance shown previous to the entry in the cash book of any items from the bank statement, and determine the true cash balance.

Summarize all books of original entry. Posting of these summary entries and any other unposted items will be deferred to the next assignment.

Instructions

December 30. Refer to pages 416-418 of the text as to the proper record to be made of the sale of the old showroom fixtures. Credit the gain on this sale to the Sales General Expense.

December 31. The amount of check for $25 is included in the amount received from sundry customers.

In summarizing the general journal, first foot all the columns and underline the totals. On the following lines write the summary entry which will appear as follows:

General General ...... General Ledger ✔ ...... Accounts Receivable ...... Accounts Payable General Ledger ........ Accounts Receivable ........ Accounts Payable ........

Since the items making up the “General Ledger” totals have already been posted, these totals will be checked and will not be posted.

In summarizing the sales journal, the cash sales need not be segregated from the credit sales in the summary entry, inasmuch as the inclusion of such receipts in the total to be posted to Accounts Receivable from the cash receipts journal will eliminate the inflation of the claims against customers shown by the controlling account.

The purchase journal will be summarized in the same way as the sales journal.

The items shown on the bank statement but not yet entered in the cash book are to be entered there before summarizing the cash book. See page 562 for instructions as to its summary.

For summarizing the other journals follow the explanations given in Chapter XXXI.

XXII Post completely.

Take a trial balance of the general ledger, recording it on a double sheet of journal paper. When posting customers’ and creditors’ accounts, make sure that the corresponding controlling accounts will receive, either in totals or in items, the same amounts.

Prove your sales and purchase ledgers and record the proof with the general ledger trial balance, i.e., make a list or schedule of the accounts and show the list totals as agreeing with their respective controlling account balances in the general ledger trial balance.

XXIII

Prepare a work sheet for the year ending December 31, 19—, taking the following adjustments into consideration:

Accrued Expenses: Salesmen’s salaries $385. General Salaries $416.90. Amount due on repairs to building $500. Mortgage interest $1,050. Interest on notes: Library Bureau note $12.50; Apex Office Supply Co. note $5.92; Dictation Devices Co. note $5. Accrued freight bills $824.34. Accrued taxes $378. Chauffeurs’ wages $160.60. Garage bills $216 ($100 for gasoline and balance for repairs). Automobile tire $90.

Prepaid Expenses: Interest on note discounted at the Harding National Bank $44.17. Advertising $2,000. Insurance $2,867.90. Prepaid dues to Merchants’ Association $50.

Accrued Income: Interest on following notes: notes receivable special $8.75; Hall, Walter & Co. $3.77; Browne Morse Co. $3.73; Standard Truck Co. $1.46. Bank interest on inactive deposit with Coolidge State Bank $24.36. Upon analysis, $387.86 of the freight bills was found to be out-freight. Take into account depreciation at the yearly rates of: 3% on buildings; 20% on delivery equipment; 10% on office furniture and fixtures. No depreciation is to be charged on the store and warehouse furniture and fixtures just installed. Create a reserve for doubtful accounts equal to 1/2% of net sales. Inventories showed the following on hand: Department A $79,897.80; Department B $51,764.32; office supplies $296.45. In-freight was apportioned between the departments on the basis of net purchases. Charge 90% of insurance expense to selling expenses.

In answer to our request, G. A. Roberts submitted the following information regarding his consignment:

Sales to customers $800.00 Expenses paid by him: Freight and drayage $58.22 Insurance 12.54

A formal account sales will not be rendered till completion of sales of entire consignment. The quantities of unsold articles reported showed, upon pricing, a valuation of $600. Word was also received that a check for the amount due on sales as above would follow immediately after certification by the bank. It was decided to defer one-half of the above expenses reported by the consignee as applicable to the remainder of the consignment.

The Board of Directors declared the regular semiannual dividend of 4% on the preferred stock, payable January 25, and a 4% dividend on the common stock, also payable January 25.

Analysis, based on vouchers and invoices, showed the following content of the Sales General Expense account before adjustment:

Garage rent $1,800.00 Chauffeurs’ wages 8,969.34 Shipping clerks’ wages 2,775.13 Gasoline and oil 2,491.68 Licenses, Trucks 96.00 Repairs 895.46 Stationery, supplies, and postage 1,237.29 Tires and tubes 714.78 Crates, boxes, and shipping supplies 1,374.30 Light and heat 3,775.37 Carpets and labor for showroom 1,037.80 Sundries 330.80 Profit on sale of old storage and warehouse furniture and fixtures 200.00 Renting of truck 100.00

Likewise, a similar analysis of the General Expense account before adjustment showed the following distribution:

Cleaners’ and watchman’s wages $4,369.75 Repairs to buildings 2,174.65 Changes in partitions 1,215.79 Auditor’s fees 1,500.00 Legal fees 2,500.00 Contributions 1,000.00 Light and heat 1,869.43 Merchants’ Association dues 100.00 Sundries 824.08

Instructions

Refer to Chapter XLVIII of the text as to consignments. In this case make use of the Consignment Accounts Receivable account for recording the claim against the consignee, and be careful to charge the proper amount of expenses against the income to be taken into the earnings for this period. Handle the deferred expense items on the consignments in the Out-Freight account. Do not forget to adjust the memorandum accounts so that they will show the value of goods still out on consignment, and take the latter amount into consideration when setting up the final inventories on the books.

XXIV

Using the work sheet as a guide, draw up pro forma balance sheet and statement of profit and loss for the year ending December 31, 19—. Show the gross profit on the sales of each department. Support both the balance sheet and the profit and loss statement with properly set-up schedule.

Instructions

Balance Sheet. Where the number of accrued and deferred items is small, they may be shown on the face of the balance sheet or in attached schedules as preferred. See page 577 for form of schedules.

Profit and Loss Statement. Where the record of the period’s business has been made by departments, it is desirable that the summary for the period show departmental results, at least so far as the gross profit stage. To get rid of the detail on the face of the statement, schedules may be appended showing such items as Cost of Goods Sold, the group of Selling Expenses, the group of General Administrative Expenses, etc. Such a statement of profit and loss, supported by schedules, is called a condensed profit and loss statement. Such a statement for a departmental business is shown by the following illustration. Only Schedule B-1 is given; the other schedules are merely lists with their totals shown.

Exhibit B JACKSON EDWARDS COMPANY STATEMENT OF PROFIT AND LOSS For the Year Ending December 31, 19—

Department Department Total A B Sales $100,000.00 $150,000.00 $250,000.00 Less—Returns and Allowances 5,000.00 6,000.00 11,000.00 ----------- ----------- ----------- Net Sales $ 95,000.00 $144,000.00 $239,000.00 Cost of Goods Sold (Schedule B-1) 60,000.00 90,000.00 150,000.00 ----------- ----------- ----------- Gross Profit $ 35,000.00 $ 54,000.00 $ 89,000.00 =========== =========== Selling Expenses (Schedule B-2) $ 35,000.00 General Administrative Expenses (Schedule B-3) 20,000.00 Financial Management Expenses (Schedule B-4) 5,000.00 60,000.00 ----------- Financial Management Income (Schedule B-5) 2,000.00 58,000.00 ----------- ----------- Net Profit $ 31,000.00 ===========

Schedule B-1 JACKSON EDWARDS COMPANY COST OF GOODS SOLD For the Year Ending December 31, 19—

Department Department Total A B Inventory, January 1, 19— $12,000.00 $ 18,000.00 $ 30,000.00 Purchases 60,000.00 87,500.00 147,500.00 In-Freight 3,500.00 5,000.00 8,500.00 ----------- ----------- ----------- $75,500.00 $110,500.00 $186,000.00 ----------- ----------- ----------- Deduct: Purchase Returns $ 2,000.00 $ 3,000.00 $ 5,000.00 Inventory, December 31, 19— 13,500.00 17,500.00 31,000.00 ----------- ----------- ----------- $15,500.00 $ 20,500.00 $ 36,000.00 ----------- ----------- ----------- Cost of Goods Sold $60,000.00 $ 90,000.00 $150,000.00 =========== =========== ===========

In preparing the schedules of expenses, refer to the previous assignment for the analysis of the Sales General Expenses and General Expense accounts.

Analyze the Interest and Bank Expense account into expense and income, and show these items separately in the statements.

XXV

Adjust and close the ledger through the general journal in accordance with the data given in Assignment XXIII.

XXVI

1. The sales of the Radcliffe Company last year January to June, amounted to $752,465. It is estimated that the price level for the current year will be 10% lower than a year ago. Due to plans for increased publicity and sales effort, it is expected that the volume of sales for the corresponding period this year will be 15% larger than last year’s. The average rate of turnover is 3½ and the mark-on is 35%.

What will be the average amount of capital required to finance the merchandise stock?

2. In establishing a buying quota for a three-month period, the Gotham Novelty Company has available from its records the following data: present inventory at retail $79,800; sales corresponding period last year $316,000; estimated sales volume this year same as last but 15% less in value. It is thought that the rate of turnover can be increased. It is therefore decided to reduce the stock carried so that at the close of the period there will be on hand a stock 20% less in volume.

Assuming that the price level is 15% less at the end of the period and that the mark-on is 40%, determine the company’s buying quota for the period.

3. The sales representative of the Natty Uniform Company is making his regular call on the Salem Dry Goods Co., whose buyer has just secured the following data from the accounting department:

Salesroom stock on hand at beginning of period $32,000. Additions to salesroom stock to date $45,000. Sales to date $52,000. Stocks in transit and on present order $15,000 There is no stock in the warehouse. Planned sales for the period are $75,000 but a revised estimate calls for a 10% increase. Stock planned to be on hand at the end of the period is $25,000.

Is the buyer open to buy and, if so, how much?

4. Your Notes Receivable account shows $25,000 of customers’ notes on hand. Being in need of cash you discount $10,000 of these at the bank, receiving therefor a credit of $9,750 in your bank account. Fifteen days later the bank notifies you that $4,000 of these notes have been paid by their makers at maturity, but that a note for $1,000 signed by J. B. Grant has been charged back on account of non-payment.

Make all the entries, in journal form, to record the above.

5. On April 1, 19—, Jones of Trenton, N. J., ships an invoice of goods to Smith in New York. The goods are valued at $2,000, and the consignor pays freight amounting to $40, and insurance $30. The consignee pays cartage amounting to $50, and storage $40. On April 2, Jones draws a 30-day draft against Smith for $500, which is duly accepted on April 5. The goods are sold for $2,700. Smith’s commission is 5%.

Set up the necessary accounts both on the books of the consignor and on those of the consignee properly to reflect the above transactions.

6. Prepare the closing entries for the following consignment sale. The consignment was received July 8, account of William Nevins & Co., showing an invoice value of $3,750. You paid freight and cartage $87.50, and insurance $18.75. Sales were made July 16, $1,000, and July 25, $1,525, on a 5% commission basis. On July 31, upon closing your books, you inventory the unsold balance of the consigned goods as $2,500.

7. From the following data, relating only to customers and creditors, prepare as of December 31, 19—, Accounts Receivable and Accounts Payable accounts. Indicate in folio column the book of original entry from which each item is obtained.

1. Accounts receivable, balance January 1, 19— $1,200.00 2. Accounts payable, balance January 1, 19— 1,350.00 3. Sales 4,000.00 4. Purchases 2,500.00 5. Return sales 200.00 6. Return purchases 100.00 7. Cash received from customers 3,200.00 8. Discount allowed customers 100.00 9. Cash paid creditors 1,800.00 10. Discount allowed us 50.00 11. Customers’ notes indorsed to creditors 500.00 12. Notes received from customers 600.00 13. Freight paid by us for customers 40.00 14. Cash received from creditor for overpayment 20.00 15. Customer’s check deposited returned by bank 300.00 16. Customer’s note indorsed to creditor (see item 11) dishonored and returned 250.00 17. Protest fees on above 5.00 18. Allowance for damages on goods purchased 30.00 19. Cash returned to customer for overpayment 10.00 20. In item 3 (Sales) included in total sales was one to creditor 100.00

XXVII

1. An investment company purchased for investment $100,000 of 6% 10-year municipal debentures at 96, and $200,000 of 5% industrial bonds, 15 years to run, at 104.

How would you treat the discount and the premium in the accounts? Give the journal entries.

2. The authorized capital stock of a corporation is $500,000, divided into 5,000 shares, par value $100. Of this amount $400,000 has been subscribed and paid for in full. The corporation purchases ten shares of a dissatisfied stockholder for $75 a share, and five other stockholders each donate five shares to the company. Five shares of the purchased stock and all of the donated stock are sold for $50 a share.

(a) Draft proper entries and show the ledger accounts and balances. (b) How would the balances of the accounts in (a) appear in a balance sheet? (c) Give the entries and show the ledger accounts and balances if the capital stock were of no specified par value, but 5,000 shares had been issued at $80 and the other conditions remain as stated in the first paragraph. (d) How would the balances of the accounts in (c) appear in a balance sheet?

3. J. B. Brown and L. C. Smith are partners, and in order to raise more capital and to preserve the organization they decide to incorporate. A company was duly incorporated under the name of The Eclipse Company, with an authorized capital of $800,000 divided into 8,000 shares of the par value of $100 each.

The partners agreed to sell for the sum of $800,000, payable in capital stock of the corporation at par, all rights to and title in the net assets of the partnership, exclusive of the cash, which was divided between the partners in proportion to their several interests at the time of the sale of the property.

According to the articles of partnership, Brown and Smith were equally interested in the assets, but the profits and losses were on a basis of 60% and 40% respectively.

The partnership balance sheet at the time of the sale was:

Assets Liabilities Land and Buildings $200,000.00 Notes Payable $100,000.00 Cash 10,000.00 Accounts Payable 40,000.00 Inventories 100,000.00 Brown’s Capital 210,000.00 Accounts Receivable 150,000.00 Smith’s Capital 210,000.00 Machinery and Equipment 100,000.00 ----------- ----------- $560,000.00 $560,000.00 =========== ===========

For the purpose of providing working capital, the partnership donated $300,000 of the capital stock to the corporation, which was sold at $50 per share.

You are required to:

(a) Close the partnership books, showing ledger accounts of partners only. (b) Open the corporation books. (c) Prepare a balance sheet of the corporation before sale of donated stock. (d) Prepare a balance sheet after sale of donated stock.

4. Before making the charges referred to below, the Profit and Loss account of a corporation for the year shows a credit balance of $60,000. The accounts receivable are $40,700, and the plant and machinery account is $55,000. The 6% preferred stock is $50,000, and the common stock $150,000. It is decided:

1. To provide out of the above-named profit and loss balance 7½% depreciation on plant and machinery. 2. To write off as uncollectible $1,500 of the accounts receivable, and to make a reserve of 2% of the remainder of the accounts receivable to provide for possible losses thereon. 3. To provide for the preferred stock dividend for the year. 4. To provide for a bonus of $7,500 to the employees. 5. To provide for a dividend on the common stock of 15% for the year. 6. To carry the balance then remaining on the Profit and Loss account to an Undivided Profits account.

Draft entries to comply with the above provisions.

5. A has $5,000 invested in a business. He sells B a half-interest for $3,000 and keeps the money. Make the entry.

6. Jones and Johnson form a copartnership, January 1, 19—, each investing $10,000. April 1, Jones pays in an additional $2,500, and Johnson draws out $1,500. August 1, Johnson pays in $3,000, and Jones withdraws $1,000. The profits for the year ending December 31, 19— are $5,000.

Prepare statements showing each partner’s investment and portion of profits, the profits being divided in proportion to capital invested and the time it is employed.

7. A, B, and C agree to start in business with a capital of $200,000, of which A is to furnish $100,000, and B and C $50,000 each. A is to have one half-interest in the business, and B and C each one-quarter. Interest at 5% is to be credited on excess, or charged on deficiency of capital. A contributes $100,000; B $45,000; and C $40,000.

How would the capital accounts stand on the books after adjusting the interest at the end of the year?

8. A and B are partners sharing losses and gains equally. A invested $3,000, and B invested $4,000. They are ready to wind up the business. The firm owes $5,000, of which $1,000 is due A and $500 is due B. They have $7,000 in cash.

Prepare the accounts showing the closing.

XXVIII

1. The cash book of the Chicago Grocery Company on December 31, 19—, shows a balance of $10,280.72 on deposit with the National City Bank of New York. The bank statement received by the firm as of the same date shows a credit balance of $9,707.15.

The firm finds that the following checks had not cleared:

Check 1264 $ 4.00 1329 52.80 1499 1,080.70 1510 108.07 1511 2,500.00 1512 3,281.70 1513 2,223.77 1514 100.80 1515 150.17

The bank statement also shows the following items not entered in the company’s cash book:

Charges: Telegram $ 1.80 Collection charges (5 items) 1.17 Check of Central Wholesale Grocery Co. 80.79

Credits: Interest on daily balance for December 8.18

The company had mailed to the bank a note, due December 31, payable to the National City Bank of New York and had taken credit for it in the sum of $10,000. The bank had not yet credited the item.

Prepare a reconciliation statement.

2. John Doe commenced business with a cash capital of $15,000. At the close of the first fiscal period the ledger accounts (except Cash and Capital) were: Accounts Receivable $4,312.50; Merchandise, debit balance $5,062.50; Accounts Payable $5,375; Expense $900. Doe’s net loss for the period was $2,775, and his sales were $50,000.

Prepare a statement of assets and liabilities and the profit or loss.

3. From the books of Messrs. Deas & Alexander, which are kept by single entry, the following balance sheet as at June 30, 19— was taken:

Assets Liabilities Cash in Bank and Accounts Payable $10,300.00 on Hand $10,800.00 Capital Accounts: Accounts Receivable 16,032.00 Deas $ 3,263 Inventories 29,980.00 Alexander 51,249 54,512.00 Buildings and ------- Equipment 8,000.00 ---------- ---------- $64,812.00 $64,812.00 ========== ==========

It was agreed that the partnership would be dissolved as at October 31 of the same year, but that Alexander would continue the business. It was further agreed that Deas would be paid the balance to his credit at June 30, 19—, together with a sum of $5,000 to cover his interest in the good-will of the business and his profit up to October 31, which latter was estimated at $1,200. From this amount, however, his drawings, amounting to $800, were to be deducted.

The following balances were shown on the books at June 30 of the next year: Cash in Bank and on Hand $8,310; Accounts Receivable $12,203; Inventories $29,143; Buildings and Equipment $8,103; Accounts Payable $8,706.

You ascertain that on April 30 of this year, merchandise valued in the books at $500 was destroyed by fire. As this loss was not covered by insurance, Mr. Alexander reduced the book value of his inventory to take care of the loss.

The additions to the buildings and equipment during the year cost $503, but the book value of these assets was reduced by the sum of $400 to take care of depreciation.

Alexanders personal drawings during the year amounted to $2,500.

You are instructed to prepare a balance sheet for Alexander as at June 30, 19—, a year after the balance sheet first given, together with statement showing profit or loss for the year and the distribution of same. You are also required to write up Alexander’s capital account for the year to June 30, 19—.

No value is to be placed on the good-will.

4. A machine costing $12,000 was estimated to have a life of twelve years with a residual value of $1,500. At the close of each year a charge of $875 was made to depreciation, and a like amount credited to “reserve” for depreciation. Just prior to closing the books at the end of the twelfth year the machine was discarded and sold for $2,000 (cash) and a similar machine was bought, costing $16,000. Show the journal entries you would frame to make the proper record.

5. What is the equated time for the payment of the balance of the following account (30 days to the month and 6% per annum)?

HENRY M. DOREMUS ========================================+======================= 19— | 19— Mar. 16 Merchandise, 4 months $444.57 | July 1 Cash $400.00 30 Merchandise, 60 days 376.82 | 20 Cash 375.00 Apr. 20 Merchandise, 30 days 712.19 | Aug. 16 Cash 700.00 May 17 Merchandise, 4 months 628.75 | 30 Cash 600.00 28 Merchandise, 4 months 419.31 |

Henry M. Doremus desires to settle the above account on September 13, 19—. What amount of money shall he pay?