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Tommy’s Pro Golf Shop LLC

Meet Tom. Tom Buchanan has decided to open a merchandise outlet atthe Al Ain Equestrian, Shooting and Golf Club. The shop will sellgolf shirts, shoes, clubs and other items that golfers would beinterested in purchasing.
Tom is married with a little daughter and he and his wife areexpecting a “wee lad” in the next few months. He decided toincorporate the business instead of operating as a sole proprietor.He planned to invest 250,000 AED in his new business.
Start-up Investment
Tom had to pay 2,000 AED to the government in order to incorporatehis business. That cost is an asset called “Organization Costs” andwill be depreciated over the first five years of thebusiness.
The Al Ain Golf club will give Tom a five year lease for 200 squaremetres of space in the club at a monthly cost of 4,000 aed.. Tomwould have to put in the light fixtures and tile the floor to makethe space ready for use as a merchandise shop. These costs of60,000 AED are called leasehold improvement costs and are asset tothe business which normally is depreciated over the time of thelease i.e. five years.
Next, Tom had to purchase shelving, clothing racks, display casesand a front desk for 20,000 AED. These costs are also an asset andare called “Furniture and Fixtures”. Also a cash register andcomputer were purchased for 12,000 (use the account “OfficeEquipment”).
Finally, Tom approached the suppliers of golf clothing andequipment. He estimated that he would need to have 150,000 ofinventory in his new business to meet the needs of his customers.He purchased ten sets of golf clubs; 100 golf shirts of varioussizes and colors; 25 pairs of golf shorts (different sizes andcolours); a range of golf shoes. golf gloves and other golfingitems such as golf balls and tees. Tom would have to pay thesuppliers for this inventory to open his business. For futurepurchase from the same suppliers, the suppliers agreed to give himan account with them on terms of 2/10, n/30 and delivery terms ofFOB shipping.
To be safe and be sure not to run out of money, Tom decided toborrow 30,000 AED from the local bank.
Required:
1) What are the advantages and disadvantages of incorporating thebusiness rather than being a sole proprietor?
2) What would be Tom’s Opening Balance sheet? (Open the excelspreadsheet and in the general journal record the initialtransactions Tom completed before starting his business. Then openthe asset ledger accounts and post the transactions to the ledger.Then produce the opening Balance sheet).

Anticipated Monthly Expenses
In addition to the monthly rent of 4,000, Tom estimated that hisutility costs would be 500 AED for the month. Tom planned to hiretwo employees to help operate the business. Each employee would bepaid 600 AED for one 40 hour week. Tom will take a monthly salary0f 10,000.
First month Transactions
Oct 1. The business paid the first month rent to thegolf club of 4,000.
1. The business purchased a one year insurance policy for 12,000cash.
1. Tom interviewed three people for the job of store clerk anddecided to hire two of them to start the next day.
1. Sold merchandise for 2,000 cash, the merchandise cost Tom1,500.
2. Sold two sets of golf clubs on account to Fraser’s Golf Academyfor 4,000 2/10 n/30. Cost of clubs was 2,500.
3. Purchased merchandise from Lyman Company for 8,000, terms 2/10,n/30. FOB shipping.
4. Paid freight costs of 400 on merchandise purchased fromLyman.
5. Purchased office equipment on account for 3000.
6. Returned some of Oct 3 merchandise to Lyman Company, which cost1,600.
7. Paid the office staff 1,200.
8. Sold merchandise for 5,500 cash, the merchandise cost Tom3,200.
9. Purchased advertising on account from the local newspaper500.
10. Sold merchandise for 6,000 cash, the merchandise cost Tom4,400.
11. Paid the amount due to Lyman Company in full.
12. Fraser paid his bill taking the discount.
13. Purchased merchandise on account fro Golf World at a cost of12,200; terms 2/10, n/30, FOB shipping.
14. Paid freight costs on the merchandise 460 cash.
14. Paid the office staff 1,200
15. Sold merchandise for 7,500, the merchandise cost Tom4,200.
16. Customer returned merchandise for 800 cash, cost of merchandisewas 300.
17. Sold merchandise to Fraser for 4,800, terms 2/10, n/30, Cost ofthe merchandise was 1,400.
18. Returned merchandise purchased on Oct 13 from Golf World2,000.
19. Sold merchandise for 5,500 cash, the merchandise cost Tom3,200.
20. Paid the office staff 1,200
21. Paid for merchandise purchased Oct 13 from Golf World.
22. Purchased merchandise from Lyman Company for 18,000, terms2/10, n/30.
23. Paid freight costs of 600 on merchandise purchased fromLyman.
24. Sold merchandise for 3,600, the merchandise cost Tom1,500.
25. Customer returned merchandise for 400 cash, cost of merchandisewas 150.
26. Sold merchandise to Fraser for 1,800, terms 2/10, n/30, Cost ofthe merchandise was 600.
27. Returned merchandise purchased from Lyman. 2,000.
28. Sold merchandise for 5,500, the merchandise cost Tom3,200.
29. Paid the office staff 1,200
30. Monthly manager’s salary 10,000 was paid.
31. Paid a dividend of 1,000
31.Paid Lyman in full.

Required:
Open the spreadsheet, journalise the above transactions, post tothe ledger and take a trail balance.
Adjusting the Records
At the end of the month there are some transactions that have notbeen recorded in the journal and posted to the ledger. Forexample:
1. One month of insurance has expired.
2. Monthly depreciation:
a. on leasehold improvements was 1000
b. on organization costs was 50
c. on furniture and fixtures was 300
d. on office equipment 500
3. Salary owed to the office staff at the end of the month was400.

Required: Open the worksheet, enter the trial balance and recordthe adjusting entries in the worksheet then complete the adjustedtrial balance. If it balances then record the entries in thejournal, post to the ledger and compare the account balances withthe balances in the worksheet. Finally present an Income statement,shareholder’s equity statement & balance sheet for the month ofOctober, 2015.

Answer: Advantages of incorporating a business include personal liability prot...

*ONLY NEED STEPS 4 AND 5

Fred’s Fun-Time Arcade Rentals-Accounting Cycle

On December 1, 2014, Fred and Patsy Forrest formed a corporationcalled Fred’s Fun-Time Arcade Rentals. The newly formed corporationrents retro video arcade games, pinball machines, dunk tanks, photobooths, moon bounces and more for businesses, community centers,schools, group events, and parties. Fred’s Fun-Time Arcade Rentalsimmediately began operations by taking over the location of ArcadeAlley Games, a vintage classic arcade game rental company thatclosed. Fred’s Fun-Time Arcade Rentals, uses the followingaccounts:

Cash Income Taxes Payable

AccountsReceivable Capital Stock

PrepaidRent Retained Earnings

UnexpiredInsurance Dividends

OfficeSupplies Income Summary

Arcade GameMachines Rental Fees Revenue

AccumulatedDepreciation: Salaries Expense

Arcade GameMachines Maintenance Expense

Notes Payable Utilities Expense

Accounts Payable Rent Expense

Interest Payable Office Supplies Expense

Salaries Payable Depreciation Expense: Arcade Game Machines

DividendsPayable Interest Expense

Unearned RentalFees Income TaxesExpense

The corporation performs adjusting entries monthly. Closingentries are performed annually on December 31. During December, thecorporation entered into the following transactions:

Dec. 1 Issued to Fred and Patsy Forrest 30,000shares of capital stock in exchange for a total of $300,000cash.

Dec. 1 Purchased for $240,000 all of the arcade gamemachines formerly owned by Arcade Alley Games. Paid $90,000 cashand issued a one-year note payable for $150,000. The note, plus all12-months of accrued interest, are due November 30, 2015.

Dec. 1 Paid $15,000 to Sunshine Realty as threemonths’ advance rent for warehouse used to store the arcade gamemachines and office formerly occupied by Arcade Alley Games.

Dec. 4 Purchased office supplies on account fromOffice Depot, $1,300. Payment is due in 30 days. (These suppliesare expected to last for several months; debit the Office Suppliesasset account.)

Dec. 8 Received $6,000 cash as advance payment on pinball arcadegame rentals from Party Planners, Inc. (Credit Unearned RentalFees.)

Dec. 12 Paid salaries for the first two weeks in December,$5,400.

Dec. 15 Excluding the advance from Party Planners, Inc., arcadegame rental fees earned during the first 15 days of Decemberamounted to $22,000, of which $14,000 was received in cash.

Dec. 17 Purchased on account from Arcade Restoration, Inc., $400in parts needed to repair a dunk tank machine. (Debit an expenseaccount.) Payment is due in 10 days.

Dec. 23 Collected $2,100 of the accounts receivable recorded onDecember 15.

Dec. 26 Rented a video poker machine to O’Malley’s Pub at aprice of $150 per day, to be paid when the video poker machine isreturned. O’Malley’s Pub expects to keep the video poker machinefor a month.

Dec. 26 Paid biweekly salaries, $5,400.

Dec. 27 Paid the account payable to Arcade Restoration, Inc.,$400.

Dec. 28 Declared a dividend of 10 cents per share, payable onJanuary 15, 2014.

Dec. 29 Purchased a 12-month insurance policy for $6,000. Thepolicy goes into effect on January 1, 2014.

Dec. 31 Received a bill from Verizon Communications for phoneservice for the month of December, $700. Payment is due in 30days.

Dec. 31 Arcade game rental fees earned during the second half ofDecember amounted to $25,000, of which $19,000 was received incash.

Data for Adjusting Entries

a. The advance payment of rent on December 1 covered a period ofthree months.

b. The annual interest rate on the note payable to Arcade AlleyGames is 6 percent.

c. The arcade game machines are being depreciated by thestraight-line method over a period of eight years.

d. Office supplies on hand at December 31 are estimated at$700.

e. During December, the company earned $3,700 of the rental feespaid in advance from Party Planners, Inc. on December 8.

f. As of December 31, six days’ rent on the pinball machinesrented to O’Malley’s Pub on December 26 has been earned.

g. Salaries earned by employees since the last payroll date(December 26) amounted to $1,600 as of month-end.

h. It is estimated that the company is subject to a combinedfederal and state income tax rate of 30 percent of income beforeincome taxes (total revenue minus all expenses other than incometaxes). These taxes will be paid in 2015.

Instructions

Perform the following steps of the accounting cycle for themonth of December:

1. Journalize the December transactions.Do not record adjusting entries at this point.

2. Post the December transactions to theappropriate ledger accounts.

3. Prepare the unadjusted trialbalance.

4. Prepare the necessary adjustingentries for December. (adjusting entries)

5. Post the December adjusting entries tothe appropriate ledger accounts. (adjusted ledger account)

6. Prepare an income statement andstatement of retained earnings for the year ended December 31, anda balance sheet (in report form) as of December 31

7. Prepare closing entries and post toledger accounts.

8. Prepare an after-closing trial balanceas of December 31.

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