CLASS 11 COMMERCE Chapter chapter 1: All about accounting basic introduction handwritten explained notes for class 11th
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Colonial Pharmaceuticals is a small firm specializing in newproducts. It is organized into two divisions, which are based onthe products they produce. AC Division is smaller and the life ofthe products it produces tend to be shorter than those produced bythe larger SO Division. Selected financial data for the past yearis shown below. Divisional investment is as of the beginning of theyear. Colonial Pharmaceuticals uses a 9 percent cost of capital anduses beginning-of-the-year investment when computing ROI andresidual income. Ignore income taxes.
| ACDivision | SODivision | |||||
| Allocated corp. overhead | $ | 600 | $ | 1,800 | ||
| Cost of goods sold | 3,200 | 7,000 | ||||
| Divisional investment | 9,000 | 80,000 | ||||
| R&D | 2,000 | 3,600 | ||||
| Sales | 8,000 | 20,000 | ||||
| SG&A | 700 | 1,530 | ||||
R&D is assumed to have a two-year life in the AC Divisionand a nine-year life in the SO division. All R&D expendituresare spent at the beginning of the year. Assume there are no currentliabilities and (unrealistically) that no R&D investments hadtaken place before this year.
Al, the manager of the AC Division, complains that thecalculation of EVA is unfair, because a much longer life is assumedfor the SO Division in calculating EVA. Sean, the manager of SO,responds that EVA is supposed to reflect economic reality and thatthe reality is that R&D investments in SO Division do have alonger life.
Required:
a. Assume that the economic life of R&Dinvestments is two years in the AC Division. What economic lifewould the R&D investments in the SO Division have to make EVAin the two divisions equal?
Record each business transaction, in sequence by date, in theappropriate special journal or the general journal. Also,immediately record any transaction involving inventory, a customer,or a vendor in the appropriate subsidiary ledger record. Availablejournals & ledgers: Sales Journal, Purchase Journal, CashReceipts Journal, Cash Payment Journal, General Journal, GeneralJournal ADJ, General Journal CLOSING, General Ledger, AR Ledger, APLedger: - **I need to know which of the journals each transactionbelongs to as well of the above mentioned options**
| JUNE JOURNALTRANSACTIONS | |
| June 1 | Signed a 3 year 7.1% , $210000 notepayable with First Bank. |
| June 1 | Purchased 3100 GPS units on credit from Navistar for $35.5 perunit. |
| June 1 | Issued 5,000 shares of common stock for$10 per share (Refer to General ledger for description of commonstock). |
| June 1 | Sold 1983 DVD players on account to Toyotafor $75 per unit, Invoice #5555 |
| June 2 | Sold 3400 GPS units on account to Kia for$58 per unit, Invoice #5556. |
| June 2 | Purchased office supplies from Office Maxon credit for $1150 |
| June 2 | Sold 975 docking stations for $66 per unitand 1925 GPS units for $82 per unit on account to Nissan, Invoice#5557. |
| June 3 | The Board of Directors declared a cashdividend of $5 per share for shareholders of record on June 5th,payable on June 12th. |
| June 4 | Received payment from Toyota for May 11thsale. |
| June 4 | Rented part of the warehouse to a newtenant and received $5400 for three months rent starting inJune |
| June 5 | Paid $2,100 to Michigan Utility Co. forutilities bill that was recorded in May as an Account Payable,Check #5278. |
| June 7 | Received and paid expense reports fortravel and entertainment totaling $900 , Check#5279. |
| June 8 | Paid for office supplies purchased on June2nd, Check#5280. |
| June 11 | Paid in full for the June 1 purchase fromNavistar, Check#5281. |
| June 11 | Received a bill from the law firm ofLarry, Moe & Curly for $5400 , payable upon receipt, for bondconsulting fees, Check#5282. |
| June 12 | Paid the dividend that was declared onJune 3, Check #5283. |
| June 13 | Took advantage of a special deal topurchase 3250 DVD players on account from JVC for $48 perunit. |
| June 13 | Purchased 850 GPS units on credit fromMagellan for $33 per unit. |
| June 15 | Sold 2000 DVD players on credit to FordMotor Co. for $89 per unit, Invoice5558. |
| June 15 | Check # 5284 was issued for payroll:$14500 for salaried and $4750 for wages (wageexpense) |
| June 16 | Purchased 1800 docking stations on creditfrom Samsung for $42 per unit. |
| June 17 | Issued a credit to Kia for the return of350 defective units from the June 2nd sale. These units has a costbasis of $36 per unit. |
| June 17 | Returned the 350 defective units receivedfrom Kia to Navistar. |
| June 18 | Received payment in full from Toyota forthe June 1stsale. |
| June 20 | While inspecting the June 13th purchase,it was discovered that the GPS units were programmed for SouthAmerica instead of North America. AC Speed returned the entireorder to Magellan. |
| June 20 | A bankruptcy judge disallowed AC Speed'sclaim for $5,000 due from General Motors. Management Decided towrite off this accounts receivable. |
| June 22 | Sold 1650 docking stations on credit toKia for 64.5 per unit, Invoice #5559. |
| June 23 | Paid $75000 of the $162500 owed to JVCfrom May 25, Check #5285. |
| June 23 | Received payment from Ford Motor Co. for$175000 of the $300000 owed from May5. |
| June 24 | Purchased a $100 international phone cardfor one of the sales representative's upcoming European businesstrip, Check #5286. |
| June 25 | Paid in full for the purchase from JVC onJune 13, Check#5287 |
| June 26 | Purchased 1250 docking station from Samsung for $41 per unitpaying in cash, Check #5288 |
| June 27 | Sold 1500 docking stations on credit toHonda for $61 per unit, Invoice 5560. |
| June 27 | Hired and paid a consultant $75000 todevise a marketing plan. AC Speed's management felt this wasnecessary to develop brand awareness. Check#5289. |
| June 28 | AC Speed is behind in its mortgagepayments to Bank of America. Paid a total of $10000 ( $2000principal and $8000 interest), Check #5290. |
| June 29 | Received payment in full from Honda forthe June 27thtransaction. |
| June 29 | Paid in full for the purchase fromMagellan on May 31st, Check#5291. |
| June 29 | Check # 5292 was issued for payroll:$14500 for salaried and $4750 for wages (wageexpense) |
| June 30 | Paid the first month's principal paymentof $15,000 on the note payable. In addition, paid one month'sinterest, Check #5293 |
| June 30 | Issued bonds payable at face value for$450,000 |
| *All purchases on accountterms of 2/15, n/30 | |
| **All credit sales have termsof 2/20, n/30 | |
| June Month-endAdjustments: | |
| ( A ) | AC Speed has earned one month of theprepaid rent received from their tenant at the beginning ofJune. |
| ( B ) | The Company took a physical count ofOffice Supplies on June 30 and found the following to be on hand:Office Supplies - $2500 |
| ( C ) | AC Speed estimates bad debt expense on amonthly basis rather than waiting until year-end. The company usesthe allowance method. Based on recent industry estimates, AC Speedestimates that the allowance account should be 2% of accountsreceivable. |
| ( D ) | The Company took a physical inventorycount on June 30 and found the following inventory on hand:Merchandise Inventory - $120000 |
| ( E ) | The Balance in the prepaid insuranceaccount at the beginning of June represents 4 months of coverage.Record the amount of insurance for June. |
| ( F ) | Depreciation on the company's fixed assets for the month ofJune is as follows: |
| 1. The furniture and equipment for thewarehouse was purchased a few years ago for 10000. These assetshave a 4-year life, an expected salvage value of 1000 and aredepreciated using the straight-line method. | |
| 2. The furniture and equipment for theoffice was purchased last year for 8500. these assets have a 7 yearlife, an expected salvage value of 1500 and are depreicated usingstright-line method. | |
(a) Record the January transactions in a cash receipts journal,
Check figures:
Cash Receipts Journal, total Cash DR: $ 70,348
Cash Payments Journal, total Cash CR: 62,060
Net Income: 25,218 Total Assets: 149,568
Total Post Closing Trial Balance: 151,193
Sun & Surf Company uses a perpetual inventory system and both an accounts receivable and an accounts payable subsidiary ledger. Balances related to both the general ledger and the subsidiary ledger for Sun & Surf are indicated in the working papers. Below are a series of transactions for Sun & Surf Co. for the month of January. Credit sales terms are 2/10, n/30. The cost of all merchandise sold was 55% of the sales price.
Jan.3 Sell merchandise on account to M. Knast $5,100, invoice no. 825, and to C. Ryder $1,900, invoice no. 826.
5 Purchase merchandise from R. Drifter $5,000 and N. Sova $2,200, terms n/30.
7 Receive checks from V. Arnold $4,000 and I. Tan $2,000 after discount period has lapsed.
8 Pay freight on merchandise purchased $235.
9 Send checks to K. Xerxes for $9,000 less 2% cash discount, and to T. Caper for $11,000 less 1% cash discount.
9 Issue credit of $300 to C. Ryder for merchandise returned.
10 Summary daily cash sales total $15,500.
11 Sell merchandise on account to D. Gallagher $1,600, invoice no. 827, and to V. Arnold $900, invoice no. 828.
12 Pay rent of $1,000 for January.
13 Receive payment in full from M. Knast and C. Ryder less cash discounts.
15 Withdrawal of $800 cash by J. Sandy for personal use.
15 Post all entries to the subsidiary ledgers.
16 Purchase merchandise from T. Caper $18,000, terms 1/10, n/30; K. Xerxes $14,200, terms 2/10, n/30; and R. Drifter $1,500, terms n/30.
17 Pay $400 cash for office supplies.
18 Return $200 of merchandise to K. Xerxes and receive credit.
20 Summary daily cash sales total $20,100.
21 Issue $15,000 note, maturing in 90 days, to M. Griffen in payment of balance due.
21 Receive payment in full from V. Arnold less cash discount.
22 Sell merchandise on account to M. Knast $2,700, invoice no. 829, and to D. Gallagher $1,300, invoice no. 830.
22 Post all entries to the subsidiary ledgers.
23 Send checks to T. Caper and K. Xerxes in full payment less cash discounts.
25 Sell merchandise on account to I. Tan $3,500, invoice no. 831, and to C. Ryder $6,100, invoice no. 832.
27 Purchase merchandise from T. Caper $14,500, terms 1/10, n/30; N. Sova $1,200, terms n/30; and R. Drifter $5,400, terms n/30.
27 Post all entries to the subsidiary ledgers.
28 Pay $275 cash for office supplies.
31 Summary daily cash sales total $21,300.
31 Pay salaries and wages of $8,100. (continued)
Page 2 of 2
Instructions
(a) Record the January transactions in a a cash receipts journal,
1. Office supplies at January 31 total $900.
2. Insurance coverage expires on September 30, 2017.
3. Annual depreciation on the equipment is $1,500.
4. Interest of $50 has accrued on the note payable.
| General Ledger | |||||
| Cash | No. 101 | ||||
| Date | Explanation | Ref. | Debit | Credit | Balance |
| Jan. 1 | Balance | â | $ 37,150 | ||
| Accounts Receivable | No. 112 | ||||
| Date | Explanation | Ref. | Debit | Credit | Balance |
| Jan. 1 | Balance | â | $ 13,000 | ||
| Notes Receivable | No. 115 | ||||
| Date | Explanation | Ref. | Debit | Credit | Balance |
| Jan. 1 | Balance | â | $ 39,000 | ||
| Inventory | No. 120 | ||||
| Date | Explanation | Ref. | Debit | Credit | Balance |
| Jan. 1 | Balance | â | $ 17,795 | ||
| Office Supplies | No. 125 | ||||
| Date | Explanation | Ref. | Debit | Credit | Balance |
| Jan. 1 | Balance | â | $ 1,200 | ||
| Prepaid Insurance | No. 130 | ||||
| Date | Explanation | Ref. | Debit | Credit | Balance |
| Jan. 1 | Balance | â | $ 2,205 | ||
| Equipment | No. 157 | ||||
| Date | Explanation | Ref. | Debit | Credit | Balance |
| Jan. 1 | Balance | â | $ 6,450 | ||
| Accumulated Depreciation - Equipment | No. 158 | ||||
| Date | Explanation | Ref. | Debit | Credit | Balance |
| Jan. 1 | Balance | â | $ 1,500 | ||
| Notes Payable | No. 200 | ||||
| Date | Explanation | Ref. | Debit | Credit | Balance |
| Accounts Payable | No. 201 | ||||
| Date | Explanation | Ref. | Debit | Credit | Balance |
| Jan. 1 | Balance | â | $ 35,000 | ||
| Interest Payable | |||||
| Date | Explanation | Ref. | Debit | Credit | Balance |
| J. Sandy, Capital | No. 301 | ||||
| Date | Explanation | Ref. | Debit | Credit | Balance |
| Jan. 1 | Balance | â | $ 80,300 | ||
| J. Sandy, Drawing | No. 306 | ||||
| Date | Explanation | Ref. | Debit | Credit | Balance |
| Income Summary | No. 350 | ||||
| Date | Explanation | Ref. | Debit | Credit | Balance |
| Sales | No. 401 | ||||
| Date | Explanation | Ref. | Debit | Credit | Balance |
| Sales Returns and Allowances | No. 412 | ||||
| Date | Explanation | Ref. | Debit | Credit | Balance |
| Sales Discounts | No. 414 | ||||
| Date | Explanation | Ref. | Debit | Credit | Balance |
| Cost of Goods Sold | No. 505 | ||||
| Date | Explanation | Ref. | Debit | Credit | Balance |
| Salaries and Wages Expense | No. 627 | ||||
| Date | Explanation | Ref. | Debit | Credit | Balance |
| Depreciation Expense | No. 711 | ||||
| Date | Explanation | Ref. | Debit | Credit | Balance |
| Interest Expense | No. 718 | ||||
| Date | Explanation | Ref. | Debit | Credit | Balance |
| Insurance Expense | No. 722 | ||||
| Date | Explanation | Ref. | Debit | Credit | Balance |
| Office Supplies Expense | No. 728 | ||||
| Date | Explanation | Ref. | Debit | Credit | Balance |
| Rent Expense | No. 729 | ||||
| Date | Explanation | Ref. | Debit | Credit | Balance |
