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What are thefour different adjusting journal entries? What accountingassumptions necessitate the use of adjusting entries? What are yourthoughts on making adjusting journal entries; are they reallyneeded or is this just extra work for accountants? (Please make sure to meet the wordcount 200-300 words and that all questions areanswered.)

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Nelly Stracke
Nelly StrackeLv2
28 Sep 2019

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Computers R Us Inc. began their business in January 1, 2015 and recently lost their accountant. Thankfully, they have been able to hire a fine accounting/finance student from University. They have provided you with the unadjusted trial balance for Computers R Us Inc. as of 12/31/17. The previous accountant recorded all original entries involving cash, etc. during the year. However, at year-end the previous accountant would make all necessary adjusting/reclassification journal entries so that the principles of US GAAP were followed. Your task will be to create and record all necessary adjusting, correcting, and reclassification entries so that 2017 financial statements in accordance with US GAAP can be issued. The below information was discovered by reviewing contracts, agreements, correspondence and discussions with management.

1. On the “Adjusting Journal Entries” worksheet, prepare in journal entry form all adjusting and correcting journal entries based on the following information. All information was provided to you as of 12/31/2017. (Round all numbers to the nearest dollar).

a. Unadjusted cash balance is Debit $218,000. Computers R Us does banking at three different financial institutions. The details are as follows:

Bank Name Balance
Capital Bank $ 85,000
Capital Bank $ (12,000)
1st Sony Bank $ 170,000
Sunny Bank $ (25,000)

What is the adjusting journal entry for this?

Company Background & Scenario
The Auto Zone Company is a well-established, publicly-held corporation, operating as a wholesaler in the auto parts industry. Specifically, Auto Zone purchases auto parts from manufacturers and sells them to large business customers. Most purchases and sales are on account, with trade credit terms (specified below).
You’re a Davenport University student pursuing a bachelor’s degree in business and employed at the Auto Zone Company this semester as an intern. You’ve worked in various departments and on several projects so far, learning a lot about the company’s business operations. Management seems impressed with your enthusiasm and the quality of your work.
The company’s accountant has just been called away for a family emergency and will likely be absent for a month or so. The General Manager asks you to take over the accountant’s regular duties on an interim basis. You’re nervous about doing so, but are confident that what you’ve learned in accounting class, plus your personal problem-solving skills, will make this a successful experience. What a great learning opportunity, not to mention an enhancement to your resume!
Part I
Journal Entries
a. Within the "Transactions" worksheet you will find journal entry statements. Use those statements to write the corresponding journal entries. You are to write the journal entries in the proper special journal. The special journals included within this workbook include the Sales Journal, Purchases Journal, Cash Receipts Journal and Cash Payments Journal. Any transaction that does natually work within one of the special journals should be written into the General Journal.
b.Within the "Transactions" worksheet you will find journal entry statements. At the end of this list you will find "adjusting" information. Use this "adjusting" information to write the respective adjusting journal entries. Write all adjusting entries in the worksheet labled "General Journal ADJ".
c. Before starting work, review the entire project: all instructions, business transactions descriptions, workbook sections, check figures, due dates, and submission requirements.
Credit Terms & Inventory Accounting
a. When Auto Zone purchases merchandise from a supplier or vendor on account, they receive credit terms of 2/15, net 30.
b. When Auto Zone sells merchandise to a customer on account, they offer that customer credit terms of 2/30, net 45.
c. Auto Zone uses a perpetual inventory accounting system and a last-in, first-out (LIFO) inventory costing method. Within this workbook there is a worksheet labeled "Inventory Control". You will need to use the "Inventory Control" worksheet to keep a perptual record of your inventory. As part of that process you will be calculating the value of CGS each time you generate a sale. Use the "Inventory Control" worksheet to calcluate your Cost of Goods Sold values.

d. Auto Zone uses the "Gross" method of accounting for purchases and sales. The "Net" method assumes that discounts are taken at the point of sale or purchase.

MAY JOURNAL TRANSACTIONS
May 1 Paid $2,100 to LG for utilities bill that was recorded in April as an Account Payable, Check #1000.
May 1 Purchased 3,000 GPS units on Credit from Yamaha for $35.00 per unit.
May 1 Purchases office supplies from Staples on credit for $1,800
May 1 Signed a one-year 15%, $150,000 note payable with Chase Bank.
May 2 Rented part of the warehouse to a new tenant and received $12,000 for three months rent (May, June, July).
May 2 Sold 2,000 Aux Cords on account to Tesla for $85 per units, Invoice #2000.
May 2 Sold 400 USB Ports for $70 per unit and 1,200 GPS units for $75 per unit on account to Dodge, Invoice #2001.
May 3 Received a bill from the law firm of Davenport Associates for $6,300, payable upon receipt, for bond consulting fees, Check #1001.
May 4 Sold 500 Aux Cords on credit to Buick for $77 per unit, Invoice #2002.
May 4 Purchased 2,100 USB Ports on credit from Shure for $45 per unit.
May 5 Paid for office supplies purchased at Staples on May 1st, Check #1002.
May 7 Sold 200 GPS units on account to Chevrolet for $49 per unit, Invoice #2003.
May 8 Issued 4,750 shares of common stock for $13 per share
May 11 Purchased 1,875 GPS units on credit from Sony for $25 per unit.
May 11 The Board of Directors declared a cash dividend of $7 per share for shareholders of record on May 13th, payable on May 17th.
May 12 Paid in full for the May 1 purchase from Yamaha, Check #1003.
May 13 Received and paid expense reports for travel and entertainment totaling $1,500, Check #1004.
May 13 Took advantage of a special deal to purchase 1,500 Aux Cords on account from Panasonic for $42 per unit.
May 15 Received payment in full from Tesla for the May 2nd sale.
May 15 Sold 1,050 USB Ports on credit to Chevrolet for $57 per unit, Invoice #2004.
May 16 Received payment from Buick for $125,000 of the $300,000 owed from April 5.
May 17 Paid the dividend that was declared on May 11th, Check #1005.
May 17 Check # 1006 was issued for payroll: $14,900 for salaries and $5,100 for wages.
May 20 Issued a credit to Chevrolet for the return of 150 defective units from the May 7th sale. These units has a cost basis of $35 per unit.
May 20 Returned the 150 defective units received from Chevrolet to Yamaha.
May 22 Purchased a $500 international phone card for one of the sales representative's upcoming European business trip, Check #1008.
May 23 Issued bonds payable at face value for $420,000
May 23 Purchased 2,080 USB Ports from Shure for $41 per unit paying in cash, Check #1009
May 24 Check #1010 was issued for payroll: $14,900 for salaries and $5,100 for wages.
May 25 Hired and paid a consultant $50,000 to devise a marketing plan. Auto Zone's management felt this was necessary to develop brand awareness. Check #1011.
May 26 While inspecting the May 11th purchase, it was discovered that the GPS units were programmed for Asia instead of North America. Auto Zone returned the entire order to Sony.
May 27 A bankruptcy judge disallowed Auto Zone's claim for $25,000 due from Jeep. Management Decided to write off this accounts receivable.
May 27 Sold 500 USB Ports on credit to GMC for $61 per unit, Invoice #2005.
May 29 Paid in full for the purchase from Panasonic on May 13, Check #1012.
May 29 Received payment in full from GMC for the May 27th transaction.
May 30 Auto Zone is behind in its mortgage payments to Fifth Third Bank. Paid a total of $20,000 ($5,000 principal and $15,000 interest), Check #1013.
May 31 Paid the first month's principal payment of $12,500 on the note payable. In addition, paid one month's interest, Check #1007
*All purchases on account terms of 2/15, n/30
**All credit sales have terms of 2/30, n/45
May Month-end Adjustments:
( A ) The Company took a physical count of Office Supplies on May 30 and found the following the value of inventory on hand to be $2,500. The beginning inventory was $3,200. Write the adjusting journal entry.
( B ) Auto Zone estimates bad debt expense on a monthly basis rather than waiting until year-end. The company uses the allowance method. Based on recent industry estimates, Auto Zone estimates that the allowance account should be 7.5% of accounts receivable. The ending AR balance is $850,000. At the end of the month (prior to this journal entry) there is a CREDIT balance of $19,000 in the Allowance for Doubtful Accounts account. Write the necessary adjusting entry.
( C ) The Balance of $23,000 in the prepaid insurance account at the beginning of May represents 5 months of coverage. Record the amount of insurance for May.
( D ) The Company took a physical inventory count on May 30 and found the following inventory on hand to be $100,641. The ending balance in the Inventory account (before this adjusting entry) was $128,947. Write the necessary adjusting entry.
( E ) Auto Zone has earned two months of the prepaid rent received from their tenant at the beginning of May.
( F ) Depreciation on the company's fixed assets for the month of May is as follows:
1. The furniture and equipment for the office was purchased last year for $7,350. these assets have a 5 year life, an expected salvage value of $500, and are depreicated using straight-line method.

2. The furniture and equipment for the warehouse was purchased a few years ago for $30,000. These assets have a 8-year life, an expected salvage value of $5,000, and are depreciated using the straight-line method.

Shoe: GPS
Beginning Inventory (BI) Purchases Sales Ending Inventory (EI)
Date BI Units BI $/Unit BI $ Purch Units Purch $/Unit Purch $ Sale Units (CGS) Sale $/Unit (CGS) Sale $ (CGS) EI Units EI $/Unit EI $
1-May 3300 $35.00 $115,500.00 $- $- $115,500.00
Shoe: Aux Cord
Beginning Inventory (BI) Purchases Sales Ending Inventory (EI)
Date BI Units BI $/Unit BI $ Purch Units Purch $/Unit Purch $ Sale Units (CGS) Sale $/Unit (CGS) Sale $ (CGS) EI Units EI $/Unit EI $
1-May 2500 $65.00 $162,500.00 $- $- $162,500.00
Shoe: USB Port
Beginning Inventory (BI) Purchases Sales Ending Inventory (EI)
Date BI Units BI $/Unit BI $ Purch Units Purch $/Unit Purch $ Sale Units (CGS) Sale $/Unit (CGS) Sale $ (CGS) EI Units EI $/Unit EI $
1-May 1400 $40.00 $56,000.00 $- $56,000.00

Record (journalize) transactions in the books) Doherty Tree Cellular, Inc.,
completed the following transactions during April 2012, its first month of operations:

Apr 1

Received $19,800 and issued common stock.

2

Purchased $200 of office supplies on account.

4

Paid $14,300 cash for land to use as a building site.

6

Performed service for customers and received cash of $2,600.

9

Paid $100 on accounts payable.

17

Performed service for UFax on account totaling $1,900.

23

Collected $100 from UFax on account.

30

Paid the following expenses: salary, $1,900; rent, $1,300.


1.Record the transactions in the journal of Doherty Tree Cellular, Inc. Key transactions by date and include an explanation for each entry.

CLASS, LETS TAKE RECORDING STEP 1 STEP FURTHER - THE TRIAL BALANCE

Now that we know what the accounting equation is and we have some experience with Journal Entries.

Let’s review the process and take the recording process one step further.

STEP 1) Analyze transaction: As an actual accountant, we determine if a transaction should be recorded by analyzing source documents.

For example: If the Company makes a sale; they will complete a sales document (or sales
tape is generated). If the Company purchases something a purchase invoice is forwarded to Accounting. There is a different type of source documents for different types of transactions.

Note: as an accountant a large part of the battle is making sure there is a source document for all transactions and that all departments capture and forward these documents to Accounting!

STEP 2) Accounting prepares journal entry: for each transaction based on GAAP. (Mostly using the constraints, assumptions, principles we've discussed: materiality, conservatism, matching, revenue recognition, etc).

The entry is entered into a Journal for those types of Transactions (There is a Sales Journal, A/P Journal for purchases, Payroll journal for payroll related entries, General Journal for misc. entries., etc.

Journal entries are made in the proper form, and include: date, description, indent of credit side of each entry.

STEP 3) The Journal entry is posted to General ledger; which includes all activity for all accounts.

However, the recording process is not over. Let’s talk about the trial balance. Please answer ALL however only post ONE question at a time to allow more to participate.

1) Why do we prepare it?

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