You have completed the first year of your grocery delivery business, No Shopping 4 Me, Inc. (NS4M).
The following is the trial balance for NS4M as of January 1, 2016:
No Shopping 4 Me, Inc.
Trial Balance January 1, 2016
Cash $ 28,931
Accounts receivable 14,000
Allowance for doubtful accounts 1,500
Supplies inventory 8,000
Prepaid expenses 2,400
Accumulated depreciation 7,000
Accounts payable 35,000
Payroll taxes payable 456
Interest payable 720
Income tax payable 300
Sales tax payable 240
Dividend payable –
Deferred revenue 1,000
Notes payable – long-term 18,000
Common stock (5,000 SH @ $50 par) 25,000
Additional paid-in capital 1,500
Retained earnings 2,000
Treasury stock 2,000
Delivery revenue –
Dog food sales –
Cost of goods sold –
Salaries expense –
Payroll tax expense –
Rent expense –
Bad debt expense –
Supplies expense –
Depreciation expense –
Income tax expense –
Interest expense –
Note: although all accounts are shown with a positive balance, they have the normal debit or credit balance that accounts in their account type have (e.g. – assets have a debit balance,
liabilities have a credit balance).
The following information pertains to January 2016:
• NS4M has decided to stock and sell certain dog foods. The dog food is sold at $40 per 30 pound bag, plus sales tax of 6%. Inventory at January 1 consisted of 75 bags at a total cost of $2,385.
No Shopping 4 Me, Inc.
As of December 31, 2015
# of Units Unit Cost Total Cost
25 $ 32.00 $ 800
30 $ 31.50 945
20 $ 32.00 640
75 $ 2,385
• NS4M uses the FIFO method and records inventory using a perpetual inventory system.
• The $2,400 in prepaid expenses at January 1, 2016 relates to a payment made in December 2015 for January – March 2016 rent.
• The equipment balance at January 1, 2016 represents a van purchased on January 1, 2015. The van has no residual value, is being depreciated using the straight-line method, and has an expected useful life of 5 years.
• Salaries are paid on the last day of each month for that month’s work. Monthly wages vary. Payroll taxes include: FICA which is comprised of Social Security taxes of 6.2% imposed on both the employee and the employer and Medicare taxes of 1.45% imposed on both the employee and employer and Federal withholding taxes of $150 per pay. Payroll taxes are paid on the 5th day of the month following the pay date.
• Deferred revenue at January 1, 2016 is from one customer who paid in December for January & February 2016 deliveries ($500 per month).
• Notes payable at January 1, 2016 represents the five-year note for the van purchase on January 1, 2015. Interest is accrued at 4% per year and is due annually on the first of the year.
• The par value on the common stock is $50 per share.
• Treasury stock represents 100 shares repurchased at $20 per share.
January 2016 Transactions:
(a) On January 1, paid annual interest payment on long-term note payable.
(b) On January 1, purchased office equipment for $3,500. The office equipment will be depreciated using the straight-line method, will have an expected useful life of 5 years, and will have a residual value of $800.
(c) On January 5, paid payroll taxes owed from last month.
(d) On January 7, declared a $1.00 dividend per share for all shareholders on record as of January 1, 2016. The dividend is to be paid on February 3, 2016.
(e) On January 8, invoiced $3,000 for weekly grocery deliveries. $500 was collected in December, the remaining amount is to be collected. No sales tax is owed on grocery deliveries.
(f) On January 12, collected $13,000 for previously billed grocery deliveries.
(g) On January 14, wrote-off a $700 customer account as uncollectible.
(h) On January 15, invoiced $3,000 for weekly grocery deliveries and $1,200 in dog food plus sales tax on the dog food sales.
(i) On January 17, re-sold 50 shares treasury stock for $22 per share.
(j) On January 18, paid sales tax collected on December 2015 sales.
(k) On January 20, paid $27,500 in accounts payable.
(l) On January 22, invoiced $3,250 for weekly grocery deliveries and $1,400 in dog food plus sales tax on the dog food sales.
(m) January 25, purchased 40 bags of dog food at $30 per bag.
(n) On January 31, paid salaries of $2,500 for January. Employee and Employer payroll taxes are recorded but not paid until February.
The following adjusting journal entries were recorded on January 31:
(o) Record rent expense for January 2016.
(p) Adjust the allowance for doubtful accounts. NS4M uses the percentage of credit sales method to record bad debt expense. It is estimated that 1.5% of credit sales are uncollectible.
(q) Record January depreciation expense.
(r) The value of supplies inventory on hand per a physical count at January 31, 2016, $5,000.
(s) Record accrued interest for January 2016.
(t) Record estimated income tax payable of 15% of pretax income for January 2016.
1) Record the above transactions. In lieu of recording the entries with the actual dates, please reference each entry with the letter of the transaction as shown above. Report all transactions in whole dollars (do not include cents). Your general journal should be set up as follows:
Event # Account Title Debit Credit
2) Post the transactions to T-accounts. You must use the accounts provided in the trial balance above. Be sure to include all calculations for any amounts requiring additional calculations
(including interest on notes payable, depreciation, accounts receivable, and cost of goods sold). These calculations can be shown on a separate tab in excel. You will lose points in your
calculation are not shown.
3) Prepare a trial balance using the T-accounts from requirement (2).
4) Prepare an income statement, statement of stockholders’ equity, and balance sheet.