Lesson 1: Business
Accounting and You
The focus of this project is for the student to keep a set of
books through an accounting period to perform the following
Set up the books of accounting
Analyze and record transactions
Post the journal entries to general ledger accounts
Generate an unadjusted trial balance
Calculate, journalize, and post adjusting entries
Generate an adjusted trial balance
Generate financial statements
Create and post closing entries
Generate a post-closing trial balance
Use the explanation below and the information in the
assumptions section to complete the steps in the requirements
for this accounting project.
XXXXX XXXXXson recently left his job at a local pool company
to open his own pool and spa maintenance
business. XXXXX XXXXXson took all of the money he and
his wife had in their personal savings account and
used it to open Aqua Elite, Inc., on May 1, 20XX.
Assume that the following transactions for the first three
months of operations for the Hanson’s Aqua Elite, Inc., are
true and accurate.
Graded Project Instructions
Because Aqua Elite, Inc. is a new startup business, the
beginning balances in all the general ledger accounts are
zero to start.
The length of the accounting periods are three months
using a fiscal calendar year. (A fiscal calendar is on a
yearly basis other than a calendar year—January 1st to
December 31st. For example, a fiscal calendar year can
be May 1, 2009, through April 30, 2010). Therefore,
posting to the general ledger, adjustments and closing
entries are made on a fiscal quarterly basis.
Accounts Receivable and Accounts Payable subsidiary
ledgers aren’t being used. Any references to invoicing,
receipts, or payments “on account” assume changes to
the running balance in the Accounts Receivable and
Accounts Payable general ledger accounts.
Payroll calculations aren’t necessary. Assume the salary
is the gross pay with no deductions taken. Therefore, the
net pay is the same as the gross pay, requiring a simplified
journal entry to record the expense.
Use the information in the Chart of Accounts that’s provided
section below. Add general
ledger accounts if necessary.
Print out and use the blank worksheets in this file as
needed. Work through the project by hand using copies
that has the four forms you’ll need to fill in and submit
to the school for grading at the end of the project.
This project is adapted and revised from your textbook’s Chapter 1,
pp. 47–48, Continuing Problem; Chapter 2, p. 104, Continuing Problem; and
Chapter 3, pp. 169–170, Continuing Problem.
Changes have been made
to the scenario. Use only the information provided here for this project.
of those sheets. Later, you’ll be directed to another PDF
Graded Project Instructions
To begin, review the financial statements on pages 122 and
127 of your textbook (Exhibits 3-4 through 3-7). Then, following
the instructions below, complete the electronic forms
provided at the end of this file. Submission instructions are
given the end of this project.
1. Journalize the transactions. Omit explanations.
2. Post the transactions to the general ledger, creating new
ledger accounts as necessary. Calculate the new general
ledger account balances.
3. Prepare the unadjusted trial balance for Aqua Elite, Inc.,
at the end of July.
4. Journalize and post the adjusting entries for July based
on the following adjustment information:
a. Record the expired rent.
b. Supplies on hand, $350.
c. Depreciation: $400 equipment, $210 furniture, $650
d. Services performed but unbilled, $1,900.
e. Accrued salaries, $675.
f. Unearned service revenue earned as of July 31, $800.
5. Prepare an adjusted trial balance for Aqua Elite, Inc., at
the end of July.
6. Prepare the Income Statement, Statement of Retained
Earnings, and Balance Sheet for the three-month period
May through July 20XX.
7. Prepare, journalize, and post closing entries.
8. Prepare a Post-Closing Trial Balance for the end of the
Graded Project Instructions
1 Mike invested $15,000 cash and a used truck worth $13,500 in the business in exchange
for company stock.
3 Paid $4,700 cash to purchase office equipment.
7 Purchased $860 of supplies on account.
12 Performed services for cash customers and received $850.
15 Paid salaries of $675 to the office receptionist.
16 Sold the company truck for $13,500.
18 Signed a note payable for $31,000 to purchase a new truck.
21 Performed $3,200 of services on account for a local hotel chain.
27 Paid $500 of the amount owed from the purchase of supplies on May 7.
30 Received $2,000 on account from credit customers.
31 Received the utility bill for the month of May, $480. The bill is not due until the 15th
31 Paid $1,000 dividends to the shareholder, XXXXX XXXXXson.
1 Paid receptionist’s salary, $675.
2 Paid cash to acquire land for a future office site, $15,000.
3 Moved into a new location for the business and paid the first month’s rent, $1,800.
4 Performed service for a customer and received cash, $1,700.
5 Received $500 on account.
8 Purchased $750 of supplies on account.
11 Billed customers for services performed, $3,800.
13 Sold an additional $10,000 of stock to XXXXX XXXXXson.
16 Paid receptionist’s salary, $675.
17 Received $1,350 cash for services performed.
18 Received $1,500 from customers on account.
19 Paid $325 to be listed in the yellow pages telephone directory.
21 Paid $1,000 on account.
22 Purchased office furniture on account, $3,300.
24 Paid miscellaneous expenses, $275.
26 Billed customers for services provided, $1,000.
28 Received $300 from customers on account.
30 Paid utility bill, $745.
30 Paid receptionist’s salary, $675.
30 Paid $1,800 of dividends.
1 Paid three months’ rent, $4,500.
4 Performed service for a customer and received cash, $2,100.
9 Received $3,600 from customers for services to be performed later.
12 Purchased $750 of supplies on account.
15 Billed customers for services performed, $2,800.
16 Paid receptionist’s salary, $675.
22 Received $3,100 on account.
25 Paid $2,800 on account.
28 Received $1,200 cash for services performed.
30 Paid $600 of dividends.
Graded Project Instructions
Aqua Elite, Inc.
Chart of Accounts
May 1, 20XX
Accumulated Depreciation, Office Furniture
Accumulated Depreciation, Equipment
Accumulated Depreciation, Vehicles
Unearned Service Revenue
Depreciation Expense, Office Furniture
Depreciation Expense, Equipment
Depreciation Expense, Vehicles
When you’re confident that your work is complete and accurate,
and fill in the final forms.
Proofread your work carefully, and make any necessary corrections.
You’ll submit a copy of that completed PDF file to
the school for grading. That file will include your final work
for the following four items:
Statement of Retained Earnings
Post-Closing Trial Balance
These are the only four forms that will be graded. Your
journals, general ledger, and worksheet will
The grading criteria for the project is as follows:
of the four financial statements is worth
4 points each for a total of
(4 × 4 = 16).
Calculations on the financial statements are based on
from your general ledger account. Each of those
figures that came from the general ledger account is worth
3 points for a total of
(28 × 3 = 84).
of the financial statements (worth 16
points total) plus the
used for the financial statements
(worth 84 points total) provide the 100 points for the project.
Figures + 84 points
Complete the following exam by answering the questions and
compiling your answers into a word-processing document. When
you’re ready to submit your answers, refer to the instructions at
the end of your exam booklet. Be certain to indicate the proper
question number before each of your answers. Remember to
show your work if an answer requires a mathematical solution.
Part A: Answer each of the following questions. Each answer is
worth 20 points.
1. The following information was made available from the
income statement and balance sheet of Lauren Company.
Item 12/31/10 12/31/09
Accounts Receivable $53,400 58,600
Accounts Payable 35,600 32,700
Merchandise Inventory 85,000 79,000
Sales (2010) 243,000
Interest Revenue (2010) 5,600
Dividend Revenue (2010) 1,200
Tax Expense (2010) 12,300
Salaries Expense (2010) 28,000
COGS (2010) 65,000
Interest Expense (2010) 3,600
Operating Expenses 28,500
Complete the cash flow from operating activities section for
Lauren Company using the direct method for the year ended
December 31, 2010.
Given the following balance sheet, complete a horizontal
analysis. Compute the percentage to the nearest tenth of a
Comparative Balance Sheet
For Years Ended December 31, 2011 and 2010
(in thousands) 2011 2010 Difference Percentage
Cash and Equivalents $72 $94
Accounts Receivable, net 122 104
Inventory 288 232
Total Current Assets 482 430
Property, Plant and Equipment 638 358
Total Assets $1,120 $788
Accounts Payable $242 $148
Accrued Liabilities 48 66
Total Current Liabilities 290 214
Long-Term Liabilities 346 208
Total Liabilities 636 422
Common Stock 70 60
Retained Earnings 414 306
Total Stockholders’ Equity 484 366
Total Liabilities and
Stockholders’ Equity $1,120
Part B: Answer each of the following questions. Each answer is
worth 4 points.
1. Record the following transactions using the accounting
Assets = Liabilities + Equity
XXXX(cash) XXXX(accounts payable)
A. Amanda invests $17,000 cash into her merchandising
B. She buys $6,500 of office equipment and $3,000 of office
supplies with cash from Office Depot.
C. Additional purchases were supplies for $35,000 on
account from various suppliers.
2. Journalize the following transactions and omit the explanations.
A. ABC Corporation purchased $15,000 of office furniture by
putting $7,000 down in cash and the rest on account on
B. The corporation paid $60,000 for a two-year lease on
C. The corporation had sales of $45,000, of which $35,000
were on account on April 20.
D. The corporation borrowed $25,000 by signing a note
payable on April 22.
E. The corporation paid $1,250 on one of its accounts
payable on April 26.
3. Prepare a trial balance from the following information for
Learn a New Language, Inc. for December 31, 2012.
Accounts payable $5,012
Common stock $9,692
Notes payable $1,439
Wages expense $777
Marketing expense $493
Accounts receivable $1,142
4. Compute the missing information from this post-closing trial
5. Journalize the following transactions using the perpetual
Aug. 6 Purchased $830 of inventory on account from
Johnston with terms of 2/10, n/30.
Aug. 8 Purchased $2,611 of inventory for cash from
Aug.15 Paid for August 6 purchase from Johnston.
Aug. 17 Purchased $1,743 of merchandise on account
from Luis Company with Terms of 3/15, n/45.
6. Given the following information, prepare a balance sheet for
Isaiah’s Tool Shed for the year ending December 31, 2012.
Cash $65,750 Retained Earnings $179,319
Common Stock $35,000 Equipment $27,500
Accounts Receivable $11,478 Accounts Payable $29,450
Land $30,000 Inventory $78,311
Prepaid Supplies $7,357 Income Taxes Payable $4,209
Office Computers $11,345 Other PPE $31,446
Accum. Depr. (all) $23,459 Prepaid Insurance $8,250
Accounts Receivable 9,467
Prepaid Rent 5,000
Prepaid Insurance (A)
Accounts Payable $5,389
Wages Payable (B)
Common Stock 37,049
Retained Earnings 8,234
Total $52,356 $52,356
Rick Company’s beginning inventory and purchases during
the fiscal year ended December 31, 2012, were as follows:
The company uses a perpetual system of inventory.)
What is the cost of goods sold for Rick Company for 2012
8. Assume that in Year 1, the ending merchandise inventory is
overstated by $30,000. If this is the only error in Years 1
and 2, fill in the items below, indicating which items will be
understated, overstated, or correctly stated for Years 1 and
Item Year 1 Year 2
Ending inventory ___________ _____________
Beginning inventory ___________ _____________
Cost of goods sold ___________ _____________
9. Below is a list of treatments of accounting topics. Place GAAP
on the line if the treatment is GAAP-based and place IFRS on
the line if the treatment is IFRS-based.
A. Interest and dividend income are reported in the
investing section of the cash flow statement.__________
B. Interest expense is reported in the financing section of
the cash flow statement. ___________
C. The use of LIFO is prohibited. ___________
Units Unit Price Total Cost
January 1—Beginning inventory 18 $24 $432
March 12—Sold 13
April 11—Purchase 45 $29 $1,305
June 20—Sold 33
Aug 16—Purchase 35 $27 $945
Sept 11—Sold 29
Total Cost of Inventory
Ending inventory is 23 units. $2,682
Record the necessary journal entries from the following bank
reconciliation information for July 31, 2011:
11. Journalize the following transactions for Tammy Company:
Sept. 1 Sold $3,500 of merchandise to Jim on account
Oct. 1 Exchanged Jim’s account receivable for a fourmonth,
8% note for $3,500
Dec. 31 Recorded accrued interest on Jim’s note
Feb. 1 Jim paid off his note with interest (round to
12. A truck was purchased on January 2 at a cost of $60,000.
It’s expected to be used for five years and to have a residual
value of $5,000 after 120,000 miles of service. The truck
was driven for 23,000 miles the first year and 25,000 miles
the second year. Calculate the depreciation expense to the
nearest dollar for the first and second years.
Method Year 1 Year 2
Straight-line ________ ________
Double-declining-balance ________ ________
Units-of-production ________ ________
Bank Balance, July 31, 2011 $36,739
Checkbook Balance, July 31, 2011 36,444
Bank collection of note receivable 1,200 + 165
Bank service charge 35
Deposits in transit 2,400
Outstanding checks 1,245
NSF check from customer 330
Correction of book error (check #456 written for $160,
13. Prepare the general journal entries for the following
Jan. 2, 2011 Purchased land with a building on it for
$750,000. The land is worth $300,000.
Paid $150,000 cash down and signed a
mortgage payable for the balance.
Dec. 31, 2011 Depreciation is computed using the
straight-line method. The estimated
salvage value of the building is $75,000
and has an estimated life of 20 years.
July 1, 2012 The building and land are sold for $825,000
14. Journalize the following treasury stock transactions:
June 3 Reacquired 350 shares of $12 par common stock
at $10 per share.
June 7 Sold 180 shares of treasury stock for $16 per
June 8 Sold 150 shares of treasury stock for $9 per
15. Lowry Landscapes had net income of $50,000 for 2010.
Land was sold for $40,000, of which $3,000 was a gain.
The beginning cash balance was $53,000, and the ending
cash balance was $151,000. Depreciation expenses were
$11,000. Prepare a statement of cash flows for the year
ended December 31, 2010, for Lowry Landscapes using the
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