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Question

Intermediate Accounting

Accounting Cycle

Ken H. Guo

Ph.D., CPA/CMA (Canada)

WANTED

* MUST KNOW I.T. *

THE ACCOUNTANT

WITH NO FEAR

REWARD CAREER$

1

Contents

1

General Requirement .

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Grading

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Business Background

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Chart of Accounts

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Transactions:

Beginning Balances .

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Transactions:

Business Events .

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Transactions:

Adjusting Entries .

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10

Copyright Disclaimer

The

material

presented

here

includes

copyrighted

con-

tent provided by SAP and its subsidiaries for academic training purpose only.

Com-

mercial use and other unauthorized distribution is prohibited.

1

1

General Requirement

1.1

Steps

You are required to complete the whole accounting cycle by using the given data.

More specicifally:

1.

Post beginning balaces (which is a big journal entry);

2.

Create journal entries for regular transactions (chart of accounts is given; you

may need information from the beginning balances);

3.

Post journal entries;

4.

Create

journal

entries

for

adjustments

(you

may

need

information

from

the

beginning balances plus regular transactions);

5.

Post adjusting entries; and

6.

Prepare trial balances.

1.2

Technical Matters

You

are

required

to

process

everything

in

Microsoft

Excel

or

LibreOffice

Calc,

including:

1.

Journal entries

2.

T-accounts

3.

Trial balances

1.2.1

What to Submit

Submit one Excel file (.xlsx) if you use Microsoft Excel; or one .ods file if you use

LibreOffice Calc.

Note

that

you

are

not

required

to

do

it

in

SAP,

which

is

too

time-consuming

for this course.

2

Grading

The

grading

will

be

based

on

the

completeness

and

correctness

of

your

journal

entries and trial balances.

3

Business Background

Global

Bike

Inc.,

(GBI)

is

a

world

class

bicycle

company

serving

the

professional

and “prosumer” cyclists for touring and off-road racing.

GBI’s riders demand the

highest level of quality, toughness and performance from their bikes and accessories.

2

Product

development

is

the

most

critical

element

of

GBI’s

past

and

future

growth.

GBI has invested heavily in this area, focusing on innovation, quality, safety

and speed to market.

GBI has an extensive innovation network to source ideas from

riders, dealers and professionals to continuously improve the performance, reliability

and quality of its bicycles.

In

the

touring

bike

category,

GBI’s

handcrafted

bicycles

have

won

numerous

design awards and are sold in over 10 countries.

GBI’s signature composite frames

are

world-renowned

for

their

strength,

light

weight

and

easy

maintenance.

GBI

bikes are consistently ridden in the Tour de France and other major international

road

races.

GBI

produces

two

models

of

their

signature

road

bikes,

a

deluxe

and

professional model.

The key difference between the two models is the type of wheels

used,

aluminum

for

the

basic

model

and

carbon

composite

for

the

professional

model.

GBI’s off-road bikes are also recognized as incredibly tough and easy to main-

tain.

GBI

trail

bikes

are

the

preferred

choice

of

world

champion

off-road

racers

and

have

become

synonymous

with

performance

and

strength

in

one

of

the

most

grueling sports in the world.

GBI produces two types of off-road bike, a men’s and

women’s

model.

The

basic

difference

between

the

two

models

is

the

smaller

size

and

ergonomic

shaping

of

the

women’s

frame.

GBI

also

sells

an

accessories

prod-

uct

line

comprised

of

helmets,

t-shirts

and

other

riding

accessories.

GBI

partners

with only the highest quality suppliers of accessories which will help enhance riders’

performance and comfort while riding GBI bikes.

4

Chart of Accounts

You are required to use the following chart of accounts.

Do not create or use any

other accounts.

If there are several similar accounts, you can use any of them.

Table 1:

Chart of Accounts

AccCode

Account Description

100000

Bank Account

101000

Alternate Bank Account

110000

Trade Accounts Receivables

110100

Accounts Receivable (Direct Posting Account)

110150

Allowance for Bad Debts

110200

Interest Receivable

200000

Inventory-Raw Materials

200100

Inventory-Finished Goods

200200

Inventory-Trading Goods

200300

Inventory-Semi-finished Goods

200400

Inventory-Production Supplies

200500

Inventory-Suspense (Heaven)

200600

Inventory-Operating Supplies

200900

Inventory-Raw Materials (Direct Post)

(continued on next page)

3

(continued from previous page)

AccCode

Account Description

200910

Inventory-Finished Goods (Direct Post)

200920

Inventory-Trading Goods (Direct Post)

200930

Inventory-Semi-finished Goods (Direct Post)

210000

Prepaid Insurance

211000

Prepaid Supplies

212000

Prepaid Advertising

215000

Prepaid Rent

216000

Deposits on Purchases

220000

Notes Receivable

220050

Fixed Assets

220060

Accumulated Depreciation - Fixed Assets

220110

Land (Direct Post)

220210

Production Machinery, Equip, Fixtures(Dir.Post)

220310

Accumulated Depreciation-Machinery (Direct Post)

220400

Office Furniture

220500

Accumulated Depreciation-Office Furniture

220600

Office Equipment and Computers

220700

Accumulated Depreciation - Office Equipment

220800

Vehicles

220900

Accumulated Depreciation-Vehicles

221100

Intangible Assets

221200

Accumulated Amortization - Intangible Assets

221300

Buildings

221400

Accumulated Depreciation - Buildings

300000

Payables-Trade Accounts

300100

Payables-Income Taxes

300200

Accounts Payable (Direct Posting Account)

300300

Payables-Interest

300400

Payables-Short-Term Notes

300500

Payables-Long-Term Notes

300600

Payables-Commissions

300700

Payables-Salaries and Wages

300800

Accrued Expenses

310000

Goods Receipt / Invoice Receipt Account

320000

Accrued Tax – Output

321000

Accrued Tax- Input

322000

Unearned Revenues

329000

Common Stock

329100

Additional Paid-in-Capital

330010

Retained Earnings (Direct Posting)

600000

Sales Revenue

610000

Sales Discount

620000

Miscellaneous Revenue

630000

Revenue Deductions

(continued on next page)

4

(continued from previous page)

AccCode

Account Description

640000

Gain or Loss on Sale of Assets

650000

Customer Service Revenue

650100

Customer Service Revenue Settlement

700000

Labor

720000

Raw Material Consumption Expense

720100

Finished Product Consumption Expense

720200

Trading Good Consumption Expense

720300

Semi-Finished Consumption Expense

740000

Supplies Expense

740100

Telephone and Internet Expense

740200

Legal and Professional Expense

740300

Rent Expense

740400

Insurance Expense

740500

Payroll Expense-Office

740600

Payroll Expense-Administrative

740700

Sales Expense

740800

Tax Expense - Property

740900

Tax Expense- Income

741000

Miscellaneous Expense

741100

Warranty Expense

741200

Bad Debt Expense

741300

Information Technology Expense Account

741400

Production Order Variance Expense Account

741500

Utilities (electricity & phone)

741600

Manufacturing Output settlement

741700

Manufacturing Output Settlement Variance

741800

Depreciation Expense

741900

Advertising Expense

742000

Vendor Discounts Missed

742100

Shipping Expense

760000

Purchase Price Difference

760100

Production Variance

770000

Research and Development

780000

Cost of Goods Sold

5

Transactions: Beginning Balances

The beginning balances as of

[current month] 1

(i.e, the first day of the month when

you started the assignment) are as follows:

5

Table 2:

Beginning Balances as of

[Current Month] 1

AccCode

Account Description

Debit

Credit

220210

Production Machinery, Equip, Fixtures(Dir.Post)

915,000

330100

Retained Earnings (Direct Posting)

618,009

100000

Bank Account

252,518

110100

Miscellaneous Accounts Receivable

108,420

110400

Allowance for Bad Debts

2,500

200600

Inventory-Operating Supplies

750

200900

Inventory-Raw Materials (Direct Post)

32,000

200910

Inventory-Finished Goods (Direct Post)

281,298

200920

Inventory-Trading Goods (Direct Post)

66,474

210000

Prepaid Insurance

5,000

212000

Prepaid Advertising

1,000

220110

Land (Direct Post)

425,000

220310

Accumulated Depreciation-Machinery (Direct Post)

305,000

300200

Payables-Miscellaneous

47,900

300700

Payables-Salaries and Wages

110,000

300800

Accrued Expenses

988

320000

Accrued Tax – Output

3,063

329000

Common Stock

1,000,000

Total (Do NOT enter this line)

2,087,460

2,087,460

6

Transactions: Business Events

The transactions may take quite some time to process.

Take your time and do not

rush to the end without fully understanding the transactions and related accounting

rules.

TX1

[Current Month]/1

Employees are paid monthly on the first business day of the month for work

done

in

the

previous

month.

The

total

payroll

for

the

previous

month

is

$

110,000.

(Ignore

payroll

taxes

for

this

assignment.)

Accounting

wrote

and

distributed the paychecks.

Hint:

Dr.

Salary payable

TX2

[Current Month]/2

GBI

received

$

55,692

in

safety

product

inventory

and

$

37,128

in

raw

ma-

terials

from

Dallas

Bike

Basics.

This

inventory

was

ordered

on

the

28th

of

last

month.

The

payment

terms

for

the

invoice

total

of

$

92,820

are

net

10

days.

GBI

paid

the

CWX

shipping

company

$

550

with

a

manual

check

for

the

shipment

of

the

goods.

The

bill

of

lading

showed

that

the

safety

prod-

uct

inventory

arrived

in

6

boxes

with

a

total

weight

of

120

lbs

and

the

raw

materials came on a pallet and weighed 100 lbs.

6

Hint:

Dr.

Inventory – Raw Material

$

37128+

$

250

TX3

[Current Month]/3

Windy City Bikes in Chicago, IL ordered

$

22,000 of bicycle accessories from

GBI. The cost of the accessories (to GBI) is

$

15,180.

The goods were shipped

to Windy City immediately via UPS using Windy City’s UPS shipping num-

ber.

The terms of payment for Windy City’s order are 2/10 net 30 days.

Hint:

Dr.

A/R, Dr.

COGS

TX4

[Current Month]/4

GBI

received

payment

of

$

16,850

from

Northwest

Bikes

in

Seattle,

WA

for

the balance due on their account.

Hint:

TX5

[Current Month]/5

GBI’s account on the utility company website is updated at the end of each

month when the meter is read.

GBI uses this data to accrue the expenses at

the

end

of

each

month

(in

this

case

at

the

end

of

last

month.)

This

allows

recognition of the expense in the correct period.

Expenses are usually accrued

at the end of the month as “Accrued Expenses”.

GBI paid last month’s utility

bill of

$

988 via the company’s automatic electronic bill pay program.

Hint:

Dr.

Accrued exp

TX6

[Current Month]/6

GBI’s advertisement in the English language edition of Italian Cycling Journal

was

published

today.

This

ad

was

prepaid

six

months

ago

for

six

months

of

advertising.

Five months of advertising have already been used.

Hint:

Cr.

Prepaid advising

TX7

[Current Month]/7

The

office

manager

in

San

Diego

ordered

$

350

of

office

(operating)

supplies

from

Staples.

While

on

the

way

back

from

a

delivery,

one

of

the

warehouse

staff

picked

up

the

Staples

order

and

brought

it

to

GBI’s

office.

GBI

has

an

account

with

Staples

and

payment

terms

are

net

10.

Operating

supplies

expense

is

figured

at

the

end

of

the

month

determined

by

the

amount

of

supplies used during the month.

Hint:

DR. Inventory – Operating supplies

TX8

[Current Month]/8

GBI ordered

$

99,418 in raw materials from Space Bike Composites in Hous-

ton, TX. Terms of payment to Space Bikes are net 30.

Hint:

TX9

[Current Month]/9

GBI received payment from Windy City Bikes for their order (see Transaction

3).

Windy

City

paid

the

invoice

amount

less

the

discount

for

paying

within

10 days.

7

Hint:

Dr.

Sales discount

$

440

TX10

[Current Month]/10

GBI paid

$

92,820 via bank transfer for the inventory order that they received

from Dallas Bike Basics (see Transaction 2).

Hint:

TX11

[Current Month]/11

In order to better track inventory, GBI ordered a bar-coding and tracking sys-

tem

which

will

be

installed

and

tested

by

Computer

Specialists,

Inc.

(CSI).

The system will allow employees to track inventory using mobile devices and

special software which will link into their new computerized accounting sys-

tem.

The

barcode

system

costs

$

5,995

(including

sales

tax)

and

CSI

will

charge GBI

$

1,200 for the installation and tests.

GBI paid a deposit of

$

3,000

on the system and the remainder is due and payable when the system is in-

stalled.

GBI

will

classify

the

bar-coding

system

as

“Production

Machinery,

Equipment and Fixtures”.

Hint:

DR. Deposits on purchase

TX12

[Current Month]/12

GBI

paid

an

invoice

from

Lightbulb

Accessory

Kits

for

ordered

goods

that

were received last month.

The amount of the invoice from Lightbulb is

$

17,010

due net 30.

Hint:

TX13

[Current Month]/13

The city of Denver will be hosting a decathlon at the end of next month.

The

event

is

expected

to

create

demand

for

high

quality

bikes.

Rocky

Mountain

Bikes in Denver, CO placed an order with GBI for

$

128,130 worth of bicycles

to

be

delivered

immediately.

Rocky

Mountain

will

pay

the

shipping.

The

bikes

cost

GBI

$

79,441.

GBI

shipped

the

order

immediately

so

that

Rocky

Mountain can start promoting the bikes.

Because Rocky Mountain is a good

customer, GBI is giving them special terms of net 45 days on this order.

Hint:

Dr.

A/R, Dr.

COGS

TX14

[Current Month]/14

GBI

received

raw

materials

inventory

ordered

from

Space

Bike

Composites

(see Transaction 8).

Shipping charges of

$

802 were included in the

$

100,220

invoice from Space Bike.

Hint:

TX15

[Current Month]/15

GBI received notice that Bunky’s Bicycle Emporium had declared section 13

bankruptcy

which

meant

GBI

would

not

be

able

to

collect

the

$

1,610

that

Bunky’s owed them.

Hint:

Dr.

Allowance for debt

8

TX16

[Current Month]/16

GBI received a

$

89,960 funds transfer from Silicon Valley Bikes in Palo Alto

for the balance due on their account.

Hint:

TX17

[Current Month]/17

GBI paid Staples for the office supplies they received (see Transaction 7).

Hint:

TX18

[Current Month]/18

SoCal

Bikes

in

Irvine,

CA

placed

an

order

for

$

2,300

in

bicycle

helmets

for

a

special

event

in

February.

The

merchandise

cost

GBI

$

1,380.

SoCal

sent

a

truck

to

the

GBI

distribution

center

in

San

Diego,

CA

and

picked

up

the

merchandise

directly

from

GBI’s

warehouse.

Terms

of

payment

are

net

30.

(Don’t forget to charge sales tax of 8.75% for this order.)

Hint:

Cr.

Accrued tax – output 201

TX19

[Current Month]/19

Beantown Bikes in Boston, MA placed an order with GBI for

$

27,450 in bicy-

cles.

The cost of the bicycles is

$

17,092.

Beantown Bikes is a new customer.

Its

buyers

saw

GBI’s

booth

at

a

trade

show.

Because

Beantown

is

a

new

customer, they must either wait until their credit can be approved or pay for

the order before GBI will ship the bikes to them.

Hint:

No entry?

TX20

[Current Month]/20

GBI has been offered the opportunity to advertise in the Bicycle Times online

magazine for a reduced price if they pay for three months in advance.

In light

of

the

upcoming

Tour

de

France,

the

advertising

is

a

great

opportunity

for

GBI

to

get

additional

recognition.

The

advertising

will

start

next

month.

GBI wrote a check for

$

15,000 for three months of advertising.

Hint:

TX21

[Current Month]/21

GBI received notification from their bank that

$

27,450 had been transferred

to their account from Beantown Bikes, so GBI’s warehouse personnel shipped

Beantown’s

order.

Beantown

will

be

responsible

for

paying

Fed-X

$

360

for

shipping the order.

Hint:

Dr.

Bank, Dr.

COGS

TX22

[Current Month]/22

The

county

approved

GBI’s

building

plans

for

their

new

warehouse.

Esti-

mated

building

costs

are

$

1,050,000

which

will

be

funded

via

a

mortgage

from

Bank

of

America.

GBI

plans

to

break

ground

on

the

new

building

in

three months.

Hint:

9

TX23

[Current Month]/23

GBI sent a

$

30,890 check to Night Rider Aluminum Products for an order of

bicycle parts GBI received last month.

Hint:

TX24

[Current Month]/24

Big

Apple

Bikes

in

New

York

City

is

expanding

to

another

location

in

New

York and needs to stock the new location.

GBI received a phone order from

Big

Apple

for

$

232,315

in

bicycles

and

$

108,490

in

bicycle

accessories

and

safety

gear

at

special

discount

prices.

The

cost

of

the

bicycles

in

this

order

is

$

169,586

and

the

cost

of

the

accessories

is

$

65,094.

Big

Apple

will

have

a

contract

trucking

company

pick

up

the

order

when

it

is

ready.

The

order

is sent to GBI’s warehouse for picking and packing which may take a couple

days.

Payment terms to Big Apple for this order are net 30.

Hint:

No entry?

TX25

[Current Month]/25

GBI pays sales tax once a month via the state’s electronic filing and payment

system.

GBI filed its return and paid

$

3,063 in sales tax for last month.

Hint:

Dr.

Accrued tax – output

TX26

[Current Month]/26

GBI

paid

next

month’s

rent

of

$

4,500

for

the

office

and

warehouse

space

in

San Diego.

Hint:

Dr.

Prepaid rent

TX27

[Current Month]/27

CSI

installed

and

tested

the

new

barcode

system.

The

warehouse

manager

approved the installation and commented that she thinks it works great.

GBI

wrote a check to CSI for

$

4,195 and gave it to the installer.

Hint:

Dr.

PPE.

TX28

[Current Month]/28

Big

Apple’s

truck

arrived

at

GBI’s

warehouse

and

picked

up

the

order

(see

Transaction 24).

Hint:

Cr.

Trading goods

$

65094

7

Transactions: Adjusting Entries

ADJ1

[Current Month End]

Based on prior experience, GBI estimates that approximately 0.5% of the net

credit

sales

(gross

credit

sales

minus

returns

of

credit

sales)

for

the

month

will become bad debt.

GBI writes off bad debts as they occur and recognizes

bad debt expense based on anticipated bad debts as an adjusting entry each

month.

10

Hint:

Check your number:

$

2467

ADJ2

[Current Month End]

As

a

control

measure,

physical

inventories

are

taken

on

a

periodic

basis

al-

ternating between the raw materials inventory, finished goods inventory and

trading

goods

inventory.

Physical

inventory

of

the

trading

goods

inventory

was taken at the end of the current month.

It was determined that the value

of the trading goods merchandise on hand was

$

40,710.

Hint:

Check your number:

$

102

ADJ3

[Current Month End]

GBI counted the office supplies on hand after the close of business on the last

day of the month and determined the cost of the unused office supplies to be

$

620.

Hint:

Dr.

Supplies Exp

ADJ4

[Current Month End]

(Canceled)

Hint:

ADJ5

[Current Month End]

GBI used the Internet to review the monthly charges for utilities the business

consumed during the month.

Based on the internet report, the amount to be

billed by the utilities company for the current month usage is

$

1,046.

Hint:

Dr.

Utilities

ADJ6

[Current Month End]

(Canceled)

Hint:

ADJ7

[Current Month End]

GBI needs to recognize the wages expense for the month.

Since all employees

are

paid

salaries

and

no

changes

have

been

made,

this

amount

is

the

same

as

the

previous

month

salaries.

(For

purposes

of

this

assignment,

ignore

manufacturing and assume all labor costs will be expensed.)

Hint:

Cr.

Payable – Salaries

11

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