NOTE: This problem has a value of 10% of the final grade.
Objectives: Demonstrate application of Accounting Concepts pertaining to a service company including the following:
Â· Selection of business form
Â· Journalization and Posting of daily transactions
Â· Creation of Unadjusted Trial Balance
Â· Adjustment of the accounts to properly report changes in balances
Â· Creation of Financial Statements
Â· Completion of the Closing process with appropriate closing entries and posting to t-accounts
Â· Determination of Book Value for Fixed Assets
Â· Discussion of companyâ€™s financial position
As you work through this problem please refer to the Penn State rules regarding Academic Integrity. It is very important that you cite your sources.
PART 1: 5% of assignment grade
Monica Porter loves photography and wants to start her own company. She is single, 26 years old, and lives in an apartment in Nicetown. She has a job as a clerk in a grocery store that currently pays her living expenses. Her dream is to be a portrait photographer specializing in events such as Weddings, Birthdays, Graduations, etc. She has saved $10,000 to start this endeavor. She knows nothing about accounting and has hired you to provide her with accounting services as well as guidance in starting this business.
This first task is to determine what business organization entity she should choose. Please explain the different business formats and which one you would suggest for her business which will be named â€œPortraits by Porterâ€ (PBP).
PART 2: 85% of assignment grade
Monica has followed your advice and on January 11, 2012 she deposited $10,000 into a business bank account for PBP and started pursuing her dream.
It has been a hectic year and in June Monica contacts you to ask your advice in helping her to determine whether she can leave the grocery store and work the photography business full time. She provides you with a list of the things that have happened during the past 6 months. She has applied for a small business loan of $25,000 and has been told by her banker that she needs a set of books (whatever that means) and financial statements (???) along with a listing of her fixed assets at Book Value. The banker told her that the books should be closed for the year as ended June 30, 2012 with corresponding financial statements.
1. Create the Journal for the transactions and Post these to the T-accounts (45pts).
2. Create the Unadjusted trial balance (5pts).
3. Make the necessary Adjusted journal entries (6pts).
4. Create the Adjusted trial Balance (5pts).
5. Complete the Financial Statements: Income Statement, Retained Earnings, Balance Sheet (15pts).
6. Close the books using appropriate journal entries with T-accounts (5pts).
7. Determine the BV of the Fixed Assets (4pts)
PART 3: 10% of assignment grade
Discuss the economic position of BPB and what you would advise Monica concerning her job at the grocery store.
Use the data below to complete the three-part Comprehensive Problem 1. (Note: The first transaction comes from the scenario on Comprehensive Problem 1 Directions [file name: ComprehensiveProblem1.docx].)
2. 1/15 PBP purchased a camera from Good Co. on account for $3000. The useful life is 5 years.
3. 1/24 PBP purchased a computer for $756. The useful life is 3 years.
4. 1/26 PBP purchased a photo printer for $1200. The useful life is 2 years.
5. 1/26 PBP purchased photo supplies for $500.
6. 1/31 PBP received a $300 deposit from Mr. Moy to provide photography services at his wedding on February 4
7. 2/6 PBP delivered photos to Mr. Moy and billed Mr. Moy for the final payment of $200.
8. 2/8 PBP paid $1000 to Good Co.
9. 2/14 PBP provided photo services to Sweet Hearts Anonymous at the Valentines Day dance and received $250.
10. 2/21 PBP was hired to take photos at a sports banquet to be held on March 15th. The price was $1000 plus travel expenses with a down payment of $250.
11. 2/22 PBP purchased photos supplies for $800 from Photo Chemical Company.
12. 2/23 PBP paid $1500 to Good Co.
13. 2/25 PBP received a phone bill for $86
14. 2/28 PBP paid $500 for a malpractice insurance policy for one year.
15. 2/28 PBP sold additional photos taken at the Valentines Day Dance for $450
16. 3/1 PBP paid a $100 deposit to rent a booth at the county fair to be held in June.
17. 3/3 PBP received payment from Mr. Moy
18. 3/8 PBP paid the phone bill.
19. 3/15 PBP took photos at the sports banquet and billed the customer for the balance. The travel expenses paid by PBP were $75.
20. 3/19 PBP paid $500 to Good Co.
21. 3/22 PBP received a phone bill for $98
22. 3/28 PBP received payment from Sports Banquet
23. 3/31 PBP landed a $5000 contract to photograph the youth baseball club in April. BPB received a down payment of $2000
24. 4/3 PBP paid the phone bill
25. 4/5 PBP purchased a $9000 photographic copy machine from Good Company on account. The useful life is 6 years.
26. 4/12 BPB photographed Â½ of the baseball club events scheduled for April and billed YBC for $500.
27. 4/21 BPB received a phone bill for $84
28. 4/29 BPB paid $287 for auto repairs that occurred while photographing the remainder of the events for YBC. BPB billed YBC for $2500 for the work performed.
29. 5/3 BPB paid the phone bill
30. 5/8 BPB received payment in full from YBC
31. 5/15 BPB paid $1200 to Good Co.
32. 5/18 BPB obtained permission to photograph the Nicetown Highschool graduation on May 28th.
33. 5/20 BPB purchased $2500 of Photo supplies
34. 5/28 BPB photographed the graduation and received prepaid orders for $3600 of photos.
35. 5/29 BPB received a phone bill for $108
36. 5/31 BPB delivered $1200 of the graduation photos.
37. 6/3 BPB paid the phone bill
38. 6/8 BPB paid $1000 to Good Co.
39. 6/15 BPB participated in the County Fair with the following results:
a. Received prepaid orders of $5000 for photos to be delivered by the July 15th.
b. Sold prints of prior photos for $1400.
c. Paid $1500 for the rental of the booth.
d. Paid $491 for travel expenses.
40. 6/21 BPB delivered the remainder of the graduation photos.
41. 6/27 BPB received a phone bill for $211
42. 6/28 BPB delivered $1800 of the photos for the County Fair.
43. Monica also has a shoebox of gas receipts that totals $782 for her business trips during the 6 months.
Monica has done an inventory count and has $118 of supplies left in the closet on June 30.