Accounting Cycle Project

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ACCT 207 PROJECT Adjusting Journal Entries and Financial Statements

Purpose Improve your understanding of the relationships between the financial statements; increase your confidence in preparing and recording accounting entries; increase your ability to understand the preparation of formal financial statements.

Instructions Included are the unadjusted trial balance for Sinfully Sweet Desserts at December 31, 2018, and a list of adjusting journal entries required at year-end.

• First, enter the December 31, 2018, beginning balances from the Unadjusted Trial Balance into your accounting “system” (i.e., enter the beginning balances into the T-accounts provided on pp. 4-7).

• Second, “record” (i.e., write out in proper journal entry format) each of the adjusting entries from page 3 on page 8 (i.e., on blank page with the header “Adjusting Entries”). IMPORTANT – Don’t forget to post each of these adjusting entries to the correct T- accounts on pp. 4-7 – this ensures that your adjusting entries are properly updating the various accounts in your “system”.

• After journalizing and posting all of your adjusting entries, tally up all the ending balances in the T-accounts on pp. 4-7. Then, use these ending balances to fill out the Adjusted Trial Balance on page 9.

• From the Adjusted Trial Balance, then your accounting “system” (i.e., you) will complete

the Multiple-Step Income Statement (p. 10), Statement of Retained Earnings (p. 11) for the year ended December 31, 2018, and the Classified Balance Sheet (p. 12) as of December 31, 2018. (Hint: One of your asset accounts will have a zero balance.)

Expectations This is an individual project. Therefore, each student will turn in his/her own copy of this completed packet. However, I want this to be a pleasant learning experience. Therefore, while I want everyone to complete their own packet, I encourage you to work together! Have “fun” with it! Due Date All packets must be submitted to me by Thursday, May 16th. If you do not turn in the project by May 16th, you will receive a zero – no exceptions. Further, if you decide that you want to turn in the project before the deadline, that’s fine by me! In fact, I encourage you to do so!

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ADDITIONAL NOTES

• Do not wait until the last minute to do this project – things always take longer than you expect them to. I suggest you knock this project out in one shot – i.e., set aside a block of time and complete it.

• For assistance with this project, I would refer to Chapter 4 in your textbook. Specifically, take look at Problem 4-3A!

• You are NOT required to prepare closing entries for this project.

• This is a project that nobody should have a real problem completing. We have reviewed problems like this in class. Therefore, do not expect me to sit down with you and walk you through this project (I will only answer very simple questions about this project). Get together, set aside a block of time, and knock it out!

• When you are ready turn in the project, make sure the packet is stapled together (assuming you took it apart to complete it). I will not accept unstapled packets!

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Sinfully Sweet Desserts Unadjusted Trial Balance

December 31, 2018

Accounts Debit Credit Cash 105,800 Accounts Receivable 14,600 Allowance for Bad Debts 1,900 Inventory 10,000 Prepaid Advertising 1,200 Supplies 2,200 Accounts Payable 14,200 Unearned Revenue 4,000 Long-Term Note Payable 7,000 Common Stock 70,900 Retained Earnings 28,800 Sales Revenue 74,200 Cost of Goods Sold 34,200 Wages Expense 8,700 Utility Expense 3,400 Advertising Expense 20,900 Totals 201,000 201,000

Adjusting Entries: December 31: While reviewing the bank statement, determined that during December, $1,100 in

revenue had been incorrectly debited to accounts receivable instead of cash (the credit was correct).

December 31: Determined that we earned (but haven’t received) $3,300 in interest revenue on our savings account during the year.

December 31: We earned $3,850 of revenue from sweets sales during December 2018 that had been paid for in advance by our customers. The cost of those sweets was $1,800. Prepare entries to record both the sale and cost of goods sold. Record both enries.

December 31: The entire year’s advertising campaign ($1,200 per month) was paid in advance on January 1, 2018 (recorded in January) – one month of Prepaid Advertising remains.

December 31: Determined that there were $50 of supplies remaining at the end of the period. December 31: December utilities are $2,900. The bill will be paid in January 2019. December 31: Unrecorded bad debt expense for 2018 has been estimated at $2,100. December 31: The long term note payable was recorded on August 1, 2018. The interest and the

note are due on July 31, 2025. The interest rate is 12%. Record the 2018 interest expense.

December 31: Calculate Net Income Before Taxes and then record income taxes as 35% of this number (use the Multiple-Step Income Statement) – use this tax # to record the final adjusting entry for Income Tax Expense & Income Tax Payable AND as the Income Tax Expense figure in your Multiple-Step Income Statement. Note  The taxes will be paid in March 2019.

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Adjusting Entries

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Adjusted Trial Balance

Sinfully Sweet Desserts Adjusted Trial Balance

December 31, 2018

Accounts Debit Credit Cash Accounts Receivable Allowance for Bad Debts Interest Receivable Inventory Prepaid Advertising Supplies Accounts Payable Utilities Payable Income Tax Payable Unearned Revenue Interest Payable Long-Term Note Payable Common Stock Retained Earnings Sales Revenue Interest Revenue Cost of Goods Sold Wages Expense Utilities Expense Advertising Expense Supplies Expense Bad Debt Expense Interest Expense Income Tax Expense Totals

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Multiple-Step Income Statement

Sinfully Sweet Desserts Income Statement

For the Year Ended December 31, 2018

Sales Revenue Less: Cost of Goods Sold Gross Profit

Operating Expenses: Wages Expense Utility Expense Advertising Expense Supplies Expense Bad Debt Expense

Total Operating Expenses

Total Operating Income

Other Revenues and Expenses Interest Revenue Interest Expense Total Other Rev. (Exp.)

Net Income Before Taxes Income Tax Expense Net Income

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Statement of Retained Earnings

Sinfully Sweet Desserts Statement of Retained Earnings

For the Year Ended December 31, 2018

Retained Earnings, Jan. 1, 2018

Add: Net Income Less: Dividends NA

Retained Earnings, Dec. 31, 2018

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Balance Sheet

Sinfully Sweet Desserts

Balance Sheet As of December 31, 2018

ASSETS LIABILITIES Current Assets Current Liabilities Cash Accounts Payable Accounts Receivable Utilties Payable Less: Allowance for Bad Debts Income Tax Payable Net Accounts Receivable Unearned Revenue Interest Receivable Total Current Liabilities Inventory Prepaid Advertising Non-Current Liabilities Supplies Interest Payable

Notes Payable Total Current Assets Total Non-Current Liab.

Total Liabilities

STOCKHOLDERS' EQUITY Common Stock Retained Earnings Total Owners' Equity

Total Liab. & SE