Accounting Help

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Problem

You are a young accountant with MP Books Inc, a retail book store and wholesaler.
As part of your first assignment, you have been given the task of completing the accounting entries for the month of December.
Once you have completed the accounting entries, produce an income statement for the year.
The company is considering a change in its depreciation method from straight-line to double declining balance.
As part of this, you need to recompute depreciation expense for the year using double declining balance and prepare an income statement.
Once you've completed the income statements, you can help settle an argument between the owner and controller.
The owner wants to show more income and the controller wants pay less in taxes.
Based on this, which depreciation method would you recommend they use to generate the desired result and what would be the additional benefits of the method you chose?
Please write out your reasons for your recommendation in memo format in the last tab of the worksheet or in MS Word.
1 Dec 17 MP Books received all 20 copies of Accounting by Warren that were ordered on 12/7/12 from McGraw-Hill. The items were included on invoice #41224 w/ terms 2/10, n/30 and for a total amount of $2,000.
2 Dec 18 MP Books received invoice #2822 from the Traill County Tribune for advertising in the amount of $350. The invoice was paid immediately with check #1065.
3 Dec 20 create a charge sale invoice #131 for UND. They ordered 20 copies of History of Music for $75.00 each. The credit terms are 2/10, n/30.
4 Dec 22 MP Books completed charge sale invoice #132 for Eastern Washington University. They ordered 10 copies of History of Art for $75.00 each.
5 Dec 24 MP Books received check #74903 in the amount of $1,475 from UND for invoice #131 which was ordered in question #3.
6 Dec 26 MP Books received notification that Eastern Washington will not be able to pay for their order. Write off the balance of Eastern Wisconsin’s account using the allowance method
(hint: it's the same method we used in the practice set to write off bad debt).
7 Dec 27 MP Books received 5 copies of the text U.S. History from NDSU that were authorized to be returned on Dec 16. Credit Memo #3 was issued for $50 each.
8 Post your Dec. monthly totals from your journals to the general ledger (Monthly totals has summed for you and account balances in general ledger will update for you).
9 Dec 31 make a general journal entry for depreciation for the year on fixed assets. Use the straight line method. (Post entry to general ledger and record in fixed asset subsidiary ledger).
Compute a full year's depreciation rather than a half like we did in the practice set. Using the summary boxes to the right in your fixed asset subsidiary ledger for totaling depreciation.
10 Complete the attached income statement for 2012. What is MP Books' net income? (The only thing you need to enter into the income statement is your calculated depreciation from question #9).
11 Recompute depreciation using the Double Declining Balance Method. (Create a 2nd entry for depreciation in your general journal and general ledger).
Update the income statement for 2012 after using the DDB depreciation. Just like previously, you only have to enter depreciation in the income statement.
12 What is the effect on net income from using Double Declining Balance depreciation? What is the difference in the taxes you would pay using straight line depreciation compared to double declining balance? NI Taxes
13 Complete a memo outlining your recommendations for the depreciation method the company should use and why you would choose that method. Be sure to think about outside stakeholders.
Write out your recommendation in the last tab of the worksheet or in a word document. Address your memo to me.

General Journal

General Journal: November & December
Date Account # Explanation Post Debit Credit

Sales Journal

Sales Journal: November & December
Debit Credit
Date Customer Invoice or Credit Memo # Subsidiary Account # Accts Rec. G/L 10200 Sales Returns G/L 30200 Sales G/L 30100
12-Nov Mayville State 125 101 9,500.00 9,500.00
17-Nov NDSU 126 102 22,000.00 22,000.00
21-Nov Mayville State CM 33 101 (400.00) 400.00
24-Nov UND 127 104 3,800.00 3,800.00
Monthly Totals 34900.00 400.00 35300.00
3-Dec UND 128 104 11000.00 11000.00
9-Dec Mayville State 129 101 4000.00 4000.00
10-Dec NDSU 130 102 2400.00 2400.00
Monthly Totals 17400.00 0.00 17400.00

Cash Receipts Journal

Cash Receipts Journal: November & December
Debit Credit
Date Description Cash G/L 10100 Sales Disc G/L 30300 Accounts Receivable G/L 10200 Sales G/L 30100 Other G/L
Subs Acct # Trans. Amount Acct. # Trans Amount
23-Nov NDSU 21560.00 440.00 102 22000.00
29-Nov Mayville State 9100.00 101 9100.00
Monthly Totals 30660.00 440.00 31100.00
5-Dec Eastern Washington 3800.00 103 3800.00
13-Dec UND 10780.00 220.00 104 11000.00
Monthly Totals 14580.00 220.00 14800.00 0.00 0.00

Purchases Journal

Purchases Journal: November & December
Debit Credit
Other G/L Accounts Payable G/L 20100 Purchases Returns G/L 30600
Date Vendor Vendor Invoice # Purchases G/L 30500 Acct # Trans. Amount Subs Acct # Trans. Amount
19-Nov Pearson Publishers 24556 6,500.00 201 6,500.00
28-Nov McGraw-Hill 39778 2,000.00 202 2,000.00
Monthly Totals 8,500.00 8,500.00
7-Dec Office Max 1123 40300 350 203 350.00
9-Dec Pearson Publishers 24577 3,500.00 210 3,500.00
12-Dec McGraw-Hill 39804 4,100.00 202 4,100.00
Monthly Totals 7,600.00 350.00 7,950.00 0.00

Cash Disbursements Journal

Cash Disbursements Journal: November & December
Credit Debit
Accounts Payable G/L 20100 Other G/L
Date Check # Description Cash G/L 10100 Purchases Discounts G/L 30700 Subs Acct # Trans Amount Freight-In G/L 30800 Acct # Trans. Amount
18-Nov 1055 State Farm Insurance 200.00 40800 200.00
21-Nov 1056 Patriot Properties 500.00 40100 500.00
23-Nov 1057 Xcel Energy 130.00 40900 130.00
25-Nov 1058 Polar Communications 250.00 40900 250.00
29-Nov 1059 City of Mayville 95.00 40900 95.00
30-Nov 1060-1061 See Payroll Journal
Monthly Totals 1175.00 1175.00
3-Dec 1062 Pearson Publishers 6500.00 201 6500.00
5-Dec 1063 Mc-Graw Hill 1960.00 40.00 202 2000.00
7-Dec 1064 Office Max 350.00 203 350.00
Monthly Totals 8810.00 40.00 8850.00 0.00 0.00

General Ledger

General Ledger
10100 - Cash 20100 - Accounts Payable 30100 - Sales 40100 - Rent Expense
Date Description Journal Debit Credit Dr. Balance Date Description Journal Debit Credit Cr. Balance Date Description Journal Debit Credit Cr. Balance Date Description Journal Debit Credit Dr. Balance
31-Oct Balance Forward 35,500 31-Oct Balance Forward 950 31-Oct Balance Forward 124,250 31-Oct Balance Forward 5,000
30-Nov CR 30660.00 66,160.00 30-Nov P 8,500.00 9,450.00 30-Nov S 35300.00 159,550.00 30-Nov CD 500.00 5,500.00
30-Nov CD 1175.00 64,985.00
64,985.00 9,450.00 159,550.00 5,500.00
10200 - Accounts Receivable 20200 - Wages & Salaries Payable 30200 - Sales Returns & Allowances 40200 - Advertising Expense
Date Description Journal Debit Credit Dr. Balance Date Description Journal Debit Credit Cr. Balance Date Description Journal Debit Credit Dr. Balance Date Description Journal Debit Credit Dr. Balance
31-Oct Balance Forward 3,500 31-Oct Balance Forward 0 31-Oct Balance Forward 4,100 31-Oct Balance Forward 7,900
30-Nov S 34900.00 38,400.00 30-Nov S 400.00 4,500.00
30-Nov CR 31100.00 7,300.00
7,300.00 0 4,500.00 7,900
10300 - Allowance For Doubtful Accounts 20300 - Federal Income Taxes Withheld 30300 - Sales Discounts Taken 40300 - Office Supplies Expense
Date Description Journal Debit Credit Cr. Balance Date Description Journal Debit Credit Cr. Balance Date Description Journal Debit Credit Dr. Balance Date Description Journal Debit Credit Dr. Balance
31-Oct Balance Forward 4,300 31-Oct Balance Forward 335.00 31-Oct Balance Forward 6,300 31-Oct Balance Forward 7,800
30-Nov 30-Nov CR 440.00 6,740.00
4,300.00 335.00 6,740.00 7,800
10400 - Inventory 20400 - FICA Taxes Payable 30400 - Cost of Goods Sold 40400 - Depreciation Expense
Date Description Journal Debit Credit Dr. Balance Date Description Journal Debit Credit Cr. Balance Date Description Journal Debit Credit Dr. Balance Date Description Journal Debit Credit Dr. Balance
31-Oct Balance Forward 69,000 31-Oct Balance Forward 289 31-Oct Balance Forward 0 31-Oct Balance Forward 0
30-Nov PR 275.00 564.00
69,000 564.00 0 0
10500 - Fixed Assets 20900 - Common Stock 30500 - Purchases 40500 - Wages & Salaries Expense
Date Description Journal Debit Credit Cr. Balance
Date Description Journal Debit Credit Dr. Balance 31-Oct Balance Forward 100,000 Date Description Journal Debit Credit Dr. Balance Date Description Journal Debit Credit Dr. Balance
31-Oct Balance Forward 45,000 31-Oct Balance Forward 66,000 31-Oct Balance Forward 19,900
30-Nov P 8,500.00 74,500.00 30-Nov PR 16000.00 35,900.00
100,000
45,000 74,500.00 35,900.00
10600 - Accumulated Depreciation 28000 - Income Summary
30600 - Purchase Returns & Allowances 40600 - Payroll Tax Expense
Date Description Journal Debit Credit Cr. Balance Date Description Journal Debit Credit Balance
31-Oct Balance Forward 0 31-Oct Balance Forward 0 Date Description Journal Debit Credit Cr. Balance Date Description Journal Debit Credit Dr. Balance
31-Oct Balance Forward 3,300 31-Oct Balance Forward 4,400
0
3,300 4,400
29000 - Retained Earnings
Date Description Journal Debit Credit Cr. Balance 30700 - Purchase Discounts Taken 40700 - Federal Income Tax Expense
31-Oct Balance Forward 39,326
Date Description Journal Debit Credit Cr. Balance Date Description Journal Debit Credit Dr. Balance
31-Oct Balance Forward 6,600 31-Oct Balance Forward 0
39,326
6,600 0
30800 - Freight In 40800 - Insurance Expense
Date Description Journal Debit Credit Dr. Balance Date Description Journal Debit Credit Dr. Balance
31-Oct Balance Forward 2,900 31-Oct Balance Forward 2000
30-Nov CD 200.00 2200.00
2,900 2200.00
40900 - Utilities Expense
Date Description Journal Debit Credit Dr. Balance
31-Oct Balance Forward 4,800
30-Nov CD 475.00 5,275.00
5,275.00

Accts Pay Sub Ledger

Acct #
201 Pearson Publishers
1388 West Palm Drive
Miami, FL 23009
Date Description Debit Credit Balance
31-Oct Balance Forward 950.00 950.00
19-Nov Inv #24556 6,500.00 7450.00
9-Dec Inv #24577 3,500.00 10950.00
202 McGraw-Hill
PO Box 94556
Chicago, IL 34556
Date Description Debit Credit Balance
31-Oct Balance Forward 0 0.00
28-Nov Inv #39778 2,000.00 2000.00
12-Dec Inv #39804 4,100.00 6100.00
203 Office Max
PO Box 2211
Saginaw, MI 10993
Date Description Debit Credit Balance
31-Oct Balance Forward 0.00
7-Dec Inv #123 350.00 350.00

Fixed Asset Sub Ledger

Fixed Asset Subsidiary Ledger
Item Computers
Purchased From Office Max
Estimated Life 5 years
Depreciation Method Striaght Line
Salvage Value $0
Date Asset Record Depreciation Record Asset Book Value Depreciation Straight Line
Debit Credit Balance Debit Credit Balance Depreciation Double Declining Balance
1-Jan-12 98,000 98,000 $ 98,000.00
Item Shelving
Purchased From Office Max
Estimated Life 10 years
Depreciation Method Straight Line
Salvage Value $0
Date Asset Record Depreciation Record Asset Book Value
Debit Credit Balance Debit Credit Balance
1-Jan-12 62,000 62,000 $ 62,000
Item Furniture
Purchased From Office Max
Estimated Life 7 years
Depreciation Method Straight Line
Salvage Value $0
Date Asset Record Depreciation Record Asset Book Value
Debit Credit Balance Debit Credit Balance
1-Jan-12 32,000 32,000 $ 32,000

Accts Rece Sub Ledger

Acct #
101 Mayville State University 104 UND
330 3rd St. NE PO Box 2233
Mayville, ND 58257 Grand Forks, ND 58201
Debit Debit
Date Description Debit Credit Balance Date Description Debit Credit Balance
31-Oct Balance Forward 3,500 3,500 31-Oct Balance Forward 0
12-Nov Inv #125 9500.00 13,000.00 24-Nov Inv #127 3,800.00 3,800.00
21-Nov CM 33 400.00 12,600.00 3-Dec Inv #128 11000.00 14,800.00
9-Dec Inv #129 4000.00 16,600.00
102 NDSU
PO Box 1111
Fargo, ND 58103
Debit
Date Description Debit Credit Balance
31-Oct Balance Forward 0
17-Nov Inv #126 22,000.00 22,000.00
10-Dec Inv #130 2400.00 24400.00
103 Eastern Washington University
38 Eagle Drive
Cheney, WA 80556
Debit
Date Description Debit Credit Balance
31-Oct Balance Forward 0

Income State (sl dep)

MP Books Income Statmement 2012
Sales 212,190.00
Less: Returns & Allowances 4,500.00
Sales Discounts 6,740.00
Net Sales 200,950.00
Cost of Goods Sold 51,500.00
Gross Profit 149,450.00
Operating Expenses:
Rent Expense 5,500.00
Advertising Expense 7,900
Office Supplies Expense 7,800
Depreciation Expense (Straight Line)
Wages & Salaries Expense 35,900.00
Payroll Tax Expense 4,400
Insurance Expense 2200.00
Utilties Expense 5,275.00
Total Operating Expenses 68,975.00
Income Before Taxes 80,475.00
Federal Income Tax Expense 24142.50
Net Income 56,332.50

Income State (ddb dep)

MP Books Income Statmement 2012
Sales 212,190.00
Less: Returns & Allowances 4,500.00
Sales Discounts 6,740.00
Net Sales 200,950.00
Cost of Goods Sold 51500
Gross Profit 149,450.00
Operating Expenses:
Rent Expense 5,500.00
Advertising Expense 7,900.00
Office Supplies Expense 7,800.00
Depreciation Expense (DDB)
Wages & Salaries Expense 35,900.00
Payroll Tax Expense 4,400.00
Insurance Expense 2,200.00
Utilties Expense 5,275.00
Total Operating Expenses 68,975.00
Income Before Taxes 80,475.00
Federal Income Tax Expense 24142.50
Net Income 56,332.50