AC1220 ACCOUNTING I
Project Part 1
Project Part 1: The Accounting Cycle
Karen Harris starts her own scooter retail business, City Rides, on December 1, 20×2. The business
operates as a proprietorship from a rented space near a busy downtown area. Harris hires Jim Waters as
the sales associate and assistant manager of the business. The following transactions take place during
December 20×2.
Transactions
Dec. 1
1
2
2
2
9
12
13
16
18
30
30
30
30
Harris deposits $45,000 into the business bank account. In exchange, she receives
capital in the proprietorship.
Harris writes and mails check #001 for $2,400 for rent. The rent payment covers rent
for the three months ended February 28, 20×2.
Harris purchases office equipment for $1,800 by check #002.
Harris purchases office supplies for $420 by check #003.
Harris purchases 20 Model X mopeds at $500 each and 15 Model L mopeds at $800
each, costing a total of $22,000, on account from a supplier, Fun Brands:
Harris elects to use the first-in-first-out (FIFO) method to account for
inventory.
Fun Brands provides an invoice with the following terms: 2/10 net 30.
In the first week of operation, City Rides sells 16 Model X mopeds at $750 each: 10 are
sold on account, and the rest are sold for cash.
City Rides makes payment to Fun Brands in full settlement of accounts payable by
check #004. Payment is net of the purchase discount. Hint: The terms are 2/10 net 30,
and any purchase discount received reduces the cost of inventory.
City Rides purchases 10 Model X mopeds from Fun Brands on account at a cost of
$520 each.
The sales for the week are as follows: 6 Model X mopeds sold on account for $750
each—inventory cost accounted using the FIFO method.
Cash receipts from customers on accounts receivable are $7,100.
Sales for the rest of December are as follows: 2 Model L mopeds sold for cash for
$1,100 each.
Harris receives the utilities bill for December 20X2 for $650, still payable at month
end.
Harris pays wages amounting to $1,800 by check #005.
Harris withdraws $2,500 in cash.
Page 1
AC1220 ACCOUNTING I
Project Part 1
The Chart of Accounts
The ledger of City Rides is composed of the following accounts. Classify each account by account type.
Choose from among the following items:
Asset
Contra-asset
Liability
Owner’s equity
Account Name
Account Type
Cash
Accounts Receivable
Supplies
Prepaid Rent
Inventory
Office Equipment
Accumulated Depreciation—Office Equipment
Accounts Payable
Capital—Harris
Withdrawals—Harris
Income Summary
Sales Revenue
Cost of Goods Sold
Wages Expense
Rent Expense
Depreciation Expense—Office Equipment
Supplies Expense
Complete the following schedule to track the purchase and sale of inventory items during December
20×2. Use the FIFO method to account for the cost of goods sold. The first inventory purchase and sale
are included as an example.
MODEL X
Date
Purchase
(sale)
Dec. 2
9
Quantit
y
Purchas
e
(Sale)
20
(16)
MODEL L
Cost
per
unit
$500
$500
Total
Date
Purchase
(sale)
$10,000
Dec. 2
($8,000
)
30
Quantit
y
purchas
e
15
Cost per
unit
$800
Total
$12,000
2
13
16
16
Page 2
AC1220 ACCOUNTING I
Project Part 1
Task 1: Making Journal Entries
Journalize the transactions for December 20×2. The first three transactions are journalized already. Use
the following template to make journal entries and check off transactions as they are entered, using the
check boxes. Double-click each check box and select “checked” in the dialog box. Click the OK button to
check.
Date
Dec 1
1
Account and Explanation
Cash
Capital
To record owner contribution
Prepaid Rent
Cash
To record prepaid expense
Debit
$45,000
Credit
$45,000
$2,400
$2,400
Page 3
AC1220 ACCOUNTING I
Date
Account and Explanation
Project Part 1
Debit
Credit
Page 4
AC1220 ACCOUNTING I
Project Part 1
Task 2: Using the Accounting Worksheet
Adjustments
Dec. 31
31
31
Depreciation on office equipment, $360
Supplies used, $300
Recognized rent expense—prepaid rent account
Complete the worksheet provided on the next page by making the adjustments described. Compute adjusted trial balance amounts and enter
account balances into the income statement and balance sheet columns, where necessary.
Page 5
AC1220 ACCOUNTING I
Account
Cash
Accounts Receivable
Prepaid Rent
Supplies
Inventory
Office Equipment
Accumulated
Depreciation—Office
Equipment
Accounts Payable
Capital—Harris
Withdrawals—Harris
Sales Revenue
Cost of Goods Sold
Wages Expense
Rent Expense
Depreciation Expense—
Office Equipment
Utilities Expense
Supplies Expense
Total
Net Income
Project Part 1
Trial Balance
Debit
Credit
$19,020
12,000
2,400
420
15,720
1,800
–
City Rides
Accounting Worksheet
For the Month Ended Dec. 31 20×2
Adjustments
Adjusted Trial Balance
Debit
Credit
Debit
Credit
Income Statement
Debit
Credit
$5,850
45,000
2,500
16,500
11,040
1,800
650
$67,350
$67,350
TOTAL
Page 6
Balance Sheet
Debit
Credit
AC1220 ACCOUNTING I
Project Part 1
Task 3: Preparing Financial Statements and Closing the Accounts
Using the following adjusted trial balance amounts, prepare the income statement, the statement of
owner’s equity, and the balance sheet of City Rides for the month ended December 31, 20×2.
City Rides
Trial Balance
December 31, 20×2
Account
Debit
Cash
$19,020
Accounts Receivable
12,000
Prepaid Rent
1,600
Supplies
120
Inventory
15,720
Office Equipment
1,800
Accumulated
Depreciation—Office
Equipment
Accounts Payable
Capital—Harris
Withdrawals—Harris
2,500
Sales Revenue
Cost of Goods Sold
11,040
Wages Expense
1,800
Rent Expense
800
Depreciation Expense—
360
Office Equipment
Utilities Expense
650
Supplies Expense
300
$67,710
Credit
360
5,850
45,000
16,500
$67,710
Page 7
AC1220 ACCOUNTING I
Project Part 1
City Rides
Income Statement
For the Year Ended December 20×2
Sales Revenue
Less Expenses:
Net Income
Preparing Financial Statements
City Rides
Statement of Owner’s Equity
For the Year Ended December 20×2
Beginning Capital
Ending Capital, Harris
City Rides
Balance Sheet
December 31, 20×2
Assets
Liabilities
Owner’s Equity
Total Assets
Total Liabilities and Owner’s
Equity
Page 8
AC1220 ACCOUNTING I
Project Part 1
Closing Temporary Accounts
Using the journal template given, make the following closing entries. Use the revenue, expense, and
withdrawals balances given before.
Closing Entries
31
31
31
31
Date
Dec 31
Closed Sales Revenues to Income Summary Account
Closed Expense Accounts to Income Summary Account
Closed Income Summary Account to Capital—Harris, Account
Closed Withdrawals—Harris Account to Capital Account
Account and Explanation
Debit
Credit
To close sales revenue to income summary
31
To close expenses to income summary
31
To close income summary
30
To close withdrawals account
—End of Project Part 1—
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