Riley’s Discount Videos, Inc.
Company Information
David and Richard Riley started up a company that sold DVDs
and videos at a discount. They bought
videos that were out of date in bulk, allowing them to sell them at low
prices. They started out by just selling
them online through their website and eventually grew to where they had a small
store front.
They originally formed the company as a partnership, but
when they decided to expand and have a store front, they incorporated and sold
stock to some of their business associates to help finance their growth.
Operations:
Riley’s buys videos and DVDs in bulk. When they opened up their store front, this
allowed them to carry larger inventories and increase the volume of
shipping. Riley uses perpetual inventory
method on a first-in-first-out basis.
Since everything is bought in bulk consisting of a variety of different
movies, Riley makes no attempt to differentiate by type (DVD or VHS) or movie
name.
Though the store front increased sales, the majority of
sales come over the internet. There are
not any consistent sales prices. Each
movie sells at a different price, depending on demand. Riley also sells many movies on different
auction sites. Thus, the prices can vary
drastically.
In-state sales are charged a 6% sales tax. Out-of -state sales over the internet are
not charged sales tax. Riley’s also has
started selling items to local stores who want to sell their products. Sales to other businesses for resale are not
charges sales tax.
In order to deal with the volume of business, the brothers
had to hire a few employees. They pay
salaries only twice a month on the 15th and he 30th or 31st
of each month, except February, which is on the 28th or 29th. Withholdings and sales taxes are paid before
the 15th of the following month.
Riley’s has a calendar year end. You are to record the transaction for
January, the first month of the new fiscal year, prepare the monthly adjustments
prepare the financial statements.
Directions:
1. Record
the transactions for January.
2. Post the
transactions for January
3. Prepare
the Trial Balance (you may prepare the worksheet instead of a formal Trial
Balance).
4. Record
Adjusting Entries
5. Prepare
an Adjusted Trial Balance (On worksheet if you choose the worksheet)
6. Prepare
the Schedule of Accounts Receivable and the Schedule of Accounts Payable
7. Prepare
Income Statement, Balance Sheet, and Statement of Changes in Stockholders’
Equity for the month ended January 31, 2009 in good form.
There are two documents, Directions and Transactions (Word)
and Forms (Excel). You can print off
everything and do everything by hand, or you can enter everything into
Excel. Excel is the preferred
method. Actually, everything can be done
quicker on Excel. Excel allows you to
copy and paste.
Reports need to look professional. You do not have to use the forms provided to
do your reports. If you do not use the
forms provide, make sure they are professional in appearance.
Transactions:
Jan. 3. Record sales
for the week. To make things easier, we
are going to only record cash sales weekly, though in a real business sales
would be recorded more often. Internet
sales are done for cash through PayPal.
PayPal subtracts a fee from the amount that is received depending how the
client paid PayPal’s. In store sales are
paid with cash. Remember a 6% sales tax
is charged on all instate sales.
Out-of-State
Internet Sales 150
units $1,380
Instate
Internet sales 10 units $ 100
In-Store
Sales 55 units
$ 600
PayPal
fee $28
Jan. 3 Issued check
562 for $1,200 to pay rent for January.
Jan. 3 Issued check
563 to USPS for $365 for shipping for the above sales.
Jan. 3 Sold old computer(Office Equipment) costing
$2,000 and having $800 of accumulated depreciation attached to it for $400 in
cash.
Jan. 5 Received
order of 5,000 DVDs from KLD Video.
Invoice amount was for $18,367.35 which included shipping and
handling. Terms of the order is 2/10,
n/30. Riley policy is to take advantage
of all discounts offered and records all purchases at the net amount, less the
discount. If Riley fails to pay within
the discounted period, the extra amount paid is charged to Discounts Lost and
expensed as a finance charge.
Jan. 5 Issue check
564 to Custom DVD for the amount due on account.
Jan. 5 Received a $320 bill (Invoice number 312) from
Morgan County Journal for advertising in this week’s newspaper.
Jan. 6 Electronically transferred $1,250 to Google
for a variety of internet advertising campaigns. (Confirmation # 1234G234)
Jan 7. Received
$120 from Jason Cridal for amount owed on account.
Jan 7. Jay Finn,
owner of Finn’s Variety Shop stopped by the store to pick up more videos to be
sold at his store. He purchased 250 DVDs
on account for $1,500. Issued him
invoice number 3321. Since Finn is
buying the product to resale, he does not have to pay sales tax
Jan. 8 Purchased
$650 of office supplies from Dan’s Office Supply Company on account.
Jan 8 Issued the
following checks to pay amounts owed on account.
565 S & S Shipping Supplies $1,325
566 Wholesale Video $3,800
Jan 9 Received a check from Glen Beckendale for $80 and H & C
Groceries for $980 for payments on account.
Jan. 9 Purchased
shipping supplies costing $640 from S & S Shipping Supplies on Account.
Jan. 10 Record sales
for the week ending January 10.
Out-of-State
Internet Sales 2,800
units $22,800
Instate
Internet sales 230 units $ 2,100
In-Store
Sales 559 units
$ 5,800
PayPal
fee $498
Jan. 10 Issued check
567 to USPS for $1,465 for shipping for the above sales.
Jan. 10 Electronically
transferred the amount due to the federal government for withholdings and FICA
for December.
Jan. 10 Electronically
transferred the amount due to the state for withholdings and sales taxes from
December.
Jan. 10 Electronically
transferred the amount due for the fourth quarter unemployment to the federal
government.
Jan. 10 Electronically
transferred the amount due for the fourth quarter unemployment to the state.
Jan. 12 Received
payment on account from Fury Video, $1,500.
Jan. 13 Delivered 500 videos to CK Video and delivered
the invoice for $3,800. CK Video purchases the videos for resale. Thus, there is no sales tax.
Jan. 13 Received and
recorded bill from City Energy for utilities for $265.
Jan. 13 Received and
recorded bill from Topica Bell for telephone service for $212.
Jan. 14 Issued the
following checks for bills:
568 KLD Video $18,000
569 Morgan County Journal $ 320
Jan. 15 Processed
payroll for the first half of the month. Details follow:
Officers’
Salaries $10,000
Wage
Expense $ 4,250
Federal
Withholdings 2,975
FICA
Withholdings 1,083
State
Withholdings 570
Jan. 15 Processed employer payroll taxes for the first
half of the month. Details are below:
FICA $1,083
Federal
Unemployment 114
State
Unemployment 540
Jan. 15 Issued check
570 for net amount of payroll. Amount is
paid to a payroll account where checks are written for payroll.
Jan. 17 Record sales
for the week ending January 17.
Out-of-State
Internet Sales 2,600
units $20,800
Instate
Internet sales 180 units $ 1,900
In-Store
Sales 400 units
$ 3,800
PayPal
fee $448
Jan. 17 Issued check
571 to USPS for $1,265 for shipping for the above sales.
Jan. 19 Received $800
for payment on Helm’s Depot account and $300 for payment on Larry Flintwood’s
account.
Jan. 19 Found out that
Sterofonics declared bankruptcy and that you will most likely collect nothing
and found out that Mary VanStruckle left the state. Decide to write off both accounts.
Jan. 20 Issued check 572 for new computer (Office Equipment)
$2,600.
Jan. 21 Issued 2,500
more shares of the $1 par value stock for future store expansion at $25 per
share.
Jan. 21 Took the
$62,500 of cash from sale of stock and invested it into a variety of marketable
equity securities. The cash was
electronically transferred.
Jan. 22 Cut check 573
for $220 to Memix Computer Repairs for repairs done to computer.
Jan. 22 Received a
bill from Larry’s Janitorial Services for the month of January for $400.
Jan. 23 Issued the
following checks for bills:
574 City Energy $265
575 Topica Bell
212
Jan. 24 Record sales
for the week ending January 24.
Out-of-State
Internet Sales 3,200
units $27,400
Instate
Internet sales 120 units $ 1,200
In-Store
Sales 320 units
$ 3,300
PayPal
fee $558
Jan. 24 Issued check
576 to USPS for $1,455 for shipping for the above sales.
Jan. 26 Received
a check from Albert Finney for payment on his account for $215.
Jan. 27 Issued
check 577 to S & S Shipping Supplies for $640 to pay off the account.
Jan. 29 Issued check 578 for $400 to R.J. Holmes, CPA
for accounting services for the month of January.
Jan. 31 $500 was electronically transferred out of the
checking account to pay interest for the month of January on the Note Payable.
Jan. 31 Record sales
for the week ending January 24.
Out-of-State
Internet Sales 2,700
units $28,000
Instate
Internet sales 230 units $ 2,400
In-Store
Sales 380 units
$ 4,600
PayPal
fee $538
Jan. 31 Issued check
579 to USPS for $1,223 for shipping for the above sales.
Jan. 31 Processed
payroll for the second half of the month.
Details follow:
Officers’
Salaries $10,000
Wage
Expense $ 4,250
Federal
Withholdings 2,975
FICA
Withholdings 1,083
State
Withholdings 570
Jan. 31 Processed employer payroll taxes for the first
half of the month. Details are below:
FICA $1,083
Federal
Unemployment 114
State
Unemployment 540
Jan. 31 Issued check
580 for net amount of payroll. Amount is
paid to a payroll account where checks are written for payroll.
Jan. 31 Issued check
581 for $180 to replenish Petty Cash. Below are the receipts left in the fund.
Office
Supplies $50
Janitorial
Expense $40
Miscellaneous $90
Monthly Adjusting Entries
1. $200 of
insurance has expired during January.
2. $5,300 of
shipping supplies remained at the end of January.
3. $520 of
office supplies remained at the end of January.
4. Riley
estimates that the allowance for doubtful accounts should have a balance of
$600 at the end of January.
5. Monthly
Depreciation for Store Equipment is $500
6. Monthly
Depreciation for Office Equipment is $250
