Accounting Information Systems
Accounting Information Systems BUSA 320
Pacific Lutheran University
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Date Created: 10/19/15
Bookkeeping Problems for BUSA 320 1 Anderson Company39s chart of accounts includes the following selected accounts On August 1 the accounts payable ledger of the Kenny Company showed the following balances Olson Company 1600 Palmer amp Sons 2800 Rickler Bros 1300 and Player Company 3500 The August transactions involving the payment of cash were as follows Aug 1 Purchased merchandise check no 63 550 Aug 3 Purchased store equipment check no 64 600 Aug 5 Paid Olson Company balance due of 1 600 less 2 discount check no 65 1568 Aug 8 Paid note payable of 1 500 plus interest of 30 check no 66 Aug 10 Purchased merchandise check no 67 2250 Aug 15 Paid Rickler Bros balance due of 1 300 check no 68 Aug 16 L Anderson the owner pays his personal insurance premium of 250 check no 69 Aug 19 Paid Palmer amp Sons for invoice no 610 1400 less 2 cash discount check no 70 372 Aug 24 Paid Gilbert Painters for painting the outside of the office building check no 71 490 Aug 29 Paid Player Company in full for invoice no 264 2100 check no 72 Instructions 1 Journalize the transactions above in a vecolumn cash payments journal with col umns for Other Accounts Dr Accounts Payable Dr Purchases Dr Purchase Discounts Cr and Cash Cr Foot and crossfoot the journal Insert the beginning balances in the Accounts Payable control and subsidiary accounts and post the August transactions to these accounts Prove the agreement of the control account and the subsidiary account balances N 00 CConverterlnputDVSA5anK7doc 792010 2 The chart of accounts of the Southwestnortheast Company includes the following selected accounts In May the following selected transactions were completed All purchases and sales were on account 1St Purchased merchandise from Logan Company 7000 2quotd Received freight bill from Johnson Shipping on Logan purchase 250 3rd Made sales to Grant Company 1400 and Franklin Bros 1800 5th Purchased merchandise from Maxwell Company 3200 8th Received credit on merchandise returned to Maxwell Company 150 10th Accepted Calvin Corporation 60 day 6 note on merchandise sold this date 3000 13th Purchased store supplies from Apollo Supply 680 15th Purchased merchandise from Logan Company 3600 and Sparky Company 1 800 16th Made sales to Jackson Company 3450 and Franklin Bros 1570 18th Received bill for advertising from Nancy39s Advertisements 600 21St Sales were made to Grant Company 310 and Jeff Company 2200 22quotd Remitted allowance to Grant Company for merchandise damaged in shipment 120 24th Purchased merchandise from Maxwell Company 2560 26th Purchased a printer from Apollo Supply 520 28th Received freight bill from Johnson Shipping on Maxwell purchase of May 24 280 30th Sales were made to Jackson Company 2900 Instructions 1 Journalize the transactions above in a purchases journal with columns for Other Accounts Dr Purchases Dr Freightin Dr Supplies Dr and Accounts Payable Or a onecolumn salesjournal and a general journal 2 Post to both the general and subsidiary ledger accounts Assume that all accounts have zero beginning balances 3 Prove the agreement of the control and subsidiary accounts CConvertcrInputDVSA5anK7doc 792010 2 3 The transactions below are for Dr Fillum s Dental Practice for the month of September Sept 1St Dr Fillum begins practice as a dentist and invests 15000 cash Sept 2quotd Fillum purchases furniture and equipment on account from Ajax Dental supply for 19200 Sept 4th Pays office rent of 800 forthe month Sept 4th Employs a receptionist Peggy Graham Sept 5th Purchases denial supplies for cash 942 Sept 10th Receives cash 2100 from patients for services performed Sept 10th Pays miscellaneous office expenses Sept 14th Bills patients 5120 for services performed Sept 18th Pays Ajax Dental Supply account 3600 Sept 19th Withdraws 3000 from the business for personal use Sept 20th Receives 980 from patients on account Sept 25th Bills patients 2100 for services performed Sept 30th Paid office salaries 1600 Sept 30th Paid miscellaneous office expenses 85 Sept 30th Dental supplies used during September amounted to 350 Instructions 1 Enter the transactions shown above in appropriate general ledger accounts Allow 10 lines for the Cash account and 5 lines for each of the other accounts needed Record depreciation using an 8year life on the furniture and equipment straight line no salvage value Do not use a drawing account Prepare a trial balance Prepare an income statement a balance sheet and statement of owner39s equity Close the ledger Prepare a post closing trial balance U39PFDN CConverterInputDVSA5anK7doc 792010 4 The accounts listed below appeared in the December 31 trial balance of the Backstage Theater Required 1 From the account balances listed above and the information given below prepare the annual adjusting entries necessary on December 31 a The equipment has an estimated life of 20 years and a tradein value of 72000 at the end ofthat time Use straightline depreciation The note payable is a 90day note given to the bank October 20 and bearing interest at 12 Use 360 days for the denominator c In December 2000 coupon admission books were sold at 20 each they could be used for admission any time after January 1 d The concession stand is operated by a concessionaire who pays 10 of gross receipts forthe privilege of selling popcorn candy and soft drinks in the lobby Sales for December were 35500 and the 10 due for December has not yet been received or entered Advertising expense paid in advance and included in Advertising Expense b v e v Salaries accrued but unpaid 4700 2 What amounts should be shown for each ofthe following on the income statement for the year a Interest expense b Income from admissions c Income from concessions d Advertising expense e Salaries expense CConverterInputDVSA5anK7doc 792010 4 5 Presented below are the trial balance and the other information related to Denise Tuttle a consulting engineer Trial Balance expenses The following additional information is available 1 Fees received in advance from clients 7000 2 Services performed for clients that were not recorded by December 31 5500 3 The Allowance for Doubtful Accounts account should be adjusted to 6 ofthe corrected accounts receivable balance 4 Insurance expired during the year 600 5 Furniture and equipment is being depreciated at 10 per year 6 Denise Tuttle gave the bank a 90day 12 note for 7200 on December 1 1992 7 Rent of the building is 750 per month The rent for December 2004 has been paid as has that for January 2005 8 Office salaries earned but unpaid December 31 2004 2600 Required 1 From the trial balance and other information given prepare annual adjusting entries as of December 31 2004 2 Prepare an income statement for 2004 a balance sheet and a statement of owner39s equity Denise Tuttle withdrew 14740 cash for personal use during the year CConverterInputDVSA5anK7doc 792010 5 6 The balance sheet of for Maxwell Company as of December 31 2004 is presented below The following transactions occur during the month of January 2005 2quotd Receives payment of 1 250 on accounts receivable 3rd Purchases merchandise on account from Great White Co for 1965 230 n6O fobshipping point record at gross amount 4th Receives an invoice from Eagle a trade magazine for advertising 125 4th Sells merchandise on account to Doty Co for 1034 210 n30 fob shipping point 4th Makes a cash sale to Davis Inc for 1886 6th Sends a letter to Great White Co regarding a defect in one item of merchandise received 9th Purchases merchandise on account from Nevin39s Novelty Company 651 11th Pays freight on merchandise received from Great White Co 90 11th Receives a credit memo from Great White Co granting an allowance of 34 on defective merchandise see transaction of January 6 15th Receives 600 on account from Doty Co 19th Sells merchandise on account to Paul Abbott 812 210 n30 21st Pays display clerk39s salary of 600 25th Sells merchandise for cash 2350 27th Purchases office equipment on account 900 begin depreciating in February 29th Pays Great White Co in full 3Oth Receives a note from Paul Abbott in full on account 31St A count of the inventory on hand reveals 2700 of salable merchandise Instructions 1 Open ledger accounts at January 12005 2 Enter the transactions into ledger accounts 3 Take a trial balance after adjusting for depreciation use 10year life straightline method and no salvage for all longterm assets Interest at 12 on the note payable is due every December 31 4 Prepare a balance sheet and income statement Ignore income taxes 5 Close the ledger 6 Take a postclosing trial balance CConverterInputDVSA5anK7doc 792010 6 The Anatomy ofA Payroll Transaction Payroll transactions are among the most complex transactions we will deal with in this course Although not intrinsically difficult payroll transactions involve numerous accounts employer expenses employee withholdings and assorted liabilities Development of a clear understanding of the structure of a typical payroll transaction will ease your work on the Gourmet Distributing project and facilitate your overall understanding of this important area Before getting into the details of transactions some definitions are in order Federal and state income taxes should be selfexplanatory Note however that taxes withheld from employees are different from the corporate income tax liability While both are remitted to the government by the employer one represents a liability for funds held in trust for the employee while the other represents an expense to the employer itself FICA aka Social Security FICA stands for the Federal Insurance Contribution Act FICA taxes are paid in equal proportions by the employer and the employee The proceeds are used to provide workers with supplemental retirement employment disability and medical benefits Technically there is a Social Security portion and a Medicare portion although the distinction is lost to most of us who see nothing but the total impact on our paychecks The employee share is deducted from the paycheck and is a liability to the employer The employer share is an expense to the employer often called simply payroll expense which should not be confused with wages and salaries and is also a liability to the employer The FICA tax is levied as a fixed percentage of wages although earnings beyond a certain point are exempt The current limit is 80400 for FICA there is no limit for Medicare The 2005 rates are 62 for FICA and 145 for Medicare Federal and State Unemployment Taxes SUTA and FUTA These are taxes which are levied by the Federal and state governments to provide unemployment benefits to workers who have been laid off or who are out of work for certain other reasons The taxes are paid by the employer and are therefore an expense and also a liability until paid Like the FICA tax unemployment taxes are levied as a fixed percentage the amount depends on the taxing jurisdiction of wages with wages beyond a specified maximum exempt from the tax The current federal rate is 62 However there is a credit for contributions to state unemployment taxes of up to 54 so the resulting Federal rate may be as low as 008 State rates are determined by complex formulas Rates may vary from employer to employer A variety of factors are taken into account in determining the rates including the stability of employment Firms that have frequent layoffs typically have higher SUTA rates Other items Employers may also withhold amounts for union dues United Way contributions medical disability or life insurance pension plans professional memberships and assorted other purposes These become liabilities to the employer In some cases eg pension plans there may also be a required contribution by and hence an expense to the employer So how does the accounting for all this work Consider the following example The earnings for September for employee Sullivan S Snodgrass are as follows CConvertcrInputDVSA5anK7doc 792010 7 Employee Employee Employer Total FICA Federal Income SUTA 27 FUTA 08 Expense Share of FICA Share of FICA T x Withheld on first 7000 on rst 7000 Gross Pay at 2005 rates at 2005 rates assumed earned earned Snodgrass 500000 38250 38250 76500 75000 13500 4000 The calculation of both the net pay and the employer expenses is shown below The corresponding journal entry looks like this Note that an entry would be required for the monthly or quarterly remittance to the taxing authorities CConverterInputDVSA5anK7doc 792010 A Sample Payroll Problem Presidential Inc was formed to sell plasterfigurines of US presidents The companys seven employees all former presidents are paid on an hourly basis plus timeandahalf for hours in excess of 40 hoursweek Payroll data for the week ended March 15 are as follows Employee Hours Hourly Rate Federal United Union Dues Worked Income Way Tax Adams John 40 1300 7600 500 400 Adams John Q 39 1400 7500 000 4 00 Roosevelt 42 1300 6600 500 400 Theodore Coolidge Calvin 40 1275 7100 000 000 Fillmore Millard 44 1300 7800 800 000 Jackson Andrew 40 1275 6800 900 000 Harding Warren 46 1300 6800 500 400 The following tax rates apply Tax Employer Share Employee Share FICA total 765 765 Sate Income 300 State Unemployment 540 Federal Unemployment 080 Prepare a payroll registerfor the period ended March 15 Combine the records for all employees in a single ledger do not set up separate ledgers for each one Prepare the journal entries for all relevant transactions Show account balances as of the close of business on March 15 Fast forward to March 30 at which time remittances are made to the Federal and state governments the United Way and the union American Federation of Out of Work Former Presidents will be made on June 30th Prepare the journal entries to reflect the payment to the respective agencies CConvertcrInputDVSA5anK7doc 792010 9