APPENDIX A PRACTICE WORK FOR STUDENT— FIRST HALF-YEAR
Reading edition
Instead of the student’s practice work appearing at the close of each chapter of the text as in Volume I, it has seemed best in this volume to place this material in a separate appendix at the end of the text because of the impracticability of dividing the text matter into uniform sections with one or two chapters constituting a lesson assignment. In some classes more practice work may be undertaken than in others. The practice work is, however, laid out in fairly uniform portions and it is expected that the student will be able to handle one practice assignment for each hour of class work. Thus, if the lecture period is of two hours’ duration, two assignments of work should be set.
The practice work is given in three parts. Appendix A will be found to contain sufficient material for the first semester of approximately 30 hours of lecture work. This appendix, in the main, is comprised of a formal set of accounts relating to a manufacturing corporation, to be worked out with suitable blanks. A few miscellaneous problems bearing particularly on some portions of the text are also provided. Appendix A should be covered in connection with the first twenty-seven chapters of the text.
Appendix B contains a series of well-graded problems more or less closely connected, illustrating, by means of its method of keeping accounts, the growth of the business. Single entry is changed to double entry, a simple trading business into a complex manufacturing concern, and many of the problems peculiar to such types of business organization are incorporated. Some unrelated problems illustrating special forms of statements, combinations, capitalization, and the consolidated balance sheet are also included.
Appendix C contains a group of unrelated, miscellaneous problems, taken mostly from C. P. A. examinations. These can be used to supplement the assignments from Appendices A and B and to give variety to the work during succeeding years.
I
Problems
1. J. B. Rogers and B. R. Jay, owners of similar businesses, agree to consolidate under a partnership agreement whereby each turns over his business as it stands, subject to the liabilities shown, and the deficient partner contributes sufficient cash to equalize their capitals. Rogers’ standing is: cash $750; merchandise $3,900; notes receivable $1,000, with interest accrued on same $10.25; accounts receivable $750, estimated as worth $725; furniture $975; notes payable $1,000, being his personal non-interest bearing note at 60 days discounted at 8% with 20 days yet to run; accounts payable $325. Jay’s standing is: cash $365; merchandise $4,500; accounts receivable $1,350, guaranteed as good; furniture $825; delivery equipment $325, valued at $300; accounts payable $265; notes payable $1,200, with accrued interest of $8.69; salaries earned but unpaid $50. The furniture in each case is taken in at its face value.
Make the opening journal entry and balance sheet for the new firm. Make journal entries for each partner to close his old set of books.
2. From the following information take a trial balance, make closing journal entries and summary statements as of December 31.
Notes receivable on hand $3,000; accounts receivable $7,500; notes payable $2,100; accounts payable $4,600; real estate $6,000; plant and machinery $8,000; rent and taxes $600; general expense $2,000; salaries $1,500; wages $600; freight $150; duty $200; cash on hand $150; cash in bank $1,800; bad debts written off $140; goods on hand at beginning of year $9,500; purchases $26,000; sales $40,000; interest paid $210; furniture $600; Jas. Buckham, partner, invested $10,000, withdrew $1,450; E. J. Cockburn invested $14,000, withdrew $1,300; the merchandise on hand is valued at $9,000; rent unpaid $250; insurance unexpired $140; interest accrued on notes receivable $25; wages accrued $115. Allow 10% depreciation on plant and machinery, and 12½% on furniture. Estimate losses from bad debts as 5% of accounts and notes outstanding. Losses and gains are divided ⁴/₇ to Cockburn and ³/₇ to Buckham. Interest on capitals at 6% is to be allowed.
3. At the end of the first year of a partnership, Wilson has an interest of $18,000 and Peters of $9,000, each drawing profits in proportion to his capital.
They decide to admit Johnson into the partnership, selling him a one-quarter interest, valuing their good-will at $3,000. Under the conditions named, in what two ways may Johnson secure his interest? What will be the amount of his investment in each case?
Instructions
Problem 1. The student is referred to Volume I, pages 458-459, where a similar problem is illustrated.
Problem 2. See Volume I, pages 285-286.
II
Problems
1. The Ibex Manufacturing Co. is incorporated with an authorized capital stock of $500,000 common and $250,000 6% preferred; $150,000 of the preferred is subscribed for and paid in full. One-half of the common is subscribed for and 50% paid in, the balance to be paid in five monthly instalments. The remaining preferred stock is later subscribed for at 101 and 50% paid, and half of the remaining common is subscribed for at 90 and paid in full. After operating for six months the remaining common is sold at 102 to provide funds for enlargement, one-half paid in cash and the balance in one month. Balance of preferred subscriptions are paid in cash. Show all the above transactions by means of journal entries.
2. At the close of the first year, the Ibex Manufacturing Co., being short of ready funds and not desiring to extend its credit further, secures from its stockholders a donation of $50,000 common and $10,000 preferred, one-half of which is immediately sold at 90 and 101 respectively. At the end of the second year the remainder of the donated stock was disbursed to the stockholders as a dividend, net profits for the year amounting to $45,000. Journalize all the above transactions, showing ultimate disposition of the working capital.
3. The Smith Brooks Publishing Co. has a capital stock of $750,000, of which one-third is 6% cumulative preferred stock. The company has a surplus of $65,000. It has an outstanding bond issue of $200,000 at 4½% interest. The profits for the year are $61,392.75. No profits have been distributed for three years. The directors pay the bond interest, declare a 3% dividend on common, and carry $7,500 to the sinking fund. Bring all of the above onto your books.
4. A corporation has been formed with an authorized capital stock of $200,000, one-fourth of which is 7% cumulative preferred. The entire issue of preferred is subscribed for at par and 50% paid in. When the balance is paid, one share of common is to be given as a bonus with every five shares of preferred. The promoter of the company is given $15,000 in common for his services. The company paid cash $250 for a set of stock records; $25 for corporate seal; $500 for lawyer’s fees in incorporating; $250 for state charter, and $375 for sundry expenses in organizing. $75,000 of the common stock has been subscribed for at par to be paid in five monthly instalments. The balance has been paid on the preferred stock and three instalments on the common. Make journal entries covering the above transactions.
Instructions
For the opening entries of a corporation, the student is referred to Volume I, Chapter XLIX, in addition to Chapter I of the present volume.
Problem 1. Make entries covering the five monthly instalments.
Problem 2. Assume that no preferred dividend was paid during the first year.
III
Problems
1. Draw up a form of voucher check suitable for a professional man.
2. Draw up a form of voucher check suitable for a trading concern.
3. Draw up a form of voucher register for a manufacturing concern desiring to segregate manufacturing, trading, and general expenses under which there are twelve, ten, and fifteen subdivisions of expense, respectively. Provide for other possible expenditures. Treat purchase discounts as a reduction of cost price.
4. Using the voucher register you drew up for Problem 3, from your own data make at least one entry in each column and three in the Sundries column. Show the register footed, closed, and posted.
5. What change would you make in the form of a voucher register in order to treat purchase discount as a financial management item?
6. Using your own data for a purchase ledger in which there are at least six open accounts, show the entries necessary to close it and open a voucher register to take its place.
Instructions
See Chapter II where all these points are discussed.
IV
Problem
Caxton & Dolton began business January 1, 1916. Caxton invested $12,000, and Dolton invested $11,000. May 1, 1916, Caxton withdrew $3,000, and Dolton invested $1,000. July 1, 1917, Evans was admitted to the partnership, investing $8,000. October 1, 1917, Evans invested $4,000 more, and Dolton withdrew $2,000. July 1, 1918, Dolton and Evans purchased Caxton’s interest in the business. On that date their books showed the following financial condition: cash $19,364.50; merchandise $17,500; notes receivable $10,000; accounts receivable $8,945; interest receivable $248.50; real estate $6,500; accounts payable $14,000; notes payable $5,130; interest payable $167.40; accrued expenses $325.60. For the purpose of the sale good-will was estimated at $5,000; depreciation on real estate 5%; bad debts at 3% of the outstanding notes and accounts. Each partner was to share in profits on the basis of capital and the length of time the capital was invested. Of the purchase price of Caxton’s share, Dolton and Evans were to pay such amounts respectively as would make their new capitals equal. Set up the partners’ ledger accounts and show all entries to them in order to take effect of all the above data.
Instructions
For explanation of this method of sharing profits, see Volume I, pages 281-284.
V
Practice Data
This set contains material for the student’s practice work in keeping the records of a corporation engaged in trading and manufacture. Two blank books will be used for the record. Of the “Journals,” pages 1-32 comprise the general journal; pages 34-44 the cash book; pages 45-48, the sales journal; page 49 the sales returns and allowances journal; page 51 the purchase journal (to be used for the month of September only); and pages 54-57 the voucher register (to be used after the purchase journal is discontinued). Pages 58-60 are to be used for the record of continuous trial balances. Of the “Ledger” blank, pages 1-44 comprise the general ledger; pages 45-51 the sales ledger; and pages 52-56 the purchase ledger. Column headings for the different journals are given in the blanks.
It is expected that the student has already acquired correct habits of the daily posting of customers’ and creditors’ accounts. In addition to a training in some peculiarities of manufacturing accounts, the purpose of the course is to give the student practice in handling some of the larger problems of accounting which are not of daily occurrence. For the first few assignments considerable detail is given to provide a necessary minimum of practice in the summarization and posting of the different books of original entry. After this the ordinary transactions are given in condensed form to save unnecessary repetition and burdening the student. In the use of the analytical general journal, the student must be very careful to make entries in the proper column, as otherwise trouble will be experienced with the controlling accounts. (See Volume I, pages 410, 430, and 431.)
Open the following accounts in the various ledgers as indicated. The numeral preceding the account title indicates the ledger folio on which the particular account is to be opened.
General Ledger—Give one-third page to each account except Notes Receivable, Trade Debtors, Merchandise Inventory, Notes Payable, Vouchers Payable, and Subscribers, for each of which allow 4 additional lines, shortening the allowance for the account next following in each case.
1. Drew National Bank
1. Petty Cash
1. Sinking Fund Trustee
2. Notes Receivable
2. Notes Receivable Discounted
2. Notes Receivable Special
3. Trade Debtors
3. Reserve for Doubtful Accounts
3. Accounts Receivable Special
4. Prepayment on Purchases
4. Merchandise Inventory
4. Raw Materials Inventory
5. Goods in Process Inventory
5. Plant and Sundry Assets
5. Jackson, Edwards, Hansen, Vendors
6. Delivery Equipment
6. Depreciation Reserve Delivery Equipment
7. Patterns
7. Depreciation Reserve Patterns
8. Furniture and Fixtures
8. Depreciation Reserve Furniture and Fixtures
9. Power Equipment
9. Depreciation Reserve Power Equipment
10. Factory Buildings
10. Depreciation Reserve Factory Buildings
10. Tools
11. Machinery
11. Depreciation Reserve Machinery
11. Factory Land
12. Patents and Trade-Marks
12. Good-Will
12. Organization Expense
13. Notes Payable
13. Vouchers Payable
13. Boston Office Company
14. Dividends on Common
14. Dividends on First Preferred
14. Dividends on Second Preferred
15. Purchase Money Mortgage on Machinery
15. Bonds Payable (Authorized Issue $20,000)[A]
15. Discount on Bonds
16. Subscribers
16. Call No. 1
16. Call No. 2
17. Capital Stock Subscriptions
17. Capital Stock Common (Authorized Issue $100,000)[80]
17. Capital Stock First Preferred (Authorized Issue $50,000)[81]
18. Capital Stock Second Preferred (Authorized Issue $25,000)[82]
18. Discount on Stock
18. Treasury Stock
19. Surplus
19. Donated Working Capital
19. Sinking Fund Reserve
20. Manufacturing
21. Profit and Loss
22. Desks and Tables Sales
22. Desks and Tables Sales Returns and Allowances
22. Bookcases and Filing Cabinets Sales
23. Bookcases and Filing Cabinets Sales Returns and Allowances
23. Sundry Office Supplies Sales
23. Sundry Office Supplies Sales Returns and Allowances
24. Knoxfraud Sales
24. Knoxfraud Sales Returns and Allowances
24. Desks and Tables Purchases
25. Bookcases and Filing Cabinets Purchases
25. Sundry Office Supplies Purchases
25. Raw Materials Purchases
26. Knoxfrauds Manufactured
26. In-Freight and Delivery
26. Receiving and Shipping Room Expense
27. Direct Labor
27. Indirect Labor
27. Factory Supplies
28. Light, Heat, and Power
28. Building Maintenance and Repairs
28. Machinery Repairs
29. Assembling and Setting Up Expense
29. Depreciation
29. Sundry Factory Expense
30. Royalties
30. Experimental Expense
31. Salesmen’s Salaries
31. Salesmen’s Commissions
31. Salesmen’s Traveling Expense
32. Delivery Expense
32. Warehouse Expense
32. Warehouse Rent
33. Sundry Selling Expense
33. Advertising
34. Office Salaries
34. Stationery and Printing
34. Telephone, Telegraph, and Postage
35. Sundry Office Expense
35. Insurance
35. Taxes
36. Rent
36. Interest and Discount
36. Collection Expense
37. Bond Interest
37. Sales Discount
37. Bad Debts
38. Purchase Discount
38. Rent Income
38. Commission Income
39. Loss from Sale of Power Equipment
39. Fire Loss
39. Strike Costs
40. Damage Claims
40. Damage Claims Reserve
Sales Ledger—Allow one-third page to each account.
45. Smith Brooks Stationery Co.
The Brush Co.
The Kistler Stationery Co.
46. C. F. Hoeckle Office Supply Co.
John Bach & Sons
T. J. Stewart Office Specialties Co.
47. Saxon Edwards
47. T. C. Macie & Co.
The Alexander Jacobs Co.
48. Field & Co.
Sundry Customers
49. Salesmen Advances
New Method Manufacturing Co.
General Ledger Adjustment
Purchase Ledger—Allow one-third page to each account.
52. P. J. Johnson Mills Co.
B. F. Brainard & Co.
Jackson City Supply Co.
53. F. C. Good Rubber Co.
53. B. A. Franklin Press
Brickley Desk Co.
54. R. M. Goddard Furniture Co. City of Hoboken
The column headings for the different books are given in the blanks with a few exceptions. The fourth columns of the sales and sales returns and allowances journals are left blank. The student should write in here “Sundry Office Supplies.” This will be used till October 31, 1916, at which time it will be necessary to write in its place, “Knoxfrauds.” The heading for voucher register, column No. 5, which is left blank, must be written in as above, “Sundry Office Supplies Purchases,” for use until October 31, when “Raw Materials Purchases” will be substituted.
Messrs. Stanley Jackson, J. T. Edwards, and P. Hansen, on September 1, 1915, made application as incorporators to the Secretary of State for a certificate of incorporation authorizing the Acme Office Furnishings Co. to transact a general business of all kinds in trading, manufacturing, and printing, as principals or as agents, to acquire and trade in real estate, patents, trade-marks, licenses, and the like, and to act as promotion and financial agents. The customary certifications were made, the organization tax of $50 was paid, and the certificate duly issued. The authorized capital stock was $100,000, divided into 1,000 shares of common stock only, of par value $100 each. Subscriptions at par to capital stock had been made as follows:
Stanley Jackson 225 shares
J. T. Edwards 162 ”
P. Hansen 113 ”
T. J. Noble 100 ”
A. H. Lawrence 75 ”
H. C. McCullough 50 ”
At the first meeting of the incorporators and subscribers, after the adoption of a set of by-laws and organization thereunder, a proposal of sale made by the Jackson, Edwards, Hansen firm of their business and good-will at a stated figure of $50,120.97 was referred to the board of directors for their consideration and investigation, with authority to act. After looking over the properties, all of which it was found would be advantageous to the company, the proposal was accepted and transfer was made. A committee from the board was appointed to make a careful appraisal of the purchased properties and report as soon as possible. Accordingly, on September 15, the following report of valuation was made and accepted and authority given for the opening up of a set of accounting records with the stated values of the properties. The services of a public accountant were secured to plan and install a system that would meet the needs of the proposed business and to open the books.
The properties acquired were: cash $5,269.14; accounts receivable, as per schedule following, $10,125.61; notes receivable $1,250; desks and tables inventory $15,694; bookcases and filing cabinets inventory $18,392; sundry office supplies inventory $8,196.27; rent prepaid $125; insurance unexpired $95.36; delivery equipment $492.50; store furniture and fixtures $526; office furniture and fixtures $274; good-will $4,500.
The liabilities assumed were: accounts payable, as per schedule following, $10,126.73; notes payable $4,692.18. Upon the guaranty by Jackson, Edwards, Hansen of the accounts and notes receivable taken over, the company assumed the contingent liability on notes receivable under discount amounting to $250. No cognizance was taken of prepaid discount.
Payment was made to Jackson, Edwards, Hansen by the cancellation of indebtedness on their subscription contracts in the amounts severally shown, and in cash for the balance (distributed in the ratio of their subscriptions)—Jackson $54.44, Edwards $39.19, and Hansen $27.34.
A. H. Lawrence and H. C. McCullough on September 20 paid in cash 75% of their subscriptions, the balance due in 30 days. Certificates of stock, properly executed, were issued September 20 to all the above-mentioned parties, except Noble, in the amounts of their subscriptions.
Open the books and prepare a balance sheet of the company according to the data given.
Instructions
The fourth method illustrated in Volume I, pages 454 and 457, is to be used for opening the books.
Record the cash payment of organization tax as on September 1.
The purchase of the Jackson, Edwards, Hansen business is to be recorded under date of September 1, making use of the accounts “Jackson, Edwards, Hansen, Vendors” and “Plant and Sundry Assets.” Upon receipt of the appraisal committee’s report, bring the detailed assets and liabilities onto the books. It is to be noted that only one Inventory account is carried, in which the detail must be shown, using one line for each kind of commodity. Bring the discounted note on the books. This is not included in the amount given for notes receivable outstanding.
In a small corporation with stock closely held, certificates are sometimes issued although not yet fully paid for.
VI
Practice Data
The following schedules support their respective titles found among the assets and liabilities taken over and appraised by the Acme Office Furnishings Co.:
Accounts Receivable
Smith Brooks Stationery Co., June 24, $750; July 7, $100;
August 22, $113.14; 2/10 $963.14
The Brush Co., May 20, $825; August 15, $216.69; 2/10, 1/30 1,041.69
The Kistler Stationery Co., April 18, $1,000; June 15, $250;
August 20, $317.40; 2/10 1,567.40
C. F. Hoeckle Office Supply Co., March 12, $1,000;
July 18,$123.90 1,123.90
John Bach & Sons, June 13, $300; July 30, $119.36 419.36
T. J. Stewart Office Specialties Co., July 20, $319.45;
August 12, $523.12 842.57
Saxon Edwards, February 10, $585; May 23, $206.75 791.75
T. C. Macie & Co., May 11, $115.10; June 21, $210.15;
July 8, $450; August 25, $465.15; 2/10, n/30 1,240.40
The Alexander Jacobs Co., August 28, $362.25; 3/5, 2/10 362.25
Field & Co., June 15, $1,015.05; July 6, $250;
August 24, $508.10; 2/10, n/30 1,773.15
Accounts Payable
The P. J. Johnson Mills Co., January 15, $1,895.60;
August 5, $736.15; 1/30 $2,631.75
B. F. Brainard & Co., April 18, $590.10;
July 11, $802.15 1,392.25
Jackson City Supply Co., June 10, $512.60;
June 25, $428.20; July 18, $622 1,562.80
F. C. Good Rubber Co., July 1, $175.19;
August 13, $300; 2/10, 1/30 475.19
B. A. Franklin Press, May 2, $850; June 22, $262.15 1,112.15
Brickley Desk Co., March 8, $912.50; May 6, $1,500;
August 16, $540.09; 2/10, 1/30 2,952.59
Notes Receivable
John Bach & Sons, dated July 3, for 3 months with interest
at 6% and discounted at the Drew National Bank,
August 16, at 8%. Face of note $250.
Andrew Jackson, dated August 25 for 60 days, without interest.
Face $750.
The Brush Co., dated July 29, for 2 months, with interest
at 6%. Face $500.
Notes Payable
No. 91, favor Second National Bank for $2,500, dated July 15,
at 3 months, discounted at 6%.
No. 95, favor Brickley Desk Co. for $1,261.40, dated August 20,
at 4 months, interest 6%.
No. 96, favor B. F. Brainard & Co., for $930.78, dated
August 25, at 60 days, interest 6%.
The new system provides for a voucher register, but due to
delay on the part of the printer, a creditors ledger will
have to be opened temporarily. Open the sales and purchase
ledgers according to the data given.
Instructions
Record the above data directly (i.e., not via journal) in the various ledgers. The details of the various sales and purchases should be shown, and not just the total to be charged or credited to each account.
VII
Practice Data
The board, having completed negotiations with T. J. Noble, authorizes the purchase from him of the whole of his right, title, and interest in a patent device known as Knoxfraud to be used for the purpose of preventing the raising of the amounts of commercial paper. The transfer is made, including the trade-mark covering “Knoxfraud,” and payment to Noble is made by the cancellation of 90 shares on his subscription contract and full-paid stock is issued him therefor. Make the entry under date of September 20.
In order to avoid detail, all additional customers will be handled under a collective account in the sales ledger called “Sundry Customers.” Transactions will be grouped and summarized wherever possible. Make record under proper dates. (Figures at beginning of paragraphs signify September dates.)
September 1. Received check for $311.05 from Kistler Stationery Co. in payment of their bill of August 20, $317.40, less $6.35 discount.
3. Alexander Jacobs Co. paid their bill of August 28, $362.25 less $10.87 discount. Sold the Brush Co. at 2/10, n/30, desks and tables $875.40, and bookcases $469.75.
4. Drew petty cash check for $150 and placed it in petty cash drawer in charge of bookkeeper. Field & Co. paid their bill of August 24, $508.10 less $10.16 discount, and $500 on account.
5. Paid P. J. Johnson Mills Co. bill of August 5, $736.15 less discount $7.36, and $500 on account. Smith Brooks Stationery Co., paid their bill of August 25, $113.14 less $2.26 discount. T. C. Macie & Co. paid their bill of August 25, $465.15 less $9.30.
6. Bought of R. M. Goddard Furniture Co. at 1/30, n/60, desks and tables $5,912.60, bookcases $3,190.10, and office supplies $837.40. Sold C. F. Hoeckle Office Supply Co. n/30, desks $1,512.75, filing cabinets $647.80, office supplies $215.69.
8. C. F. Hoeckle Office Supply Co. paid $750 on account.
9. Paid B. F. Brainard & Co. bill of April 18, $590.10. Sold T. C. Macie & Co. at 2/5, 1/10, tables $1,575.50, filing cabinets $440.25, office supplies $175.30.
11. Paid Jackson City Supply Co. bill of June 10, $512.60.
12. Sold C. F. Hoeckle Office Supply Co. at 1/30, n/60, tables and desks $1,895, bookcases $625.30, office supplies $110.85.
13. Paid F. C. Good Rubber Co. bill of August 13, $300 less $3 discount. Jno. Bach & Sons paid $250 on account. The Brush Co. paid their bill of September 3, $1,345.15 less $26.90 discount.
15. Paid Brickley Desk Co. bill of August 16, $540.09 less $5.40 discount, and bill of March 8, $912.50 less special discount of $12.50 in consideration of giving our note No. 1, for $1,500 at 6%, payable in 6 months, in settlement of bill of May 6, $1,500. Brush Co. paid bill of August 15, $216.69 less $2.17 discount. Sold Jno. Bach & Sons at 2/10, n/30, desks $1,680, filing cabinets $725.90, office supplies $240.60.
16. Bought of P. J. Johnson Mills Co., at 2/10, n/30, tables $3,085.95, bookcases and filing cabinets $5,293.85, office supplies $1,750.90.
18. T. J. Stewart Office Specialties Co. paid their bill of July 20, $319.45. Sold Alexander Jacobs Co., at 1/30, n/60, desks $1,465.85, bookcases $625.95, office supplies $145.60.
19. T. C. Macie & Co. paid their bill of September 9, $2,191.05 less $21.91 discount.
21. Sold Saxon Edwards at 2/5, 1/10, tables and desks $1,327.85, bookcases $842.60, office supplies $222.60.
24. Sold Field & Co. at 1/30, n/60, tables and desks $1,825, bookcases and filing cabinets $735, office supplies $246.
25. Saxon Edwards paid on account $500.
26. Bought of B. F. Brainard & Co., at 1/30, n/60, desks $4,675, filing cabinets $5,080, office supplies $1,280. Jno. Bach & Sons paid bill of September 15, $2,646.50 less $52.93 discount. Paid P. J. Johnson Mills Co. bill of September 16, $10,130.70 less $202.61 discount.
Instructions
For the transactions of September, the cash disbursements journal will be operated as a full posting medium, i.e., all charges for cash paid out will be posted from it.
VIII
Practice Data
(Figures at beginning of paragraphs signify September dates.)
September 27. Sold Smith Brooks Stationery Co. at 2/5, 1/10, tables and desks $1,200, bookcases and filing cabinets $1,150, office supplies $175.
28. Paid B. A. Franklin Press bill of May 2, $850.
29. Brush Co. paid their note of July 29, $500 with interest $5. The board of directors authorized the purchase of a piece of land lying outside the city limits, with good shipping and warehouse facilities, to be used as a site for a factory for the manufacture of Knoxfrauds, paying the Hoboken Development Co. $10,000 cash (with the current year’s taxes of $75 unpaid and due the City of Hoboken, February 1, 1916), and $125 to J. N. Hicks for fees in connection with special search of title and recording of deed. Plans and specifications which Noble had had prepared six months ago when negotiations with him had been opened by Jackson in behalf of the Jackson, Edwards, Hansen firm were adopted and ordered, placed with contractors for bids to be received not later than October 6, the board reserving the right to accept any or reject all bids.
30. Sold Brush Co. at 2/5, 1/10, tables $1,475.80, bookcases $723.85, office supplies $340. Paid salesmen’s salaries $2,500; commission to salesmen $500; salesmen’s traveling expense $1,500; in-freight and delivery $525.69, delivery expense $200; rent September 15 to October 15, $250; receiving and shipping room expense $150; sundry office expense $100.25; office salaries $600; advertising $275; petty cash voucher $137.10, of which $45.50 was for telegraph, telephone and postage, $50 for office stationery, $25 for sundry selling expense, and $16.60 for sundry office expenses. Cash sales for the month were: office supplies $1,325.40, bookcases $2,150, desks and tables $4,250.
Summarize and post completely all books of original entry. (See Volume I, page 431, for general journal summary.) Take a trial balance, recording it in the first two columns on pages 58-60, “Journal Blank.” Enter all accounts—whether needed for this trial balance or not—in the order in which they are carried in the general ledger. Leave bottom and top lines free for totals and forwarding where necessary.
Instructions
September 29. Record the accrued taxes on land in the general journal as a liability to the City of Hoboken.
30. Distribute the cash sales through the sales journal, entering only the total for all departments in the cash book.
IX
Practice Data
The directors plan to keep sufficient funds on hand to take advantage of all discounts offered on purchases. All invoices will therefore be entered “net” in the Vouchers Payable column of the voucher register. Extension will be “gross,” however. Postings to Purchase Discount account will be made from the voucher register. Purchase Discount column in the cash book will be used as a memo column of discounts actually taken. The difference between the totals of the purchase Discount columns in voucher register and cash book at the end of a month (or other posting period) shows the amount of unearned discount on that date. This should always be checked against the discounts entered in detail in the voucher register, for the unpaid vouchers as shown in Unpaid Vouchers column of the register. (Figures at beginning of paragraphs signify October dates.)
October 1. Delivery of the voucher register having been made, your accountant closes the purchase ledger and opens the voucher register, transferring the balances thereto. The Kistler Stationery Co. presented their bill for $150 ($95.50 for stock books, records, etc., and $54.50 for stationery and printing). Paid New York Novelty Works $15 for corporate seal. Paid Northwestern Fire Insurance Co. $125 for 1-year policy on stock of goods.
3. Sold Jno. Bach & Sons at 2/10, n/30, desks $1,755, bookcases and filing cabinets $658.90, office supplies $140. In order to raise money for the purpose of building and equipping the Knoxfraud factory, the board of directors authorized the sale of the rest of the unsubscribed stock at not less than 95. Accordingly subscriptions were received from A. J. Scobey for 90 shares at 96, from A. K. Ladd for 125 shares at 95, and from J. B. Gaynor for 60 shares at 97. One-half is received in cash, the rest due on October 25. Certificates of stock are issued the new stockholders.
4. Smith Brooks Stationery Co. paid their bill of September 27, $2,525 less $50.50 discount.
5. The bank notified you John Bach & Son’s note for $250, dated July 3, for 3 months at 6% and under discount with them since August 16, has gone to protest; you took up the note, drawing your check in favor of the Drew National Bank for $256.25 including protest fees, and notified John Bach & Sons. Paid R. M. Goddard Furniture Co. bill of September 6, $9,940.10 less $99.40 discount.
6. Bought of Jackson City Supply Co. at 1/30, n/60, office supplies $3,028.95. Sold T. C. Macie & Co. at 2/5, 1/10, desks $1,685, bookcases $642, office supplies $156. Paid Hoboken Electric Co. light and power bill for September, $50 ($30 was for sign display).
7. The bids for the construction of the factory were opened and all found to exceed the architect’s estimate by $10,000 or more. It was accordingly decided to reject all bids and construct the factory upon their own responsibility, retaining I. M. Builder as supervising architect and appointing J. T. Noble as purchasing agent and general superintendent during construction. All funds from the sale of stock were ordered placed under a Building Fund account in the Drew National, subject to drawing by Hansen in payment of all bills when passed for payment by Edwards and Noble. The transfer of funds was accordingly made. Alexander Jacobs returned desks and tables $465.85 of their purchase of September 18. Brush Co. paid their bill of September 30, $2,539.65 less $50.79 discount. C. F. Hoeckle Office Supply Co. paid their bill of September 6, $2,376.24.
8. Drew check for $500, advances to salesmen, which the bookkeeper charged to an account entitled Salesmen’s Advances opened in the customers’ ledger. Paid N. G. Goodman, accountant, $250 for services, in connection with installation of the system of accounts.
9. Sold Kistler Stationery Co. at 1/30, n/60, tables and desks $1,858.95, bookcases and cabinets $720, and office supplies $248.
10. Took at cost price, furniture from stock for store and office (desks and tables, $150 for office and $300 for store; bookcases and filing cabinets, $175 for office and $75 for store).
11. Bought from the New Model Truck Co., delivery trucks for $3,000, giving our note with 6% interest at 6 months for $2,500 and $500 cash.
12. Sold C. F. Hoeckle Supply Co. at 1/30, n/60, tables and desks $1,625, bookcases and cabinets $720, and office supplies $140.
13. Received J. T. Noble’s demand note without interest for $1,000 in payment of balance of subscription contract. The C. F. Hoeckle Office Supply Co. paid bill of September 12, $2,631.15 less $26.31 discount. T. C. Macie & Co. paid their bill of October 6, $2,483 less $49.66 discount.
15. Sold Alexander Jacobs Co. at 1/30, n/60, desks $1,825.85, bookcases $642, office supplies $240. Paid note No. 91, $2,500. Jno. Bach & Sons paid their bill of 10/3, $2,553.90 less $46.98 discount, and an allowance of $50 on bookcases and $155 on tables account of damage.
16. Bought of R. M. Goddard Furniture Co. at 1/30, n/60, tables and desks $9,425, bookcases and cabinets $8,227, office supplies $1,025.
18. Sold T. J. Stewart Office Specialties Co. at 2/5, 1/10, desks and tables $1,878, bookcases and cabinets $580, office supplies $249.
19. Alexander Jacobs & Co. paid their bill of September 18, $1,771.55 less $17.72 discount.
20. T. J. Stewart Office Specialties Co. returned office supplies $49.50 and cabinets $75, of their purchase of October 18. A. H. Lawrence and H. C. McCullough paid $3,125, the balance on their subscriptions.
24. Andrew Jackson paid his note of August 25, $750. The T. J. Stewart Office Supplies Co. paid their bill of October 18, $2,582.50 less $51.65. Sold Field & Co. at 1/30, n/60, desks and tables $1,789, bookcases and cabinets $680, office supplies $348. Sold Sundry Customers at n/30, desks and tables $1,100, bookcases and cabinets $860, office supplies $350. Paid note No. 96, $930.78 with interest $9.31.
25. A. J. Scobey, A. K. Ladd, and J. B. Gaynor paid the balance on their subscriptions, $13,167.50.
26. Bought from Brickley Desk Co. at 2/10, n/30, tables and desks $6,240, bookcases and cabinets $3,780. Paid B. F. Brainard & Co. bill of September 26, $11,035 less $100.35. R. M. Goddard Furniture Co. made us an allowance on purchase of October 16, of $200 on desks and $150 on cabinets due to latent defects.
27. Paid Kistler Stationery Co. bill of October 1, $150.
Instructions
October 1. See page 39 for method of transferring purchase ledger accounts to voucher register.
October 5. See Volume I, page 327, for handling Bach’s protested note. Here the record will be partly in the voucher register and partly in the general journal.
October 7. Where a special bank account is kept temporarily, oftentimes a separate cash book is used. One additional column on each side of the cash book will also serve to segregate the charges and credits to it. Here, since receipts are few, they will be entered in the regular bank column with an “X” placed in front of them to secure periodic analysis. All disbursements will be made by regular voucher check, but recorded in the first column of the cash disbursements journal instead of the regular bank column. Inasmuch as only the one account is kept on the ledger with the bank, postings to it will have to be made in two items—one the regular, the other the building fund—for both receipts and disbursements. An alternative method is to carry the detail of the account only in the cash book, posting only totals of all receipts and disbursements to the ledger bank account. However handled, the cash book should show, when balanced, the amounts in both funds and the trial balance should contain the same information.
To effect the transfer of cash to the Building Fund account at the bank, a regular voucher check is drawn to order of Building Fund account. This is distributed in the voucher register to Sundry columns as a charge to Voucher Payable and must be entered on both sides of the cash book but, of course, not posted.
October 8. Charge payment to Goodman to Organization Expense.
October 10. Distribute the merchandise taken from stock through the sales journal, with the necessary correcting entry in the general journal. (See Volume I, pages 423 et seq.) Since but one Furniture and Fixtures account is carried, the detail necessary for analysis must be shown in it just as with Merchandise Inventory.
October 11. The Model Truck Co. transaction must be split, the cash portion being recorded in the voucher register, the rest in the general journal. (See page 43 for method of handling notes payable under the voucher system.)
October 13. Certificate of stock is issued to Noble.
October 20. These receipts from subscribers are regular items.
October 25. These receipts from subscribers are building fund items.
October 26. The student will perhaps detect at once that the discount of $100.35 on the Brainard bill is incorrect. It is to be entered as given, however; correction will be made later.
X
Practice Data
October 30. Sold Jno. Bach & Sons at 2/10, n/30, tables and desks $1,465, bookcases and cabinets $456, office supplies $435. Sold Sundry Customers at n/30, desks and tables $1,800, bookcases and cabinets $620, office supplies $300. Cash sales for the month were desks and tables $3,500, bookcases and cabinets $2,832.60, office supplies $3,167.40. Office supplies drawn from stock for use by the office, $350. Pay-roll check on Building Fund carried $1,950.70 for excavating and foundation labor, Noble $200 salary, Builder $350 commission. Paid Hoboken City Hospital $50 bill for workmen injured during construction. Paid regular pay-roll $5,769 (salesmen’s salaries $2,650; salesmen’s commission $580; salesmen’s traveling expense $1,525.50; delivery men $250; receiving and shipping clerks $163.50; office salaries $600); N. Y. C. Ry., freight-in $631.72; N. Y. Paper Co. for sundry office expense $84.75; Ward & Gow Publicity Co. for advertising $280, and sundry selling expense $50.25; petty cash voucher $144.95, of which $50.75 was for telegraph, telephone, and postage, $5 to Bullinger Publicity Co. for entry in city directory, $62.50 for stationery and printing, $10 for credit information to R. G. Dunn & Co., $16.70 for sundry office expenses. Paid the Builders Testing Laboratories $50 for test of cement and concrete for use in factory construction. Paid J. P. Landown rent, October 15 to November 15, $250. Sundry Customers returned tables $150, bookcases $85, and sundry office supplies of $52.50 of their purchase of October 24 as not being what they had ordered; we returned bookcases $500 to the Brickley Desk Co. of our purchase of October 26, because of failure of patent doors to operate.
Summarize all the books of original entry and post completely. For method of summarizing the voucher register, see page 36. Extend into the Unpaid Vouchers column all unpaid vouchers as shown by the Manner of Payment column. Take a trial balance as of October 30, 1915, recording it in the third and fourth columns of pages 58-60 of the journals. Be sure to show the two balances for cash, the regular and the building fund.
When posting, make the sales ledger self-balancing and take a trial balance of it, recording it on page 61, journal blank. (See Volume I, page 420, for method of making ledger self-balancing.)
Verify the balance of Vouchers Payable account by checking against the Unpaid Vouchers column of the voucher register.
Instructions
Charge office supplies drawn from stock to Stationery and Printing.
Pay-roll checks are usually drawn to the order of treasurer or other company official. Make the necessary distribution in the voucher register.
Bookcases, $500, returned to Brickley Desk Co. are priced at billed price, i.e., the net credit allowed us will be $490 ($500 less 2%). Be careful to make the proper voucher register entry, as three columns are affected, viz., Vouchers Payable, Purchase Discount, and Bookcases and Filing Cabinets Purchases.
It should be noted that wherever an allowance is made, the figure given in the practice data will always be the gross figure, unless specifically stated otherwise.
Charge credit information cost to Sundry Office Expense.
XI
Practice Data
Make the following detailed entries for transactions with customers and creditors under the dates given:
November 2. Field & Co. gave their note for 1 year at 6% for $3,571.05 in payment of invoices of July 6, September 24, and balance June 15. Gave P. J. Johnson Mills Co. our note at 6 months for $1,462.59, which included $66.99 interest to date at 6% for balance of bill of January 15, $1,395.60.
3. Kistler Stationery Co. honored our sight draft for $1,250 payment of bills of April 18 and June 15.
4. Wrote B. F. Brainard & Co. claiming a $10 adjustment on account of overpayment on October 26 of bill of September 26, on which the discount allowed was $110.35.
5. Paid Jackson City Supply Co. bill of October 6, $3,028.95 less $30.29 discount. Gave Brickley Desk Co., our note for $9,329.60 at four months at 6% for bill of October 26, $10,020 less $190.40 discount and credit memo of October 30 for $500.
6. Field & Co. wrote stating that our monthly statement of account to them carried a charge for October 24 of $2,817, whereas their bill of that date carried $2,310. An investigation showed their contention correct, the error being due to a transposing of charges between them and Sundry Customers for sales on October 24 when the sales journal entry was made. The error was corrected and correct statements were sent out. The Brush Co. paid their bill of May 20, $825.
7. Received credit memo from B. F. Brainard & Co. for $10 in reply to letter of November 4.
10. Kistler Stationery Co. gave their note for 6 months at 6% for $2,826.95, payment of bill of October 9.
12. Jno. Bach & Sons paid their bill of October 30, $2,356 less $47.12. Saxon Edwards paid their bill of May 23, $206.75, and balance on February 10, $85. Paid B. F. Brainard & Co. bill of July 11, $802.15 less credit memo of November 7, $10.
15. Paid R. M. Goddard Furniture Co. bill of October 16, $18,677, less credit memo of October 26 for $350 and discount of $183.27. C. F. Hoeckle Office Supply Co. paid their bill of October 12, $2,485 less $24.85 discount.
18. Alexander Jacobs paid their bill of October 15, $2,707.85 less $27.08 discount.
21. Saxon Edwards paid their bill of September 21, $2,393.05.
24. Sundry Customers paid their bills of October 24, $2,529.50.
25. Field & Co. paid their bill of October 24, $2,310 less $23.10 discount.
27. T. C. Macie & Co. gave their note for $775.25 in payment of bills of May 11, June 21, and July 8.
30. Sundry Customers paid their bills of October 30, $2,720. C. F. Hoeckle Office Supply Co. paid their bill of July 18, $123.90, and balance on March 12, $250.
December 4. Paid Jackson City Supply Co. $1,050.20 for bills of June 25, and July 18.
9. Smith Brooks Stationery Co. gave their note for $873.15, including interest $23.15 on unpaid bills of June 24 and July 7.
13. T. J. Stewart Office Specialties Co. honored sight draft for bill of August 12, $523.12.
17. Offered Field & Co. a discount of $71.05 from the face of their note of November 2 if they would pay $2,000 cash and give a new note for $1,500 for the balance. Offer was accepted and cash and new note for $1,500 received on December 20. (In making adjustment take account of accrued interest on old note of $26.79.)
18. Paid F. C. Good Rubber Co. bill of July 1, $175.19.
20. Paid our note No. 95, $1,261.40, with $25.23 interest, held by the Brickley Desk Co.
23. Honored B. A. Franklin Press draft at sight for bill of June 22, $262.15. Bank’s statement of account showed charges of $1.25 and 75c respectively for collection of Kistler Stationery Co. draft of November 3, and T. J. Stewart Office Specialties Co. draft of December 13.
Instructions
November 2. Treat all sight drafts when honored as cash transactions.
November 6. Field & Co. adjustment is made in the general journal. Be careful to make entry in proper columns.
November 7. The $10 allowance made us by B. F. Brainard & Co. must be recorded in red in the voucher register close beside the next voucher which will be paid to Brainard—in this case the bill for $802.15 dated October 1. No entry will need to be made in the general journal to secure the proper posting of this item, as the entry in the voucher register is merely a memo to prevent overpayment at time of next settlement. (See page 40 for discussion of the problem of returns and allowances.)
December 17. Handle the Field & Co. note transaction with care. The discount is a charge to Interest and Discount.
December 23. Run the bank’s collection charges through on a voucher which must be recorded in voucher register and cash book.
XII
Practice Data
The following transactions took place during the remainder of the fiscal year which ended August 31, 1916, and are to be entered as of the given date:
January 3. A one year’s insurance policy at a cost of $250 cash was taken out on a stock of merchandise which had been removed to a warehouse, as stated below.
February 1. The accrued taxes of $75 at date of purchase of factory site were paid.
March 1. On account of the flourishing condition of the sales, an interim dividend of 4% was declared and paid. Noble’s was applied as a partial payment on his stock note.
June 15. The Boston Office Co. sent $5,000 of office specialties to be sold on a 5% commission basis for their account.
July 1. A statement of affairs was received from Jno. Bach & Sons showing their insolvency and copy of an agreement signed by several creditors to accept settlement of all claims on a 40% basis. Your attorney, having been unable to collect and having investigated, advised the acceptance by you of their offer. Accordingly on July 27, a check was received from Bach & Sons for 40% of the balance as shown by your books. (Charge Jackson, Edwards, Hansen with 60% of $169.36, the part guaranteed by them, and Reserve for Doubtful Accounts with 60% of $256.25.)
On August 15, 1916, the factory building was completed. The following expenditures had been made: for steel, concrete, brick and other materials $15,740.20; for labor of all sorts $11,579.35; for insurance, injuries incurred during construction, legal expense in defense, and interest on moneys borrowed for the building fund, $750; J. T. Noble’s salary $2,000; I. M. Builder’s fees and commission $1,113.51; and Builders’ Testing Laboratories $250. The factory was largely of concrete and numerous tests were necessary. Several purchases of cement had been returned as not being of the required standard. The company’s note for $10,000 had been discounted for $9,800 and the proceeds placed in the Building Fund to finance the undertaking. The $200 discount is included in the $750 mentioned above.
Noble reported that orders for machinery and equipment had been placed with sundry firms and that about three months would be required before the machinery could be placed and ready for operation as some of the machines were of delicate and complex construction and would require careful testing before acceptance. He suggested that orders for the raw materials used in the manufacture of the Knoxfraud be now placed to take advantage of a low market. Accordingly $10,000 worth was ordered, an advance payment of $2,500 being made on August 25 and charged to New Method Manufacturing Co. in the sales ledger to show our claim against them for the prepayment—the balance to be paid when delivery is made, not earlier than October 31.
Due to lack of floor space in the sales department and the necessity of carrying a large assortment of styles in stock at all times, on January 2, 1916, a warehouse was rented nearby for a monthly rental of $100 payable in advance. Under date of August 31, 1916, enter a payment of $900.
The receiving and shipping room quarters were also removed to the warehouse. On March 1, a portion of the warehouse was sublet at a monthly rental of $40 payable in advance. Enter a receipt of $280 under date of August 31, 1916. Services of A. Pinkerton for $20 a month beginning March 1 were secured to watch store, warehouse, and factory. Record on August 31, 1916, a payment of $120.
It was decided to close out the division of sundry office supplies and dispose of the balance on hand October 31 at a lump sum.
Instructions
February 1. Refer to Practice Data VIII for the original booking of this item.
March 1. Charge the interim dividend to Dividend account, since there is no Surplus on the books against which to charge it.
June 15. No entry will be made of the Boston Office Co. consignment. (A memo entry in the journal may be made, if desired. This would consist merely of a statement of the receipt of the goods, with no extension of amount into the money column.)
July 1. Handle the Jno. Bach bankruptcy with care. The basis for the entries indicated rests on the original sale agreement between the Acme Office Furnishings Co. and Jackson, Edwards, Hansen, Vendors. (See Practice Data V.)
August 15. Record the discounted note for $10,000 as usual. Be careful not to post the discount twice. All expenditures are cash items.
August 31. Charge A. Pinkerton’s salary to Warehouse Expense. This is not quite accurate, but sufficiently so.
XIII
Practice Data
In addition to the special data given in Practice Data XII, the following transactions in due course took place:
Make the record as of August 31, 1916 with summary entries.
Sales Journal—Sales to Sundry Customers were: desks and tables $200,670.20, bookcases and filing cabinets $153,803.40, and sundry office supplies $16,115.26. Cash sales were: desks and tables $35,000, bookcases and filing cabinets $21,500, and sundry office supplies $2,825.15. Return sales and allowances to Sundry Customers were: desks and tables $4,240.15, bookcases and filing cabinets $4,250.65, and sundry office supplies $675.50.
Cash Book—Received: from cash sales as above; from Sundry Customers $269,359.50 less sales discount of $3,940.20; from notes receivable $5,000; from notes payable discounted $42,500 less $350 discount; from notes receivable discounted $15,000 less discount of $50. Disbursed for vouchers payable $359,720.40, of which $100 is chargeable to Building Fund (Noble’s salary).
Journal—Gave our notes to Sundry Creditors for $8,500; received notes from Sundry Customers $25,200.50; notes receivable discounted were paid by makers at maturity $10,250; stationery was drawn from stock $250 and used for advertising purposes.
Voucher Register—Bought desks and tables $99,842.95, bookcases and filing cabinets $73,758.15, and sundry office supplies $12,684.40. Purchases discount was $2,153.40; in-freight and delivery $3,740.28; receiving and shipping room expense $2,690.14; light, heat, and power $725.16; salesmen’s salaries $65,840.20; salesmen’s commissions $20,730.30; traveling expenses $42,420.70; advertising $12,280; sundry selling expense $940.03; delivery expense $7,280.90; warehouse expense $50; office salaries $11,600; stationery and printing $450; collection and exchange $30.05; interest and discount $1,096.27; sundry office expense $72.15; telephone, telegraph, and postage $475.03; notes payable $47,250.19; rent $3,250; power equipment $5,000; taxes $160.15; Noble’s salary for August $200. (Charge $100 to Factory Building and $100 to Power Equipment.)
Instructions
These transactions are listed in summarized form to avoid detailed entry and, at the same time, to provide the necessary volume of business. They are to be entered as indicated. Use as little space as possible.
Sales Journal—Use 2 lines for the entries. Enter returns and allowances in their proper journal.
Cash Book—Be careful to indicate by some distinctive mark all interest and discount items recorded in the Sales Discount column. No purchase discount on paid vouchers is given inasmuch as the cash book record of it is merely a memo, although providing data for checking the amount of unearned discount at the close of a period. It will doubtless be found that in this summarized method of stating transactions much detailed information is omitted (because not absolutely essential), that would be available under ordinary conditions.
Journal—Treat stationery taken from stock as a credit to Sundry Office Supplies Sales; this is not included in the sales journal data given above.
Voucher Register—For the sake of saving space, run all these transactions through on one voucher, using just one line for the entry, except in Sundry column, where use as many as are needed. $100 of Noble’s salary comes out of building fund cash, as indicated on page 675.
XIV
Practice Data
Summarize the various books and post completely. Be careful, in summarizing, to show any extraneous items recorded, for the sake of convenience, in theoretically improper columns or books.
XV
Practice Data
Take a trial balance of the general and sales ledgers and record them as usual.
XVI
Practice Data
Draw up statements for the year, supporting both the profit and loss statement and the balance sheet by schedules. (See Volume I, pages 411-412 and 509-510, for suggestive forms and instructions as to methods of condensation of data.)
Take into consideration the following data:
Rent income received in advance $40; warehouse rent paid in advance $100; interest accrued on notes receivable $50; salesmen’s salaries accrued $420; salesmen’s commissions accrued $125; advertising bills unpaid $100; advertising paid in advance $250; stationery on hand $50.
Insurance: first policy, one year, bought October 1, cost $125, part unexpired $10.04; second policy, one year, bought January 2, cost $250, ⁴/₁₂ unexpired $83.33. Taxes for the year 1916, estimated $565.42, ⅔ used $376.95. Purchases discount not yet taken advantage of on unpaid vouchers, $475.
The Knoxfraud patent had 15 years to run when purchased. Write off ¹/₁₅ of its value, it being the policy of the company to maintain an experimental laboratory and so overcome any possible supersession. Write off organization expense and good-will 5% each. Create reserves for: furniture and fixtures 10%; delivery equipment 15%; doubtful accounts ½% on all sales gross. Take no account of depreciation on factory building or power equipment.
Inventories of stock-in-trade: desks and tables $4,943.86, bookcases and filing cabinets $1,521.31, sundry office supplies $3,197.20, total $9,662.37.
In-freight and delivery: charge $2,500 to Desks and Tables purchases, $2,100 to Bookcases and Filing Cabinets Purchases, $297.69 to Sundry Office Supplies Purchases.
Light, heat, and power: charge ¾ to Selling, ¼ to General Administrative.
Receiving and shipping room: charge ¾ to Shipping, ¼ to Receiving, of which 50% to Desks and Tables, 45% to Bookcases and Filing Cabinets, 5% to Sundry Office Supplies.
Rent: charge ⁴/₅ to Selling, ¹/₅ to General Administrative.
Insurance: charge $335.24 to Selling, $41.75 to General Administrative.
Taxes: charge all of the 1915 taxes ($160.15) Surplus.
Discount on stock: charge to Factory Buildings.
Instructions
Most of the above data are necessarily arbitrary, particularly the basis for distribution of the various expense items. For many such items, even in practice, a more or less arbitrary basis must be adopted. See Chapters III, XIV, and XXVII for a brief discussion of this point.
The student may object to the indicated methods of handling some of the items but is asked to make the record as suggested. Any necessary corrections will be made later.
Draw up all formal statements, for presentation to the instructor, on blank paper, letter size, i.e., 8½ x 11 inches.
XVII
Practice Data
Adjust and close the books in accordance with the information given in the preceding Practice Data XVI.
The student is referred, for illustration of the work of adjusting and closing the books, to Volume I, Chapters XXIX, XXX, and XLIII, and to certain portions of Chapters XIV and XIX of Volume II.
XVIII
Practice Data
The results for the year proving very unsatisfactory in comparison with the volume of business transacted, N. G. Goodman was retained to make an audit of the year’s operations in an effort to locate the trouble. In his report covering the audit, he called attention to the following items:
(a) In the Trade Debtors are included two charges, viz., advances to salesmen $500, and New Method Manufacturing Co. for purchases $2,500, which are in no sense charges to customers.
(b) In the Notes Receivable is included Noble’s note given in payment of the balance on his subscription to capital stock $1,000 but now reduced to $600 through the application of his March dividend as a partial payment. This does not belong in Notes Receivable account.
(c) There is on the books no record of the Boston Office Co. consignment received on June 15, 1916. Investigation showed that on July 2, a sale of $4,500 was made from the consignment and the balance was included in the Sundry Office Supplies Inventory, being there valued at $1,000. It was ascertained that the freight and cartage paid on the incoming consigned goods amounted to $25.12, and had been charged to the In-freight and Cartage account.
(d) The inadequacy of the purchases system was shown. Perhaps due to the fact that during the year the main stock was withdrawn from the store and the immediate supervision of the responsible head and placed in the warehouse, the stock had been allowed to run down so that it amounted at the close of the year to only $9,662.37—correct value being $8,662.37 when allowance for the inclusion of the Boston Office Co. consigned goods was made—as compared with $42,282.27 on hand at the beginning. Suggestion for the installation of a distinct purchasing department and the introduction of a stock record was made in order to keep track of the condition of the stock.
(e) The depreciation of good-will is to be reversed.
(f) The discount on capital stock, charged to Factory Building, is to be taken out and shown as a separate item under its own name.
(g) An analysis of the sales developed that: on desks and tables sales gross profit was 47%, and rate of turnover was 9+; on bookcases and filing cabinets gross profit was 38% and turnover 6.4+; and on sundry office supplies a gross loss of 17+% was sustained and the turnover was only 3+. Taken as a whole, the selling expense was too high, very probably due to salesmen’s abnormal traveling expenses and commissions. The present commissions policy was severely condemned as tending to an increase of sales without regard to the financial standing of the customer. For the purpose of establishing a consistent policy of passing on credits and following up collections, the installation of a department of credits and collections was advised.
(h) It was advised that the petty cash be taken out of the bookkeeper’s control.
(i) Of the 1915 taxes charged to Surplus, one-third should have been charged to Profit and Loss.
Make all of the entries necessary to adjust the books in accordance with the auditor’s suggestions. Post, close, and draw up corrected statements, including the adjustments to Surplus. Supporting schedules may be omitted; the condensed statements will be sufficient.
Instructions
Study carefully all the suggestions made by Goodman and determine the proper correcting entries. All necessary accounts have already been set up on the books.
The principles involved in suggestions (a) and (b) are covered in Chapter XII. For (c) see Volume I, Chapter L, and Volume II, Chapter XIII. Take cognizance of the accrued commission. For (e) see Chapter XVIII, and for (f) see Chapter XXI. For the surplus statement to show all adjustments made through it, see Chapter XXIII.
XIX
Practice Data
September 2, 1916, the remainder of the Boston Office Co. consignment was sold for $1,250 cash and our check sent for the balance due them. Desks and tables $575, and filing cabinets $250, were taken from stock for use in the factory. Additional benching and racks were bought for $450 cash. Shop and hand tools cost $875.25 cash.
September 10, 1916 a one-year fire insurance policy covering factory building and equipment was bought from the Northwestern Fire Insurance Co. for $584.68.
At a meeting of the directors and stockholders for the purpose of reviewing Goodman’s report and forecasting a policy for the coming year, the following items were thoroughly considered:
(a) In order to pursue a vigorous sales policy such as would now be necessary and along the lines suggested by Goodman, immediate purchases in large amounts would have to be made.
(b) The company’s credit, at the present time, with more than $70,000 of current payables outstanding, would not bear further expansion. Ready funds of at least $20,000 would have to be provided within the next month to take up outstanding notes and the more pressing bills, to say nothing of the amount needed to take advantage of all discounts offered on new purchases.
(c) The contracts entered into for purchases of machinery and raw materials would soon have to be fulfilled, requiring an additional sum of $20,000 to $25,000.
(d) In view of the policy previously determined to close out the division of sundry office supplies on October 31 and push with vigor the new Knoxfraud, a widespread advertising campaign was decided upon for the next six months in order fully to present the need for the new device and its merits. It was estimated that $15,000 or $20,000 would be required for this.
(e) The absolute necessity for additional capital was apparent. Before the company could hope successfully to secure subscriptions to a new issue of stock, not only would that stock have to be made attractive, but the company’s condition as to surplus would have to be improved. Accordingly, it was voted to donate 10% of the capital stock into the treasury and offer it for sale first to the present stockholders and then to the public at not less than 90. Then it was ordered that the capital stock be increased by the issuance of $50,000 of first preferred 6% cumulative, and $25,000 of second preferred 8% non-cumulative, both classes of stock to have further participation on the following basis:
In the event of dividends in excess of the requirements for the preferred stock and 6% on the common, the first preferred should share ⅓ and the common ⅔ of such excess for an additional dividend until they should have received in all an 8% dividend and so be placed on an equality with the second preferred. Of all further dividends the common was to share ¾ of the amount of such excess dividends, and the two preferred classes the other ¼ distributable between them in the ratio which the amount of each outstanding bore to the total of both classes outstanding. It was decided, at the time of the application for an increase of capitalization, to change the name of the corporation to the Knox-Davis Manufacturing Company.
The necessary legal requirements for increasing their capital having been met, the present stockholders took all the treasury stock at 90, and the two classes of preferred were entirely subscribed for at par, payable ½ down and the remainder subject to two equal calls at the end of 4 and 8 months respectively. Cash was received for treasury stock in full and for the preferred as indicated, i.e., for the ½ down in cash at the date of subscription. Permission was granted to change the name of the corporation as requested.
Make the entries to record the above data under date of October 25, 1916. (Charge the discount on stock against the surplus received from donation.) Transfer the cash balance in the Building Fund into the General Cash, there being no longer any need of the separation.
Instructions
September 2. Make careful calculation of the balance due Boston Office Co. Record in the general journal the stock drawn for factory furniture and fixtures, as a credit to proper sales account.
October 25. Transfer of the balance of Building Fund cash back to General Cash is effected in the same way as the original creation of the fund. Issue certificates of stock to new holders.
XX
Practice Data
By October 31, 1916, all of the sundry office supplies had been closed out for $2,000 cash.
The raw materials contracted and partially paid for on August 25, were received, and on November 10 a check for the balance due less 2% discount on the contract, was sent to the New Method Manufacturing Co. (Be sure to book the proper charge to Raw Materials.) Materials were insured for one year at a cost of $175 cash.
On November 30, the last of the machinery was received from the Harvey Machine Manufacturing Co. and installed. The invoice cost was $15,000, of which $12,000 was paid in cash and the company’s note secured by mortgage on the machinery was given for the balance. In-freight and delivery on the machinery amounted to $675.40, and placement expense (not including concrete platforms and piers which had been charged to the building at a cost of $750) amounted to $225, all of which were paid in cash. Noble’s salary for the three months while passing upon and superintending the placing and erection of machinery is to be charged $400 to Machinery and $200 to Power Equipment. The additional expenditure of connecting the machinery with the power—including shafting, belting, labor, etc.—amounted to $550.50 cash.
On December 2 an insurance policy for one year covering machinery was purchased for $275.40 cash from the New Jersey Mutual.
Full factory operations were commenced on December 1, 1916, and orders were taken for Knoxfrauds for delivery beginning with the first of the year.
It was determined to extend the current fiscal period and not close the books until December 31, 1917.
Call No. 1 on unpaid subscriptions to capital stock for one-half the outstanding was made on February 25, 1917.
The advertising campaign was producing results so that to fill orders the factory had to work two shifts of men beginning with March 1, 1917. As a result of seeming prosperity and a discontent engendered by labor leaders who had recently unionized the works, a demand for a 15% increase in wages was made and refused, resulting in a walk-out on March 30. A patrol against strike-breakers was established on April 2, after about one-third of the full complement of workers needed for operation had been secured. Some of these defected and the rest were quartered in the shops to prevent violence. After three weeks of partial operation at an increased expense of $1,500 directly attributed to the strike, one of the boilers exploded damaging the building and equipment, the resulting fire consuming supplies and damaging raw materials. An investigation placed the blame on a half-crazed workman whose sympathies were with the strikers. Hospital fees for injured workmen amounted to $500. (Record these two items as cash expenditures for the purposes named under date of April 20.) The insurance companies settled the losses as follows: the building and the power equipment on which the estimated damage was $3,500 were placed in complete repair; the estimated damage on materials, determined after an inventory and comparison with stock records, amounted to $4,000 and was covered by $3,200 insurance which was paid. In making the estimate, scrap value of damaged goods was placed at $1,000 but only realized $750 when sold; machinery costing $3,500 on November 30, with a scrap value of $500, realized on sale by the company $650, the insurance received being $2,000. (Depreciation on the machinery at the rate of 8⅓% annually on cost value is to be taken into account, and the portion of the unexpired insurance—roughly estimated at $150—now canceled by the payment of the insurance on both raw materials and machinery is to be considered in making charges to the Fire Loss account.) Additional loss and expense due to decreased production and cancellation of orders because of not being able to deliver goods when promised was estimated at $7,500. The strike was finally settled by granting a 5% increase in wages.
The directors had under consideration the incorporation with the Knoxfraud of a patent listing and adding device owned by J. Q. Osgood. In view of the need of some additional capital anyway due to the strike losses, it was decided to incorporate the new device now, since it would be easier to make the needed changes at this time than after operations had been resumed. Accordingly, a rearrangement of the machinery was necessary to make room for the new machinery and place it for proper routing of the product. This entailed a cash expenditure of $750 for the rearrangement, and $5,500 for new machines to replace those disposed of and to manufacture the new device. (Make the record as of April 30.) The contract entered into with Osgood was on a royalty basis per unit turned out by the machines and for one year’s time beginning May 1, 1917. The directors decided on a continuation of the advertising campaign. To provide funds for these purposes a bond issue was determined upon—$20,000 20-year 6%, interest coupons redeemable November 1, and May 1,—secured by mortgage on the factory and its equipment. The trust agreement provided for the payment at the close of each fiscal year of $750 out of profits into the hands of the Guaranty Trust Co. for investment in securities until a sinking fund sufficient to retire the bonds at their maturity shall have been established. $15,000 of the bonds were offered for sale and were purchased at 95 for cash except one purchase on a note for $950. The remaining $5,000 were held in the treasury until needed.
Record the above transactions as of the dates given—the bond transactions took place on May 1.
Instructions
October 31. The columns in sales journal, sales returns and allowances journal, and voucher register headed “Sundry Office Supplies,” will now be given the headings “Knoxfraud” for the first two journals, and “Raw Materials” for the voucher register.
November 10. A part of the charge to Raw Materials must be made in the general journal. “Prepayment on Purchases” account will be closed.
November 30. Record the note payable secured by mortgage under the title “Purchase Money Mortgage on Machinery.” Voucher the cash portion of this purchase of machinery. Transfer the cost of concrete platforms from Buildings to Machinery account. This had previously been charged to Buildings and is merely a transfer entry here. Run Noble’s salary through the voucher register as a cash transaction, making the proper distribution of it. The payment of $550.50 for connecting power is to be charged to Power Equipment.
April 20. Charge these two items as cash expenditures to Strike Costs. In accounting for the fire losses, clear the accounts of their original values by transfer to Fire Loss account (Raw Materials Purchases $5,000, and Machinery $3,500 less depreciation for 4⅔ months, i.e., from November 30 to April 20). Credit Fire Loss from the cash book with the insurance received and with the cash received from sale of scrap. Charge Fire Loss also with the canceled insurance premiums. Record all of this under date of April 20. (The student is referred to Chapter XXXII for a full treatment of fire loss adjustments.)
Indirect losses due to strike must not be brought onto the books.
No sinking fund entries will be made till the close of the fiscal year.
May 1. Handle the sale of bonds in cash book and general journal.
Treat the note received as a “Note Receivable Special.” No record will be made of the unissued bonds.
XXI
Practice Data
The remaining data for the 16 months ending December 31, 1917, have been summarized in most instances and were as follows: (In making record, use the dates given or December 31, where none are given.)
June 1. A dynamo costing $525 on August 31, 1916, was sold for $415 and a larger one purchased from the General Electric Co. at a cost of $975.50 installed. (Take into account depreciation at 12½% per annum.) Additional motor trucks were purchased from the New Model Truck Co. for $1,790. (Entry was made at $1,740, taking into account a special discount of $50 for payment within 10 days. Through oversight the voucher was not paid till July 1, thus losing the discount.)
June 25. Call No. 2 was made for the balance of unpaid subscriptions to capital stock.
Voucher Register—Bought desks and tables $200,431.95, bookcases and filing cabinets $149,878.79, raw materials $62,749.63. Purchases discount was $4,290.89; in-freight and delivery $8,650; pay-roll, direct labor $99,475.50, indirect labor $11,900.17; engineers and firemen’s wages $5,125.67; building maintenance and repairs $200; machinery repairs $193.50; receiving and shipping clerks $1,550.20; assembling and setting up labor $500.80; salesmen’s salaries $173,790.25; traveling expense $91,475.89; salesmen’s commissions $79,612.40; delivery men $3,500; office salaries $15,900; patterns $1,250; factory work benches $75; experimental laboratory $2,500. Materials purchased for building maintenance and repairs $326.40, for machinery repairs $85, for patterns $550. Coal and water cost $11,193.40; sundry light, heat, and power expense $1,062.60; packing and shipping supplies $4,469.70; delivery expense, including motor-truck repairs and maintenance, $12,989.14; taxes for 1916 $585.43; factory supplies $1,124.17; sundry factory expense $750.28; royalties $875; insurance, including employers’ liability insurance for factory workmen, $2,277.45; warehouse expense $540; warehouse rent $850; sundry selling expense $2,196.40; rent $7,500; stationery and printing $2,310.17; telephone, telegraph, and postage $1,092.15; sundry office expense; $1,312.43; collection expense $1,025.43; interest and discount $902.20; bond interest $450; materials for laboratory $1,500; legal expense in defending patents $175; street and sewer improvement tax on factory site $525.60; advertising $123,470.10; notes payable paid $25,261.75; notes receivable discounted but protested and charged back, $1,260.50; advances to salesmen $1,500.
Sales Journal—Sales to sundry customers: desks and tables $290,721.15; bookcases and filing cabinets $204,422.20, Knoxfrauds $351,622.50. Cash sales were: desks and tables $91,213.10, bookcases and filing cabinets $71,253.20, Knoxfrauds $124,121.25. Sales returns and allowances were: desks and tables $10,192.50; bookcases and filing cabinets $8,269.10, Knoxfrauds $21,569.65.
Cash Book—Received: from cash sales as above; from Sundry Customers $624,736.74 less sales discount of $15,962.14; from interest $750; from notes receivable discounted $19,260.25 less bank discount of $210.25; from notes receivable $10,192.60; from rent income $160—the sub-lease on the warehouse was canceled because the room was needed for increased stock; from first call on outstanding subscriptions to capital stock $18,250, from second call $18,000. Disbursed: for vouchers payable $1,005,833.95.
Journal—Received notes from Sundry Customers $59,370.50. Gave notes to Sundry Creditors $45,000. Notes receivable discounted were paid by makers at maturity $12,379.60. Trade debts proved uncollectible from bankruptcy or other cause to the amount of $3,572.40.
Instructions
June 1. Charge the loss on sale of dynamo to Loss from Sale of Power Equipment. Accrued depreciation for 9 months must be taken into account. Run the neglected discount item through on a new voucher, making cross-reference to the original. Be sure to make proper distribution of it.
June 25. Call No. 2 is for $18,750.
Voucher Register. Make careful distribution of all items—particularly as between capital and revenue charges. Discounted notes receivable protested will be charged to Sundry Customers.
Journal. Make here also the entry necessary to complete the record of the discounted notes which went to protest, as indicated by the voucher register entry above.
XXII
Practice Data
Summarize and post the books and take a trial balance as of December 31, 1917. Record the trial balance in the usual place.
XXIII
Problem
A trial balance taken from the general ledger of the Metal Bed Manufacturing Co. for December 31, 1917, showed as follows:
Bed Sales $325,198.67
Bed Sales Returns and Allowances $10,240.80
Bed Accessories Sales 192,460.90
Bed Accessories Sales Returns
and Allowances 8,175.25
Raw Material Inventory 25,240.16
In-Freight and Drayage 1,460.24
Beds in Process 15,970.20
Finished Beds 42,490.70
Accessories Inventory 19,580.65
Direct Labor 35,918.60
Indirect Labor 10,372.40
Light, Heat, and Power 8,917.18
Manufacturing Expense 5,890.10
Rent 3,300.00
Machinery Repairs and Renewals 575.00
Raw Materials Purchases 175,460.18
Raw Materials Purchases Returns
and Allowances 9,840.60
Accessories Purchases 95,640.81
Accessories Purchases Returns
and Allowances 4,890.06
Advertising 4,800.00
Salesmen’s Salaries 13,690.75
Salesmen’s Commissions 4,610.15
Traveling Expense 10,111.25
Out-Freight and Shipping 790.20
Delivery Expense 3,816.25
Insurance on Sales Room Stock 475.00
Insurance on Factory Materials 820.00
Insurance on Buildings and Equipment 1,890.00
Miscellaneous Selling Expense 4,175.30
Office Salaries 15,210.40
Interest and Discount 3,620.55
Bank Expense 125.45
Office Furniture and Fixtures 1,240.00
Depreciation Reserve Office Furniture
and Fixtures 620.00
Office Supplies 720.20
Miscellaneous Office Expense 1,810.65
Leasehold (99 years) 99,000.00
Extinction Reserve for Leasehold 24,000.00
Buildings 125,000.00
Depreciation Reserve for Buildings 50,000.00
Machinery 72,520.70
Depreciation Reserve for Machinery 21,490.16
Tools 5,140.17
Patterns 7,500.00
Depreciation Reserve for Patterns 5,405.14
Factory Furniture and Fixtures 8,100.00
Depreciation Reserve Factory
Furniture and Fixtures 3,190.20
Sales Room Furniture and Fixtures 10,250.00
Depreciation Reserve Sales Room
Furniture and Fixtures 4,330.10
Sales Discount 8,440.05
Purchases Discount 10,375.90
Good-Will 50,000.00
Accounts Receivable 110,472.05
Notes Receivable 5,640.10
Accounts Payable 62,490.35
Notes Payable 10,000.00
Mortgage Payable 15,000.00
Petty Cash 150.00
Surplus 150,154.24
Reserve for Doubtful Accounts 3,519.72
Capital Stock Common 100,000.00
Capital Stock Preferred 6% 50,000.00
Harriman National Bank 10,114.55
Common Dividend No. 37 2,000.00
Preferred Dividend No. 25 1,500.00
$1,042,966.04 $1,042,966.04
The company conducts a factory for the manufacture of metal beds. It deals also in mattresses, springs, bed furnishings, etc., which it buys ready-made and sells to the retail trade. Its two classes of sales, beds and accessories are kept distinct.
Draw up a balance sheet and profit and loss statement for the year, taking into account the following inventories and other adjustments:
Inventories:
Raw Materials $31,216.15
Beds in Process 18,793.80
Finished Beds 31,470.95
Bed Accessories 24,640.10
Accrued Expenses:
Direct Labor 690.20
Indirect Labor 325.00
Rent 300.00
Light, Heat, and Power 180.20
Advertising 590.00
Sales Commissions 319.40
Interest 150.00
Prepaid Expenses:
Coal, Waste, Oil, etc. $125.00
Advertising 300.00
Office Supplies 75.00
Bank Discount 125.00
Insurance on Sales Room Stock 50.00
Insurance on Factory Materials 125.00
Insurance on Buildings and Equipment 256.40
Interest earned on Notes Receivable but not yet due 75.20
Depreciation is estimated as follows on a yearly basis:
Office Furniture and Fixtures 8⅓%
Factory Furniture and Fixtures 10%
Sales Room Furniture and Fixtures 10%
Buildings 2%
Machinery 10%
Patterns 20%
The leasehold was originally for 99 years of which 25 years have now expired. Bad debts are calculated as 2% of the accounts and notes outstanding. Tools now on hand amount to $4,800.25. In-freight and drayage is to be charged 55% to Factory and 45% to Selling. Light, heat, and power charge 90% to Factory, 9% to Selling, and 1% to Office. Rent, charge 60% to Factory, 35% to Selling, and 5% to Office. Insurance on buildings and equipment distribute according to the values invested, separating buildings’ values on the same basis as rent. Dividends No. 26 for 3% on preferred and No. 38 for 6% on the common are declared and paid.
Instructions
The leasehold was purchased for a lump sum with provision for the payment of a small annual rental in addition. The rent item on the books covers this charge. $1,000 a year is the amortization charge on the leasehold.
Insurance on buildings and equipment covers buildings, machinery, tools, patterns, and office, salesroom, and factory furniture and fixtures. Be careful to distribute this among the manufacturing, selling, and office sections of the profit and loss summary. Separate the asset values of these items, which show investment in the factory, the selling section, and the office section of the plant, and distribute the insurance on the basis of the investment shown.
Depreciation on buildings will be distributed also on the same basis as rent.
Dividends 25 and 37 have evidently been paid but not yet charged against Surplus. This is sometimes done when it is desired to charge an interim dividend against profits of the current year. In drawing up the balance sheet take cognizance of the fact that dividends 26 and 38 have also been declared and paid though not yet booked.
Support the balance sheet and profit and loss statement with the customary schedules. The “Cost of Goods Sold” schedule must in turn be supported by a schedule showing the “Cost to Manufacture.” As explained in Chapter III, in the cost of goods sold schedule the cost of goods manufactured—shown by the cost to manufacture schedule—takes the place of the item “Net Purchases” in a trading business. A typical form of manufacturing statement is shown below.
Exhibit B—Schedule 1 Cogswell & Sons, Manufacturers Cost to Manufacture, for the Year Ending December 31, 1917
Fireless Cookers:
Raw Materials:
Inventory, January 1, 1917 $25,000.00
Purchases, Net $125,000.00
In-Freight and Cartage 5,000.00 130,000.00
$155,000.00
Less Inventory, December 31, 1917 28,100.00
Cost of Raw Materials Used in Manufacture $126,900.00
Direct Labor 178,600.00
Prime Cost $305,500.00
Factory Expenses:
Indirect Labor $30,000.00
Light, Heat, and Power 20,000.00
Factory Supplies 5,000.00
Sundry Factory Expense 1,500.00
Machinery Repairs 750.00
Building Maintenance and Repairs 1,225.00
Depreciation 6,210.00
Insurance 850.00
Taxes 2,195.00
Royalties 15,276.00 83,006.00
$388,506.00
Deduct, excess of:
Goods in Process, December 31, 1917 over $40,210.00
Goods in Process, January 1, 1917 32,794.00 7,416.00
Cost of Finished Cookers (carried to Schedule 2) $381,090.00
As stated above, this “Cost of Finished Cookers” is carried to Schedule 2, “Cost of Goods Sold,” where it is combined with its initial and final inventories to develop the cost of the cookers sold during the period. With the exception noted, this schedule, for a departmental business, follows the forms already shown and will not be repeated here. The same thing is true of the other supporting schedules.
XXIV
Problem
Using the information of Problem XXIII and the statements drawn up there, prepare adjusting and closing journal entries covering just the manufacturing activities of the business.
Instructions
It is desired here to give the student practice with the group of entries with which he is not yet familiar. The adjusting and closing entries covering the other activities of the business follow the methods already explained. In summarizing the manufacturing group of entries, the process is the same, in the main, as other summary entries. The exact entries necessary depend, of course, on the accounts carried and the way in which they are used. This applies particularly to the use of one or several different inventory accounts and the Goods in Process account.
To bring the goods in process inventory on the books requires a debit to Manufacturing and a credit to Goods in Process to clear it—i.e., Goods in Process—of the initial inventory, and then a debit to Goods in Process and a credit to Manufacturing to set up the present inventory. This secures the proper charge or credit, for the excess of the one inventory over the other, necessary to develop the correct cost to manufacture.
Where a Finished Goods account is carried, it is sometimes used as an inventory account, in which case the method of handling it is similar to that of Goods in Process excepting that the Finished Goods account is used in connection with the Profit and Loss (or Trading) account instead of the Manufacturing account. When Finished Goods account is used in this way, the balance of the Manufacturing account, i.e., the cost of goods manufactured, is transferred in toto to the Profit and Loss account in which the cost of the manufactured goods sold is developed. Where other commodities are dealt in, in addition to the manufactured product, this may result in an awkward and inconsistent method of developing the costs of the different commodities sold. This has sometimes led to the use of the Finished Goods account somewhat on the lines of a purchases account. To it the balance of the Manufacturing account is transferred, and the cost of finished goods sold is developed in it by bringing the two inventories into this account. This necessitates the use of a Finished Goods Inventory account in addition to Finished Goods account—or finished goods inventory may be set up in Merchandise Inventory account, where only one inventory account is carried. The cost of manufactured goods sold is then transferred from Finished Goods account to Profit and Loss account, where, together with the costs of the other commodities sold, it helps to effect the closing of the books.
In this problem use the Finished Beds account as an inventory account.
XXV-XXVI
Practice Data
Prepare a condensed balance sheet and profit and loss statement as of December 31, 1917, taking account of the following adjustments and inventories. Also draw up a statement of surplus for the 16 months of the current fiscal period.
Coal and Power Supplies on Hand $ 1,240.19
Packing Materials on Hand 340.20
Gasoline on Hand 125.00
Factory Supplies 100.00
Insurance Unexpired 540.23
Warehouse Rent Prepaid 150.00
Stationery on Hand 150.00
Experimental Laboratory Materials on Hand 425.00
Advertising Prepaid 500.00
Purchases Discount Not Yet Taken on Unpaid Vouchers 840.22
Advertising Unpaid 1,000.00
Direct Labor Accrued 1,793.75
Indirect Labor Accrued 225.33
Engineers and Firemen’s Wages Accrued 125.67
Receiving and Shipping Clerk’s Wages Accrued 75.50
Assembling and Setting Up Wages Accrued 15.00
Salesmen’s Salaries Accrued 2,524.50
Salesmen’s Commissions Accrued 1,360.18
Deliverymen’s Wages Accrued 67.50
Royalties Accrued 150.00
Rent Accrued 400.00
Interest Payable 17.25
Taxes on Factory Accrued 819.37
Taxes on Stock Accrued 395.62
Bond Interest Accrued 150.00
Inventories of stock-in-trade and raw materials were:
Desks and Tables $20,855.10
Bookcases and Filing Cabinets 17,671.40
Knoxfrauds, Finished 2,511.20
Raw Materials 15,241.92
Goods in Process 9,255.65
Calculate depreciation at the yearly rates given below. The balance in the account is to be used as the basis, reckoning for 16 months.
Power Equipment 12½%
Machinery 8⅓%
Factory Buildings 1½%
Patterns 20%
Patents ¹/₁₇
Delivery Equipment 15%
Furniture and Fixtures, Factory 12½%
Furniture and Fixtures, Store and Office 10%
Organization Expense 5% of the original cost
Tools Inventory $825.50
Allocate the following charges as indicated:
Insurance: $2,196.43 to Factory and $519.24 to Selling.
Taxes: $1,012.24 to Factory and $411.23 to Selling.
Receiving and shipping: ¾ to Shipping and ¼ to Receiving, of which 40% to Desks and Tables, 35% to Bookcases and Filing Cabinets, 25% to Raw Materials.
In-freight and delivery: $4,400 to Desks and Tables, $3,500 to Bookcases and Filing Cabinets, $750 to Raw Materials.
Rent: $6,400 to Selling, $1,500 to Office.
Light, heat, and power: 92% to Factory, 6% to Selling, 2% to Office.
Create a reserve for doubtful accounts of ½% of all gross sales for the period. It is decided to take into account as an additional expense chargeable to this period 1¼% of outstanding trade debtors for sales discounts that will probably still be taken advantage of.
Close Loss on Sale of Dynamo against Surplus.
Close Fire Loss and Strike Costs to Surplus.
In closing, bond discount is to be amortized on a straight line basis, i.e., ¹/₄₀ each half-year. Take account of accrued amortization for the two-month period since November 1.
The experimental laboratory has succeeded in securing a patent for a listing and adding device for use with the Knoxfraud, of much simpler operation and cheaper to manufacture, than the one on which royalty is being paid. Hence, when the royalty contract expires it will not be renewed. Capitalize the laboratory expense to date.
A very careful analysis of the advertising costs shows an expenditure of $78,445.25 above normal. It is decided to transfer this to Good-Will.
Claims for damage have been filed against the railways amounting to $1,025.10. (Bring this on to the books with an offsetting reserve of the same amount.)
A dividend of 12½% on the common is declared payable January 20, 1918.
Take into consideration the sinking fund requirements of the bond mortgage.
Instructions
On the condensed balance sheet, show all receivables (other than the claims against customers on note and open account) under the title “Other Accounts Receivable,” immediately following but separate from the current asset group. Carry all inventories under one title “Inventories.” All fixed assets, except the intangibles, show under the title “Plant and Equipment,” from which show deducted the total of the various depreciation reserves. List the intangible assets individually. Set up supporting schedules for all condensations effected. The profit and loss statement must have supporting schedules, also.
Although some inaccuracies result from using the bases indicated for the calculation of depreciation, they are insignificant. Note that the basis for writing down patents has been changed since the last period. This indicates a policy of intention to secure patented improvements on the various devices owned. (See Chapter XVIII for discussion of this point.)
Declaration of a dividend on common stock means, of course, that the required dividends on both issues of preferred have also been authorized. The student is required to calculate the rates on these.
XXVII-XXVIII
Practice Data
Adjust and close the books in accordance with the data given in assignments XXV-XXVI.
Treat the account “Knoxfrauds Manufactured” as a purchase account as explained in assignment XXIV.
Handle the estimate of 1¼% of trade debtors for expected sales discounts, as an accrued item in Sales Discount account.
There is no accrual on sinking fund provisions, inasmuch as the trust deed requires that payment out of profits be made at the close of the fiscal period and not at the time bond interest falls due.
The Knox-Davis blanks, with all statements, are due at the time of the last class period and must be turned in whether completed or not, if credit is desired for the course.