Bobbi Brown has come to me and asked for my help. Sherecently started up a new consulting practice and needs some helpwith her accounting records. Unfortunately, I have very little timeto spare so I have decided to ask my Accounting 2210 students tohelp her out. Here is where you come in - the followingis a list of events that have occurred over the last 18 months. What I need you to do is to prepare a complete set of accounting records for Bobbi's consulting practice. A completelist of requirements is included after the list of events.
2008:
Bobbi has decided to incorporate her consulting practice under the name of "Brown Consulting Inc." On July 1, 2008, she established abank account for the business by transferring $30,000 from herpersonal savings account into a new business account. In exchange for this cash, she received 30,000 shares of common stock.
On July 1, 2008, the company leased office space indowntown Bowling Green. The lease is for two years at $500 permonth and the entire biannual lease payment of $12,000 is paid inadvance.
A summary of the transactions for the remainder of 2008(i.e., July through December) is as follows:
- Purchased $800 worth of office supplies on account during2008.
- Billed clients for services rendered. The total billingsfor 2008 were $60,000.
- Cash received from clients on previously billed revenuewas $52,000.
- Paid Bobbi her agreed upon salary of $7,000 amonth for the six-month period.
- Paid $700 on account for the office supplies purchasedduring 2008.
- All of the office supplies purchased during the year wereused by December 31.
- Remember to record the rent expense that was prepaid in July.
2009:
Her business was really starting to increase so Bobbi decided she needed somehelp. She hired Artie Andersen as her executive assistant onJanuary 1, 2009 and agreed to pay him $3,000 per month for his services.
A summary of the transactions for 2009 is as follows:
- Purchased an additional $2,800 worth of office supplieson account during the year.
- Billed clients for services rendered. The total billingsfor 2009 were $150,000.
- Cash received from clients on previously billed revenuewas $152,000.
- Paid Bobbi her agreed upon salary of $7,000 a month forthe entire year.
- Paid Artie his agreed upon salary for the entireyear.
- Paid the remaining $100 on account from last year and anadditional $2,400 was paid on account for the office suppliespurchased in 2009.
- There was $400 worth of office supplies left at the endof 2009.
- Remember to record the rent expense that was prepaid last year.
REQUIRED:
Journalize theabove transactions in the general journal. All recurringtransactions (e.g., rent and salaries expense) can be recorded asone summary entry for the year instead of twelve identical monthlyentries. A chart of accounts is included below.
Create additionalaccounts if necessary. Once the transactions for 2008 have been recorded, you will need to post these transactions to the generall edger/T-accounts in order to create a trial balance. This unadjusted trial balance is for your sake only to ensure that you are still in balance. You do not have to turn in the unadjustedtrial balance.
Once you have created your trial balance, you will need torecord the adjusting entries and prepare an adjusted trial balance.The next step is to prepare all four financialstatements in good form from your adjusted trial balance. You will then need to prepare and record closing entries in order to startthe next year. Repeat the above steps for 2009.
The financial statements must betyped. The remainder of the case (journalentries, t-accounts, adjusted trial balance, etc.) need not betyped, but should be well organized and presented. The overallpresentation of your case will constitute 25% of your case grade.Therefore, neat and well-organized work is important. Remember, nolate work will be accepted.
Assume that on January 1, 2010, Bobbi decides she wants tobuy new office furniture and computer equipment. She decides thatthe best way to finance this purchase is through a bank loan.Therefore, she prepares and submits a loan request for $50,000 toher friendly neighborhood banker. Included with her loan request isa copy of the financial statements you have just prepared for theprior 18 months of operations. Now assume you are the local bankerand need to make a credit decision regarding Bobbi Brown'sconsulting practice. Prepare a one-page analysis of the financialstatements that supports your credit decision.
CHART OF ACCOUNTS:
100 Cash
110 Accounts Receivable
130 Prepaid Rent
140 Office Supplies
200 Accounts Payable
300 Common Stock
350 Retained Earnings
400 Consulting Fee Revenue
700 Office Supplies Expense
710 Rent Expense
720 Salaries Expense