The following is the background information necessary for completion of the accounting period as it relates to Ice Cream Systems Inc. (ICS):
1. ICS manufactures and sells ice cream machines, refrigeration systems, and parts for these systems. It manufactures all machines and parts in a single production department.
2. As the controller of the company, you're responsible for daily accounting operations, adjusting and closing the monthly accounting periods, and preparation of financial statements.
3. ICS operates on a calendar-year basis from January 1 to December 31 with a monthly accounting period. It uses a job-order cost system.
4. Jobs that are in process are recorded on Job Cost Records. Records are maintained for each job. New jobs are assigned numbers sequentially. They contain the accumulated costs for direct material, direct labor, and factory overhead. (For the purposes of this project, it's assumed that all jobs prior to the current accounting period are either in process or complete and all resulting entries have been made in the previous accounting period.)
5. ICS makes all journal entries in the General Journal. No special journals are used.
6. For purposes of this project, cash doesn't need to be reconciled to a bank statement.
7. Information related to Payroll:
- Payroll is paid monthly on the last day of each month. Therefore, there's no accrual for payroll.
- Gross pay for direct labor goes to Finished Goods or Work in Process if appropriate.
- Salaries for non-factory workers go to the appropriate salary expense accounts.
- The company's salesperson works on 10% straight commission of sales during the month.
- Federal Withholding Tax is 15% of gross pay for everyone and is recorded whenever gross pay is recorded. FM" is remitted monthly for the previous month.
- There are no deductions for state or local withholding tax.
- FICA tax rate is 7.65% of gross pay. (FICA is Social Security and Medicare.) Since this is the first month of the new year, no one will reach the Social Security limit. FICA is remitted monthly for the previous month.
- FUTA tax rate is 0.8% of gross wages with no limit. SUTA tax rate is 1.45% of gross wages with no limit. FUTA and SUTA are paid yearly in January (for the previous year).
- There are no other miscellaneous deductions, such as union dues.
- All employer payroll taxes (employer's portion of FICA, FUTA, and SUTA) are recorded on the last day of the month.
- Employer payroll taxes related to factory workers go to Factory Overhead.
- Employer payroll taxes related to all non-factory workers go to Payroll Tax Expense.
8. ICS has two material accounts:
- Direct Materials
- Indirect Materials and Factory Supplies
9. Factory Overhead is applied to each job at 25% of direct labor costs for that job.
10. Debits to Factory Overhead represent actual overhead, and credits represent applied overhead. The difference between actual and applied factory overhead is insignificant and should be closed out to Cost of Goods Sold as an adjusting entry at the end of each month.
11. Markups to determine the selling price of a job for lCS are 150% of estimated job costs. All sales are exempt from sales tax, as ICS sells locally to resellers.
12. Shipping isn't a consideration for the purposes of this project.
13. ICS uses a perpetual inventory system. When a sale is made, debit Cost of Goods Sold and credit Finished Goods for the cost of the job.
14. All sales are on account with terms of net 30 days. No discounts are given.
15. All cash/checks received are deposited in the Cash account.
16. No separate bank account is kept for payroll.
17. Direct materials, indirect materials, and factory supplies are purchased on account.
18. Terms from all vendors for expenses are net 30 days.
19. Factory Supplies are added to the Indirect Materials and Factory Supplies general ledger account.
20. A periodic inventory system is used for office supplies with all purchases going to inventory.
21. All payments-referred to as cash or check-are made by check from the Cash Account. (For purposes of this project, no check register or checks will be given. No reconciliation of the cash account will be required. Assume that all checks are written.)
PROJECT INSTRUCTION
1. Set up the General Ledger accounts, Accounts Receivable, and Accounts Payable accounts. Use the following blank forms (make as many copies as necessary). Insert the beginning balances from the Trial Balance and Schedules of Accounts Receivable and Payable.
2. Journalize the entries shown in the Narrative of Transactions for the month of January in the General Journal. Use the following blank forms (make as many copies as necessary). When using the Work in Process account, be sure to post to the appropriate Job Cost Record.
3. Post the general journal entries to the General Ledger, the Accounts Receivable Ledger, and the Accounts Payable Ledger. Use the Post Ref. column to ensure that each line item of the journal entries is posted correctly to each general ledger account. Posting from the journal to the ledger is nothing more than rearranging the information; however, focus and concentrate because its easy to make a mistake.
4. Calculate the balances in the general ledger accounts. Use an Excel spreadsheet or a printing calculator to run the numbers several times. Don't use a hand-held calculator, as it's far too easy to make a mistake using it.
5. Prepare the Schedules of Accounts Receivable and Accounts Payable.
6. Prepare an Unadjusted Trial Balance using the balances from the general ledger accounts.
7. Journalize the attached adjusting entries in the general journal.
Adjusting Entries
January 31-Expense Prepaid Advertising for the month of January. January 31-Expense Prepaid Insurance for the month of January.
January 31-Office supplies physical inventory as of January 31 is $276.21.
January 31-Depreciation for the month of January for Factory Equipment is $2,987.12. Depreciation for Office Equipment is $266.99.
January 31-Close out Factory Overhead of $190.24 to Cost of Goods Sold.
8. Post the adjusting journal entries to their respective ledger accounts and calculate new balances for those accounts.
9. Prepare an Adjusted Trial Balance using the balances from the general ledger accounts. Use the blank form provided in step six.
10. Prepare an Income Statement attached the formats shown in the Example Company Statements using the following blank form as a worksheet:
11. Journalize and post the closing journal entries in the general journal. Jan. 31-Prepare closing entries to close revenue and expense accounts to Income Summary and transfer the net income to Retained Earnings.
12. Post the closing journal entries to the respective ledger accounts and calculate new balances for those accounts.
13. Prepare a Post-Closing Trial Balance using the balances from the general ledger accounts. Use the blank form that was provided in step six.
14. From the Post-Closing Trial Balance, create the Balance Sheet attached the formats shown in the Example Company Statements using the blank form as a worksheet.
Attachment:- Transactions.rar