Champion Wave Surf, Inc. 1st EditionComputer S

Champion Wave Surf, Inc.
1st Edition
Computer Simulation Project
STUDENT’S MANUAL

Preface
Champion Wave Surf, Inc. is a computerized accounting project
designed for students taking Financial Accounting. The project
is intended to reinforce concepts taught in Financial Accounting
courses, while allowing students the use of Wave Accounting
software to aid in their understanding of computerized
accounting.
The project is not intended to teach Wave Accounting, but
simply uses Wave in a limited capacity to give students the
opportunity to understand the usefulness of computers and
software in the accounting world, but still compelling them to
fully comprehend each accounting transaction and the
accounting process.
Introduction
Background
Champion Wave Surf, Inc. is a small corporation, operated by
Max Kolbe, the majority stockholder. The business opened on
January 1, 2007, at its beautiful location in Morro Bay,
California. Champion Wave has been successful in its first two
months of operations, gaining popularity among the locals and
tourists on the Central Coast. In addition to selling surfboards,
accessories and apparel, Champion Wave also provides
surfboard repair services and offers private surfing lessons.
As the new accounting intern for the company, you have been
asked to complete the accounting for the last two weeks of
March, prepare the financial statements and close the books at
the end of the first quarter, March 31, 2007. This will requi re
that you post all accounting transactions for the last two weeks
of the month of March, reconcile the bank account, post any
adjusting entries, print and analyze the financial statements,
and, finally, post the closing entries. During the process, you

are expected to audit your own work and make any correcting
entries as you go. Max has provided you with the accounting
files which have been completed through March 17, 2007.
Before you begin recording the transactions, it is important that
you become familiar with Champion Wave's chart of accounts
and you thoroughly understand the company's accounting
procedures. Max has provided you with the complete chart of
accounts along with some detailed information from his CPA
that you should review.
Chart of Accounts
Summary
ASSETS
101
Cash
102
Petty Cash
115
Certificate of Deposit
120
Accounts Receivable
125
Credit Cards Receivable
130
Interest Receivable
150
Merchandise Inventory
160
Prepaid Advertising
161
Prepaid Insurance

162
Prepaid Rent
170
Store Supplies
180
Equipment
181
Accumulated Depreciation, Equipment
185
Furniture & Fixtures
186
Accumulated Depreciation, Furniture & Fixtures
LIABILITIES
201
Accounts Payable
210
Dividends Payable
220
Interest Payable
240
Sales Tax Payable
250
Wages Payable
260
Unearned Revenue
280
Notes Payable
STOCKHOLDERS' EQUITY
310
Common Stock
320
Retained Earnings
390
Dividends
REVENUE

401
Sales Revenue
410
Lesson Revenue
420
Repair Revenue
COST OF GOODS SOLD
501
Cost of Goods Sold
EXPENSES
601
Advertising Expense
605
Bank Charges
607
Cash Over / Short
610
Credit Card Processing Expense
612
Delivery Expense
615
Depreciation Expense, Equipment
616
Depreciation Expense, Furniture & Fixtures
620
Insurance Expense
625
Professional Fees
630
Rent Expense
635
Repairs & Maintenance
650
Salaries & Wages Expense

660
Store Supplies Expense
665
Telephone Expense
667
Utilities Expense
OTHER INCOME & EXPENSES
700
Interest Income
750
Gain on Disposal of Asset
800
Interest Expense
850
Loss on Disposal of Asset
Detail for SelectedAccounts
ASSETS
101
Cash
This account is used for all cash and check transactions and
includes amounts in the bank account and on hand at the store.
102
Petty Cash
This account is used for the small petty cash fund the company
has established. The petty cash fund is $100 and is maintained
on the imprest basis.
115
Certificate of Deposit
This account is used to record the company's investment in the
Certificate of Deposit (CD). The company put $8,000 into the
CD on February 1, 2007. The CD has a 6% annual rate of

interest and an 18 month term to maturity.
120
Accounts Receivable
This account is used to record amounts due from customers.
125
Credit Cards Receivable
This account is used to record amounts due from the credit card
processing company when a customer pays via credit card.
Approximately 2-3 days after a customer pays with a credit
card, cash is received into the bank account, at which time the
receivable should be relieved and the receipt of the cash should
be recorded. The credit card processing company charges a
2.5% fee on each transaction and deducts the fee from the
amount deposited to the bank account.
130
Interest Receivable
This account is used to record interest due to the company but
not yet received.
150
Merchandise Inventory
This account is used to record all of the store's inventory,
including surfboards, accessories and apparel. All product costs,
including transportation-in go into this account. The account is
debited for purchases of inventory and credited following the
sale of inventory. (See also: Cost of Goods Sold.)
160
Prepaid Advertising
This account is debited when advertising costs are paid more

than one month in advance. The account is adjusted at the end
of each month. Advertising services for the year have been paid
in advance, totaling $1,500.00.
161
Prepaid Insurance
This account is debited when insurance premiums are paid more
than one month in advance. The account is adjusted at the end
of each month.
Insurance premiums for the entire year totaling $1,920.00 were
paid in advance in January.
162
Prepaid Rent
This account is debited when rent is paid for a future month.
The account is adjusted at the end of each month. Rent totaling
$5,400.00 was paid in January for the first quarter of 2007.
170
Store Supplies
This account is used for the purchase of all store supplies. The
account is adjusted at the end of each month to reflect the
amount of supplies on hand and expense the supplies that have
been consumed.
180
Equipment
This account is used to record the purchase of fixed assets. The
company purchased $5,360.00 of equipment on January 1, 2007.
The equipment has an expected life of 5 years. The salvage
value is estimated to be $800.00.
185
Furniture & Fixtures

This account is used to record the purchase of fixed assets. The
company purchased $4,532.00 of equipment on January 1, 2007.
The furniture & fixtures have an expected life of 7 years. The
salvage value is estimated to be
$500.00.
LIABILITIES
210
Dividends Payable
This account is used for dividends that are declared but not yet
paid to stockholders.
240
Sales Tax Payable
This account is credited for sales tax collected from customers
on all merchandise sales (surfboards, accessories and apparel).
The sales tax rate is 7.75%. Sales tax is not charged for repa ir
services or lessons. Sales tax remains payable until remitted to
the State Board of Equalization at a later date.
260
Unearned Revenue
This account is used record payments from customers for
lessons before revenue has been earned. When the revenue is
earned, it should be debited from this account and recognized in
the appropriate revenue account.
280
Notes Payable
This account is used to record amounts borrowed from the bank
and other sources of financing from creditors. The company
borrowed $30,000.00 at 8.5% from Central Coast Credit Union

on January 1, 2007.
REVENUE
401
Sales Revenue
This account is used to record the sale of merchandise
(surfboards, accessories or apparel) to customers.
410
Lesson Revenue
This account is used to record revenue from teaching surfing
lessons. Customers are charged a rate of $50.00 per hour for
lessons. Customers can pay in advance for 10 hours of lessons
for only $450.00. Revenue should not be recognized until it is
earned.
420
Repair Revenue
This account is used to record revenue from surfboard repairs.
COST OF GOODS SOLD
501
Cost of Goods Sold
This account is debited for the cost of merchandise sold. All
merchandise is sold at a 100% mark-up over its cost. Each
merchandise sales transaction should be followed by an entry
debiting this account and crediting Merchandise Inventory.
EXPENSES
601
Advertising Expense

This account is used for advertising expenses incurred in the
current month. Advertising costs paid in advance should be
debited to Prepaid Advertising.
607
Cash Over / Short
This account is used for small, immaterial discrepancies,
usually arising in relation to petty cash transactions.
610
Credit Card Processing Expense
This account is used to record fees related to accepting payment
from customers via credit card. The credit card processing
company charges a 2.5% processing fee on each transaction,
which is deducted from the amount deposited to the bank
account. There is an additional monthly fee that gets recorded at
the end of the month from data on the bank statement.
612
Delivery Expense
This account is used to record costs incurred when shipping
merchandise to customers. This could also be called
"transportation-out."
615
Depreciation Expense, Equipment
This account is used to record depreciation adjustments.
Depreciation expense is calculated using the straight-line
method and is recorded monthly.
616
Depreciation Expense, Furniture & Fixtures
This account is used to record depreciation adjustments.

Depreciation expense is calculated using the straight-line
method and is recorded monthly.
620
Insurance Expense
This account is used to record adjustments for insurance
expiring in the current month. Insurance premiums paid in
advance should be debited to Prepaid Insurance.
630
Rent Expense
This account is used for rent in the current month. Rent paid in
advance should be debited to Prepaid Rent.
Accounting Methods
Accrual Basis
The company uses the accrual basis of accounting. Adjusting
entries are made monthly in order to recognize revenues and
expenses in the appropriate month.
Depreciation
The company depreciates assets using straight-line depreciation.
Depreciation is recorded monthly.
Inventory
The company uses the perpetual inventory method, updating the
Merchandise Inventory and Cost of Goods Sold accounts after
each sales transaction. Inventory is sold at a 100% mark- up
over its cost. Each merchandise sales transaction should be
followed by an entry debiting Cost of Goods Sold and crediting
Merchandise Inventory (for 50% of the amount of the sale).
Purchase Discounts
The company uses the gross method to record purchase

discounts, meaning that it records inventory purchases at the
gross price (list price). If the company does not make payment
to the vendor in time to receive the discount, there is no
additional entry or calculation necessary. However, if the
company makes payment within the discount period, the
Inventory and Accounts Payable accounts each should be
reduced for the amount of the discount.
Returns & Allowances
The company does allow sales returns on occasion. Sales returns
are debited from the related sales account directly and Sales
Tax Payable gets adjusted. The merchandise then needs to be
received back into inventory and removed from Cost of Good
Sold (as it is no longer sold!). Just as there are two journal
entries necessary when recording the sale of
merchandise, there will be two entries needed to reverse the
sale.
Set-up & Instructions
1. Open your browser and go to www.waveapps.com. In the
middle of the page you will see a “Start Now” button. This will
take you into the registration and download process.
2. On the opening page you will be asked to give your name,
business name, and what your business does. Your business is
Champion Wave, Inc and it is a retailer.
3. Choose “Manage your accounting”.
4. You currently do your accounting manually, on your own,
don’t need to run payroll, you are a Sole Proprietor.
5. At this point choose “Manage Transactions” and you are
ready to start.
6. You may have to add an account or two as you go. To do this:
a. Click on Accounting>Chart of Accounts

b. Select “Add A New Account” in the upper right corner
c. Fill out the information and click “Save”
Data Entry
In Wave Accounting, you will only be entering General Journal
Entries (called “transactions” in Wave) to post data. While there
are other methods of entry in the software, the purpose of your
accounting internship with Champion Wave Surf, Inc. is to
demonstrate your knowledge of accounting, which is best done
through posting journal entries for each transaction and
adjustment.
1) To begin, with the company file open, click on “Accounting”
from the menu bar down the left side of the screen, then select
"Transactions." This will open the transactions screen that will
show all of the transactions that have been entered.
2) In the upper right-hand corner click on “More”, then “Add
journal transaction”. Use the tab key to move from field to
field.
3) A window will open on the right enter a brief description
including the number in BOLD included in the instructions, then
the date.
4) Next are two fields for the debits/credits of the transaction.

Each description field has a drop-down menu in order to enter
the appropriate account. If you enter the first few letters of the
account you want, it will show in the window. Tab to enter the
amount of the debit. Tab again for the credit. If you have more
than one debit or credit, there are two buttons below the
transactions, one to add a debit another for a credit. Add as
many as you need. In the description field enter a simple
description of the reason for the entry. When all is good, click
on save and move to your next entry.
5) The first entries are the ending balances for February 28,
2007. You will find these on the next page.
6) Next, enter the adjustment for March 17, 2007 Which follows
the previous entry. You now have a tied-out balance through
March 17th. Your job is to enter the remaining entries for the
third and fourth weeks.
7) If a transaction refers to a prior entry from week one or two,
you will have to look in the instructions, find the entry, and
calculate the data you need for the transaction. There aren’t
many, thankfully.
8) You are now ready to begin the week three transactio ns.
Corrections
1) Begin by identifying the journal entry that needs to be
corrected. You will need to completely reverse that entry, so
you may want to write down or print out the details of the
transaction (account(s) debited / credited and respective
amounts).
2) Start a new journal entry and post the "reversal" of your
incorrect entry. Using the date of the original entry, you will
debit the account(s) you originally credited and credit the
account(s) you originally debited. You should include "Reversal
of ERROR" in the memo field.
3) Start another new journal entry and post the transaction

correctly, following the procedures for data entry.
If you use delete, I will be able to see that when I review your
G/L, so please follow the above instructio ns.
13
9:40 PM
Trial Balance
08/03/2013
As of February 28, 2007
Accrual Basis
Feb 28, 07
Debit
Credit
101 · Cash
15,613.29
102 · Petty Cash
100.00
115 · Certificate of Deposit

8,000.00
120 · Accounts Receivable
795.00
125 · Credit Cards Receivable
483.25
130 · Interest Receivable
40.00
150 · Merchandise Inventory
13,452.08
160 · Prepaid Advertising
1,250.00
161 · Prepaid Insurance
1,600.00
162 · Prepaid Rent
1,800.00
170 · Store Supplies
877.53
180 · Equipment

5,360.00
181 · Accum. Depreciation-Equipment
152.00
185 · Furniture & Fixtures
4,532.00
186 · Accum. Depreciation-Furn & Fix
96.00
201 · Accounts Payable
991.90
220 · Interest Payable
425.00
240 · Sales Tax Payable
2,476.31
250 · Wages Payable
240.00
260 · Unearned Revenue
1,215.00
280 · Notes Payable

30,000.00
310 · Common Stock
10,000.00
401 · Sales Revenue
31,943.54
410 · Lesson Revenue
2,185.00
420 · Repair Revenue
935.00
501 · Cost of Goods Sold
15,972.67
601 · Advertising Expense
250.00
605 · Bank Charges
36.00
607 · Cash Over / Short
9.85
610 · Credit Card Processing Expense

587.60
612 · Delivery Expense
132.00
615 · Depreciation Expense-Equipment
152.00
616 · Depreciation Expense-Furn & Fix
96.00
620 · Insurance Expense
320.00
625 · Professional Fees
849.00
630 · Rent Expense
3,600.00
635 · Repairs & Maintenance
485.19
650 · Salaries & Wages Expense
3,040.00
660 · Store Supplies Expense

447.92
665 · Telephone Expense
173.15
667 · Utilities Expense
220.22
700 · Interest Income
40.00
800 · Interest Expense
425.00
TOTAL
80,699.75
80,699.75
Adjusting Entries for March 17, 2007
Account Debit
Credit

Cash 2,507.51
Petty Cash 0.00
Certificate of Deposit 0.00
Accounts Receivable 87.50
Credit Cards Receivable 33.25
Interest Receivable 0.00
Merchandise Inventory 959.39
Prepaid Advertising 0.00
Prepaid Insurance 0.00
Prepaid Rent 0.00
Store Supplies 293.15
Equipment 0.00
Accumulated Depreciation - Equipment 0.00
Furniture and Fixtures 0.00
Accumulated Depreciation - F & F 0.00
Accounts Payable 1,125.65
Dividends Payable 4,000.00
Interest Payable 0.00
Sales Tax Payable 305.71
Wages Payable 240.00
Unearned Revenue 630.00
Notes Payable 0.00
Common Stock 0.00
Dividends 4,000.00
Sales Revenue 3,944.74
Lesson Revenue 770.00
Repair Revenue 157.50
Cost of Goods Sold 1,972.37
Advertising Expense 0.00
Bank Charges 0.00
Cash Over/Short 1.25
Credit Card Processing Expense 79.45
Delivery Expense 0.00
Depreciation Expense - Equipment 0.00
Depreciation Expense F&F 0.00

Insurance Expense 0.00
Professional Fees 270.00
Rent Expense 0.00
Repairs & Maintenance Expense 55.00
Salaries & Wages Expense 560.00
Store Supplies Expense 0.00
Telephone Expense 118.73
Utilities Expense 0.00
Interest income 0.00
Interest Expense 0.00
Loss on Disposal of Asset 0.00 0.00
$11,055.60$11,055.60
Week of March 4 - 10, 2007
Transactions
1
March 4, 2007
Sold surfboard and apparel to customer for $435.00 plus sales
tax (7.75%). The customer paid cash. The sales receipt number
was 7030401.
a)
101 · Cash
468.71

435.00
33.71
Sold merchandise to customer for cash.
b)
217.50
217.50
To record cost of merchandise sold and relieve inventory
This transaction is already posted as an example. You can view
the two journal entries posted by opening the General Journal
Entries window, and clicking the "Previous" arrow to find the
entries. Do not post the entries again.
2
March 4, 2007
Received cash into the bank account from the credit card
processing company for a transaction of
$483.25 processed on February 28, 2007, sales receipt number
7022805.
101 · Cash

471.17
12.08
483.25
Received payment from credit card processing company, less
fees.
This transaction has not been posted yet.
3
March 4, 2007
Sold apparel to customer for $75.00 plus sales tax. The
customer paid cash. The sales receipt number was 7030402.
101 · Cash
80.81
75.00
5.81
37.50

37.50
4
March 4, 2007
customer paid with a credit card. The sales receipt number was
7030403.
301.16
279.50
21.66
139.75
139.75

5
March 5, 2007
Wrote check number 10026 to Pacific Gas & Electric for $68.30
to pay the utilities bill received and posted last month.
68.30
101 · Cash
68.30
6
March 5, 2007
Wrote check number 10027 to AT&T for $118.73 for the
telephone bill received in the mail today.
118.73
101 · Cash
118.73
7
March 5, 2007
Sold accessories and apparel to customer for $338.98 plus sales

tax. The customer paid cash. The sales receipt number was
7030501.
101 · Cash
365.25
338.98
26.27
169.49
169.49
8
March 6, 2007
processing company for sales receipt number
7030403, processed on March 4, 2007.
101 · Cash
293.63
7.53
301.16

9
March 6, 2007
Performed repairs on a surfboard and mailed invoice number
30601 for $157.50 to customer Brett Constance to bill for the
services.
157.50
157.50
10
March 6, 2007
Wrote check number 10028 to Surfer's Supply for payment in
full on an invoice for merchandise received and posted last
month. The original amount of the invoice was 463.89. The
invoice was dated February 27, 2007, with terms of the purchase
1/10, n/30. The invoice was recorded using the gross method.
463.89
101 · Cash
459.25

4.64
11
March 6, 2007
Wrote check number 10029 to Pipeline Surfwear for payment in
full on an invoice received last month. The original amount of
the invoice was $285.71. The invoice was dated February 7,
2007, with terms of the purchase 2/10, n/20. The invoice was
recorded using the gross method.
285.71
101 · Cash
285.71
12
March 7, 2007
Received cash payment of $175.00 from customer Ken Bruce
for surfing lessons taught last month. The customer was billed
in February with invoice number 22802, for 3.5 hours of
lessons.
101 · Cash
175.00
175.00

13
March 7, 2007
Received cash payment from customer Bobby Earl for $450.00
in advance for 10 hours of surfing lessons. Bobby will begin
taking lessons in April. Gave Bobby receipt number 30701 for
record of his payment.
101 · Cash
450.00
450.00
14
March 8, 2007
Taught a 1 hour surfing lesson. Provided receipt number 30801
for the customer, Budd Charles, who paid cash at the time of the
lesson.
101 · Cash
50.00
50.00

15
March 8, 2007
Purchased surfboards and accessories from vendor for
$1,050.00. Paid cash at the time of purchase for invoice number
CCB1298.
1,050.00
101 · Cash
1,050.00
16
March 9, 2007
7030901.
271.81
252.26
19.55
126.13

126.13
17
March 9, 2007
Purchased $194.65 of store supplies on account from Premier
Distributing. The invoice number was
PD897 and the terms were Net 15.
194.65
194.65
18
March 10, 2007
Taught a 4 hour surfing lesson to Madeline Taylor. Prepared
invoice number 31001. She will pay later.
200.00
200.00
19

March 10, 2007
Sold 3 surfboards and accessories for $1,132.50 plus tax. The
7031001.
1,220.27
1,132.50
87.77
566.25
566.25
20
March 10, 2007
After two months of successful operations, the board of
directors met and declared $4,000 of dividends, which would be
paid to the stockholders at the end of the month. Ref: Div
3/10/07
390 · Dividends
4,000.00
210 · Dividends Payable

4,000.00
Check Figures
Selected figures from the trial balance as of March 10, 2007 are
below. If your account balances do not match the check figures
provided, you need to correct your errors before proceeding. Be
sure to carefully review the instructions for correcting errors.
SELECTED Check Figures
As of March 10, 2007
Mar 10, 07
Debit
Credit
101 · Cash
15,985.87

977.50
1,492.08
13,240.82
1,072.18
368.65
2,671.08
390 · Dividends
4,000.00
34,456.78
2,435.00

1,092.50
17,229.29
607.21
660 · Store Supplies Expense
447.92
291.88
667 · Utilities Expense
220.22
425.00
TRIAL BALANCE TOTAL
87,642.01
87,642.01

Assignment
After posting all of the transactions and ensuring your trial
balance matches the check figures provided, print the trial
balance as of March 10, 2007, as well as the journal for March 4
- 10, 2007. These reports can be found by selecting "Reports"
from the menu bar across the top, then choosing "Accountant &
Taxes." The Trial Balance and Journal can both be found here.
Be sure to adjust the dates in each report to reflect the
transactions in Week #1, March 4 - 10, 2007.
Transactions
1
March 11, 2007
processing company for sales receipt number 7030901,
processed on March 9, 2007.
101 · Cash
265.01

6.80
271.81
2
March 11, 2007
Purchased merchandise on account from Central Coast
Boarding. Central Coast Boarding provided invoice number
CCB1335 totaling $1,648.50. Terms of the purchase are 2/10,
n/30.
1,648.50
1,648.50
3
March 11, 2007
Wrote check number 10030 for $174.00 to pay the February bill
from Law Office of C. Brown for services provided on account.
174.00
101 · Cash
174.00

4
March 12, 2007
Taught 6 hours of surfing lessons to a customer who had paid in
advance during February (sales receipt number 21402) at the
special discounted rate of $45 per hour.
270.00
270.00
5
March 12, 2007
101 · Cash
1,189.76
30.51
1,220.27

16
6
March 12, 2007
Received payment of $145.00 on invoice number 7022403 from
customer Mike Joseph for repair services performed on account
during February.
101 · Cash
145.00
145.00
7
March 13, 2007
Returned $500 of damaged merchandise from the purchase on
March 11, 2007 to Central Coast Boarding, invoice number
CCB1335.
500.00
500.00
8

March 14, 2007
Sold apparel and accessories to customer for $595.00 plus sales
tax. The customer paid with cash. The sales receipt number was
7031401.
101 · Cash
641.11
595.00
46.11
297.50
297.50
9
March 14, 2007
Sold surfboards to customer for $836.50 plus sales tax. The
7031402.
901.33
836.50

64.83
418.25
418.25
10
March 15, 2007
Taught 5 hours of surfing lessons on account for customer
Jonathon Richards. Provided the customer with invoice number
31501 for the services.
250.00
250.00
11
March 15, 2007
Received payment in full on invoice number 31001 from
Madeline Taylor.

101 · Cash
200.00
200.00
12
March 15, 2007
Received partial payment of $175.00 on invoice 21703 from
customer David Linthon for services provided on account during
February.
101 · Cash
175.00
175.00
13
March 16, 2007
101 · Cash
878.80
22.53

901.33
14
March 16, 2007
Customer, Allison Paige, paid $450.00 with a credit card for 10
hours of surfing lessons to begin during the summer. Provided
the customer with receipt number 31601.
450.00
450.00
15
March 16, 2007
Wrote check number 10031 for $235.00 to Scanlan Accounting
Services for accounting services provided today.
235.00
101 · Cash
235.00
16

March 16, 2007
Wrote check number 10032 to pay two weeks of wages to the
store clerk, totaling $800.00 for the time period 2/26 - 3/11. The
store clerk works Monday through Friday and gets paid $80.00
per day. Three days of wages were accrued at the end of
February.
560.00
250 · Wages Payable
240.00
101 · Cash
800.00
17
March 16, 2007
Purchased additional inventory from Surfer's Supply on
account. Surfer's Supply provided invoice number SS9241
totaling $675.90 with terms 1/10, n/30. The merchandise was
sent FOB shipping point. The responsible party will pay SLO
Delivery & Trucking for delivery services directly.
675.90

675.90
18
March 17, 2007
Merchandise purchased from Surfer's Supply yesterday arrived.
The responsible party paid $62.00 cash to SLO Delivery &
Trucking for shipment number SLO3846.
62.00
101 · Cash
62.00
19
March 17, 2007
Purchased $98.50 of store supplies on account from Premier
Distributing. The invoice number was PD938 and the terms
were Net 15, FOB Destination. The responsible party paid
$25.00 cash to SLO Delivery & Trucking.
98.50
98.50

20
March 17, 2007
Replenished the petty cash fund by writing check number 10033
for $88.75. The petty cash box contained two receipts as
follows: Repairs & Maintenance $55.00 and Professional Fees
$35.00.
55.00
35.00
101 · Cash
88.75
1.25
Check Figures

Mar 17, 07
Debit
Credit
101 · Cash
XX,120.80
707.50
450.00
14,411.47
1,170.68

2,117.55
2,782.02
390 · Dividends
4,000.00
35,888.28
2,955.00
1,092.50
17,945.04
667.05
TRIAL BALANCE TOTAL

XX,393.35
XX,393.35
Assignment
After posting all of the transactions and ensuring your trial
balance matches the check figures provided, print
the trial balance as of March 17, 2007, as well as the journal for
March 11 - 17, 2007.
Mid-Month Review
In order to answer the following questions, you may find it
helpful to view the interim financials statements. These reports
can be found by selecting "Reports" from the menu bar across
the top, then choosing "Company & Financial." For the Income
Statement, select "Profit & Loss Standard" and be sure to adjust
the dates appropriately (March 1 - 17, 2007). For the Balance
Sheet, select "Balance Sheet Standard" and, again, be sure to
use the appropriate date (March 17, 2007).

1
What is net income for March 1 - March 17, 2007?
1,817.94
2
What is net income year-to-date (January 1 - March 17, 2007)?
10,124.88
3
What is the cash balance as of March 17, 2007?
18,120.80
4
What is the accounts receivable balance as of March 17, 2007?
707.50

5
Numerically express the accounting equation as of March 17,
2007.
$57,294.45 = $41,169.57 + $16,124.88
Mid-Month Review
6
What is the trial balance total as of March 17, 2007?
91,393.35
7
What is the current ratio as of March 17, 2007?
17-Mar

47,650.45 / 11,169.57 = 4.266
8
How has the current ratio changed since February 28, 2007?
What does this mean?
28-Feb
44,011.15 / 5,348.21 = 8.229
The ratio was higher at 2/28 than at 3/17. The higher the ratio,
the easier the company can pay its maturing debts. Liquidity has
decreased dramatically, but is still very healthy.
9
What is the debt to assets ratio as of March 17, 2007?
17-Mar
41,169.57 / 57,294.45 = .719
10
How has the debt to assets ratio changed since February 28,
2007? What does this mean?
28-Feb
35,348.21 / 53,655.15 = .659
The ratio was lower at 2/28 than at 3/17. The higher the ratio,

the greater the financial
risk, so risk has increased slightly.
10:04 PM
Profit & Loss
08/03/2013
March 1 - 17, 2007
Accrual Basis
Mar 1 - 17, 07
Ordinary Income/Expense
Income
3,944.74
770.00
157.50
Total Income
4,872.24
Cost of Goods Sold
1,972.37
Total COGS
1,972.37
Gross Profit
2,899.87
Expense

-1.25
79.45
270.00
55.00
560.00
118.73
Total Expense
1,081.93
Net Ordinary Income
1,817.94
Net Income
1,817.94
11:14 PM
Balance Sheet
08/03/2013
Accrual Basis
Mar 17, 07
ASSETS
Current Assets

Checking/Savings
101 · Cash
18,120.80
102 · Petty Cash
100.00
115 · Certificate of Deposit
8,000.00
Total Checking/Savings
26,220.80
Accounts Receivable
707.50
Total Accounts Receivable
707.50
Other Current Assets
450.00
130 · Interest Receivable
40.00
14,411.47
160 · Prepaid Advertising
1,250.00
161 · Prepaid Insurance
1,600.00
162 · Prepaid Rent
1,800.00
1,170.68
Total Other Current Assets
20,722.15

Total Current Assets
47,650.45
Fixed Assets
180 · Equipment
5,360.00
181 · Accum. Depreciation-Equipment
-152.00
185 · Furniture & Fixtures
4,532.00
186 · Accum. Depreciation-Furn & Fix
-96.00
Total Fixed Assets
9,644.00
TOTAL ASSETS
57,294.45
LIABILITIES & EQUITY
Liabilities
Current Liabilities
Accounts Payable
2,117.55
Total Accounts Payable
2,117.55
Other Current Liabilities
210 · Dividends Payable
4,000.00

220 · Interest Payable
425.00
2,782.02
1,845.00
Total Other Current Liabilities
9,052.02
Total Current Liabilities
11,169.57
Long Term Liabilities
Mar 17, 07
280 · Notes Payable
30,000.00
Total Long Term Liabilities
30,000.00
Total Liabilities
41,169.57
Equity
310 · Common Stock
10,000.00
390 · Dividends
-4,000.00
Net Income

10,124.88
Total Equity
16,124.88
TOTAL LIABILITIES & EQUITY
57,294.45
Transactions
1
March 18, 2007
The customer who purchased surfboards on March 14, 2007,
returned one surfboard with a list price of
$425.00. The customer received the refund in cash and was
provided receipt number 31801 for the transaction.

2
March 18, 2007
customer paid cash. The sales receipt number was 7031802.
3
March 18, 2007
processing company for receipt number
31601, processed on March 16, 2007.

4
March 19, 2007
Customer, Budd Charles, brought his surfboard in for repairs.
Repairs were completed and the customer was given invoice
number 31901 for $119.00.
5
March 19, 2007
Collected $225.00 from customer, Betty Jane, who was invoiced

in February for lessons taught, invoice number 21703.
6
March 19, 2007
Taught a 3 hour surfing lesson for cash. Provided the customer
with receipt number 31902.
7
March 20, 2007
Sold 3 surfboards and accessories to customer for $1,649.50
plus sales tax. The customer paid cash. The sales receipt
number was 7032001. Shipped the merchandise to the
customer's home address, FOB destination. An invoice for
shipping costs will be sent to the responsible party.

8
March 20, 2007
Taught 4.5 hours of surfing lessons to a customer who had paid
in advance during February (receipt number 20703) at the
special discounted rate.
9
March 20, 2007
Received cash payment from customer, Brett Constance,
referencing invoice number 30601.

10
March 21, 2007
Sold accessories to customer for $319.28 plus sales tax. The
7032101.
11
March 21, 2007

Received an invoice for $209.00 from the landlord, Coastal
Properties, Inc., for repairs made in the store. The invoice
number was CP200768, net 10.
12
March 21, 2007
Purchased merchandise from Pipeline Surfwear for $795.00,
invoice number PS40627. The merchandise was delivered FOB
shipping point at a cost of $45.00. All amounts due were paid in
cash at the time of delivery.
13
March 22, 2007
Taught a 2 hour surfing lesson to customer David Linthon, who
paid cash for the lesson, plus paid off the $75.00 balance he
owed from an invoice in February. Provided the customer with
receipt number 32201 for the payment.

14
March 22, 2007
Wrote check number 10034 to Premier Distributing to pay the
open invoices from March 9 and March 17, 2007 in full.
15
March 23, 2007
Paid Surfer's Supply the amount due on invoice number SS9241
dated March 16, 2007.

16
March 23, 2007
Paid Central Coast Boarding the amount due on invoice number
CCB1335 dated March 11, 2007.
17
March 23, 2007
Wrote check number 10035 to Law Office of C. Brown for
$165.00 to pay for a legal consultation that day.

18
March 24, 2007
Wrote check number 10036 to pay the bill received from the
landlord on March 21, 2007.
19
March 24, 2007
Wrote check number 10037 for $5,400.00 to pay rent for the
second quarter (April, May & June 2007).
20
March 24, 2007
Repaired surfboard for customer Chris Jackson. Provided
customer with invoice number 32401 for

$95.00.
Check Figures
Mar 24, 07
Debit

Credit
101 · Cash
12,052.26
464.00
344.02
14,373.70
0.00
2,917.02
37,630.30
3,407.50

1,306.50
18,816.05
678.30
TRIAL BALANCE TOTAL
91,616.82
91,616.82

Transactions
1
March 25, 2007
2
March 25, 2007
Received invoice number SLO3953 from SLO Delivery &
Shipping for $79.00 referencing sales receipt 7032001 from

March 20, 2007. Terms are Net 10.
3
March 25, 2007
The customer who purchased accessories on March 21, 2007,
returned one item with a list price of
$38.00. The customer received the refund in cash and was
provided receipt number 32501 for the transaction.
4

March 26, 2007
Sold a surfboard and accessories to customer Neal Kelly for
$512.92 plus sales tax. Neal also paid for ten hours of lessons in
advance. The customer paid for the entire purchase with a credit
card and was provided sales receipt number 7032601.
5
March 26, 2007
Repaired surfboard for customer Bobby Earl. Provided invoice

number 32602 to Bobby for $72.00 to be paid later.
6
March 26, 2007
Received payment in full from customer Jonathon Richards
7
March 27, 2007
Received invoice number PG4660998 from Pacific Gas &
Electric for $127.32 and will pay later.

8
March 27, 2007
Sold surfboard to customer for $488.00 plus sales tax. The
customer paid for the purchase with a credit card and was
provided sales receipt number 7032701.
9
March 27, 2007
Shipped the merchandise from sales receipt number 7032701 to
the customer's address at a cost of
$65.00. The shipping terms were FOB destination. The
responsible party paid cash to the shipping company directly.

10
March 28, 2007
Purchased merchandise from Pipeline Surfwear on account. The
vendor provided invoice number PS2015 for $1,138.00 with
terms 2/15, n/25. The merchandise was shipped FOB destination
and the responsible party paid the shipping costs of $95.00 in
cash.
11
March 28, 2007
Mr. Kolbe decided to get additional insurance coverage to
provide more protection relating to the risk of shark bites while
teaching surfing lessons. Received invoice number F9111 from
Farmtown Insurance for $630.00 for six months of coverage
commencing on April 1, 2007.

12
March 28, 2007
Wrote check number 10038 to pay SLO Delivery & Shipping in
full for invoice number SLO3953.
13
March 28, 2007

14
March 29, 2007
Received check for $119.00 from customer Budd Charles
15
March 29, 2007
Taught 3 hours of lessons to Neal Kelly (sales receipt number
7032601).
16
March 29, 2007

17
March 30, 2007
Mr. Kolbe decided to launch a new advertising campaign,
hoping to boost sales for the months leading up to the summer.
Received an invoice number A6390 from A-Town Advertising
for $795, for advertising during April, May and June.
18
March 30, 2007
Wrote check number 10039 to pay two weeks of wages to the

store clerk, totaling $800.00 for the time period 3/12 - 3/25. The
store clerk works Monday through Friday and gets paid $80.00
per day.
19
March 31, 2007
Distributed cash to pay dividends declared earlier in the month
to the shareholders. Ref: Div 3/10/07
20
March 31, 2007
The company sold equipment for $350.00. The equipment
orignally cost $536.00 and there is accumulated depreciation on
that equipment of $22.80. Ref: S033107

Check Figures
Mar 31, 07

Debit
Credit
101 · Cash
9,456.66
167.00
15,030.24
2,690.32
2,991.64
1,957.50
38,593.22
1,378.50

19,297.51
725.12
TRIAL BALANCE TOTAL
91,843.88
91,843.88

The bank statement for the month ending March 31, 2007 has
just arrived. You need to reconcile the bank account (manually)
in the form provided on the next page. After you complete the
reconciliation prepare and enter the adjusting entries for the
books (description: Bank Rec). Assume that all transactions
prior to 3/18 cleared.
Central Coast Credit Union
Customer Service
123 Higuera Street
(805) 555-BANK
San Luis Obispo, CA 93401
Statement for the Month Ending March 31, 2007
Beginning Balance
16,378.48
Account 1234567890
Deposits & Credits
10,696.12

Champion Wave, Inc
Checks & Debits
(13,431.61)
123 Embarcadero Road
ENDING BALANCE
13,637.99
Morro Bay, CA 93442
DEPOSITS

4-Mar
471.17
12-Mar
145.00
20-Mar
157.50
4-Mar
468.71
14-Mar
641.11
23-Mar
175.00
4-Mar
80.81
15-Mar
200.00
25-Mar
335.42
5-Mar

365.25
15-Mar
175.00
26-Mar
250.00
6-Mar
293.63
16-Mar
878.80
28-Mar
977.60
7-Mar
450.00
18–Mar
438.75
29-Mar
119.00
7-Mar
175.00
18-Mar
213.60
8-Mar

50.00
19-Mar
225.00
Interest Earned
11-Mar
265.01
19-Mar
150.00
31-Mar
27.66
12-Mar
1,189.76
20-Mar
1,777.34

Checks
Debits
Other Withdrawals
10024
275.00
8-Mar
1,050.00
30-Mar
119.00 NSF
NSF
10025
485.19

17-Mar
62.00
31-Mar
12.00 Bank Svc Chg
Serv Chg
10026
68.30
18-Mar
457.94
31-Mar
75.00 C/Card Proc Fees
Credit Card Proc Fee
10027
118.73
21-Mar
840.00
10028
459.25
23-Mar
669.14
10029
285.71

23-Mar
1,148.50
10030
174.00
25-Mar
40.95
10031
235.00
27-Mar
65.00
10032
800.00
10033
88.75

10034
293.15
10036
209.00
10037
5,400.00

Bank Reconciliation
March 31, 2007
Balance per books:
Add:
Deduct:

Reconciled Book Balance:
Balance per bank:
Add:
Deduct:

Reconciled Bank Balance:
Adjusting Entries
Prepare and post journal entries at March 31, 2007 for each of
the month-end adjustments.
(All adjusting entries for January and February have been
posted already.)
1
Interest Receivable
AJE #1
The company put $8,000 into the CD on February 1, 2007. The
CD has a 6% annual rate of interest and an 18 month term to
maturity. Interest earned during February was already posted at
February 28, 2007.
2
Prepaid Advertising

AJE #2
Advertising services for the year (Jan 2007 - Dec 2007) have
been paid in advance, totaling
$1,500.00.
3
Prepaid Insurance
AJE #3
Insurance premiums for the entire year totaling $1,920.00 were
paid in advance in January.
4
Prepaid Rent
AJE #4
Rent totaling $5,400.00 was paid in January for the first quarter
of 2007.

5
Store Supplies
AJE #5
A count of the store supplies at month-end indicated that there
was $632.50 of supplies on hand.
Adjusting Entries
6
Depreciation - Equipment
AJE #6
The company purchased $5,360.00 of equipment on January 1,
2007. The equipment has an expected life of 5 years. The
salvage value is estimated to be $800.00.

7
Depreciation - Furniture & Fixtures
AJE #7
The company purchased $4,532.00 of equipment on January 1,
2007. The furniture & fixtures have an expected life of 7 years.
The salvage value is estimated to be $500.00.
8
Interest Payable
AJE #8
The company borrowed $30,000.00 at 8.5% from Central Coast
Credit Union on January 1, 2007.
9

Wages Payable
AJE #9
The store clerk works Monday through Friday and gets paid
$80.00 per day.
10
Inventory
AJE #10
A count of the inventory at month-end indicated that there was
$14,771.60 of merchandise on hand.
Check Figures
Selected figures from the adjusted trial balance as of March 31,

2007 are below. If your account balances do not match the
check figures provided, you need to correct your errors before
proceeding. Be sure to carefully review the instructions for
correcting errors.
Mar 31, 07
Debit
Credit
101 · Cash
X,X56.66
286.00
14,771.60

2,690.32
2,991.64
1,957.50
38,593.22
700 · Interest Income
107.66
637.50
TRIAL BALANCE TOTAL
XX,648.04
XX,648.04
Final Review & Analysis

1
What is net income for March 1 - March 31, 2007?
2
What is net income year-to-date (January 1 - March 31, 2007)?
3
What is the cash balance as of March 31, 2007?
4
What is the accounts payable balance as of March 31, 2007?
5
Numerically express the accounting equation as of March 31,
2007.

6
Hypothetically, if the company used the allowance method for
accounting for bad debts, and determined that it needed to set-
up an allowance of 1/2% of total income for the quarter, what
would be the net realizable value of accounts receivable?
Final Review & Analysis
7
What is the return on sales ratio for the quarter ending March
31, 2007? (Use "Total Income" as your sales figure.)
8
What is the gross margin percentage for the quarter ending

March 31, 2007? (Use "Total Income" as your sales figure.)
9
What is the current ratio as of March 31, 2007? How has the
current ratio changed since February 28, 2007? What does this
mean?
10
Would you invest in Champion Wave Surf, Inc.? Why or why
not? Be specific and analytical!
Financial Statements
Now that you have posted all of the transactions for the month,
reconciled the bank statement at month end and posted the
adjusting journal entries, it is time to prepare the financial
statements for Mr. Kolbe to review. Mr. Kolbe will want each of

the following to review and discuss with you:
1
Income Statement (Profit & Loss) for March 1 - 31, 2007
2
3
Income Statement (Profit and Loss) for the quarter, January 1 –
March 31, 2007
Balance Sheet as of March 31, 2007
4
Trial Balance as of March 31, 2007
Be sure you print each of these documents before doing the
closing entries!
You will find the reports by clicking on Reports> Get the Big
Picture. Make sure to enter the appropriate dates for each report
and click on “Export” in the upper right of the page. Combi ne
the reports in one email to me. Then Enter your closing entries.
Closing Entries
Prepare and post the closing journal entry to close the books as
of the end of the first quarter (March 31, 2007). After closing
the books, print the Trial Balance as of March 31, 2007 one last
time!
***Be sure that you have prepared all of your financial reports
correctly and completed the Final Review questions before
posting the closing entry!
Hint: Use the Trial Balance as of March 31, 2007 and zero out
all of the temporary accounts into Retained Earnings.

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