AC1220 ACCOUNTING I Lab 4.2 AC1220 Lab 4.2 Introduction Jake’s Computer Sales and Repair has an accounts receivable balance of $6,520 as of May 31, 20x1. Jake maintains an aging-of-accounts schedule listing a time outstanding (or “age”) of the invoice amounts that make up each customer’s receivable balance. Requirement 1 a. Compute the estimated uncollectible amount for each customer in the aging schedule. Enter amounts in the appropriate cells, rounding to the nearest dollar. b. Compute the total estimated allowance for the uncollectible account balance. Enter the amount in the appropriate cell. Uncollectible Accounts Schedule at May 31, 20x1 Customer Name Account Number 1-30 Days 31-60 Days 61-90 Days Over 90 Days Totals Atterbury 1001 $850 $250 - - $1,100 Smith 1002 1,320 2,900 $480 - $4,700 Walten 1003 - - 50 40 $90 Total $2,170 $3,150 $530 $40 $6,520 Estimated percent uncollectible x 2% x 5% x 10% x 90% Estimated allowance for uncollectible accounts Requirement 2 a. Make the necessary journal entry to establish an allowance for the uncollectible accounts account. Use the target allowance for the uncollectible accounts balance computed in Requirement 1. DATE DETAILS DEBIT CREDIT 5/31/x1 b. Post the entry from Requirement 2a and account receivable balance to the following T-Accounts: Uncollectible Account Expense Allowance for Uncollectible Accounts Accounts Receivable c. Show the disclosure of net accounts receivable in the following partial balance sheet: In the current assets section of the balance sheet: Accounts Receivable, Net Requirement 3 Jake is informed in writing that a customer, Walten, has filed for bankruptcy and will be unable to settle an account receivable of $90. Make the journal entry necessary to write off this amount. DATE DETAILS DEBIT CREDIT 5/31/x1 Requirement 4 Jake receives notice from Walten’s attorney that Jake’s Computer Sales and Repair will receive $0.50 on the dollar of the $90 account receivable previously written off. A check for that amount is included. Journalize the partial reinstatement and recovery of Walten’s account receivable. DATE DETAILS DEBIT CREDIT 5/31/x1 Requirement 5 Customer Smith’s account receivable balance of $480 is more than 60 days old. Jake and Smith agree to reclassify this amount as a note payable with a six-month maturity and a 15 percent annual interest rate. Jake makes the following journal entry: DATE DETAILS DEBIT CREDIT 5/31/x1 Note Receivable $480 Accounts Receivable $480 To record 15% note receivable Compute the interest and principle components of the payment that Smith will make on June 30, 20x1, on the note payable. Hint: Principal x Interest Rate x Days/365 = Amount of Interest Requirement 6 Requirement 6 Jake considers using the direct write-off method to account for uncollectible accounts. He would debit the uncollectible account expense a.

1. AC1220 ACCOUNTING I
Lab 4.2
AC1220 Lab 4.2
Introduction
Jake’s Computer Sales and Repair has an accounts receivable
balance of $6,520 as of May 31, 20x1. Jake maintains an aging-
of-accounts schedule listing a time outstanding (or “age”) of the
invoice amounts that make up each customer’s receivable
balance.
Requirement 1
a. Compute the estimated uncollectible amount for each
customer in the aging schedule. Enter amounts in the
appropriate cells, rounding to the nearest dollar.
b. Compute the total estimated allowance for the uncollectible
account balance. Enter the amount in the appropriate cell.
Uncollectible Accounts Schedule at May 31, 20x1
Customer Name
Account Number
1-30 Days
31-60 Days
61-90 Days
Over 90 Days
Totals
Atterbury
1001
$850
$250
-
-
$1,100

2. Smith
1002
1,320
2,900
$480
-
$4,700
Walten
1003
-
-
50
40
$90
Total
$2,170
$3,150
$530
$40
$6,520
Estimated percent uncollectible
x 2%
x 5%
x 10%
x 90%
Estimated allowance for uncollectible accounts
Requirement 2
a. Make the necessary journal entry to establish an allowance

3. for the uncollectible accounts account. Use the target
allowance for the uncollectible accounts balance computed in
Requirement 1.
DATE
DETAILS
DEBIT
CREDIT
5/31/x1
b. Post the entry from Requirement 2a and account receivable
balance to the following T-Accounts:
Uncollectible Account Expense
Allowance for Uncollectible Accounts
Accounts Receivable

4. c. Show the disclosure of net accounts receivable in the
following partial balance sheet:
In the current assets section of the balance sheet:
Accounts Receivable, Net
Requirement 3
Jake is informed in writing that a customer, Walten, has filed
for bankruptcy and will be unable to settle an account
receivable of $90.
Make the journal entry necessary to write off this amount.
DATE
DETAILS
DEBIT
CREDIT
5/31/x1

5. Requirement 4
Jake receives notice from Walten’s attorney that Jake’s
Computer Sales and Repair will receive $0.50 on the dollar of
the $90 account receivable previously written off. A check for
that amount is included.
Journalize the partial reinstatement and recovery of Walten’s
account receivable.
DATE
DETAILS
DEBIT
CREDIT
5/31/x1

6. Requirement 5
Customer Smith’s account receivable balance of $480 is more
than 60 days old. Jake and Smith agree to reclassify this amount
as a note payable with a six-month maturity and a 15 percent
annual interest rate.
Jake makes the following journal entry:
DATE
DETAILS
DEBIT
CREDIT
5/31/x1
Note Receivable
$480
Accounts Receivable
$480
To record 15% note receivable

7. Compute the interest and principle components of the payment
that Smith will make on June 30, 20x1, on the note payable.
Hint: Principal x Interest Rate x Days/365 = Amount of Interest
Requirement 6
Requirement 6
Jake considers using the direct write-off method to account for
uncollectible accounts. He would debit the uncollectible
account expense and credit the accounts receivable account only
when an account receivable is deemed uncollectible. The
allowance method seems tedious because it involves first
estimating uncollectible accounts in the current period and then
debiting an allowance for the uncollectible accounts account.
Furthermore, Jake reasons that the direct wrote-off method is
better because an allowance for uncollectible accounts is only
an estimate, whereas the direct-write off method is based on a
known amount.
Should Jake continue using the allowance method to account for
uncollectible accounts? Provide two reasons why the direct
write-off method might be unacceptable, according to generally
accepted accounting principles (GAAP).
1

8. AC1220 ACCOUNTING I
Lab 4.1
AC1220 Lab 4.1
Introduction
On May 31, 20x1, Jake obtains a bank statement from Ninth-
Bank. According to the bank statement, the business bank
account of Jake’s Computer Sale and Repair has an ending
balance of $33,895 on May 31, 20x1. The cash account in the
books of Jake’s Computer Sale and Repair shows an ending
balance of $44,640.
Jake notes the following items:
· Jake deposited $11,600 in Ninth-Bank on May 30. The bank
has not yet credited this amount to the business bank account.
· The following checks written by Jake have not yet been
presented to Ninth-Bank for payment:
· Check #125: $350
· Check #131: $1,100
· Check #138: $90
· Jake’s Computer Sale and Repair presently has $800 in
prepaid advertising on its books. The advertising agency had
overcharged Jake’s Computer Sale and Repair by $150. The
advertising agency corrects the error and deposits the amount
directly into the business bank account.
· Bank service charges per the bank statement are $35.
· Interest earned on the bank balance is $10.
· A check for $250, previously recorded as a payment by a
customer on an account receivable, was returned marked
“nonsufficient funds” (NSF).
· The bank incorrectly debited the bank account of Jake’s
Computer Sale and Repair for $560. This amount in fact relates
to a check drawn on the account of a different business, Jack’s
Car Sales and Repairs.

9. Requirement 1
Prepare the bank reconciliation of Jake’s Computer Sale and
Repair as of May 31, 20x1. Complete the following:
Jake’s Computer Sale and Repair
Bank Reconciliation
May 31, 20x1
Bank Statement:
Balance, May 31, 20x1
Add:
Less:
Adjusted Bank Balance at May 31, 20x1

10. Books of Jake’s Computer Sale and Repair:
Balance, May 31,20x1
Add:
Less:
Adjusted Book Balance at May 31, 20x1
Requirement 2
Make the journal entries necessary to reconcile the cash account
with the bank statement.
DATE
DETAILS

11. DEBIT
CREDIT
5/31/x1
Account receivable collected by bank
5/31/x1
To record interest received on bank balance
5/31/x1

12. To record bank service charge
Requirement 1, continued
DATE
DETAILS
DEBIT
CREDIT
5/31/x1
Account receivable collected by bank

13. Requirement 3
Dave is presently a part-time employee at Jake’s Computer Sale
and Repair. Dave’s responsibilities include receiving and
handling inventory and serving as the cashier when Jake is
unavailable. Jake presently makes all the entries into the
accounting records for the business and prepares the financial
statements.
Jake is impressed with Dave’s work ethic and apparent
trustworthiness, and offered Dave a full-time position.
The volume of transactions is increasing significantly as the
business grows, and Jake is having trouble keeping up with all
the day to day accounting work. Jake considers expanding
Dave’s responsibilities to include journalizing all sales and
inventory-related transactions. Identify the internal control
issues that could arise if Dave’s duties were to include making
journal entries for transactions, in addition to his current duties.
Provide one examples of an internal control problem that could
arise and suggest a solution to that problem.
1
Project Part 1: The Accounting Cycle
Karen Harris starts her own scooter retail business, City Rides,
on December 1, 20x2. The business operates as a proprietorship
from a rented space near a busy downtown area. Harris hires
Jim Waters as the sales associate and assistant manager of the

14. business. The following transactions take place during
December 20x2.
Transactions
Dec. 1
Harris deposits $45,000 into the business bank account. In
exchange, she receives capital in the proprietorship.
|X|
1
Harris writes and mails check #001 for $2,400 for rent. The rent
payment covers rent for the three months ended February 28,
20x2.
|X|
2
Harris purchases office equipment for $1,800 by check #002.
|_|
2
Harris purchases office supplies for $420 by check #003.
|_|
2
Harris purchases 20 Model X mopeds at $500 each and 15
Model L mopeds at $800 each, costing a total of $22,000, on
account from a supplier, Fun Brands:
· Harris elects to use the first-in-first-out (FIFO) method to
account for inventory.
· Fun Brands provides an invoice with the following terms: 2/10
net 30.
|_|
9
In the first week of operation, City Rides sells 16 Model X
mopeds at $750 each: 10 are sold on account, and the rest are
sold for cash.
|_|
12
City Rides makes payment to Fun Brands in full settlement of
accounts payable by check #004. Payment is net of the purchase

15. discount. Hint: The terms are 2/10 net 30, and any purchase
discount received reduces the cost of inventory.
|_|
13
City Rides purchases 10 Model X mopeds from Fun Brands on
account at a cost of $520 each.
|_|
16
The sales for the week are as follows: 6 Model X mopeds sold
on account for $750 each—inventory cost accounted using the
FIFO method.
|_|
18
Cash receipts from customers on accounts receivable are
$7,100.
|_|
30
Sales for the rest of December are as follows: 2 Model L
mopeds sold for cash for $1,100 each.
|_|
30
Harris receives the utilities bill for December 20X2 for $650,
still payable at month end.
|_|
30
Harris pays wages amounting to $1,800 by check #005.
|_|
30
Harris withdraws $2,500 in cash.
|_|

16. The Chart of Accounts
The ledger of City Rides is composed of the following accounts.
Classify each account by account type. Choose from among the
following items:
Asset Contra-asset Liability Owner’s equity
Account Name
Account Type
Cash
Accounts Receivable
Supplies
Prepaid Rent
Inventory
Office Equipment
Accumulated Depreciation—Office Equipment
Accounts Payable
Capital—Harris

17. Withdrawals—Harris
Income Summary
Sales Revenue
Cost of Goods Sold
Wages Expense
Rent Expense
Depreciation Expense—Office Equipment
Supplies Expense
Complete the following schedule to track the purchase and sale
of inventory items during December 20x2. Use the FIFO method
to account for the cost of goods sold. The first inventory
purchase and sale are included as an example.
MODEL X
MODEL L
Date
Purchase (sale)
Quantity
Cost per unit
Total
Date
Purchase (sale)
Quantity
Cost per unit
Total
Dec. 2
Purchase

18. 20
$500
$10,000
Dec. 2
purchase
15
$800
$12,000
9
(Sale)
(16)
$500
($8,000)
30
13
16

19. 16
Task 1: Making Journal Entries
Journalize the transactions for December 20x2. The first three
transactions are journalized already. Use the following template
to make journal entries and check off transactions as they are
entered, using the check boxes. Double-click each check box
and select “checked” in the dialog box. Click the OK button to
check.
Date
Account and Explanation
Debit
Credit
Dec 1
Cash

20. $45,000
Capital
$45,000
To record owner contribution
1
Prepaid Rent
$2,400
Cash
$2,400
To record prepaid expense

23. Date

24. Account and Explanation
Debit
Credit

27. AC1220 ACCOUNTING I
Project Part 1
Page 1
Task 2: Using the Accounting Worksheet
Adjustments
Dec. 31
Depreciation on office equipment, $360
|_|
31
Supplies used, $300
|_|
31
Recognized rent expense—prepaid rent account
|_|
Complete the worksheet provided on the next page by making
the adjustments described. Compute adjusted trial balance
amounts and enter account balances into the income statement
and balance sheet columns, where necessary.
City Rides

28. Accounting Worksheet
For the Month Ended Dec. 31 20x2
Account
Trial Balance
Adjustments
Adjusted Trial Balance
Income Statement
Balance Sheet
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Cash
$19,020
Accounts Receivable
12,000

29. Prepaid Rent
2,400
Supplies
420
Inventory
15,720

30. Office Equipment
1,800
Accumulated Depreciation—Office Equipment
-
Accounts Payable
$5,850
Capital—Harris

31. 45,000
Withdrawals—Harris
2,500
Sales Revenue
16,500
Cost of Goods Sold
11,040

32. Wages Expense
1,800
Rent Expense
-
Depreciation Expense—Office Equipment
-

33. Utilities Expense
650
Supplies Expense
-
Total
$67,350
$67,350

34. Net Income
TOTAL
Task 3: Preparing Financial Statements and Closing the
Accounts
Using the following adjusted trial balance amounts, prepare the
income statement, the statement of owner’s equity, and the
balance sheet of City Rides for the month ended December 31,
20x2.
City Rides
Trial Balance
December 31, 20x2
Account
Debit

35. Credit
Cash
$19,020
Accounts Receivable
12,000
Prepaid Rent
1,600
Supplies
120
Inventory
15,720
Office Equipment
1,800
Accumulated Depreciation—Office Equipment
360
Accounts Payable
5,850
Capital—Harris
45,000
Withdrawals—Harris
2,500
Sales Revenue
16,500
Cost of Goods Sold
11,040

36. Wages Expense
1,800
Rent Expense
800
Depreciation Expense—Office Equipment
360
Utilities Expense
650
Supplies Expense
300
$67,710
$67,710
City Rides
Income Statement
For the Year Ended December 20x2
Sales Revenue
Less Expenses:

37. Net Income
Preparing Financial Statements
City Rides
Statement of Owner’s Equity
For the Year Ended December 20x2
Beginning Capital
Ending Capital, Harris
City Rides
Balance Sheet
December 31, 20x2
Assets

38. Liabilities
Owner’s Equity

39. Total Assets
Total Liabilities and Owner’s Equity
Closing Temporary Accounts
Using the journal template given, make the following closing
entries. Use the revenue, expense, and withdrawals balances
given before.
Closing Entries
31
Closed Sales Revenues to Income Summary Account
|_|
31
Closed Expense Accounts to Income Summary Account
|_|
31
Closed Income Summary Account to Capital—Harris, Account
|_|
31
Closed Withdrawals—Harris Account to Capital Account
|_|
Date
Account and Explanation
Debit

40. Credit
Dec 31
To close sales revenue to income summary
31

41. To close expenses to income summary
31
To close income summary
30

42. To close withdrawals account
---End of Project Part 1---