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1
Financial Accounting I
Comprehensive Problem
After your last final this quarter you meet a student with whom you graduated high school.
You get to talking and find she is graduating this quarter in digital design. When she finds
out you have just finished financial accounting I she asks if you will help set up and keep
the books for her new company, Jessi’s Creative Design. Accounting was not included as
part of Jessi’s program and she really needs some help. You did very well in financial
accounting I and agree to get her started. Jessi will hire a CPA to file all tax forms and apply
with the IRS for a tax ID number. You will keep the books and monthly send them to the
CPA.
The first step is to create a chart of accounts. Number your account categories-assets 100,
liabilities 200, stockholders’ equity 300, revenue 400, and expense 500. Next, number the
accounts within the categories. Be sure to leave numbers open for when you need to add
accounts.
Use the following accounts in your chart of accounts:
• Cash
• Accounts receivable
• Equipment
• Prepaid subscriptions
• Supplies
• Accumulated depreciation-
equipment
• Prepaid advertising
• Accounts Payable
• Unearned revenue
• Common stock
• Retained earnings
• Dividends
• Sales
• Advertising expense
• Supplies expense
• Photo expense
• Depreciation expense
After Creative Design’s first month of operations your friend delivers to you a stack of
invoices, check stubs, receipts and her first VISA-Business bill. You must decipher these in
order to enter them into the accounts. After sorting through the source documents you
make a list of transactions for the first month, April:
1. Jessi invested her life savings in the company $10,000.
2. Jessi purchased from Best Buy a computer and printer/ fax/ copier and monitor and
software for $3500. She got a 12 month no interest credit arrangement and will
make monthly payments to Best Buy. You decide this will all be equipment.
3. Jessi set up a credit account with an office supply store for supplies, and purchased
supplies including printer paper, CDs, and ink for the printer for $200. Jessi gave you
the bill but she does not have to make a payment until month end.
4. Jessi purchased a comfortable desk chair from a department store for $250. You
decide this will be equipment.
7. Jessi’s CPA gave her some tax advice so she decided to develop a logo and other
advertising materials for her car and customers. She had them printed and had her
car painted with the new logo. This cost Jessi $500. You decide this will be expensed.
Financial Accounting I Comprehensive Problem |
2
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8. Jessi negotiated a business transaction with a local Mexican Restaurant just opening.
She will work on a logo, menu, and flyers. The restaurant owner paid $200 down to
be used against the first month’s bill. Jessi will bill the customer monthly based on
her hours worked on the account.
9. Jessi designed a flyer for a local bakery and was paid cash of $150.
12. Jessi designed a CD cover for a friend who is a drummer in a local band. She was
paid $400 for her work.
14. Jessi designed some POS material for a local coop market. She billed them for $500
for her work.
22. Jessi set up accounts to purchase stock photos for artwork and subscriptions $200.
This is a prepaid asset until Jessi uses the photos.
23. Jessi designed and set up a website, email account, etc for herself. She paid $240 to
register everything and will expense $20 per month against this amount.
24. Jessi wrote a check to herself to cover her rent and car insurance. $1,200.
Enter the above transactions into the journal and post them to the T accounts. Prepare an
adjusted trial balance.
Jessi is anxious to find out if she has earned any profit the first month of her operations.
You have to adjust the accounts to bring them up to date before you can prepare the
financial statements. Enter the following adjusting entries into a general journal. Post the
adjustments to the T accounts and prepare an adjusted trial balance.
1. The depreciation on the equipment is $104.
2. The supplies on hand at the end of the month are $150.
3. The balance in the subscriptions web site is $175.
4. The monthly amount for the web site and email account must be expensed.
5. Jessi determined she performed $1,000 worth of work for the Mexican restaurant.
6. Jessi made her first monthly payment on the computer to Best Buy, $292.
7. Jessi made a payment for supplies to staples of $75.
8. Jessi received a check from the local coop market for $250.
9. Jessi worked on a business card and logo for a local quilting shop. She did not finish
the work and there will be more work for this company so she billed them for 15
hours at $75 per hour.
Now that the adjusting entries have been completed, posted, and an adjusted trial balance
has been completed it is time to prepare the financial statements and go through the closing
process.
1. From the adjusted trial balance, prepare the Income Statement, Statement of
retained earnings, and Balance Sheet.
2. Prepare the closing entries. Post the closing entries to the T and prepare a post
closing trial balance.
- Month End Adjusting Entries
Financial Statements and Closing Process
Chart of
Account
s
| Assets | 100 | Liabilities | 200 | Stockholders’s Equity | 300 | Revenue | 400 | Expense | 500 |
T-
Accounts
| Hint: Check module 2 for instructions on journalizing, posting, and preparing the unadjusted trial balance | |||||
| Cash | Accounts Receivable | Supplies | PPD Subscriptions | Adv Exp | A/P |
| Equipment | Accum Dep-Equipment | PPD Adv | Sales | Supplies Exp | Unearn Rev |
| Commom Stock | Retained Earnings | Dividends | Deprec Exp | Photo Exp |
Journal
Entries
| Date | Post. Ref | Debit | Credit |
Unadjusted Trial Balance
Comp adj entries
| Hint: Check module 4 for examples of adjusting entries and the adjusted trial balance |
comp-adj TB
| Adjusted Trial Balance |
comp-FS
| Income Statement | Statement of Owner’s Equity | Balance Sheet |
comp-close ent
| Hint: Check modules 5 and 6 for statements and closing entries |
