Reference no: EM132221304
Accounting Cycle Exercise - McFudge & Associates Instructions
Overview - The Accounting Cycle Exercise is a role-play exercise. You are playing the role of accountant for a small business, McFudgc & Associates, started by an entrepreneur, Waldo Francis McFudge, in December 2016.
Instructions: (follows a typical accounting cycle)
1. Record the December transactions in the journal, post them to the ledger (pages 5-7) and calculate the account balances. Finally, prepare a trial balance as of Decanter 31" on the Work Sheet.
2. Complete the work Sheet:
a. Record the adjusting entries.
b. Prepare an adjusted trial balance.
3. Prepare financial statements in the following order:
a. Income Statement
b. Owner's Equity Statement
c. Balance Sheet
4. Record the adjusting entries in the journal and post same to the ledger. Update the account balances.
5. Record the closing entries in the journal (page 4) and post same to the ledger. Update the account balances.
6. Prepare a post-closing trial balance.
Please note the following:
1. All of the work sheets you need to complete this assignment are in an Excel file called McFudge, Working Papers. The mine work sheets are designed to fit the required work, no more or less. If you find yourself adding lines, you are probably doing something wrong, unnecessary, or you are misusing the forms.
2. Journalize and post each of the December entries simultaneously. After you post, make sure you update the balances in the affected accounts. You will reduce the chance of errors if you do it this way.
3. When you journalize, skip a line between each entry. Do not write an explanation after each transaction.
4. Use the Chart of Accounts to make sure you identify the right accounts in which to record the entries.
McFudge & Associates
On December 1st, 2016, Waldo Francis McFudge started an accounting services company called McFudge & Associates. Waldo adopted the calendar year for financial reporting purposes and expects to prepare the company's first set of financial statements as of December 31st, 2016 and for the one month ended thereon.
During December McFudge had the following transactions:
Date - Transaction
12/1 Waldo Francis McFudge invested $75,000 in his new company.
12/1 Waldo found an office and paid three months rent in advance, giving the landlord a check for $4,200.
12/2 Waldo bought a computer for $2,100. He financed the purchase by paying $500 cash and signing a $1,600 three-year promissory note.
12/5 Waldo paid $350 cash to purchase office supplies.
12/10 Waldo provided six hours of accounting services to Fanny Fruitcake and collected $1,200 cash.
12/11 Waldo provided eight hours of accounting services to Danny Doughnut on account. He gave Danny a $1,600 bill, payable by Danny in 30 days.
12/17 Emma Eclair paid Waldo $1,700 in advance to represent her in a tax dispute with the IRS.
12/29 Happy with his first month in business, Waldo withdrew $650 from the business.
After preparing the trial balance as of December 31st and confirming the ledger was in balance, McFudge's accountant gathered the following information prior to recording period-end adjusting entries:
(a) Waldo agreed to hire his wife Molly as his assistant at the beginning of the month. She reminded him that he owed her $900 for the month of December.
(b) Waldo remembered the rent he paid in advance on December 1st was for three months.
(c) When he bought the computer, Waldo assumed it had a useful life of three years and a salvage value of $300. Therefore, annual depreciation would be $600 and monthly depreciation would be $50.
(d) The note Waldo signed when he bought the computer bears interest at 6% per year and interest is payable quarterly, i.e. every three months. The first interest payment is due on February 28th, 2017. Annual interest on the note would be $96 and monthly interest would be $8.
(e) Waldo audited the supplies and determined there were supplies on hand with a cost of $244 as of December 31st.
(f) Based on a meeting he had with the IRS in late December, Waldo determined that he earned $1,000 of the advance payment he received from Emma Eclair.