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The Colo Company Assume it is Monday, May 1, the first business day of the month, and you have just been hired as the accountant for Colo Company, which operates with monthly accounting periods
The Colo Company
Assume it is Monday, May 1, the first business day of the month, and you have just been hired as the accountant for Colo Company, which operates with monthly accounting periods. All of the company's accounting work is completed through the end of April and its ledgers show April 30 balances.
During your first month on the job, the company experiences the following transactions and events (terms for all its credit sales are 2_10, n_30 unless stated differently):
May 1 Issued Check No. 3410 to S&P Management Co. in payment of the May rent, $3,710. (Use two lines to record the transaction. Charge 80% of the rent to Rent Expense?Selling Space and the balance to Rent Expense?Office Space.)
2 Sold merchandise on credit to Hensel Company, Invoice No. 8785, for $6,100 (cost is $4,100). 2 Issued a $175 credit memorandum to Knox, Inc., for defective (worthless) merchandise sold on April 28 and returned for credit. The total selling price (gross) was $4,725.
3 Received a $798 credit memorandum from Peyton Products for the return of merchandise purchased on April 29.
4 Purchased the following on credit from Gear Supply Co.: merchandise, $37,072; store supplies, $574; and office supplies, $83. Invoice dated May 4, terms n_10 EOM.
5 Received payment from Knox, Inc., for the balance from the April 28 sale less the May 2 return and the discount.
8 Issued Check No. 3411 to Peyton Products to pay for the $7,098 of merchandise purchase on April 29 less the May 3 return and a 2% discount.
9 Sold store supplies to the merchant next door at their cost of $350 cash.
10 Purchased $4,074 of office equipment on credit from Gear Supply Co., invoice dated May 10, terms n_10 EOM.
11 Received payment from Hensel Company for the May 2 sale less the discount.
11 Purchased $8,800 of merchandise from Garcia, Inc., invoice dated May 10, terms 2_10, n_30.
12 Received an $854 credit memorandum from Gear Supply Co. for the return of defective office equipment received on May 10.
15 Issued Check No. 3412, payable to Payroll, in payment of sales salaries, $5,320, and office salaries, $3,150. Cashed the check and paid the employees.
15 Cash sales for the first half of the month are $59,220 (cost is $38,200). (Cash sales are recorded daily but are recorded only twice here to reduce repetitive entries.)
15 Post to the customer and creditor accounts. Also post individual items that are not included in column totals at the end of the month to the general ledger accounts. (Such items are posted daily but are posted only twice each month because they are few in number.)
16 Sold merchandise on credit to Hensel Company, Invoice No. 8786, for $3,990 (cost is $1,890).
17 Purchased $13,650 of merchandise from Fink Corp., invoice dated May 14, terms 2_10,n_60.
19 Issued Check No. 3413 to Garcia, Inc., in payment of its May 10 invoice less the discount.
22 Sold merchandise to Lee Services, Invoice No. 8787, for $6,850 (cost is $4,990), terms 2_10, n_60.
23 Issued Check No. 3414 to Fink Corp. in payment of its May 14 invoice less the discount.
24 Purchased the following on credit from Gear Supply Co.: merchandise, $8,120; store supplies, $630; and office supplies, $280. Invoice dated May 24, terms n_10 EOM.
25 Purchased $3,080 of merchandise from Peyton Products, invoice dated May 23, terms 2_10, n_30.
26 Sold merchandise on credit to Crane Corp., Invoice No. 8788, for $14,210 (cost is $8,230).
26 Issued Check No. 3415 to Perennial Power in payment of the May electric bill, $1,283.
29 The owner of Colo Company, Jenny Colo, used Check No. 3416 to withdraw $7,000 cash from the business for personal use.
30 Received payment from Lee Services for the May 22 sale less the discount.
30 Issued Check No. 3417, payable to Payroll, in payment of sales salaries, $5,320, and office salaries, $3,150. Cashed the check and paid the employees.
31 Cash sales for the last half of the month are $66,052 (cost is $42,500).
31 Post to the customer and creditor accounts. Also post individual items that are not included in column totals at the end of the month to the general ledger accounts. Foot and crossfoot the journals and make the month-end postings.
Required
1. Enter these transactions in a sales journal, a purchases journal, a cash receipts journal, a cash disbursements journal, or a general journal as illustrated in this chapter. Post when instructed to do so. Assume a perpetual inventory system.
2. Prepare a trial balance in the Trial Balance columns of the work sheet form provided with the working papers. Complete the work sheet using the following information for accounting adjustments:
a. Expired insurance, $553.
b. Ending store supplies inventory, $2,632.
c. Ending office supplies inventory, $504.
d. Depreciation of store equipment, $567.
e. Depreciation of office equipment, $329.
Prepare and post adjusting and closing entries.
3. Prepare a May 2005 multiple-step income statement, a May 2005 statement of owner's equity, and a May 31, 2005, classified balance sheet.
4. Prepare a post-closing trial balance. Also prove the accuracy of subsidiary ledgers by preparing schedules of both accounts receivable and accounts payable.
Expert Solution
In this project, follow the steps of the accounting cycle to process given transactions in a business environment. Then, synthesize special journals, a trial balance, financial statements
and a post-closing trial balance.
COLO COMPANY
Sales Journal
COGS
Inv. Trans. Debit
Date Account Debited No. No. Amount Inv. Credit
May 2 Hensel Company 8785 83 6,100 4,100
16 Hensel Company 8786 84 3,990 1,890
22 Lee Services 8787 85 6,850 4,990
26 Crane Corp. 8788 86 14,210 8,230
31 Totals 31,150 19,210
COLO COMPANY
Purchases Journal
Accounts Office Other
Inv. Trans. Payable Inventory Supplies Accounts
Date Account Date Terms No. Credit Debit Debit Debit
May 2 Store Supp./Gear Supp. 5/4 n/10, EOM 78 37,729 37,072 83 574
10 Off. Equip./Gear Supp. 5/10 n/10, EOM 79 4,074 4,074
11 Garcia, Inc. 5/10 n/30, n/30 80 8,800 8,800
17 Fink Corp. 5/14 2/10, n/60 81 13,650 13,650
24 Store Supp./Gear Supp. 5/24 n/10, EOM 82 9,030 8,120 280 630
25 Peyton Products 5/23 2/10, n/30 83 3,080 3,080
31 Totals 76,363 70,722 363 5,278
COLO COMPANY
Cash Receipts Journal
Sales Accts. Other COGS
Trans. Cash Discount Recv. Sales Accts. Debit
Date Account Cr. Explanation No. Debit Debit Credit Credit Credit Inv. Credit
May 5 Knox, Inc. Sale of April 28 81 4,459 91 4,550
9 Store Supplies Sold store supplies 82 350 350
11 Hensel Company Sale of May 2 83 5,978 122 6,100
15 Sales Cash sales, 84 59,220 59,220 38,200
May 1-15
30 Lee Services Sale of May 22 85 6,713 137 6,850
31 Sales Cash Sales, 86 66,052 66,052 42,500
May 16-31
31 Totals 142,772 350 17,500 125,272 350 80,700
COLO COMPANY
Cash Disbursements Journal
Purch. Other Accts.
Check Account Trans. Cash Disc. Accts. Pay.
Date No. Payee Debited No. Credit Credit Debit Debit
May 1 3410 S&P Mgmt. Co. Rent Exp., Selling 76 2,968 2,968
Rent Exp., Office 742 742
8 3411 Peyton Products Peyton Products 77 6,174 126 6,300
15 3412 Payroll Sales Salaries Exp. 78 5,320 5,320
Office Salaries Exp. 3,150 3,150
19 3413 Garcia, Inc. Garcia, Inc. 79 8,624 176 8,800
23 3414 Fink Corp. Fink Corp. 80 13,377 273 13,650
26 3415 Perennial Power Utilities Exp. 81 1,283 1,283
29 3416 Jenny Colo J. Colo, Withdrawals 82 7,000 7,000
30 3417 Payroll Sales Salaries Exp. 83 5,320 5,320
Office Salaries Exp. 3,150 3,150
Totals 57,108 575 28,933 28,750
COLO COMPANY
General Journal
Trans.
Date Description No. Debit Credit
May 2 Sales Returns and Allowances 65 175
Accounts Receivable-Knox, Inc. 175
3 Accounts Payable-Peyton Products 66 798
Inventory 798
12 Accounts Payable-Gear Supply Co. 67 854
Office Equipment 854
Adjusting entries
May 31 Insurance Expense 68 553
Prepaid Insurance 553
31 Store Supplies Expense 69 669
Store Supplies 669
31 Office Supplies Expense 70 289
Office Supplies 289
31 Depreciation Expense, Store Equip. 71 567
Accumulated Depr., Store Equip. 567
31 Depreciation Expense, Office Equip. 72 329
Accumulated Depr., Office Equip. 329
Closing entries
May 31 Income Summary 73 124,775
Sales Discounts 350
Sales Returns and Allowances 175
Cost of Goods Sold 99,910
Depr. Expense, Office Equipment 329
Depr. Expense, Store Equipment 567
Office Salaries Expense 6,300
Sales Salaries Expense 10,640
Insurance Expense 553
Rent Expense, Office Space 742
Rent Expense, Selling Space 2,968
Office Supplies Expense 289
Store Supplies Expense 669
Utilities Expense 1,283
31 Sales 74 156,422
Income Summary 156,422
31 Income Summary 75 31,647
J. Colo, Capital 31,647
31 J. Colo, Capital 76 7,000
J. Colo, Withdrawals 7,000
COLO COMPANY
General Ledger
Cash Account No. 101
Trans.
Date Item no. Debit Credit Balance
Apr. 30 Balance 50,247
May 31 CRJ 142,772 193,019
31 CDJ 57,108 135,911
Accounts Receivable Account No. 106
Trans.
Date Item no. Debit Credit Balance
Apr. 30 Balance 4,725
May 2 JG65 175 4,550
31 SJ 31,150 35,700
31 CRJ 17,500 18,200
Merchandise Inventory Account No. 119
Trans.
Date Item no. Debit Credit Balance
Apr. 30 Balance 220,080
May 31 GJ66 798 219,282
31 CDJ 575 218,707
31 PJ 70,722 289,429
31 CRJ 80,700 208,729
31 SJ 19,210 189,519
Office Supplies Account No. 124
Trans.
Date Item no. Debit Credit Balance
Apr. 30 Balance 430
May 31 PJ 363 793
31 GJ70 289 504
Store Supplies Account No. 125
Trans.
Date Item no. Debit Credit Balance
Apr. 30 Balance 2,447
May 4 PJ78 574 3,021
9 CR82 350 2,671
24 PJ82 630 3,301
31 GJ69 669 2,632
Prepaid Insurance Account No. 128
Trans.
Date Item no. Debit Credit Balance
Apr. 30 Balance 3,318
May 31 GJ68 553 2,765
Office Equipment Account No. 163
Trans.
Date Item no. Debit Credit Balance
Apr. 30 Balance 22,470
May 10 PJ79 4,074 26,544
12 GJ67 854 25,690
Accumulated Depreciation, Office Equipment Account No. 164
Trans.
Date Item no. Debit Credit Balance
Apr. 30 Balance 9,898
May 31 GJ72 329 10,227
Store Equipment Account No. 165
Trans.
Date Item no. Debit Credit Balance
Apr. 30 Balance 38,920
Accumulated Depreciation, Store Equipment Account No. 166
Trans.
Date Item no. Debit Credit Balance
Apr. 30 Balance 17,556
May 31 GJ71 567 18,123
Accounts Payable Account No. 201
Trans.
Date Item no. Debit Credit Balance
Apr. 30 Balance 7,098
May 3 GJ66 798 6,300
12 GJ67 854 5,446
31 PJ 76,363 81,809
31 CDJ 28,750 53,059
Jenny Colo, Capital Account No. 301
Trans.
Date Item no. Debit Credit Balance
Apr. 30 Balance 308,085
May 31 GJ75 31,647 339,732
31 GJ76 7,000 332,732
Jenny Colo, Withdrawals Account No. 302
Trans.
Date Item no. Debit Credit Balance
May 29 CD82 7,000 7,000
31 GJ76 7,000 0
Sales Account No. 413
Trans.
Date Item no. Debit Credit Balance
May 31 SJ 31,150 31,150
31 CRJ 125,272 156,422
31 GJ74 156,422 0
Sales Returns & Allowances Account No. 414
Trans.
Date Item no. Debit Credit Balance
May 2 GJ65 175 175
31 GJ73 175 0
Sales Discounts Account No. 415
Trans.
Date Item no. Debit Credit Balance
May 31 CRJ 350 350
31 GJ73 350 0
Depreciation Expense, Ofc. Equipment Account No. 612
Trans.
Date Item no. Debit Credit Balance
May 31 GJ72 329 329
31 GJ73 329 0
Depreciation Expense, Store Equipment Account No. 613
Trans.
Date Item no. Debit Credit Balance
May 31 GJ71 567 567
31 GJ73 567 0
Office Salaries Expense Account No. 620
Trans.
Date Item no. Debit Credit Balance
May 15 CD78 3,150 3,150
30 CD83 3,150 6,300
31 GJ73 6,300 0
Sales Salaries Expense Account No. 621
Trans.
Date Item no. Debit Credit Balance
May 15 CD78 5,320 5,320
30 CD83 5,320 10,640
31 GJ73 10,640 0
Insurance Expense Account No. 637
Trans.
Date Item no. Debit Credit Balance
May 31 GJ68 553 553
31 GJ73 553 0
Rent Expense, Office Space Account No. 641
Trans.
Date Item no. Debit Credit Balance
May 1 CD76 742 742
31 GJ73 742 0
Rent Expense, Selling Space Account No. 642
Trans.
Date Item no. Debit Credit Balance
May 1 CD76 2,968 2,968
31 GJ73 2,968 0
Office Supplies Expense Account No. 650
Trans.
Date Item no. Debit Credit Balance
May 31 GJ70 289 289
31 GJ73 289 0
Store Supplies Expense Account No. 651
Trans.
Date Item no. Debit Credit Balance
May 31 GJ69 669 669
31 GJ73 669 0
Utilities Expense Account No. 690
Trans.
Date Item no. Debit Credit Balance
May 26 CD81 1,283 1,283
31 GJ73 1,283 0
Income Summary Account No. 901
Trans.
Date Item no. Debit Credit Balance
May 31 GJ73 124,684 124,684
31 GJ74 156,422 31,738
31 GJ75 31,738 0
COLO COMPANY
Accounts Receivable Ledger
Crane Corp.
Trans.
Date Item no. Debit Credit Balance
May 26 SJ86 14,210 14,210
Hensel Company
Trans.
Date Item no. Debit Credit Balance
May 2 SJ83 6,100 6,100
11 CR83 6,100 0
16 SJ84 3,990 3,990
Knox, Inc.
Trans.
Date Item no. Debit Credit Balance
Apr. 28 4,725
May 2 GJ65 175 4,550
5 CR81 4,550 0
Lee Services
Trans.
Date Item no. Debit Credit Balance
May 22 SJ85 6,850 6,850
30 CR85 6,850 0
COLO COMPANY
Accounts Payable Ledger
Fink Corp.
Trans.
Date Item no. Debit Credit Balance
May 17 PJ81 13,650 13,650
23 CD80 13,650 0
Garcia, Inc.
Trans.
Date Item no. Debit Credit Balance
May 11 PJ80 8,800 8,800
19 CD79 8,800 0
Peyton Products
Trans.
Date Item no. Debit Credit Balance
Apr. 29 PJ 7,098
May 3 JG66 798 6,300
8 CD77 6,300 0
25 PJ83 3,080 3,080
Gear Supply Co.
Trans.
Date Item no. Debit Credit Balance
May 4 PJ78 37,729 37,729
10 PJ79 4,074 41,803
12 GJ67 854 40,949
24 PJ82 9,030 49,979
COLO COMPANY
Work Sheet
For Month Ended May 31, 2005
Balance Sheet
Unadjusted Income or Statement
Trial Balance Adjustments Statement of Owner's Equity
Account Debit Credit Debit Credit Debit Credit Debit Credit
Cash 135,911 135,911
Accounts receivable 18,200 18,200
Merchandise inventory 189,519 189,519
Office supplies 793 289 504
Store supplies 3,301 669 2,632
Prepaid insurance 3,318 553 2,765
Office equipment 25,690 25,690
Accum. depr., office equip. 9,898 329 10,227
Store equipment 38,920 38,920
Accum. depr., store equip. 17,556 567 18,123
Accounts payable 53,059 53,059
J. Colo, Capital 308,085 7,000 301,085
J. Colo, Withdrawals 7,000 7,000
Sales 156,422 156,422
Sales discounts 350 350
Sales returns and allowances 175 175
Cost of goods sold 99,910 99,910
Depr. expense, office equip. 329 329
Depr. expense, store equip. 567 567
Office salaries expense 6,300 6,300
Sales salaries expense 10,640 10,640
Insurance expense 553 553
Rent exp., office space 742 742
Rent exp., selling space 2,968 2,968
Office supplies expense 289 289
Store supplies expense 669 669
Utilities expense 1,283 1,283
Totals 545,020 545,020 9,407 9,407 124,775 156,422 414,141 382,494
Net income 31,647 31,647
Totals 156,422 156,422 414,141 414,141
COLO COMPANY
Income Statement
For Month Ended May 31, 2005
Revenue:
Sales $156,422
Less: Sales discounts $350
Sales returns and allowances 175 525
Net sales $155,897
Less: Cost of goods sold 99,910
Gross profit on sales $55,987
Operating expenses:
Selling expenses:
Depreciation expense, store equipment $567
Sales salaries expense 10,640
Rent expense, selling space 2,968
Store supplies expense 669
Total selling expenses $14,844
General and administrative expenses:
Depreciation expense, office equipment $329
Office salaries expense 6,300
Insurance expense 553
Rent expense, office space 742
Office supplies expense 289
Utilities expense 1,283
Total general and administrative expenses 9,496
Total operating expenses 24,340
Net income $31,647
COLO COMPANY
Statement of Owner's Equity
For Month Ended May 31, 2005
Jenny Colo, Capital, April 30, 2005 $308,085
Plus: Net income 31,647
Total $339,732
Less: Withdrawals by owner 7,000
Jenny Colo, Capital, May 31, 2005 $332,732
COLO COMPANY
Balance Sheet
May 31, 2005
Assets
Current assets:
Cash $135,911
Accounts receivable 18,200
Merchandise inventory 189,519
Office supplies 504
Store supplies 2,632
Prepaid insurance 2,765
Total current assets $349,531
Plant assets:
Office equipment 25,690
Less accumulated depreciation 10,227 15,463
Store equipment 38,920
Less accumulated depreciation 18,123 20,797
Total plant assets 36,260
Total assets $385,791
Liabilities
Current liabilities:
Accounts payable $53,059
Owner's Equity
Jenny Colo, Capital 332,732
Total liabilities and equity $385,791
COLO COMPANY
Post-Closing Trial Balance
May 31, 2005
Debit Credit
Cash $135,911
Accounts receivable 18,200
Merchandise inventory 189,519
Office supplies 504
Store supplies 2,632
Prepaid insurance 2,765
Office equipment 25,690
Accum. depr., office equipment $10,227
Store equipment 38,920
Accum. depr., store equipment 18,123
Accounts payable 53,059
Jenny Colo, Capital 332,732
Totals $414,141 $414,141
COLO COMPANY
Schedule of Accounts Receivable
May 31, 2005
Crane Corp. $14,210
Hensel Company 3,990
Total accounts receivable $18,200
COLO COMPANY
Schedule of Accounts Payable
May 31, 2005
Peyton Products $3,080
Gear Supply Co. 49,979
Total accounts payable $53,059
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