MBA 502AFinancial Accounting Accounting Cycle Project (KidKare, Inc. 2012S)
You have been asked to do the bookkeeping for KidKare Inc. for the last few days of December while their regular bookkeeper is ill. KidKare Inc. began operations on July 1, 2011. It provides childcare services Monday through Friday, except for holidays. End of month adjusting entries have been made for July through November. No entries have been made since Friday, December 23rd. KidKare has a December 31st fiscal year end, but prepares monthly interim financial statements. Laken Henry, manager and principle shareholder, provides you with the following:
Trial Balance as of December 23, 2011
Ref. #
Account Title
Debit
Credit
101
Cash
$ 12,094
110
Accounts Receivable
240
112
Allowance for Uncollectible Accounts
$ 122
120
Supplies on Hand
1,025
135
Prepaid Insurance
420
145
Other Prepaids
150
150
Office Equipment
3,120
155
Accumulated DepreciationOffice Equipment
325
160
Play Equipment
9,200
165
Accumulated DepreciationPlay Equipment
375
170
Van
25,000
175
Accumulated DepreciationVan
1,600
190
KidKare Trademark
210
201
Accounts Payable
280
240
Income Taxes Payable
200
260
Notes Payable, 6% due through 2014
15,687
310
Common Stock, $1 par value (20,000 shares)
20,000
315
Additional Paid-in Capital
10,000
410
Childcare Revenue
60,600
425
Interest Revenue
61
515
Salaries & Wages Expense
42,500
525
Rent Expense
5,400
530
Utilities Expense
940
532
Insurance Expense
300
535
Supplies Expense
5,040
540
Bad Debt Expense
202
550
Depreciation Expense
2,300
560
Miscellaneous Expense
132
570
Interest Expense
427
580
Income Tax Expense
550
Totals
$109,250
$109,250
An examination of the Chart of Accounts revealed the following additional accounts:
140 Prepaid Rent
210 Revenue Received in Advance
215 Utilities Payable
220 Salaries & Wages Payable
235 Interest Payable
245 Dividends Payable
250 Other Short-term Obligations
340 Retained Earnings
380 Dividends
390 Income Summary
430 Miscellaneous Revenue
Information after December 24th:
a. On December 26, KidKare received $2,400 ($40 per day per child for 12 children for 5 days) from parents for child care services for the week of December 26 – 30.
b. On December 27, KidKare ordered 10 folding chairs for $28 each from Seats-Here Company to be delivered and paid for on January 2nd.
c. On December 28, KidKare paid $270 for the purchase of food snacks (supplies) for the children.
d. On December 28, KidKares Board of Directors declared a $.05 per share dividend on the 20,000 shares outstanding. The dividend will be paid on January 11, 2012.
e. On December 30, KidKare received a $200 check from the parents of one of the children for care the week of January 2th through 6th.
f. On December 30, KidKare paid $900 rent for the building for the month of January 2012.
g. On December 30, KidKare received the electricity bill of $230 for December. The bill was paid January 3, 2012.
h. On December 30, Kidcare noted that the parents of two children had not paid the $400 they owed for child care services for the week of December 26-30 ($40/day per child for five days). Kidcare billed the parents.
i. A physical count revealed $300 of supplies was left on hand on December 30.
j. On January 3, KidKare received and paid the phone bill of $72 for December.
k. On Monday, January 2, KidKare paid payroll of $1,200 in wages and $500 in salary for the week of December 26 through 30.
l. On January 4, KidKare received its December bank statement from National Sovereign Bank. The $10 monthly checking account fee had been deducted and the $4 of interest earned on its savings account had been added to KidKares accounts.
m. The December 23rd balance in Other Prepaids contains $150, paid December 1, for water and sewer service for the three months of December 2011, January 2012 and February 2012.
n. The van was purchased July 1, 2011 for $25,000 by paying $7,000 down in cash and signing a three-year, 6%, $18,000 note. The note requires monthly payments of $548 due by the 2nd of each month which includes the interest on the outstanding balance. The payments are made by automatic transfer on the 1st day of the month. The van has a 50,000 mile estimated useful life and an estimated salvage value of $5,000. KidKare uses the units of activity method of depreciation. The van was driven 600 miles in December.
o. The office equipment was put into use on July 1, 2011. It has a eight-year estimated useful life and a $300 estimated salvage value. Kidcare uses the double-declining balance method to depreciate it. (Round depreciation to the nearest month.)
p. The play equipment was purchased July 1, 2011. It has a ten-year estimated useful life and a $200 estimated salvage value. Kidcare depreciates it using the straight-line method. (Round depreciation to the nearest month.)
q. Prepaid Insurance represents the remaining seven months (December 2011 through June 2012) on a one-year liability policy purchased July 1, 2011 for $720.
r. KidKare estimates uncollectible accounts at .4% (or .004) of total childcare revenue. (Hint: Calculate bad debt expense for the entire six months. Then subtract the amount already recognized to calculate the amount to be added to bad debt expense for December.)
s. KidKare is subject to a 30% income tax rate on net earnings.
t. The December 23rd balance in Account Receivable is related to the care of two children, who abruptly stopped care in late November and whose home address is no longer valid. Attempts to collect are still being made.
u. The Account Payable amount is related to a supplies purchase made earlier in December. It is expected to be paid in early January.
v. For financial reporting purposes $5,792 of the remaining balance on the note is considered current, the rest is considered long-term.
Required: Using either the MS Word file provided or the MS Excel file provided. (Round all final results to the nearest dollar amount.)
1. Make the appropriate journal entries for December 24 through 31. Use journal page G15. (You may exclude explanations.)
2. Post the journal entries to the general ledger.
3. Journalize and post the adjusting entries. Use journal page G16. (Show calculations as the explanation in the journal.)
4. Prepare an adjusted trial balance as of December 31, 2011.
5. Prepare an Income Statement and Retained Earnings Statement for the six months fiscal period ending December 31, 2011 and a Balance Sheet as of December 31, 2011, in good form (including an income statement with operating income and income before taxes subtotals shown and a classified balance sheet).
6. Journalize and post closing entries for December 31, 2011. Use journal page G17.
7. Prepare a post-closing trial balance as of December 31, 2011.
8. Submit your journal, general ledger, adjusted trial balance, financial statements and post-closing trial balance to the Accounting Cycle Project dropbox by the due date.