Odd Falls Trading Company A Practice Problem

for ACC 2301 University of Houston - Downtown Profits on the sale of this practice set will be deposited in the Accounting Excellence Fund to benefit accounting and business students

INTRODUCTION
This short practice problem gives you, the student, an opportunity to practice the accounting concepts and skills acquired in an introductory financial accounting course. The objective of the practice problem is to have you complete a comprehensive example of the accounting cycle. You will evaluate transactions, use the general journal to record events, adjust the accounts, close the temporary accounts, maintain an ongoing general ledger, prepare a worksheet and prepare financial statements.
In following the instructions for the Practice Problem, keep in mind that an accountant prepares accounting records in a neat fashion and in proper format. If you prepare this practice set by hand, using a pencil for the accounting work gives you a better opportunity to maintain neat records.

COMPANY OPERATIONS
The Odd Falls Trading Company, a sole proprietorship owned by Max Gator, began operations at the beginning of the month in SmallTown, Texas. Odd Falls sells items such as small office machines, office supplies, magazines, make-up, hair products, etc. and is located in a new shopping mall. Odd Falls sells on account to some customers and on a cash basis to other customers. Odd Falls has retained you to install the companys manual accounting system, to implement the system, to maintain the companys accounting records, and to produce monthly financial statements. The accounting system for accounting records and financial statements includes the general journal, general ledger accounts, the worksheet, the Multiple-Step Income Statement, the Statement of Owners Equity, and the classified Balance Sheet. Additionally, Odd Falls has asked you to prepare the unadjusted trial balance, the adjusted trial balance, and the post-closing trial balance.

ACC 2301 OddFalls Practice Set

Information 1

Odd Falls Trading Company, continued

Odd Falls Trading Company specifies these accounting method choices: 1 -- use the gross method to record all purchases and all sales; 2 -- special journals or subsidiary ledger accounts are not yet needed; 3 -- do not make any provision for income taxes since this is the first month of operations; 4 -- use the perpetual inventory method ;
Hint: Determine the cost per unit for each inventory purchase.

5 -- record inventory cost valuation on a FIFO basis ; 6 -- use the accounts receivable method for computing bad debt expense; 7 -- take a full month of depreciation for assets purchased in the first half of the month; 8 -- take a half-month of depreciation for assets purchased in the second half of the month. REQUIREMENTS As the accountant for Odd Falls Trading Company, you must 1 -- Record the transactions for the month in the general journal. 2 -- Post the general journal entries to the general ledger accounts and also provide the proper referencing and running totals. 3 -- Prepare the trial balance, based on the ledger balances, before adjusting entries are made. 4 -- Prepare the worksheet. 5 -- Prepare any necessary adjusting journal entries to the general ledger accounts. 6 -- Post the adjusting journal entries to the general ledger accounts. 7 -- Prepare the adjusted trial balance, based on the ledger balances. 8 -- Prepare the closing journal entries as of the month end. 9 -- Post the closing journal entries to the general ledger accounts. 10 -- Prepare the post-closing trail balance, based on the ledger balances. 11 -- Prepare the financial statements, including the Multiple-step Income Statement Statement of Owner's Equity classified Balance Sheet

ACC 2301 OddFalls Practice Set

Information 2

Odd Falls Trading Company, continued

CHART OF ACCOUNTS Account Number
101 105 106 108 110 120 123 125 126 130 131 200 205 210 215 300 305 400 402 404 501 510 512 514 516 518 520 525 530 535 540

Account
Cash Accounts Receivable Allowance for Doubtful Accounts Inventory Office Supplies Prepaid Rent Prepaid Insurance Store Fixtures Accum. Depr.-Store Fixtures Office Equipment Accum. Depr.-Office Equipment Accounts Payable Salaries Payable Interest Payable Notes Payable Capital Withdrawals Sales Revenue Sales Returns and Allowances Sales Discounts Cost of Merchandise Sold Salaries Expense Freight-Out Depreciation Expense Rent Expense Bad Debts Expense Utilities Expense Supplies Expense Insurance Expense Interest Expense Bank Charges Expense

NOTE: All accounts are specified. Do not create any new accounts. List each account, in numerical order , in the general ledger. Each account listed on any trial balance or the worksheet should be listed in numerical order.

ACC 2301 OddFalls Practice Set

Information 3

Day 1

The Odd Falls Trading Company Max Gator contributes the following as start-up capital for The Odd Falls Trading Company Cash Equipment (to be depreciated on the straight-line basis) The equipment is estimated to last the following number of years The estimated salvage value at the end of the estimated life will be Max hires a store clerk to help with stocking of inventory and sales. Max will pay the clerk a monthly salary of Max has instituted a payroll process of paying employees on the first and fifteenth of each month. Odd Falls borrows cash from the Small Town Bank in the amount of. The loan is for one year at the following interest rate of Odd Falls finds rental space in the newest mall in town. Odd Falls pays M & M Realty the following rent for this month and the next four as well) Total months of initial lease Odd Falls pays cash to Office Depot for office supplies in the amount of Odd Falls orders inventory on credit from Texas Novelties with payment terms of 2/10, n/30. The order was for the following number of items The order cost for each item was The total order on account from Texas Novelties was After inspecting the inventory, Odd Falls returns the following number of items due to defects in quality Therefore, the total amount of inventory returned to Texas Novelties was Odd Falls will not expect a refund for any freight charges paid by Odd Falls related to this return of inventory After proper consideration of the discount terms, Odd Falls pays for the inventory purchased on account Odd Falls makes a sale on account to Valley High School (terms 2/10, n/30, FOB destination) The sale was for the following number of items The sale price for each item was The total sale on account to Valley High School was for

$ 40,000.00 $ 30,000.00 9 $ 3,000.00 $ 2,200.00

$ 50,000.00 4%

$ 10,000.00 5 $ 700.00

5 7

400 $ 30.00 $ 12,000.00 50 $ 1,500.00

14 15

300 $ 40.00 $ 12,000.00

ACC 2301 OddFalls Practice Set

Transactions 4

15

Odd Falls paid Cajun Shipping to ship the goods to Valley High. Odd Falls will not collect this from Valley. The amount paid to Cajun for the shipping cost was

90.00

15 16

Odd Falls paid the clerk hired back on the first of the month. Nothing was withheld from the clerk's salary payment. Odd Falls prepays American Republic Insurance Co. for an insurance policy lasting this number of months The amount paid to American for the liability and casualty coverage policy was Odd Falls buys store fixtures from Office Depot in the amount of Odd Falls made a cash down payment of The remaining balance placed on account with Office Depot was The equipment is estimated to last the following number of years The estimated salvage value at the end of the estimated life will be Odd Falls' fixtures will be depreciated on the double-declining-balance basis Max Gator withdraws the following amount of cash from the company account Odd Falls receives payment (after discount as appropriate) on the A/R with Valley High Odd Falls orders inventory on credit from Small Town Supply Company with payment terms of n/30. The order was for the following number of items The order cost for each item was The total order on account from Small Town Supply Company was When the inventory arrives, Odd Falls pays Small Town Shipping Company directly for the freight bill of Odd Falls makes a sale to the Nearby Shrine. The sale was for the following number of items The sale price for each item was Therefore, the total sale to the Nearby Shrine was for Cash received from Nearby Shrine at the time of the sale was The remaining balance placed on account (terms 2/10, n/30) with Nearby Shrine was Nearby Shrine returned this number of items for full refund; it did not have enough room to store the items. 3 $ 1,500.00 $ 20,000.00 $ 5,000.00 $ 15,000.00 5 $ 2,000.00

16

16 18 20

$ 2,500.00

600 $ 20.00 $ 12,000.00 $ 200.00

21 22

300 $ 40.00 $ 12,000.00 $ 8,000.00 $ 4,000.00 20

23

ACC 2301 OddFalls Practice Set

Transactions 5

26 31

Odd Falls receives a utility bill from Small Town Lighting and Power (due 7th of next month) in the amount of

250.00

Odd Falls received its current month's bank statement, which it was able to reconcile after identifying the following: Service charge by the bank in the amount of $ Fee for new accounts in the amount of $ Additional information as of the end of month includes: Office supplies on hand Physical count of inventory on hand of Max Gator estimates the following percentage of accounts receivable will be uncollectible
Remember that there may be other necessary adjustments in addition to those indicated above. Hint: The chart of accounts might indicate accounts requiring adjustments.

40.00 5.00

31

200.00 370 2%

***

ACC 2301 OddFalls Practice Set

Transactions 6

The Odd Falls Trading Company

General Journal Day Account Titles and Explanations Ref. Debit Credit

ACC 2301 OddFalls Practice Set

General Journal 7

The Odd Falls Trading Company

General Journal Day Account Titles and Explanations Ref. Debit Credit

ACC 2301 OddFalls Practice Set

General Journal 8

The Odd Falls Trading Company

General Journal Date Account Titles and Explanations Ref. Debit Credit

ACC 2301 OddFalls Practice Set

General Journal 9

The Odd Falls Trading Company

General Journal Date Account Titles and Explanations Ref. Debit Credit

ACC 2301 OddFalls Practice Set

General Journal 10

The Odd Falls Trading Company

General Ledger Account: CASH Day Explanation Ref. Debit Credit Acct. No: 101 Balance

Account: A/R Day Explanation Ref. Debit Credit

Acct. No: 105 Balance

ACC OddFalls Practice Set

General Ledger 11

The Odd FallsVariety Store

General Ledger Account: ADA Day Explanation Ref. Debit Credit Acct. No: 106 Balance

Account: Inventory Day Explanation Ref. Debit Credit

Acct. No: 108 Balance

Account: Office Supplies Day Explanation Ref. Debit Credit

Acct. No: 110 Balance

ACC OddFalls Practice Set

General Ledger 12

The Odd FallsVariety Store

General Ledger Account: Prepaid Rent Day Explanation Ref. Debit Credit Acct. No: 120 Balance

Account: Prepaid Insurance Day Explanation Ref. Debit Credit

Acct. No: 123 Balance

Account: Store Fixtures Day Explanation Ref. Debit Credit

Acct. No: 125 Balance

ACC OddFalls Practice Set

General Ledger 13

The Odd Falls Trading Company

General Ledger Account: A/D - Store Fixtures Day Explanation Ref. Debit Credit Acct. No: 126 Balance

Account: Office Equipment Day Explanation Ref. Debit Credit

Acct. No: 130 Balance

Account: A/D - Office Equipment Day Explanation Ref. Debit Credit

Acct. No: 131 Balance

ACC OddFalls Practice Set

General Ledger 14

The Odd Falls Trading Company

General Ledger Account: A/P Day Explanation Ref. Debit Credit Acct. No: 200 Balance

Account: Salaries/P Day Explanation Ref. Debit Credit

Acct. No: 205 Balance

Account: Interest/P Day Explanation Ref. Debit Credit

Acct. No: 210 Balance

ACC OddFalls Practice Set

General Ledger 15

The Odd Falls Trading Company

General Ledger Account: N/P Day Explanation Ref. Debit Credit Acct. No: 215 Balance

Account: Capital Day Explanation Ref. Debit Credit

Acct. No: 300 Balance

Account Withdrawals Day Explanation Ref. Debit Credit

Acct. No: 305 Balance

ACC OddFalls Practice Set

General Ledger 16

The Odd Falls Trading Company

General Ledger Account:Sales Revenue Day Explanation Ref. Debit Credit Acct. No:400 Balance

Account: Sales Returns & Allowances Day Explanation Ref. Debit Credit

Acct. No: 402 Balance

Account: Sales Discounts Day Explanation Ref. Debit Credit

Acct. No: 404 Balance

ACC OddFalls Practice Set

General Ledger 17

The Odd Falls Trading Company

General Ledger Account: Cost of Merchandise Sold Day Explanation Ref. Debit Credit Acct. No: 501 Balance

Account: Salaries Expense Day Explanation Ref. Debit Credit

Acct. No: 510 Balance

Account: Freight-Out Day Explanation Ref. Debit Credit

Acct. No: 512 Balance

ACC OddFalls Practice Set

General Ledger 18

The Odd Falls Trading Company

General Ledger Account: Depreciation Expense Day Explanation Ref. Debit Credit Acct. No: 514 Balance

Account: Rent Expense Day Explanation Ref. Debit Credit

Acct. No: 516 Balance

Account: Bad Debts Expense Day Explanation Ref. Debit Credit

Acct. No: 518 Balance

ACC OddFalls Practice Set

General Ledger 19

The Odd Falls Trading Company

General Ledger Account: Utilities Expense Day Explanation Ref. Debit Credit Acct. No: 520 Balance

Account: Supplies Expense Day Explanation Ref. Debit Credit

Acct. No: 525 Balance

Account: Insurance Expense Day Explanation Ref. Debit Credit

Acct. No: 530 Balance

ACC OddFalls Practice Set

General Ledger 20

The Odd Falls Trading Company

General Ledger Account: Interest Expense Day Explanation Ref. Debit Credit Acct. No: 535 Balance

Account: Bank Charges Expense Day Explanation Ref. Debit Credit

Acct. No: 540 Balance

Account: Income Summary Day Explanation Ref. Debit Credit

Acct. No: 999 Balance

ACC OddFalls Practice Set

General Ledger 21

The Odd Falls Trading Company Trial Balance End of Month One
Acct. No.

Account Titles

Debits

Credits

The Odd Falls Trading Company Adjusted Trial Balance End of Month One
Acct. No.

Account Titles

Debits

Credits

The Odd Falls Trading Company Post-Closing Trial Balance End of Month One
Acct. No.

Account Titles

Debits

Credits

The Odd Falls Trading Company

Worksheet End of Month One Trial Balance Acc. # Account Titles Debits Credits Adjustments Debits Credits
Adjusted Trial Balance

Income Statement Debits Credits

Balance Sheet Debits Credits

Debits

Credits

ACC 2301 OddFalls Practice Set

Worksheet 25

The Odd Falls Trading Company

INCOME STATEMENT For the ending of the first month

ACC OddFalls Practice Set

Financial Statements 26

The Odd Falls Trading Company

STATEMENT of CAPITAL [or OWNER'S EQUITY] For the ending of the first month

ACC OddFalls Practice Set

Financial Statements 27

The Odd Falls Trading Company

BALANCE SHEET For the first month

ACC OddFalls Practice Set

Financial Statements 28