Account Balances as of December 31, 2018
Debit Balance Credit Balance
100000 Bank Account $277,518
110100 Accounts Receivable (Direct Posting Account) 92,670
110150 Allowance for Bad Debts 2,500
200600 Inventory-Operating Supplies 8,832
200900 Inventory-Raw Materials (Direct Post) 52,000
200910 Inventory-Finished Goods (Direct Post) 281,298
200920 Inventory-Trading Goods (Direct Post) 66,474
210000 Prepaid Insurance 5,000
212000 Prepaid Advertising 1,100
220110 Land (Direct Post) 425,000
220210 Production Machinery, Equip & Fixtures (Dir.Post)915,000
220310 Accumulated Depreciation-Machinery (Direct Post)305,000
300200 Accounts Payable (Direct Posting Account) 48,000
300700 Payables-Salaries and Wages 94,313
300800 Accrued Expenses Payable 1,200
320000 Accrued Tax – Output 3,000
329000 Common Stock 1,000,000
329100 Additional Paid-in-Capital 52,870
330010 Retained Earnings (Direct Posting) 618,009
Events During January 2019
Event Date Description of Event
1 January 3 Employees are paid monthly on the first business dayof the month for work done in the previous month. (Ignore payrolltaxes for this assignment.) Accounting wrote and distributed thepaychecks.
2 GBI received $60,000 in safety product inventory and $40,000in raw materials from Dallas Bike Basics. This inventory wasordered on December 28. The payment terms for the invoice total of$100,000 are net 10 days. GBI paid the CWX shipping company $500with a manual check for the shipment of the goods. The bill oflading showed that the safety product inventory arrived in 6 boxeswith a total weight of 50 lbs. and the raw materials came on apallet and weighed 60 lbs. Shipping charges are allocated based onweight.
3 Windy City Bikes in Chicago, IL ordered $22,000 of bicycleaccessories from GBI. The cost of the accessories (to GBI) is$15,000. The goods were shipped to Windy City immediately via UPSusing Windy City’s UPS shipping number. The terms of payment forWindy City’s order are 3/10 net 30 days.
4 January 7 GBI received payment of $14,000 from Northwest Bikesin Seattle, WA for the balance due on their account.
5 January 10 GBI’s account on the utility company website isupdated at the end of each month when the meter is read. GBI usesthis data to accrue the expenses at the end of each month (in thiscase on December 31st.) This allows recognition of the expense inthe correct period. Expenses are usually accrued at the end of themonth as “Accrued Expenses”. GBI paid the December utility bill viathe company’s automatic electronic bill pay program.
6 GBI’s advertisement in the English language edition of ItalianCycling Journal was published today. This ad was prepaid at the endof July for six months of advertising, August through January,(Five months of advertising have already been used.)
7 January 11 The office manager in San Diego ordered $432 ofoffice (operating) supplies from Staples. While on the way backfrom a delivery, one of the warehouse staff picked up the Staplesorder and brought it to GBI’s office. GBI has an account withStaples and payment terms are net 10. Operating supplies expense isfigured at the end of the month determined by the amount ofsupplies used during the month.
8 GBI ordered $75000 in raw materials from Space Bike Compositesin Houston, TX. Terms of payment to Space Bikes are net 30.
9 GBI received payment from Windy City Bikes for their orderfrom January 3. Windy City paid the invoice amount less thediscount for paying within 10 days.
10 January 12 GBI paid $100,000 via bank transfer for theinventory order that they received from Dallas Bike Basics January3.
11 January 13 In order to better track inventory, GBI ordered abar-coding and tracking system which will be installed and testedby Computer Specialists, Inc. (CSI). The system will allowemployees to track inventory using mobile devices and specialsoftware which will link into their new computerized accountingsystem. The barcode system costs $6,000 (including sales tax) andCSI will charge GBI $1,300 for the installation and tests. GBI paida deposit of $2,000 on the system and the remainder is due andpayable when the system is installed. GBI will classify thebar-coding system as “Production Machinery, Equipment andFixtures”.
12 January 17 GBI paid an invoice from Lightbulb Accessory Kitsfor ordered goods that were received on December 20. The amount ofthe invoice from Lightbulb is $15,890 due net 30.
13 The city of Denver will be hosting a decathlon at the end ofFebruary. The event is expected to create demand for high qualitybikes. Rocky Mountain Bikes in Denver, CO placed an order with GBIfor $128,000 worth of bicycles to be delivered immediately. RockyMountain will pay the shipping. The bikes cost GBI $78000. GBIshipped the order immediately so that Rocky Mountain can startpromoting the bikes. Because Rocky Mountain is a good customer, GBIis giving them special terms of net 45 days on this order.
14 GBI received raw materials inventory ordered from Space BikeComposites January 11. Shipping charges of $600 were included inthe invoice from Space Bike.
15 GBI received notice that Bunky’s Bicycle Emporium haddeclared section 13 bankruptcy which meant GBI would not be able tocollect the $3,350 that Bunky’s owed them.
16 January 18 GBI received a $90,000 funds transfer from SiliconValley Bikes in Palo Alto for the balance due on their account.
17 January 19 GBI paid Staples for the office supplies theyreceived January 11.
18 SoCal Bikes in Irvine, CA placed an order for $2500 inbicycle helmets for a special event in February. The merchandisecost GBI $1,300. SoCal sent a truck to the GBI distribution centerin SanDiego, CA and picked up the merchandise directly from GBI’swarehouse. Terms of payment are net 30. (Don’t forget to chargesales tax of 6.00% for this order.)
19 January 24 Beantown Bikes in Boston, MA placed an order withGBI for $27,000 in bicycles. The cost of the bicycles is $17,000.Beantown Bikes is a new customer. Its buyers saw GBI’s booth at atrade show. Because Beantown is a new customer, they must eitherwait until their credit can be approved or pay for the order beforeGBI will ship the bikes to them.
20 January 25 GBI has been offered the opportunity to advertisein the Bicycle Times online magazine for a reduced price if theypay for three months in advance. In light of the upcoming Tour deFrance, the advertising is a great opportunity for GBI to getadditional recognition. The advertising will start in February. GBIwrote a check for $9,000 for three months of advertising.
21 January 26 GBI received notification from their bank thatBeantown Binkes had transferred funds into their account for theirprior order, so GBI’s warehouse personnel shipped Beantown’s order.Beantown will be responsible for paying Fed-X $400 for shipping theorder.
22 January 27 The county approved GBI’s building plans for theirnew warehouse. Estimated building costs are $1,100,000 which willbe funded via a mortgage from Bank of America. GBI plans to breakground on the new building April 18th of this year.
23 GBI sent a $31,000 check to Night Rider Aluminum Products foran order of bicycle parts GBI received December 30th.
24 Big Apple Bikes in New York City is expanding to anotherlocation in New York and needs to stock the new location. GBIreceived a phone order from Big Apple for $230,000 in bicycles and$108,500 in bicycle accessories and safety gear at special discountprices. The cost of the bicycles in this order is $170000 and thecost of the accessories is $65,000. Big Apple will have a contracttrucking company pick up the order when it is ready. The order issent to GBI’s warehouse for picking and packing, which may take acouple days. Payment terms to Big Apple for this order are net30.
25 January 31 GBI pays sales tax once a quarter via the state’selectronic filing and payment system. GBI filed its return and paidits sales tax for the quarter ending December 31.
26 GBI paid February’s rent of $4,000 for the office andwarehouse space in San Diego.
27 CSI installed and tested the new barcode system. Thewarehouse manager approved the installation and commented that shethinks it works great. GBI wrote a check to CSI for the balanceowed and gave it to the installer.
28 Big Apple’s truck arrived at GBI’s warehouse and picked upthe order from January 27th.
Adjustment information as of January 31, 2019 not already givenin the original transaction(s):
1. Based on prior experience, GBI estimates that approximately 2% of the accounts receivable balance will become bad debt. GBIwrites off bad debts as they occur and recognizes bad debt expensebased on analyzing accounts receivable as an adjusting entry eachmonth.
2. As a control measure, physical inventories are taken on aperiodic basis alternating between the raw materials inventory,finished goods inventory and trading goods inventory. Physicalinventory of the finished goods inventory was taken at the end ofJanuary. It was determined that the value of the finished goodsmerchandise on hand was $17,000.
3. GBI counted the office (operating) supplies on hand after theclose of business on the last day of the month and determined thecost of the unused office supplies to be $1000.
4. Production Machinery, Equipment and Fixtures were placed inservice on January 1, 2014, with an expected service life of 15years and no salvage value. The bar-code system has a 5-year lifeand no salvage value. GBI depreciates fixed assets on astraight-line basis and those assets acquired in the first half ofthe months are depreciated for the entire month, while fixed assetsplaced in service during the last half of the month are notdepreciated until the second month. Depreciation is rounded to thenearest dollar and assets are depreciated on a monthly basis (i.e.number of days in the month is not of consequence).
5. GBI used the Internet to review the monthly charges forutilities the business consumed during January. Based on theInternet report, the amount to be billed by the utilities companyfor January usage is the same as was billed for December.
6. Liability insurance for the six-month period ending onFebruary 28, 2019 was paid last September on the first of themonth. Liability insurance is assumed to be utilized uniformly overthe six-month policy period.
7. GBI needs to recognize the wages expense for the month. Sinceall employees are paid salaries and no changes have been made, thisamount is the same as the previous month salaries. (For purposes ofthis assignment, ignore manufacturing and assume all labor costswill be expensed.)
