Objectives: Demonstrate application of accounting concepts pertaining to a service company, including the following:
selection of business form, journalization and posting of daily transactions, creation of unadjusted trial balance, adjustment of the accounts to properly report changes in balances, creation of financial statements, completion of the closing process with appropriate closing entries and posting to T accounts, determination of book value for fixed assets, and discussion of company’s financial position.
As you work through this problem please refer to the Penn State rules regarding Academic Integrity. It is very important that you cite your sources.
Part 1: 5% of Assignment Grade
Monica Porter loves photography and wants to start her own company. She is single, 26 years old, and lives in an apartment in Nicetown. She has a job as a clerk in a grocery store that currently pays her living expenses. Her dream is to be a portrait photographer specializing in events such as weddings, birthdays, graduations, etc. She has saved $10,000 to start this endeavor. She knows nothing about accounting and has hired you to provide her with accounting services as well as guidance in starting this business. This first task is to determine which business organization entity she should choose. Please explain the different business formats and which one you would suggest for her business, which will be named “Portraits by Porter” (PBP).
Part 2: 85% of Assignment Grade
Monica has followed your advice and on January 11, 2012, she deposited $10,000 into a business bank account for PBP and started pursuing her dream. It has been a hectic year, and in June Monica contacts you to ask your advice in helping her to determine whether she can leave the grocery store and work the photography business full time. She provides you with a list of the things that have happened during the past 6 months. She has applied for a small business loan of $25,000 and has been told by her banker that she needs a set of books (whatever that means) and financial statements (?) along with a listing of her fixed assets at book value. The banker told her that the books should be closed for the year as ended June 30, 2012, with corresponding financial statements.
1. Create the journal for the transactions and post these to the T accounts (45 pts).
2. Create the unadjusted trial balance (5 pts).
3. Make the necessary adjusted journal entries (6 pts).
4. Create the adjusted trial balance (5 pts).
5. Complete the financial statements: income statement, retained earnings, and balance sheet (15 pts).
6. Close the books using appropriate journal entries with T accounts (5 pts).
7. Determine the BV of the fixed assets (4 pts).
PART 3: 10% of assignment grade
Discuss the economic position of BPB and what you would advise Monica concerning her job at the grocery store.