Company Organization

File Away is a local Professional Organizing Company, specializing in decluttering your home, work, and living spaces. They offer consultation, coaching, and hands-on services, as well as provide organizing products like folders, containers, labels, worksheets, baskets, and more. Services can last anywhere from thirty minutes to eight hours, with both virtual sessions and in-home meetings available. Products are available online or at the brick-and-mortar shop located in the Albuquerque Metro area.

The company opened in June 2021 by owner Lidia File, who was always a neat freak. She grew up organizing her stuffed animals and begged her parents to buy her plastic containers to sort the rest of her toys. In college, her friends called her File Cabinet or File Folder because she was always so organized and had multiple files for all of her coursework. Now that she has her own business, she’s looking to expand, but she needs some help in the accounting department. She’s enlisted your help to process some events that have occurred over the last few months and to create some financial statements that she can take to the bank for a new loan.

Part I

A. Record Transactions
Lidia is looking to open another brick-and-mortar shop, but is not sure if she has the funding or the staff to handle another store. Prepare a tabular summary for Lidia of the following transactions for the months of June, July, and August. Be sure to include explanations for any revenues or expenses recorded. Include only one totals line at the end of August (after recording all transactions). Use the provided templates to complete your work.

June
1 Lidia invested $10,000 cash in the business as owner’s capital
2 Paid $1,200 cash for June building rent
3 Purchased furniture for $3,300 cash
3 Paid $650 for supplies
4 Obtains $20,000 cash loan from the bank, due in 6 months plus 6% interest
5 Incurred $250 of advertising costs in the Albuquerque Journal on account
7 Received $4,700 in cash from Mr. Ortega for prepaid consulting services
13 Paid $250 cash for advertising costs incurred on June 5
15 Paid $2,500 for merchandise inventory

17 Purchased computers for the office for $1,850 cash
22 Hired two part-time employees and agreed to pay them $15 an hour for 20 hours a week starting in July
25 Received $3,300 in cash from Ms. Black for prepaid consulting services
29 Purchased $1,200 merchandise inventory on account
30 ADJ: Incurred $200 worth of utilities expense to be paid in July
30 ADJ: Consulted with Mr. Ortega and earned 50% of his prepayment from June 7
30 ADJ: Counted supplies and only $400 worth remains
30 ADJ: Incurs one month of interest on bank loan due upon maturity of note

July
2 Paid $1,200 cash for July building rent
3 Paid $475 for supplies
5 Incurred $250 of advertising costs in the Albuquerque Journal on account
6 Performed services for Children’s Preschool for $2,500 cash
7 Paid $200 in utilities from June
9 Paid for merchandise inventory purchased on June 29
10 Sold merchandise inventory costing $800 to the local sorority house for $1,300 cash
11 Sold $700 worth of merchandise inventory to Bob’s Auto Parts for $1,200 on account
13 Paid $250 cash for advertising costs incurred on July 5
15 Paid $4,000 for merchandise inventory
15 Paid both employees for two weeks of work each
21 Received $4,250 in cash from Team Adventures for prepaid consulting services
24 Performed services for Mini Brick Fun, Inc. for $1,200 cash.
24 Sold Mini Brick Fun, Inc. merchandise inventory worth $1,200 for $1,700 cash to help organize their mini bricks
25 Lidia made a $650 owner’s withdrawal
26 Performed the rest of the consulting services for Mr. Ortega
28 Performed 75% of services for Ms. Black from her June 25 prepayment
30 Paid both employees for two weeks of work each
31 ADJ: Incurred $200 worth of utilities expense to be paid in August
31 ADJ: Consulted with Team Adventures and earned 20% of their prepayment from July 21
31 ADJ: Counted supplies and only $325 worth remains
31 ADJ: Incurs one month of interest on bank loan due upon maturity of note

August
1 Mini Brick Fun, Inc. returned merchandise inventory for $600 cash back. The cost is $100 and the merchandise is put back into the inventory room to be sold to another customer
2 Paid $1,200 cash for August building rent
3 Paid $1,500 for supplies
5 Incurred $250 of advertising costs in the Albuquerque Journal on account
6 Performed services for House Decor for $4,800 on account

7 Paid $200 in utilities from July
9 Purchased $5,000 of merchandise inventory on account
10 Sold merchandise inventory costing $3,700 to the House Decor for $4,200 cash
10 Received payment from House Décor for services provided on August 6
13 Paid $250 cash for advertising costs incurred on August 5
14 Paid both employees for two weeks of work each. Hired a third employee to start immediately at same pay rate and hours
16 Performed remaining services for Ms. Black
19 Recorded $1,300 in cash sales ($800 cost) at a special wedding expo event
21 Performed another 20% of services for Team Adventures
23 Paid for merchandise inventory purchased on August 9
24 Sold merchandise inventory costing $1,700 to The Law Offices of Marianne Martinez for $2,200 cash
27 Lidia makes an owner withdrawal of $975
29 Paid all three employees for two weeks of work each
31 ADJ: Incurred $200 worth of utilities expense to be paid in September
31 ADJ: Performed remaining services for Team Adventures
31 ADJ: Counted supplies and only $600 worth remains
31 ADJ: Incurs one month of interest on bank loan due upon maturity of note

Final Check Figures:
Cash $28,600
Net Income $10,575
Total Assets $39,450 Total Liabilities $20,500

Part II

B. Prepare Financial Statements
Now that all of Lidia’s transactions have been recorded, she needs you to prepare an Income Statement, Statement of Owner’s Equity, and Balance Sheet. She will need to submit these financial statements to the bank to determine if she can secure more funding for a second location. Be sure to include proper headers, sections, and totals. Please note that all statements should be inclusive of all transactions that have occurred since the start of June. Use the provided templates to complete your work.

C. Bank Reconciliation
Lidia has the following information from her books and her August bank statement. She is hoping that you can reconcile her bank account for her. Then prepare a tabular analysis for any adjustments required to reach the adjusted cash balance per books.
Be sure to include dates and explanations for any revenues or expenses. Use the provided templates to complete your work.

• Book Balance $28,600
• Bank Balance $32,545
• Deposits in transit $3,400
• Outstanding checks $5,000, $1,800 and $975
• Bank charges $35
• Interest earned $55
• Health insurance auto-draft $450

D. Long-Term Assets
If Lidia is able to obtain the new loan, she is looking to purchase a company cargo van to help haul the merchandise inventory, as well as purchase her own container machine (a machine that makes containers so she can save on her own purchase cost). She has found the cargo van she wants to purchase, as well as the machine she’d like to buy, but wants to look ahead at which depreciation methods she should use that will help maximize the use of each, as well as increase the income after depreciation.
Utilizing the information below, calculate the depreciation expense for the first two years using all three main depreciation methods (Straight-Line, Units of Production, and Double-Declining-Balance) for both the cargo van and the machine. Be sure to show your calculations. Round all dollar amounts to the nearest cent.

Cargo Van Price $26,000 Machine Price $48,000
Salvage value $2,000 Salvage value $3,000
Useful life 10 years Useful life 8 years
Total miles 90,000 Total hours 13,000
Yr 1 miles 12,100 Yr 1 hours 1,250
Yr 2 miles 9,400 Yr 2 hours 1,460

BONUS (worth 30 points – optional)
E. Calculate Inventory
It’s been half a year and Lidia’s business has really taken off. She secured her loan and has started accepting more clients, which in turn means more sales. To help with organization, she’s started selling a lot more containers and baskets. Lidia has a large inventory of baskets that are all different sizes, but each unit is very similar in nature.
She’d like to determine a better way to cost her basket inventory because her current method is causing too much loss and she cannot afford to continue down this path. She has provided you with the information below and would like for you to calculate the cost of goods sold and ending inventory using all three cost allocation methods (FIFO, LIFO, and Weighted Average). Use the periodic method and be sure to show all of your work to ensure Lidia can make the best decision.

Number of units Cost per unit   Total

Beginning Inventory 500 $40 $20,000
Purchased in Sept. 600 45 27,000
Purchase in Oct. 650 40 26,000
Purchase in Nov. 700 35 24,500
Totals (goods avail) 2450 97,500
Ending Inventory 550