Chapter 10, Problem 2CP

Comprehensive Problem for Chapters 8, 9, and 10

Top Quality Application-Long Beach has just purchased a franchise from Top Quality Applance (TQA). TQA is a manufacturer of kitchen appliances. TQA markets is products via retail stores that are operated as franchises. As a TQA franchisee, Top Quality Appliance-Long Beach will receive many benefts, including having the exclusive right to sell TQA brand appiances in Long Beach. TQA appliances have an excellent reputation and the TQA name and logo are readily recognized by consumers. TQA also manages national television advertising campaigns that benefit the franchisees. In exchange for these benefts, Top Quality Appliance-Long Beach will pay an annual franchise tee to TQA based on a percentage at sales. The annual franchise tee is a separate cost and in addtion to the purchase of the franchise.

In addition to purchasing the franchise, Top Quality Appliance-Long Beach will also purchase land with an existing buiding to use for its retail store, store fixtures, and of?ce equipment. The business will purchase appliances from TQA and resell them in is store, primarilty to local building contractors for installation in new homes.

Following is the chart of accounts for Top Quality Appliance-Long Beach. As a new business, all beginning balances are $0.

Top Quality Appliance—Long Beach

Chart of Accounts Cash Baker, Capital Petty Cash Baker, Withdrawals Accounts Receivable Sales Revenue Allowance for Bad Debts Interest Revenue Merchandise lnventory Cost of Goods Sold Office Supplies Franchise Fee Expense Prepaid lnsurance Salaries Expense Interest Receivable Utilities Expense Notes Receivable Insurance Expense Land Supplies Expense Building Bad Debt Expense Accumulated Depreciation−Building Bank Expense Store Fixtures Credit Card Expense Accumulated Depreciation−Store Fixtures Depreciation Expense−Building Office Equipment Depreciation Expense−Store Fixtures Accumulated Depreciation− Office Equipment Depreciation Expense−Office Equipment Franchise Amortization Expense−Franchise Accounts Payable Interest Expense Interest Payable Cash Short and Over Notes Payable

Top Quality Application—Long Beach completed the following transactions during 2018, its ?rst year of operations:

a. Received $500,000 cash from owner. T. Baker, in exchange for capital. Opened a new checking account at Long Beach National Bank and deposited the cash received from the owner.

b. Paid $50,000 cash lor a TQA franchise.

c. Paid $200,000 cash and issued a $400,000, l0-year, 5% notes payable for land with an existing building. The assets had the following marker vaiues: Land, $l00,000; Building, $500,000.

d. Paid $75,000 for store ?xtures.

e. Paid $45,000 tor ofice equipment.

f. Paid $600 for office supplies.

g. Paid $3,600 for a two-year insurance policy.

h. Purchased appliances irom TQA (merchandise inventory) on account for $425,000.

i. Established a petty cash fund for $150.

j. Sold applianceson account to 8&0 Contractors for $2l5,000. terms N30 (W61. 506.000)

k. Sold appliances to Davis Contracting for $150,000 (cost, $65,000), receiving a 6-month, 8% note.

l. Recorded credit card sales of $80,000 (cost, $35,000), net of processor fee of 2%.

m. Received payment in full from B&B Contractors.

n. Purchased appliances from TQA on account tor $650,000.

o. Made payment on account to TQA, $300,000.

p. Sold appliances for cash to LB Home Builders for $350,000 (cost. $175,000).

q. Received payment in full on the maturity date from Davis Contracting for the note.

r. Sold appliances to Leard Contracting for $265,000 (cost $130,000), receiving a 9-month, 8% note.

s. Made payment on account to TQA, $500,000.

t. Sold appliances on account to various businesses for $985,000, terms n/30 (cost. $395,000).

u. Collected $715,000 cash on account.

v. Paid cash for expenses: Salaries, $180,000; Utilltlet, $12,650

w. Replenished the petty cash fund when the fund had $62 in cath and petty cash tickets for $85 for office supplies.

x. Baker withdrew $5,000.

y. Paid the franchise fee to TQA of 5% of total sales of $2,045,000.

Requirements

2. Post to the general ledger.