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In January 2011, three college classmates started planning to open MP3 Store, Inc. The new owners will spend the first three months getting the business ready to open. The estimated official opening date is April 1. During January, February and March 2011, the owners prepared for the official opening. Transactions before and after the opening are shown below. The company uses a LIFO Perpetual inventory system. The company also uses the allowance method of estimating bad debts and the straight-line method of depreciation.

Jan. 1 The MP3 Store was started with contributions from three college classmates. They
decided to form a corporation and issue stock to the owners in return for $10,000 each, for for a total of $30,000 of contributed capital (Common Stock).
Jan. 5 Paid $7,200 for one years' rent in advance for a small store on Easy Street. A year's
Lease will begin March 1 when they begin occupancy.
Jan. 20 Issued additional stock for $10,000 to another friend who decided he wanted to get in on the business.
Feb. 20 Paid cash for a $2,400 one-year liability insurance policy. Coverage will start when the store
opens on April 1.
Feb. 28 During the month, the owners repaired a total of 75 MP3 players and received a total of
$3,600 (Services Revenue) from customers for the repairs. The cost of the parts to make
the MP3 repairs was $1,200 (Parts Expense). The parts were purchased for $1,000 in
Cash and $200 on account (Parts Expense Payable).
Mar. 5 Billed customers $1,500 for MP3 repairs performed on account. The cost of the repairs
(Repairs Expense) was $600 which was paid in cash.
Mar. 15 Paid the $200 owed from Feb. 28th.
Mar. 20 Collected the $1,500 in cash from customers billed on Mar. 5th.
Mar. 29 Purchased a computer system for $1,500 cash.
Mar. 30 Paid cash for the following office furniture and fixtures in preparation of the April 1st
Opening: Display cases, $4,000 and Office furniture, $3,000. The display cases and
The office furniture have an estimated life of 5 years with no salvage value.
Mar. 31 Borrowed $5,000 on a one year, 7% note payable.
Apr. 1 The store opens for business.
Apr. 2 Purchased office supplies, $3,500 cash.
Apr. 28 By the 28th, the company had performed a total of $5,500 worth of repairs. Of the repairs
performed, $4,000 was paid in cash and the balance was on account. The total cost of
the repairs (Repairs Expense) was $1,900 which was also paid in cash.
May 4 Purchased 220 MP3 players for $200 each, on account, terms 2/10,n/30 from XX Co.
May 5 Collected the outstanding Accounts Receivable balance from April ($1,500).
May 8 Returned 20 of the MP3 players purchased on May 4th.
May 14 Paid the amount due to XX Co.
May 20 Sold 80 MP3 players for $350 each. All sales were made on account. The sales tax rate is
6%. Calculate cost of goods sold for all sales of inventory.
May 29 Customers paid for 40 of the MP3 players sold on account on May 20.


May 30 Paid the assistant manager $3,600 for April & May recording the appropriate taxes
(6.2% for social security, 1.45% for Medicare, 0.8% for federal unemployment tax). Record the salary expense and employer payroll expenses.
June 2 Purchased 100 MP3 player for $210 each, on account, terms 2/10,n/30.
June 5 Collected May's outstanding accounts receivable balance (from sale on May 20).
June 13 Paid for the 100 MP3 players purchased on June 2 and purchased 115 more for cash at
$215 each.
June 28 Received a utilities bill for $157 due July 15th. The bill will be paid July 13th.
June 30 Sold 150 MP3 players for $350 each for cash. The sales tax is 6%.
July 2 Purchased 120 MP3 players for $225 each for cash.
July 13 Paid the utilities bill (from June) that was due and the sales tax payable from May and
June sales.
July 29 Sold 155 MP3 players for $350 each – 80 were for cash and 75 were on account.

July 30 The company decided to buy a small piece of land so that it can eventually build its own
Store. The land cost of $25,000 was paid in cash.
July 31 Purchased an electronic cash register for $2,400 cash. The cash register has an estimated
useful life of 5 years and an estimated salvage value of $200.
July 31 Accepted a $10,000, 5%, 4 month note in payment an outstanding accounts receivable.
Aug. 1 Received and paid a $150 telephone bill.
Aug 18 Collected $10,000 of the outstanding accounts receivables.
Aug. 19 Purchased 175 MP3 players for $227 on account.
Aug. 30 Sold 130 (25 for cash & 105 on account) MP3 players for $350 each. The sales tax rate is 6%. Sept. 30 Sales for the month were as follows (all units sold for $350 each): 48 units for cash and 39 units
On account. The sale was tax exempt. Effective September 1st, the company offers a warranty.
The company estimates that 4% of sales will be returned under warranty.
Oct. 30 Collected $30,000 of the outstanding accounts receivable.

On October 31st. The company decides to apply for a very large bank loan in order to expand the business by opening two additional stores. Information required in the loan application includes financial statements: a multiple-step income statement, statement of retained earnings, and a classified balance sheet.

REQUIRED:
A. Journalize all of the transactions that occurred from January 1 through October 31.
B. Post the journal entries to the ledger accounts.
C. Prepare the unadjusted trial balance at October 31st.
D. Prepare any necessary adjusting entries for estimated warranty expenses, depreciation, prepaid insurance, prepaid rent, interest payable, interest receivable, bad debt expense (5% of accounts receivable), store supplies (supplies on hand at October 31th, are $1,000).
E. Prepare the adjusted trial balance at October 31st.
F. Prepare the financial statements:
1. A multiple-step income statement.
2. A statement of retained earnings.
3. A classified balance sheet.
G. Calculate the following financial analysis measurements.
1. Current ratio.
2. Acid-test ratio

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