Comprehensive Problem
Lemar White decided to start The White School of Accounting (also referred to as “the company”) on
August 1, 2012. The company will be providing accounting tutoring to community college and university
students and will also be selling materials (mainly textbooks) to students to assist with their accounting
studies. Mr. White started the company by donating the following to the company in exchange for 11,000
common shares at par value of $6:
– Vehicle valued at $25,000
– Office equipment valued at 3,000
– Office furniture valued at $5,000
– Cash of $33,000
The following transactions occurred from August 1, 2012 to December 31, 2012:

On August 1, 2012, The White School of Accounting entered into a rental/ lease
agreement with Middlesex County College to rent two classrooms and one office, starting
on Aug 1. The rent for these will be $2,000 per month. The company paid ALL of the
rent in advance for August, September, October, November and December 2012. The
payment was made to MCC on August 1, 2012.


The White School will require liability insurance. MetLife quoted the company a
premium of $6,000 for August 1, 2012 to July 31, 2013 (12 months). The company paid
the entire amount in advance on August 1, 2012. The insurance is effective Aug 1.


On August 5, 2012 the company purchased supplies in the amount of $326 on credit from
The Office Depot. The terms are full payment in 60 days.


On August 20, 2012, the company purchased 10 Accounting 1 textbooks (to be resold)
from Barnes & Noble for $560, on account. Each book was $56. The terms were net 90


On August 25, 2012, The White School of Accounting billed a parent (Mr. Green) $500
for tutoring services already provided to a student during August 2012 in the amount of


On September 1, 2012, Mr. Green paid the $500 that was owed to the company, along
with a check of $500 for the month of September. September’s tutoring services have not
yet been provided to the student.


On September 5, 2012, the company purchased 20 Accounting 2 textbooks (for resale)
from The Blue Colt Bookstore, on account. The cost of the books was $1,000 ($50 per
book). The terms of the purchase are 2/10, net 30.


On September 15, 2012, the company sent a check to The Blue Colt Bookstore for the
textbook purchase on September 5, 2012, in full settlement/ payment of the amount


Also on September 15, 2012, the company sent payment to The Office Depot for the
purchase of supplies on August 5, 2012.


On September 30, 2012, the company received $30,000 cash for tutoring services
performed during September 2012. The company also received $1,500 for 5 Accounting
1 textbooks that were sold to students (cash). (Record services performed and products
sold in separate accounts).


Also, as of September 30, 2012, the company had provided tutoring services in the
amount of $500 for Mr. Green’s daughter. He already paid for these services on
September 1.


On October 1, 2012 the company obtained its September 2012 bank statement and
realized that it has incurred $50 of credit card fees for the credit card machine that it uses
to process payments. The company also noticed that it received an EFT (electronic funds
transfer) from another parent, Mrs. Florida, for exam review services to be performed for
her daughter in January 2013. The amount received was $200.


Further, on October 1, 2012, upon obtaining the bank statement for September 2012, the
company noticed that the check sent to The Office Depot on September 15, 2012 had
been incorrectly deducted (by the bank) from the company’s bank account, as $362.


On October 3, 2012, a student (Ms. Rodriguez) purchased 2 Accounting 2 textbooks for
$300 each. The purchase was made on account. The terms were 1/20, net 30.


On October 3, 2012, the company decided to convert its obligation to Barnes & Noble
(for the purchase on August 20, 2012) to a note payable. The company issued a 60-day,
4% promissory note to Barnes & Noble.


On October 5, 2012, Ms. Rodriguez returned the Accounting 2 textbook to The White
School, citing that the textbook code had been previously used and she couldn’t use the


On October 10, 2012, returned the Accounting 2 textbook (which was returned by Ms.
Rodriguez) to The Blue Colt Bookstore, and received cash.


Also on October 31, 2012, established a petty cash account so that the assistant can make
small purchases. The amount of the account is $200.


On November 6, 2012, Mrs. Bailey decided that she wanted to invest in The White
School of Accounting. In exchange for $10,000 in cash, Mrs. Bailey received 1,000
common shares with a par value of $6 per share. Then, in exchange for $5,000 in cash,
Mrs. Bailey received 500 $6 cumulative preferred shares with a par value of $8 per share.


On November 30, 2012, The White School of Accounting bought back 300 of the
preferred shares that it sold to Mrs. Bailey. Using an independent appraiser, the company
determined that the market value of the stocks was $12.


On December 2, 2012 (exactly 60 days later), the company issued a new 60-day, 4%
promissory note to Barnes & Noble (you need to show ALL entries). Interest was paid in
cash on the original note (round numbers to the nearest $1; so $100.10 would be $100).


On December 1, the company hired a new assistant, Mrs. Smith. On December 30, 2012,
the company paid Mrs. Smith her wages in the amount of $3,000. From her check, the
company withheld $700 for Employee Federal Income Taxes, 1.2% for Social Security,
0.8% for Medicare and $200 for her Retirement Fund. The company also recorded its
payroll obligations to the government for Mrs. Smith’s employment: Social Security,
Medicare, FUTA of 0.5% and SUTA of 1.8%.


On December 31, 2012 the company determined that it is unlikely to collect $10 of its
receivables outstanding.

a) Journalize all of the entries above.
b) Post the transactions to T- accounts.
c) Journalize the following adjustments and post them to T accounts for the period ending December
31, 2012:
1. On December 31, 2012, the company recorded depreciation for the 5 months ending
December 31, 2012 on the vehicle, office equipment and office furniture. The company uses the
straight line method of depreciation. All of the assets are depreciated over 5 years. The vehicle
has a residual value of $5,000; the office equipment has no residual value and the office furniture
has no residual value. (Record the depreciation expense and accumulated depreciation in separate
accounts for all assets; round to the nearest dollar).
2. Insurance expired for 5 months.
3. Rent expired for 5 months.
4. Supplies on hand as of December 31, 2012 are $50.
d) Balance all accounts.