Question

You are presented with a trial balance as of the end of 2018 and must add the transactions and activities that occurred in the first quarter of 2019 as listed below. You can add accounts to the trial balance, as needed.

January 1:     The owners hire Nina Marton to manage the store, paying her a salary of $2,600 a month. Lisa is paid on the 1st of every month, starting on February 1 (which would represent her January pay). They have one other employee who they pay $1,600 a month, also on the 1^st of the following month. Employees work 40 hours a week.

January 14:    Paid utilities for 4^th quarter of 2018, $775.

February 1:    Installed new light fixtures and display cases in the leased store. CWB paid $1,900 for the fixtures, $150 for shipping to the store, and $400 to an electrician to install. CWB paid 6% sales tax on the fixtures and shipping in addition to the cost of the fixtures and equipment. It did not pay a sales tax to the electrician.

    The landlord gave CWB permission to remove and dispose of the old fixtures. CWB sold the old fixtures for $200. CWB anticipates being in the store for at least 5 years. CWB cannot take the light fixtures with them if they relocate as they will revert to the lessor.

CWB can take the display cases if they move. The display cases cost $2,800. CWB also incurred 6% sales tax on the display cases on addition to their cost.

Both the display cases and light-fixtures have a seven-year useful life.

February 10: CWB made a payment of $5,500 on its accounts payable.

March 1:        CWB invests in a $4,000 3-month treasury bill paying interest of 3.0%.

March 12:      One of the standard bikes sold on February 21 was returned by the customer. The bike sold for $400.   CWB provided a full refund. CWB’s policy is to provide a customer with a full refund within 30 day of purchase as long as the bike is returned in good condition. While the bike is in good working condition, CWB does not anticipate being able to sell the bike as new – rather it anticipates marking it down and selling it for $190.

March 24:      A customer puts down a deposit of $500 on a high-end racing bike that sells for $2,900. CWB ordered the bike from the manufacturer. The manufacturer promises CWB will have the bike at the store on April 3.

Here is other information on other activity and recurring transactions that occurred during the period.

1. CWB offers bike tune-ups for $80 each. CWB’s employee is an expert tune-ups, taking about one hour per bike for a tune-up. Below is the number of tune-ups performed in each month. All customers pay in cash. (For recording the transactions, you can assume all tune-ups are done the last day of the month).

Month	Number of Tune-Ups
January	14
February	36
March	42

2. CWB has the following purchases and sales of standard bikes during the quarter+:

Date	Transaction	Quantity	Cost per Bike
Beginning Inventory		25	$110
January 25	Sale	15
February 8	Purchase	30	$115
February 14	Sale	16
February 27	Sale	15
March 2	Purchase	28	$120
March 17	Sale	20

+All purchasers of standard bikes are given the option of buying a bike for $400, or a bike with two years of tune-ups for $500. Four of the bikes sold on February 21^st were sold with the tune-up option.

**All purchases were made using cash except the March 2nd purchase for which CWB obtained two-months credit from the bike supplier.

3. CWB took out a five-year loan for $10,000 with an interest rate of 12% on January 1, 2018. The loan matures on January 1, 2022.
4. CWB rents its premises for $900 per month, with rent due on the 15^st of the prior month.
5. CWB has a business insurance policy, which it purchased for $3,300 on July 1, 2018. The policy runs until June 30, 2019.
6. CWB owns various tools and equipment which it pools for purpose of calculating depreciation. In the past it has used straight-line depreciation over a ten-year period with no scrap or salvage value for these assets. However, with technology changing rapidly, CWB questions whether it will have to replace the equipment earlier.
7. On March 31, CWB had $154 of supplies left in the supply room.
8. On April 7 received its utilities bill for the first quarter of 2019 - $800.
9. The tax rate is 20%.

Cherry & White Bike Company

Post-Closing Trial Balance

12/31/2018

Account Title	Debit	Credit
Cash	$30,100
Store supplies	460
Prepaid rent	900
Prepaid insurance	1,650
Inventory – standard bikes (25 bikes)	2,750
Equipment	15,500
Accumulated depreciation - equipment		$4,350
Accounts payable		8,724
Utilities payable		775
Salaries payable		1,600
Interest payable		1,200
Loans payable		10,000
Capital stock		20,000
Retained Earnings		4,711
Totals	$51,360	$51,360

Round all intermediate computations to three decimals. Enter your final answer in dollars (no cents). Make your allocation using the standalone selling prices for the tune-ups and the bike for 2.

1. What is the total amount of the tune-up revenue for the three months ending March 31, 2019? 2. For one bike sold with the tune-up option on February 27th, what is the amount of the transaction price allocated to bike sales? Price to tune ups? 3. What is the total sales revenue and unearned revenue for bike sales for the three months ending March 31, 2019?

Answer 1

1	Total amount of Tune up revenue for the three months ending March 31, 2019
	Month	Number of tune-up	Tune-up price	Tune-up revenue
	January	14	$80	$1,120
	February	36	$80	$2,880
	March	42	$80	$3,360
	Total revenue			$7,360
	Deferred revenue for tune-up on option of buying bike with two-years tune-ups is $332 (4 x $83)
2	Amount of transaction price allocated to bike sale and tune-ups
	Stand alone price of bike sale	$400
	Stand alone price of tune-up	$80
	Total	$480
	Allocation of price to bike sale (400/480*500)	$417
	Allocation of price to tune-up(80/480*500)	$83
	Total transaction price	$500
3	Total sales revenue and unearned revenue for bike sales for the three months ending March 31, 2019
	Month	Number of bikes sold	Sale Price	Sales Revenue
	January	15	$400	$6,000
	February	27	$400	$10,800
	February	4	$417	$1,667
	March	20	$400	$8,000
	Total revenue			$26,467
	Less: Sales return			$400
	Net Sales revenue			$26,067
	Unearned revenue for bike sales is $500 for high end bike