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1. For each of the events, prepare journal entries if a transaction of the business exists,...

Question:

1. For each of the events, prepare journal entries if a transaction of the business exists, checking that debits equal credits. If a transaction does not exist, explain why there is no transaction for the business.

2. Create T-accounts, and post each of the transactions to determine balances at March 31, 2013. Because this is a new business, beginning balances are $0.

3. Prepare a trial balance on March 31, 2013, to check that debits equal credits after the transactions are posted to the T-accounts.

4. From the trial balance, prepare a classified balance sheet (with current assets and current liabilities sections) at March 31, 2013 (before the beginning of operations in April).

Here are some transactions that have occurred in the business in March 2013.

a. Received $25,000 cash and a large delivery van with a value of $36,000 from Penny, who was given 4,000 shares of $0.05 par value common stock in exchange.

b. Purchased land with a small office and warehouse by paying $10,000 cash and signing a 10-year mortgage note payable to the local bank for $80,000. The land has a value of $18,000 and the building's value is $72,000. Use separate accounts for land and buildings.

c. Purchased a new computer from Dell for $2,500 cash and office furniture for $4,000, signing a short-term note payable in six months.

d. Hired a receptionist for the office at a salary of $1,500 per month, starting in April 2013.

e. Paid $1,000 on the note payable to the bank at the end of March 2013 (ignore interest).

f. Purchased short-term investments in the stock of other companies for $5,000 cash.

g. Ordered $10,000 in inventory from Pool Corporation, Inc., a pool supply wholesaler, to be received in April 2013.

TRANSACTION

Transaction is an event in the business wherein it affects the monetary aspect of the financial statements. It is first analyze to determine if it passes the recognition criteria set by accounting standards.

Answer and Explanation: 1

JOURNAL ENTRIES

a.

Cash 25,000
Vehicle - Delivery Van 36,000
Common Stock (4000 x $ 0.05) 200
Additional Paid-in Capital - Common Stock 60,800
Received $25,000 cash and a large delivery van with a value of $36,000 from Penny, who was given 4,000 shares of $0.05 par value common stock in exchange.

If asset is received in exchange for stocks, fixed assets will be recorded on their fair value (if given), the fair value of the stocks (if FV of asset is not given), or the par value of stocks if fair values are not available.

b.

Land 18,000
Building 72,000
Cash 10,000
Mortgage Note Payable 80,000
Purchased land with a small office and warehouse by paying $10,000 cash and signing a 10-year mortgage note payable to the local bank for $80,000. The land has a value of $18,000 and the building's value is $72,000. Use separate accounts for land and building

c.

Equipment - Computer 2,500
Office Furniture 4,000
Note Payable - Short term 6,500
Purchased a new computer from Dell for $2,500 cash and office furniture for $4,000, signing a short-term note payable in six months.

d. Item d will not have any entries. it has not incurred any expenses nor have acquired an asset at such date. The transaction will be recorded in April when the receptionist will render her service in the company.

e.

Mortgage Note Payable 1,000
Cash 1,000
Paid $1,000 on the note payable to the bank at the end of March 2013

f.

Investment 5,000
Cash 5,000
Purchased short-term investments in the stock of other companies for $5,000 cash

g. No transaction exists during order yet. Transaction will occur when the inventory is received (assuming FOB Destination Point) or when the inventory is shipped (assuming FOB Shipping Point).

TRIAL BALANCE

Trial Balance
Cash 9,000
Office Furniture 4,000
Vehicle - Delivery Van 36,000
Equipment - Computer 2,500
Land 18,000
Building 72,000
Investment 5,000
Mortgage Note Payable 79,000
Note Payable - Short term 6,500
Common Stock 200
Additional Paid-in Capital - Common Stock 60,800
TOTAL 146,500 146,500

CLASSIFIED BALANCE SHEET

BALANCE SHEET
As of March 31, 2013
Assets
Current Assets:
Cash $9,000
Fixed Assets:
Office Furniture 4,000
Vehicle - Delivery Van 36,000
Equipment - Computer 2,500
Land 18,000
Building 72,000
Other Assets:
Investment 5,000
TOTAL ASSETS $146,500
Liabilities and Equity
Short-term Liability:
Note Payable - Short term $6,500
Long-term Liability:
Mortgage Note Payable 79,000
Total Liabilities 85,500
Equity:
Common Stock 200
Additional Paid-in Capital - Common Stock 60,800
TOTAL LIABILITIES AND EQUITY $146,500


Learn more about this topic:

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Business Transaction: Definition, Types & Analysis

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Chapter 1 / Lesson 5
21K

Understand the meaning of a business transaction in accounting, see some examples of a business transaction, and explore different types of business transactions.


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