Question

Can somebody please help me with question 1.

In February 2009, Mr. Alan Pickering contracted to purchase a mineral spring in the Missouri Ozarks. The property, known locally as Verona Springs, included a 6 million gallon-per-day spring that produced exceptionally pure water. Mr. Pickering planned to bottle the water and sell it in the nearby cities of Springfield, Columbia, St. Louis, and Kansas City. On March 1, 2009, Mr. Pickering and several relatives purchased 500,000 shares in the company for $1 per share. On that same day, the corporation borrowed $300,000 from the local bank. The banknote required five annual $60,000 principal repayments beginning March 1, 2010. Interest payments of 6% of the outstanding balance on the previous March 1 were required on March 1 of each year, also beginning March 1, 2010. The firm then wrote a check for $525,000 to buy the 65 acres of land that included Verona Springs. The water was nearly free of pollutants, but it arose into a small pond before flow- ing to a nearby stream. In the pond, the water was exposed to falling leaves and other contaminants. To maintain purity, Mr. Pickering hired a local firm to drill a flowing artesian well near the spring (in a flowing artesian well, pressure from an underground aquifer forces water to flow naturally to the surface). The company paid $1,000 cash for the drilling on March 10, 2009. Mr. Pickering expected the well to last at least 10 years before redrilling would be needed. During March, Verona Springs had a building constructed above and around the well. Inside the building, the firm installed filtration, purification, and bottling equipment and a holding tank. The company paid the $240,000 cost by check on March 31, 2009, when the equipment became operational. The firm expected the building and equipment to last 10 years. On April 5, the firm purchased a truckload of 18,200 one- gallon plastic water bottles and lids for $3,200, and 3,100 shipping boxes for $3,100 ($1.00 per box). The $6,300 for those purchases was payable in 30 days. During April, the firm also purchased miscellaneous supplies for $500 and paid in cash. The firm began bottling water by hiring three local residents to work part-time. During April, they bottled and shipped 18,000 gallons of mineral water (3,000 cases that each contained six 1-gallon bottles). Verona sold the 3,000 cases to regional supermarkets for $5.00 per case. One chain paid for 1,000 cases by check upon receipt; the others purchased on account, payable in 30 days. In late April, the firm paid the three employees a total of $1,500 in cash for their work and also paid a trucking firm $900 in cash to deliver the water. On April 30, the firm had negligible quantities of bottles, lids, boxes, and supplies in inventory.

1. For the two-month period March 1, 2009, to April 30, 2009, prepare journal entries and all T-accounts

Answer 1

Required Journal entries to record two months transactions from 01 march, 2009 to 30 April, 2009 would be as under:

S.NO	Date	Particulars	Debit	Credit
1	01.03.2009	Bank	500000
		To Common Share		500000
		(To record Purchase of Shares)
2	01.03.2009	Bank	300000
		To Loan		300000
		(To record Borrowing from Bank)
3	10.03.2009	Expense	1000
		To Cash		1000
		(To record Expense paid in cash)
4	31.03.2009	Building	240000
		To Bank		240000
		(To record Building construction)
5	05.04.2009	Purchase (Expense)	6300
		To Accounts Payable		6300
		(To record purchase of water bottle & boxes)
6	30.04.2009	Purchase (Expense)	500
		To Cash		500
		(To record Misc. Supplies paid in cash)
7	30.04.2009	Accounts Receivable	15000
		To Sales		15000
		(To record Sales in credit)
8	30.04.2009	Bank	5000
		To Accounts Receivable		5000
		(To record Check received from sales)
9	30.04.2009	wages (Expense)	1500
		To Cash		1500
		(To record payment to employees in cash)
10	30.04.2009	Freight (Expense)	900
		To Cash		900
		(To record payment of freight in cash)

T-accounts for the above journal entries are as under: