Question

An international children’s charity collects donations, which are used to buy clothing and toys for children in need. The charity records donations of cash and other items as Donations Revenue when received. Received $8,500 in cash and checks from a door-to-door campaign. Incurred and paid $3,000 cash for employee wages this month. Paid $3,420 cash on a short-term loan from the bank (ignore interest). Bought $4,920 worth of new toy supplies from a large toy manufacturer, paying $2,080 cash and signing a short-term note for $2,840. The manufacturer generously donated an additional $4,020 of toy supplies. Required: Prepare journal entries for the above transactions, which occurred during a recent month. Determine the charity’s preliminary net income.

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Determine the charity’s preliminary net income.

	Preliminary Net Income $6,100

Answer 1

Answer - (a) -

Journal of International Children’s Charity

	General Journal	Debit ($)	Credit ($)
1.	Cash Donation Revenue (To record collection of donation)	8500 -	- 8500
2.	Salaries and Wages Expense Cash (To record payment of wages)	3000 -	- 3000
3.	Notes Payable (short-term) Cash (To record payment of term loan)	3420 -	- 3420
4.	Supplies Cash Notes Payable (short-term) (To record purchases of toys supplies)	4920 - -	- 2080 2840
5.	Supplies Donation Revenue (To record donation of toys supplies)	4020 -	- 4020

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Answer - (b) -

Calculation of Charity’s Preliminary Net Income

Particulars	Calculations	Amount
Donations Received	Given in question	8500
Less: Salaries and Wages Expense	Given in question	(3000)
Less: Purchases of toys supplies	Given in question	(4920)
Preliminary Net Income	[$8500 - $3000 - $4920]	580