Question

Kaylee James opened Kaylee’s Sweets on January 1, 2016. The shop specializes in a selection of gourmet chocolate candies and a line of gourmet ice cream. You have been hired as manager. Your duties include maintaining the store’s financial records. The following transactions occurred in February, the first month of operations.

1. Received four shareholders’ contributions totaling $30,200 cash to form the corporation; issued 400 shares of $0.10 par value common stock.
2. Paid three months’ rent for the store at $1,750 per month (two months are prepaid).
3. Purchased and received candy for $6,000 on account, due in 60 days.
4. Purchased supplies for $1,560 cash.
5. Negotiated and signed a two-year $11,000 loan at the bank, receiving cash at the time.
6. Used the money from (e) to purchase a computer for $2,750; used the balance for furniture and fixtures for the store.
7. Placed a grand opening advertisement in the local paper for $400 cash; the ad ran in the current month.
8. Made sales the first two weeks totaling $3,500; $2,675 was in cash and the rest on accounts receivable. The cost of the candy sold was $1,600.
1. Made a $550 payment on accounts payable.
10. Incurred and paid employee wages of $1,300.
11. Collected accounts receivable of $600 from customers.
12. Made a repair to one of the display cases for $400 cash.
13. Made cash sales of $1,200 for the rest of the month. The cost of the candy sold was $600.

Required

1. Record journal entries for each of the transactions.
2. Prepare an income statement at the end of the first month of operations ended January 31.
3. Prepare a balance sheet as of January 31.

Year	2016	2017	2018
Total Assets	$52,500	$58,500	$66,000
Total Liabilities	18,500	22,000	27,500
Total Equity	34,000	36,500	38,500
Sales Revenue	55,000	82,500	93,500
Net Income	4,400	11,000	22,000

Answer 1

a) Journal entries for the transactions

S. No General Journal Debit ($) Credit (s) Narration 30,200 Common Stock issued to shareholders 40 Common Stock issued to shareholders 30,160 Common Stock issued to shareholders 30,160 Common Sto Common Stock Additional Paid in Capital 1,750 b b b Rent Expense Prepaid Rent Cash 3,500 Rent paid for three months, two as prepaid Rent paid for three months, two as prepaid 5,250 Rent paid for three months, two as prepaid Inventory Accounts Payable Purchased Candies on account 6,000 Purchased Candies on account с 1,560 Supplies Cash Supplies purchased 1,560 Supplies purchased d 11,000 Cash Bank Loan Payable Bank Loan Taken 11,000 Bank Loan Taken Computer Equipments Furniture & Fixtures Cash 2,750 8,250 Computer & Furniture purchased Computer & Furniture purchased 11,000 Computer & Furniture purchased 400 Advertising Expense Cash Paid for Advertising in Paper 400 Paid for Advertising in Paper

2,675 825 h h h h h Cash Accounts Receivable Sales Revenue Cost of Goods Sold Inventory Candies sold Candies sold 3,500 Candies sold Candies sold 1,600 Candies sold I 1,600 i 550 Accounts Payable Cash Accounts Payable paid 550 Accounts Payable paid i 1,300 Salaries and Wages Cash Employee Wages paid 1,300 Employee Wages paid k Cash Accounts Receivable 600 we Received cash from Receivables 600 Received cash from Receivables 400 Repair Expenses Cash Repair made to display cases 400 Repair made to display cases m 1,200 Cash Sales Revenue Cost of Goods sold Inventory Sales for the rest of the month 1,200 Sales for the rest of the month Sales for the rest of the month 600 Sales for the rest of the month 600 m m

b) Income Statement

Amount Particulars Revenue Sales Revenue 4,700 Total Revenue 4,700 Expenses Cost of Goods Sold Repair Expenses Advertising Expense Salaries and Wages Rent Expense 2,200 400 400 1,300 1,750 Total Expenses Net Loss 6,050 -1,350

c) Balance Sheet as at 31st January 2016

Amount 40 Assets Cash Prepaid Rent Inventory Supplies Computer Equipments Furniture & Fixtures Accounts Receivable Amount Liabilities and Equity 25,215 Common Stock 3,500 Additional Paid in Capital 3,800 Retained Earnings 1,560 Accounts Payable 2,750 Bank Loan Payable 8,250 225 30,160 -1,350 5,450 11,000 Total Assets 45,300 Total Liabilities and Equity 45,300