Question

Wood, Corp was created on June 1, 2019. The company owns and operates a shoe store. Using the “Accounting Review” spreadsheet, complete the following:

1. Prepare journal entries for each transaction below, which occurred in the first month, June 2019, of business for Wood, Corp.
   1. Issued 100,000 shares of common stock in exchange for $250,000 cash.
   2. Purchased fixtures (asset) at a cost of $100,000. $40,000 was paid in cash and a note payable was signed for the balance owed.
   3. Paid $14,000 in rent on the building for the month of June.
   4. Purchased inventory on account at a cost of $200,000. The company uses the periodic method.
   5. Credit sales (on account) for the month totaled $280,000.
   6. Paid $120,000 on account for merchandise purchased in transaction 4.
   7. Collected $55,000 from customers on account billed in transaction 5.
   8. Paid $2,500 for utilities expense.
   9. Paid $24,000 for 12 months of insurance.
   10. Paid $3,000 for advertising expense.
   11. Paid dividends of $4,750.
2. Post the journal entries to general ledgers by linking the numbers.
3. Using the general ledger accounts (tab b), create an UNADJUSTED trial balance for Wood, Corp as of June 30, 2019.
4. Prepare adjusting entries for each transaction below, which occurred at the end of June.
   1. At the end of the month, the inventory was counted and had a value of $125,000. Make the necessary adjusting journal entry to close the purchases account and calculate the cost of goods sold.
   2. Adjust the prepaid insurance account for the amount used during the month.
   3. All employees are paid once a month and receive their paycheck on the tenth of each month. Payroll Expense for the month was $150,000.
5. Post the remaining journal entries to general ledgers accounts (tab b). At this point, you need to think about how adding lines and totals make your t-accounts functional.  From this point on, numbers CANNOT be manually entered.  Instead they have to be linked! Linking is worth 10 points of your grade.
6. Using the general ledger accounts (tab b), create an ADJUSTED trial balance for Wood, Corp as of June 30, 2019.
7. Using the info in the Adjusted Trial Balance, create an Income Statement.
8. Using the info in the Adjusted Trial Balance, create a Balance Sheet.
9. Create closing journal entries.  At this point, you need to think about how adding lines and totals make your t-accounts functional.   Remember REDI (Revenue, Expense, Dividend, Income Summary). Post journal entries to general ledger accounts (tab b) for Closing Entries HINT: Think about what general ledger accounts should be zero when you are done with this process.
10. Using your general ledger accounts (tab b), create a POST-CLOSING Trial Balance for Wood, Corp as of June 30, 2019.
11. Perform a vertical analysis of the income statement and compute the current ratio for Wood, Corp.

Answer 1

Notes for working

1- All figures are in $

Answer Part - I
Journal Entries
Date	Particulars	Debit	Credit
Jun-19	Cash	250000
	Equity Share Capital		250000
Jun-19	Fixed Assets	100000
	To Cash		40000
	To Notes payable		60000
Jun-19	Inventory	200000
	To Creditors		200000
Jun-19	Debtors	280000
	To Sales		280000
Jun-19	Rent	14000
	To Cash		14000
Jun-19	Merchandise pur	120000
	To Cash		120000
Jun-19	Cash Account	55000
	To Debtors		55000
Jun-19	Utility	2500
	To Cash		2500
Jun-19	Insurance	24000
	To Cash		24000
Jun-19	Advertisement	3000
	To Cash		3000
Jun-19	Dividends	4750
	To Cash		4750

Answer - Part II
Trial Balance - Unadjusted As on 30.06.2019
Account head	Debit	Credit
Eq Share Capital		250000
Cash	96750
Creditors		200000
Debtors	225000
Sales		280000
Purchases	200000
Merchandise	120000
Utility	2500
Insurance	24000
Advertisement	3000
Dividends	4750
Rent	14000
Fixed Assets	100000
Notes payable		60000
Total	790000	790000

Answer - Part III
Adjustment entries
1	Closing stock	125000
	To P& L		125000
2	P&L	150000
	To Salary		150000
3	Prepaid Insurance	22000
	To Insurance		22000

Answer Part IV
Trial Balance - Adjusted As on 30.06.2019
Account head	Debit	Credit
Eq Share Capital		250000
Cash	96750
Creditors		200000
Debtors	225000
Sales		280000
Purchases	200000
Merchandise	120000
Utility	2500
Insurance	2000
Prepaid Insurance	22000
Advertisement	3000
Dividends	4750
Rent	14000
Fixed Assets	100000
Notes payable		60000
Salary	150000
Salary Payable		150000
	940000	940000

Answer - Part V
Income Statement
Particulars	Amount	Particulars	Amount
Purchases	200000	Sales	280000
To Gross profit Carried down	205000	Closing Stock	125000
	405000		405000
		By Gross Profit Brought down	205000
Salaries	150000	By Net loss Carried forward to balance sheet	91250
Rent	14000
Merchandise	120000
Utility	2500
Insurance	2000
Advertisement	3000
Dividends	4750
	296250		296250

Answer - Part VI
Balance Sheet
Liabilities	Amount	Assets	Amount
Equity Share Capital - 100000 Shares	250000	Fixed Assets	100000
Sundry Creditors	200000	Sundry Debtors	225000
Salary Payable	150000	Prepaid Insurance	22000
Notes payable	60000	Closing stock	125000
		Cash in hand	96750
		Net Loss	91250
	660000		660000

Answer Part VII
Trial Balance - Post Closing
Account head	Debit	Credit
Equity Share Capital		250000
Sundry Debtors	225000
Salary Payable		150000
Notes payable		60000
Fixed Assets	100000
Sundry Creditors		200000
Prepaid Insurance	22000
Cash in hand	96750
Net loss carried forward	91250
Closing stock	125000
	660000	660000

Cost of goods sold - working
Purchases	200000
Sales	280000
Closing stock	125000
Purchases + Direct Exps - Closing stock = Cost of goods sold
Cost of goods sold	75000

Answer - Part VIII
Current Ratio	Current Assets / Current Liabilities			1.14
Current Assets	Cash in hand	96750
	Closing stock	125000
	Debtors	225000
	Prepaid Insurance	22000
	Total Current Assets	468750
Current Liabilities	Creditors	200000
	Salary Payable	150000
	Notes payable	60000
	Total Current Liab	410000

Working note
Cash / Bank
Date	Particulars	Amount	Date	Particulars	Amount
Jun-19	To Equity share capital	250000	Jun-19	By Fixed Assets	40000
Jun-19	To debtors	55000	Jun-19	By Merchandise	120000
Jun-19			Jun-19	By Utility	2500
Jun-19			Jun-19	By Insurance	24000
Jun-19			Jun-19	By Advertisement	3000
Jun-19			Jun-19	By Dividend	4750
Jun-19			Jun-19	By Rent	14000
Jun-19				By Balance C/d	96750
		305000			305000