Question

Required information Business Sim Corp. (BSC) issued 1,000 common shares to Kelly in exchange for $11,000. BSC borrowed $32,000 from the bank, promising to repay it in two years. BSC paid $37,000 for computer equipment with check number 101 and signed a note for $4,000 due in six months. BSC received $550 of supplies purchased on account. BSC's loan contains a clause ("covenant") that requires BSC to maintain a ratio of current assets to current liabilities of at least 1.3. 2-a. Prepare journal entries for the transactions described. 2-b. Prepare T-accounts. Assume all beginning balances are zero.

Answer 1

Solution:

Requirement A: Journal Entries

Transaction	General Journal	Debit	Credit
1	Cash	$           11,000
	Common Stock		$            11,000
	(Being common stock issued)
2	Cash	$           32,000
	Notes Payable (long term )		$            32,000
	(Being borrowed from bank)
3	Computer Equipment	$           41,000
	Cash		$            37,000
	Notes Payable (Short term)		$               4,000
	(Being equipment purchased)
4	Supplies	$                 550
	Accounts Payable		$                  550
	(Being supplies purchased on account)

Requirement B: T-Accounts

Cash
Beg. Bal.
1	$      11,000	$       37,000	3
2	$      32,000
End. Bal.	$        6,000
Common Stock
Beg. Bal.
		$       11,000	1
End. Bal.		$       11,000
Notes Payable (long term )
Beg. Bal.
		$       32,000	2
End. Bal.		$       32,000
Computer Equipment
Beg. Bal.
3	$      41,000
End. Bal.	$      41,000
Notes Payable (Short term)
Beg. Bal.
		$          4,000	3
End. Bal.		$          4,000

Supplies
Beg. Bal.
4	$          550
End. Bal.	$          550
Accounts Payable
Beg. Bal.
		$        550	3
End. Bal.		$        550