Question

Prepare a General Journal, a General Ledger and an unadjusted trial balance for the following:

The articles of incorporation for Bella Computers specified that the corporation was authorized to issue 1 million shares of common stock; par value was set at $10 per share. During the meeting, stock certificates for 5,000 shares of $10.00 par stock were issued to Dale and Lee, each. Dale and Lee each wrote personal checks for $50,000 for deposit in the new business bank account. As officers of the new Bella Computers Company, Dale and Lee, were both required to sign all company expense checks.

As soon as the meeting ended Dale and Lee drove to the warehouse facilities that they had arranged to lease for one year. The lease would be a 1-year prepaid lease for the sum of $1,000 per month. The company wrote a check that day to the real estate company for the entire sum for the first year’s lease.

Also on June 1, Bella Computers paid deposits to the Electric Company for initial service hook-up. That deposit payment was $500. A separate deposit was paid to the city for water, sewage & garbage service for $200.

On June 2 Bella Computers signed a contract to take delivery on July 1st of office furniture and fixtures to furnish the new office. The furniture and fixtures were purchased on credit. The total cost of furnishings and fixtures was $20,000. The note payable was a 5-year note at 6% interest to be compounded monthly. The office furnishings, fixtures, and equipment are estimated to have a 10-year useful life, with no residual value. On June 4 Bella Computers signed a contract to take delivery on July 1 of machinery necessary for constructing their computers. The total machinery cost is $100,000.

Bella Computers paid $10,000 in cash on June 4 and signed a 7 year $90,000 note payable at 8% interest to be compounded annually (Note: Please see the Time Value of Money Tables located in Appendix A = 1.71382). The machinery has an estimated useful life of 10 years, with a salvage value of $10,000. The payments will be made annually, beginning on July 1.

The electronic components to be used in the construction in the computers were contracted to be supplied by a company named Silicon Solutions. The contract specifies that for purchases of components to build up to 10,000 computers will cost $140.00 per computer. If production per year is 10,000 to 20,000 computers, the parts will cost $130.00 per computer. If production exceeds 20,000 computers per year the parts will cost $120.00 per computer. This price includes all internal components and the LCD screen. No parts have been ordered yet.

A separate contract is signed on June 8 with Custom Casings and Fabrication, Inc. The contract specifies a single price regardless of production levels. Each custom computer case and all related hardware will cost $40.00 per computer. No hardware has been ordered yet. Based on careful estimates, Dale and Lee believe that it will take 4 man hours to assemble each computer. The prevailing wage for skilled labor is $25.00 per hour. Bella Computers will offer a 1 year warranty on parts and service for their computers. Dale and Lee believe that the total warranty expense will be 2% of sales.

Bella Computers has placed an advertisement in the local newspaper posting the job openings. Bella Computers expects to hire 20 skilled computer technicians and 5 support staff. The support staff pay will be $15.00 per hour. The advertisement will run in the classified section for 2 weeks at a cost of $250.00 per week. The ad will run from June 23 to July 7.

Answer 1

General Journal entries of Bella Computers:

For amount received as Paid up share capital of the Company:

Debit- Bank A/c: $100000

Credit: Paid up share capital- $100000

For Payment of Lease rent for one Year. Here i assume that the company is incorporated on the first day of the start of the financial year. So i have taken full year payment as expenditure.

Debit: Rent- $12000

Credit: Real estate Company-$12000

Debit: Real Estate Company- $12000

Credit: Bank A/c-$12000

June 1st:

For payment of Electricity deposit the entry will be: Here assume that the deposit is refundable

Debit: Electricity Deposit(Under Deposits head)- $500

Credit: Bank A/c- $500

For payment of Sewage & water deposit the entry will be: Here assume that the deposit is refundable

Debit: Water Deposit(Under Deposits head)- $200

Credit: Bank A/c- $200

For purchase of Furniture for credit the journal entry will be:

Debit: Furniture(Under Fixed assets head)- $20000

Credit: Note Payable: $20000

For Interest to be paid:

Debit: Interest

Credit: Interest Payable(under current Liabilites)

For depreciation of Furniture: Here I assume that we have taken full year utilisation then Journal Entry is:

Debit: Depreciation: $2000

Credit: Provision for Depreciation(Under the Fixed Assets): $2000

For purchase of Machinery  the joural entry will be:

Debit: Machinery- $100000

Credit: Cash- $10000

Note Payable: $90000

For Payment of Interest:

Debit: Interest Expenses

Credit: Interest Payable( Under Current Liabilities)

For Depreciation of Machinery:

Debit- Depreciation - $9000(100000-10000)/10

Credit: Provision for Depreciation: $9000

For Advertisement Expenses:

Debit: Advertisement Expenses: $500

Credit: Advertisement expenses payable(Under current liabilities)$500

Trail Balance:

Liabilities:

Authorised Share Capital:

Paidup Share Capital: $100000

Long term Liabilities:

Note Payable: $110000

Current Liabilities:

Advertisement expenses payable: $500

Interest Expenses Payable:

Assets:

Fixed Assets;

Furniture: $20000

Machinery: $100000

Provision for Depreciation: $11000(Credit)

Deposits:

Sewage and water deposit: $200

Electricity Deposit: $500

Bank/Cash Balance: $77300(100000-500-200-12000-10000)

Income: Nil

Expenses:

Rent: $12000

Interest:

Depreciation: $11000

General Ledger:

Cash A/c:

Debit: $100000

Credit: $12000

$500

$200

$10000

Notes Payable:

Credit: $11000

Advertisement Expenses Payable:

Credit: $500

Deposits A/c:

Sewage & Water deposits: $200

Electricity Deposits: $500

Furniture A/c: $20000

Machinery A/c: $100000

Provision for Depreciation A/c: $11000

Rent A/c:

Rent Expenses: $12000

Advertisement A/c:

Advertisment expenses: $500

Depreciation: $11000