Question

Complete the following Journal Entries:

1. 9) On the advice of a brilliant financial accounting student who was a good friend of Ella’s, REI decided it was better off to purchase a building rather than continue renting. On November 1st, REI got out of the warehouse and office rental agreement at no cost to REI. REI received a cash refund for all amounts prepaid and not used up as of November 1st, 2018. They found a building to purchase at a total cost of $200,000, which contained an office and warehouse space for REI’s inventory. The cost was all for the building (i.e. no land allocation). REI did not have the money to finance this purchase, so they borrowed $200,000 from the bank by signing a 10-year installment note. The bank placed a loan covenant on the note requiring REI to have a debt-to- equity ratio no larger than 1.1 at any fiscal year end. The installment note has

an annual interest rate of 5.5% and monthly blended payments are due at the end of every month starting November 30. (Hint: Use an amortization table to calculate the monthly blended payments.) The building is expected to last 40 years and REI felt it was appropriate to depreciate the building using the straight-line method.

10. 10) REI felt it should once again build up its current inventory levels, thus On November 3rd, they purchased on account 500 DoorSpy units at $60 each.
    The increased cost was due to an increase in the cost of materials to manufacture the DoorSpy, and EDL was passing this additional cost onto REI.

11. 11) During the month of November REI made the following sales with installation to take place 1 week later:

    •  Nov 6 - 150 DoorSpy units at $90 each plus $55 each for installation, on account to Saskatoon Co-op

    •  Nov 15 - 150 DoorSpy units at $90 each plus $55 each for installation, on account to Princeton Inc.

    •  Nov 22 - 180 DoorSpy units at $90 each plus $55 each for installation, on account to Regina Public Schools.

Answer 1

Jounral Entries in the books of REI
01-Nov-18	Bank A/c	Dr	$200,000
	Loan from bank	Cr		$200,000
	(Being loan taken from bank on 10 year instalment note)
01-Nov-18	Office Building A/c	Dr	$200,000
	Bank A/c	Cr		$200,000
	(Being office building and warehouse purchased)
03-Nov-18	DoorSpy (Inventory) A/c	Dr	$30,000
	EDL A/c	Cr		$30,000
	(Being inventory purchased on credit 500 units @$60 each)
06-Nov-18	Saskatoon A/c	Dr	$13,500
	Sale A/c	Cr		$13,500
	(Being 150 units sold @$90 each)
13-Nov-18	Saskatoon A/c	Dr	$8,250
	Installation income A/c	Cr		$8,250
	(Being 150 units installed @$55 each)
15-Nov-18	Princton inc A/c	Dr	$13,500
	Sale A/c	Cr		$13,500
	(Being 150 units sold @$90 each)
22-Nov-18	Princton inc A/c	Dr	$8,250
	Installation income A/c	Cr		$8,250
	(Being 150 units installed @$55 each)
22-Nov-18	Regina Public School A/c	Dr	$16,200
	Sale A/c	Cr		$16,200
	(Being 180 units sold @$90 each)
30-Nov-18	Regina Public School A/c	Dr	$9,900
	Installation income A/c	Cr		$9,900
	(Being 180 units installed @$55 each)
30-Nov-18	Interest on loan A/c	Dr	$916.67
	Loan from bank	Dr	$1253.86
	Bank A/c	Cr		$2170.53
	(Being interest on loan due and paid for the month of November 18)

As per amortisation table, monthly installment comes to $ 2170.53.

It is assumed that depreciation will be charged at year end.