Question

AP3-6A (Preparing journal entries and adjusting entries) Chapati Company started business on January 1, 2020. Some of the events that occurred in its first year of operations follow: Transactions 1. An insurance policy was purchased on February 28 for $1,800. The insurance policy was for one year of coverage that began on March 1 2020. 2. During the year, inventory costing $140,000 was purchased, all on account. 3. Sales to customers totalled $200,000. Of these, $40,000 were cash sales. 4. Payments to suppliers for inventory that had been purchased earlier totalled $110,000 5. Collections from customers on account during the year totalled $140,000. 6. Customers paid $25,000 in advance payments for goods that will be delivered later. 7. Equipment that cost $140,000 was purchased on October 1 for $40,000 cash plus a two-year, 10% note with a principal amount of $100,000 8. Wages totalling $44,000 were paid to employees during the year. 9. The board of directors declared dividends of $12,000 in December 2020, to be paid in January 2021.

Answer 1

Ans - AP3-6A	Sr.No	Account Title	Debit	Credit
	1	Prepaid Insurance	$1,800
		Cash		$1,800
		(To record insurance paid in advance)
	2	Inventory	$1,40,000
		Accounts Payable		$1,40,000
		(To record purchase of inventory)
	3	Cash	$40,000
		Accounts Receivable	$1,60,000
		Sales		$2,00,000
		(To record sales revenue)
	4	Accounts Payable	$1,10,000
		Cash		$1,10,000
		(To record payment to vendor)
	5	Cash	$1,40,000
		Accounts Receivable		$1,40,000
		(To record collection from customers)
	6	Cash	$25,000
		Unearned Revenue		$25,000
		(To record amount received in advance)
	7	Equipment	$1,40,000
		Cash		$40,000
		Notes Payable		$1,00,000
		(To record purchase of equipment)
	8	Wages	$44,000
		Cash		$44,000
		(To record payment of wages)
	9	Dividend	$12,000
		Dividend Payable		$12,000
		(To record declaration of dividend)
	Adjusting Entries
	1	Insurance Expense [$1800/12 x 10]	$1,500
		Prepaid Insurance		$1,500
		(To record insurance expense)
	2	Interest Expense [($100000 x 10%)/12 x 3]	$2,500
		Interest Payable		$2,500
		(To record interest expense accrual)