Question

The following events occurred during the most recent month of operations of a local corporation:

a. The company completed issuance of 100,000 additional shares of stock for $150,000.

b. The company purchased a new delivery truck. The truck cost $62,000. It has an estimated useful life of 5 years and an estimated salvage value of $4,000.

c. The business paid $2,500 monthly rent and renewed their annual property insurance policy for a premium of $1,250.

d. The business purchased land and a building with appraised values of $62,000 and $278,000, respectively, for a total purchase price of $320,000. The building is estimated to have a useful life of 30 years and no salvage value. Allocate the actual purchase amount to the two assets in proportion to their appraised values.

e. The business sold products to customers for $91,000 cash and $169,000 on account. The goods sold had a cost of $154,000.

f. Paid salaries and wages of $48,000 for the month.

g. Paid the bill for electricity and gas in the amount of $1,250.

h. Purchased $700 of supplies for cash.

i. Paid other operating expenses of $23,000 for the month.

Required:

1. Show how each of these events affects the business’ accounts. You may prepare journal entries, use the accounting effects template from your textbook or show in some other way which accounts are affected, and whether each account increases or decreases. You may assume that if you show a debit to a particular account in a journal entry, I know whether the debit means an increase or a decrease to that account.

2. Show calculations for Net Income for this month (ignore adjusting entries for this part—use the information above) and explain why the net income amount does not equal the Cash account balance at the end of the month.

3. Identify which of the items above will require adjusting entries and explain in each case why the adjustment is necessary.

Chart of Accounts for this problem: Cash, Accounts Receivable, Prepaid Insurance, Supplies, Inventory, Trucks, Buildings, Land, Accounts Payable, Common Stock, Sales, Rent Expense, Cost of Goods Sold, Wages Expense, Operating Expenses

Answer 1

(3) The following needs adjustment * items entries a Trucus because depreciation will come- will be became depreciation thes, b Beeilding charged