Question

THIS IS A CONTINUATION OF LC 2B. Hawking, Inc. had the following activities occur in the current year: 6. 7. 8. 9. Purchased $189,000 of inventory on account. Earned $536,000 worth of sales revenue, receiving 85% in cash. Incurred selling expenses of $210,000, paying half in cash and still owing the rest. Incurred $33,000 in interest expense to be paid at the beginning of next year. Required a) Show the effects of the above transactions on the accounting equation. Use the transaction number for the date. b) Prepare journal entries for each transaction. c) Post journal entries to the general ledger/T-accounts, summarize accounts, and find balances. d) Prepare an unadjusted trial balance. e) Match your numbers to the prepared financial statements: Income Statement, Retained Earnings Statement, and Balance Sheet.

Answer 1

Solution to your question are as follows:

Qa. Accounting Equation is defined as relation ship as shown by various accounts as

Asset= liability+Equity

Cost of Goods sold= opening balance +purchase-Closing Stock

In the question , Accounting payable=Purchase+Selling expenses-cash=189000+210000-105000=294000

Similarly , Accounting recievable=Sale-cash-bank=536000-455600-80400=Nil

Qb.

Journal Entries	$
Date	Particulars	Dr.	Cr.
6	Purchase A/c (Inventory)	189000
	To Account payable		189000
	Being Inventory Purchased
7.1	Account Recievables	536000
	To Sales		536000
	(Being revenue against sale recognised)
7.2	Cash	455600
	Bank	80400
	To Account recievables		536000
	(Being amount received(85% in cash and rest in bank(assumed ))
8.1	Selling Expenses	210000
	To Account payable		210000
	(Being Expenses recorded)
8.2	Account payables	105000
	To Cash		105000
	(Being cash paid to account payables against selling expenses)
9	Interest expense	33000
	To provision for expenses		33000
	(Provision made for interest expenses of this year )

Qc.

Account payables Account
Particulars	$	Particulars	$
cash	105,000.00	Purchase	189,000.00
Balance carried forward	294,000.00	Selling Expenses	210,000.00
	399,000.00		399,000.00
Account Recievables Account
Particulars	$	Particulars	$
Sales	536,000.00	cash	455,600.00
		bank	80,400.00
		Balance carried forward	-
	536,000.00		536,000.00
profit and loss Account
Particulars	$	Particulars	$
Purchase	189,000.00	Sale	536,000.00
Selling Expenses	210,000.00
Interest expense	33,000.00
Profit	104,000.00
	399,000.00		536,000.00

Qd.

Trial balance	$
Particulars	Dr.	Cr.
Assets
Account recievables	-
Cash and Bank	431000
Liabilities
Account payables		294,000.00
Provision for expenses		33,000.00
Income
Sales		536,000.00
Expenses
Purchase	189,000.00
Selling expenses	210,000.00
interest expenses	33,000.00
	863000	863000