Question

Part A)

Prepare a chart of accounts as required and journalize the following transactions and post to the general ledger. (note: general ledger here can be expressed as a T account)

TRANSACTIONS

1. On March 1^st Fancy Pants sold 1,000 common shares for $12,000 start the business.
2. On March 2^nd Fancy Pants took out a $3,000 loan from “TD Bank”. Fancy Pants agreed to repay the loan in one year plus 8% interest.
3. On March 3^rd Fancy Pants purchased some computer equipment to help run the business for $4,500 cash.
4. March 4^th Fancy Pants purchased a six month insurance policy for $1,200 cash.
5. March 6^th Fancy Pants purchased $6,500 worth of Suits and Tuxedos from Big Lots Wholesaler on credit with payment due in 30 days.
6. March 10^th Fancy Pants makes a cash sale to “Luxury Restaurants” for $8,800. Fancy Pants had paid $2000 for the suits they sold.
7. On March 15^th Fancy Pants makes a credit sale to another client for $3,300. The suits for this sale had cost fancy pants $1,000. Payment is also due in 30 days.
8. On March 19^th Fancy Pants received $9,000 advance payment for a new style of tuxedos to be worn by waiters at “HighEnd Restaurants”. Fancy Pants required the advance as part of the sale to ensure they secure enough inventory of the new style.
9. March 23^rd Fancy Payments makes an early payment in the amount of $6,000 to Big Lots Wholesaler.
10. March 26^th Fancy Pants paid weekly employee salaries of $1,800.
11. March 29^th Fancy Pants receives $3,000 for the sale made on March 15^th.
12. March 30^th fancy Pants paid its utility bill of $2,200 for the month of March.

Part B)

It is now March 31^st and management at Fancy Pants has decided to make March 31^st their yearend. While only one month of transactions have been recorded, as Fancy Pants accountant, you must now perform the required adjusting entries for the year end and prepare the financial statements.

1. Review through the above transaction and prepare any required adjusting entries for March 31.

 

Some additional information includes:

• Equipment is expected to last 5 years.
• A work week is 5 days. Between March 26 and March 31employees have worked for three days.

Answer 1

Solution:-

Journal Entries:-

Date	Particulars	Debit	Credit	Workings
01-Mar	Cash/Bank	12,000.00
	Common Stock		10,000.00	[1,000 Shares * $ 10]
	Stock Premium		2,000.00	Computed
	(Being Stock issued and started business)
02-Mar	Cash/Bank	3,000.00
	TD Bank Loan		3,000.00
	(Being Loan taken from TD Bank)
03-Mar	Computer Equipment	4,500.00
	Cash/Bank		4,500.00
	(Being Computer Equipment Purchased)
04-Mar	Prepaid Insurance Policy	1,200.00
	Cash/Bank		1,200.00
	(Being Insurance Policy Purchased)
06-Mar	Inventory (Suits and Tuxedos)	6,500.00
	Accounts Payable (Big Lots)		6,500.00
	(Being Inventory Purchased on Credit from Big Lots due in 30 days)
10-Mar	Cash/Bank	8,800.00
	Sales Revenue		8,800.00
	(Being Inventory sold to Luxury Restaurant)
	Cost of Goods Sold	2,000.00
	Inventory (Suits and Tuxedos)		2,000.00
	(Being Inventory adjusted)
15-Mar	Accounts Receivable	3,300.00
	Sales Revenue		3,300.00
	(Being Inventory sold on credit)
	Cost of Goods Sold	1,000.00
	Inventory (Suits and Tuxedos)		1,000.00
	(Being Inventory adjusted)
19-Mar	Cash/Bank	9,000.00
	Advance Received		9,000.00
	(Being amount received in advance to supply tuxedos)
23-Mar	Advance Payment	6,000.00
	Cash/Bank		6,000.00
	(Being amount paid in advance to Big Lots wholesaler)
26-Mar	Employee Salaries	1,800.00
	Cash/Bank		1,800.00
	(Being Salaries Paid)
29-Mar	Cash/Bank	3,000.00
	Accounts Receivable		3,000.00
	(Being Cash collected from debtors)
30-Mar	Utility Expense	2,200.00
	Cash/Bank		2,200.00
	(Being Utility bill Paid)

Solution:-

Adjustment Entries as on March 31:-

Date	Particulars	Debit	Credit	Workings
31-Mar	Depreciation for Equipment:-
	Depreciation - Equipment	75.00		[($ 4,500 /5 years)*(1/12 months)]
	Accumulated Depreciation - Equipment		75.00	[($ 4,500 /5 years)*(1/12 months)]
31-Mar	Adjustment for Insurance:-
	Insurance Expense	200.00		[$ 1,200/6]
	Prepaid Insurance		200.00
31-Mar	Interest Accrued on TD Bank Loan:-
	Interest Expense	20.00		[$ 3,000 * 8% *(1/12months)]
	Interest Accrued		20.00
31-Mar	Salary Payable Recorded:-
	Employee Salaries	1,080.00		[$ 1,800 * (3/5)]
	Salaries Payable		1,080.00