Question

QUESTION 1. On December 31, 2019, Clean and White Linen Supplies Ltd. had the following account balances:

Cash	$ 90,000	Accumulated Depreciation, Equipment	$ 90,000
Accounts Receivable	96,000	Accounts Payable	60,000
Inventory	60,000	Wages Payable	8,000
Supplies	2,000	Bank Loan Payable	150,000
Long-Term Investment	80,000	Common Shares	250,000
Equipment	330,000	Retained Earnings	100,000

In 2020, the following transactions occurred:

• 1.On January 1, paid $3,900 for a three-year fire insurance policy.
• 2.Purchased additional uniform inventory on credit for $120,000.
• 3.Sold uniforms for $180,000 on account. The inventory that was sold had been purchased for $100,000.
• 4.Performed cleaning services for customers for $520,000. One-quarter of this amount was paid in cash and the remainder was on account.
• 5.Paid $130,000 to suppliers to settle some of the accounts payable.
• 6.Received $246,000 from customers to settle amounts owed to the company.
• 7.Paid $12,000 for advertising.
• 8.At the end of 2020, paid the interest on the bank loan for the year at the rate of 7%, as well as $30,000 on the principal. The remaining principal balance is due in three years.
• 9.Received a $3,000 dividend from the long-term investment.
• 10.Paid $15,000 for utilities for the year.
• 11.Declared and paid dividends of $12,000 at the end of the year.
• 12.Paid $102,000 for wages during the year. At year end, the company owed another $2,000 to the employees for the last week of work in December.
• 13.Depreciated the equipment for the year. The company had bought its equipment at the beginning of 2017, and it was expected to last 10 years and have a residual value of $30,000.
• 14.Made an adjustment for the cost of the insurance that expired in 2020.

Prepare journal entries to record each of the above transactions and adjustments.

QUESTION 2. If a company declared dividends of $7,000 on December 15, 2020, to be paid on January 15, 2021. When preparing for journal entries for the year of 2020, how would it look like? Does cash get affected on December 15, 2020?

Answer 1

Date Credit 1 3,900.00 2 1,20,000.00 3 1,80,000.00 4 5,20,000.00 5 Journal Entries in the Books of Clean and White Linen Supplies Ltd Question 1 Particulars Particulars Debit By Fire Insurance Policy 3,900.00 Το Cash 3 Yr fire Insurance Policy bought By Inventory 1,20,000.00 Το Accounts payable Inventory purchased on credit By Accounts Recievable 1,80,000.00 To Sales Sale of Inventory By Accounts Recievable 3,90,000.00 By Cash 1,30,000.00 To Cleaning Service Cleaning services done By Accounts Payable 1,30,000.00 To Cash Settling of accounts payable By Cash 2,46,000.00 To Accounts Recievable Customer settling dues By Advertising 12,000.00 To Cash Advertisement expenditure paid By Interest Paid 10,500.00 By Bank Loan 30,000.00 To Cash Interest and Loan repaid By Cash 3,000.00 To Dividend Received Dividend Received By Utilities 15,000.00 To Cash 1,30,000.00 6 2,46,000.00 7 12,000.00 8 40,500.00 9 3,000.00 10 15,000.00 Paid for Utilities 11 By Dividends 12,000.00 12,000.00 To Cash Dividends Declared and paid

12 By Wages Payable By Wages 8,000.00 96,000.00 To Wages payable To Cash Wages paid during the year 2,000.00 1,02,000.00 13 By Depreciation 30,000.00 30,000.00 14 2,600.00 2,600.00 Το Accumulated Depreciation Depreciation charged By Prepaid Insurance To Fire Insurance Policy Current year policy amount adjusted and remaining treated as Prepaid insurance Question 2 Profit and Loss By Appropriation A/c To Proposed Dividend Entry for Proposed Divided No Cash won't be affected 14 7,000.00 7,000.00