Question

1. Journalize the following events/transactions that Lobnitz entered into during the month.

1. Received $1,500,000 from issuing 500,000 shares of $1 par value Lobnitz common stock. (When recording this entry, creditTWOdistinct owners’ equity accounts.)
2. Borrowed $750,000.
3. Purchased $300,000 of office furniture (property, plant, and equipment) on a cash basis.
4. Performed $400,000 of services for customers on a credit basis.
5. Incurred and paid $250,000 of wages expense for the month.
6. Collected $100,000 of accounts receivable.
7. Collected $25,000 from customers for work to be performed during the following month.

2. Assume the month in which you made the previous journal entries in part a. was Lobnitz’s first month in business. What was Lobnitz’s cash balance at the end of its first month of business?

Answer 1

a)

Journal

i	Cash	1,500,000
	Common stock		500,000
	Paid in capital, in excess of par - Common		1,000,000
ii	Cash	750,000
	Notes payable		750,000
iii	Equipment	300,000
	Cash		300,000
iv	Accounts receivable	400,000
	Service revenue		400,000
v	Wages expense	250,000
	Cash		250,000
vi	Cash	100,000
	Accounts receivable		100,000
vii	Cash	25,000
	Unearned service revenue		25,000

b)

Cash account

i	1,500,000	iii	300,000
ii	750,000	v	250,000
vi	100,000
vii	25,000
Ending balance	1,825,000

Lobnitz’s cash balance at the end of its first month of business = $1,825,000

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