Question

The Wyndham Wholesale Company began operations on 8/1/16. The following transactions occur during the month of August.

1. Aug 1. Owners invest $100,000 cash in exchange for 10,000 shares of $1 par-common stock.
2. Aug 1. Equipment is purchased for $20,000 in exchange for a 6 month, 6% note. Interest is not to be paid until the end of the life of the note (i.e., on 7/31/2017). The equipment has a 5 year life and a $2,000 salvage value. Depreciation will be taken on a straight-line basis.
3. Aug 1. A rent agreement is signed and $6,000 is remitted for rent on a building for the months of August, September and October.
4. Aug 5. Merchandise inventory costing $48,000 is purchased on account. The company uses the perpetual inventory system.
5. Credit sales for the month are $80,000. The cost of merchandise sold is $32,000.
6. $25,000 is collected on account from customers.
7. $20,000 is paid on account to suppliers of merchandise.
8. Employees earn $3,000 / 5-day week and are paid bi-weekly (one week after the pay period ends). The first pay periods was for the 2 weeks 8/1/16-8/12/16 and was paid on 8/19/16. The last pay date for the month of August was 8/19.
1. A bill for $4,000 is received from the local utility company for the month of August and is not paid until September.
10. $20,000 cash is loaned to another company, evidenced by a note receivable. The note receivable is dated 8/16/16. The note requires the entire $20,000 in principal plus interest at 12% to be repaid in 4 months (the loan was outstanding for ½ month during August)
11. The corporation declares its shareholders a cash dividend of $1,000.

REQUIREMENT 1

1. Prepare a journal entry for each of the above initial transactions.
2. Prepare an UNADJUSTED TRIAL BALANCE (spreadsheet software is preferable, e.g., EXCEL).

REQUIREMENT 2

3. Prepare any necessary adjusting entries at 8/31/16.
4. Post the adjusting entries to the UNADJUSTED trial balance in PART 1 to get an ADJUSTED TRIAL BALANCE.
5. What is the total (amount) net effect on income and direction (overstated or understated) if these entries are not made?
6. Prepare an income statement, statement of stockholders’ equity for the month ended 8/31/16 and a balance sheet as of 8/31/1
7. Assume that 8/31 is the company’s fiscal year-end. Prepare the necessary closing entries.

Answer 1

	JOURNAL ENTRY
Ref	Date	Account Title	Debit	Credit
a	Aug.1	Cash	$100,000
		Common stock		$100,000
b	Aug.1	Equipment	$20,000
		Notes Payable		$20,000
c	Aug.1	Prepaid Rent	$6,000
		Cash		$6,000
				Cash
d	Aug.5	Merchandise Inventory	$48,000
		Accounts Payable		$48,000
e	Aug.5	Accounts Receivable	$80,000
		Sales Revenue		$80,000
		Cost of goods sold	$32,000
		Merchandise Inventory		$32,000
f	Aug.5	Cash	$25,000
		Accounts receivable		$25,000
g	Aug.5	Accounts Payable	$20,000
		Cash		$20,000
h	Aug.19	Wage expenses	$6,000
		Cash		$6,000
i	Aug.19	Utilities expenses	$4,000
		Accrued expenses		$4,000
j	Aug.16	Note receivable	$20,000
		Cash		$20,000
k		Dividend	$1,000
		Dividend payable		$1,000