Question

Question 3

The following transactions occurred for Mouawad Inc:

1. Inventory costing $300,000 was purchased on account.

2. A new vehicle costing $30,000 was purchased. Mouawad paid $5,000 as a down payment, and the remaining $25,000 was financed through a bank loan.

3. Surplus land was sold for $80,000, which was $20,000 more than its original cost.

4. During the year, the company made a payment of $20,000 on its mortgage payable;

$2,500 of this amount was for the interest on the debt.

5. Wages of $45,000 were charged to expense as they were incurred. No wages were owing to the employees at the end of the year.

6. The company declared and paid dividends of $30,000.

Required

For each of the above items:

• Provide the journal entry
• State whether cash increases, decreases, or stays the same
• State whether it pertains to operating, investing or financing activities

1. Mortgage transaction

	Dr.	Cr.

Circle one:	Cash increases	Cash decreases	Cash stays the same
Circle one:	Operating Activity	Investing Activity	Financing Activity

2. Wage transaction

	Dr.	Cr.

Circle one:	Cash increases	Cash decreases	Cash stays the same
Circle one:	Operating Activity	Investing Activity	Financing Activity

3. Dividend transaction

	Dr.	Cr.

Circle one:	Cash increases	Cash decreases	Cash stays the same
Circle one:	Operating Activity	Investing Activity	Financing Activity

Answer 1

Ans 1)

Journal Entries

S.No	Account Titles	Debit	Credit
1	Inventory	$300,000
	Accounts Payable		$300,000
2	Vehicle	$30,000
	Cash		$5,000
	Ban Loan		$25,000
3	Cash	$80,000
	Land		$60,000
	Gain on sale of Land		$20,000
4	Mortgage Payable	$17,500
	Interest on Mortgage	$2,500
	Cash		$20,000
5	Wages	$45,000
	Cash		$45,000
6	Dividend	$30,000
	Cash		$30,000

Ans 2) & 3)

Particulars	Remarks	Type of Activity
1) Inventory purchased on account	Cash Stays the same	-
2) Vehicle Purchased	Cash decreases	Investing
3) Sale of Land	Cash Increses	Investing
4) Mortgage Paid	Cash decreases	Operating
5) Interest on Mortgage	Cash decreases	Financing
6) Payment of Wages	Cash decreases	-
7) Dividend Paid	Cash decreases	Financing