Question

On 1st January 2020 Tom Shanks started trading as Shanks Real Estate, and completed the following...

On 1st January 2020 Tom Shanks started trading as Shanks Real Estate, and completed the following transactions regarding the business in the first month:

  1. Jan 1: Tom Shanks transferred cash from his personal bank account to the business bank account in order to start operations, $25,000.
  2. Jan 4: The business paid a year’s rent in advance for office space, $11,880
  3. Jan 5: The business purchased a motor vehicle, $22,000. A deposit of $6,000 was paid with the remainder financed by a bank loan.
  4. Jan 14: Earned first sales commission and received cash, $16,500
  5. Jan 18: Paid motor vehicle expenses, $55
  6. Jan 20: Tom Shanks used $60 from the business’ account to buy flowers for his wife Rita
  7. Jan 25: Earned sales commission and sent the client an invoice which will be paid in February, $27,500

For the transaction on January 5th prepare a general journal entry (see Exhibit 5.3 p. 191 for format)

Homework Answers

Answer #1

Answer: Journal Entry for transaction on January 5th, 2020.

JOURNAL
DATE ACCOUNT DEBIT CREDIT
JAN 05, 2020 Motor Vehicle $       22,000
      Bank $         6,000
      Bank loan $       16,000
(Motor Vehicle purchased for $22000, paid $6000 from bank and $16000 through Bank loan.)

NOTES :

  • Motor vehicle is debited as it is an asset and purchase of an asset increases its value .
  • As the purchase of motor vehicle is financed partly by deposited amount in bank and partly through bank loan ,Thus they both are credited.
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