Question

In September 2016, Kate incorporated Kate’s Cards after investigating different organizational forms,

and began the process of getting her business up and running. The following events occurred during

the month of September 2016:

1. Kate deposited $10,000 that she had saved into a newly opened business checking account. She

received common stock in exchange.

2. Kate designed a brochure that she will use to promote her greeting cards at local stationery stores.

3. Kate paid Fred Simmons $50 to critique her brochure before undertaking her ?nal design and

printing.

4. Kate purchased a new iMac computer tablet, specialized graphic arts software, and commercial

printer for the company, paying $4,800 in cash. She decided to record all of these items under the

same equipment account.

5. Kate purchased supplies such as paper and ink for $350 at the local stationery store. She opened a

business account with the store and was granted 30 days credit on all purchases, including the one

she just made.

6. Kate designed her ?rst 5 cards and prepared to show them to potential customers.

7. The owner of the stationery store where Kate opened her account was impressed with Kate’s work

and ordered 1,000 of each of the ?ve card designs at a cost of $1 per card, or $5,000 total. Kate

tells the customer that she will have them printed and delivered within the week.

8. Kate purchased additional supplies, on account, in the amount of $1,500.

9. Kate delivered the 5,000 cards. Because the owner knows that Kate is just starting out, he paid her

immediately in cash. He informed her that if the cards sell well that he will be ordering more, but

would expect a 30-day credit period like the one he grants to his own business customers.

10. The cost to Kate for the order was $1,750 of the supplies she had purchased. (Hint: This cost should

be recorded as a debit to an expense called Cost of Goods Sold.)

11. Kate paid her balance due for the supplies in full.

12. Kate decided that she should have special renters’ insurance to cover the business equipment she

now owns. She purchased a one-year policy for $1,200, paying the entire amount in cash. (Hint:

Two accounts will need to be debited here, one for the current month expense and one for the

prepaid amount.)

13. Kate determined that all of her equipment will have a useful life of 4 years (48 months) at which

time it will not have any resale or scrap value. (Hint: Kate will expense 1/48th of the cost of the

equipment each month to Depreciation Expense. The credit will be to Accumulated Depreciation.)

14. Kate paid herself a salary of $1,000 for the month.

Directions

a. Prepare a general ledger with the following accounts: Cash; Accounts Receivable; Supplies In-

ventory; Prepaid Insurance; Equipment; Accumulated Depreciation; Accounts Payable; Common

Stock; Retained Earnings; Sales Revenue; Cost of Goods Sold; Consulting Expense; Insurance

Expense; Depreciation Expense; Wages Expense. Prepare journal entries for the above transac-

tions using these accounts.

b. Post the accounting transactions for the month of September 2016 to the general ledger

T-accounts.

c. Prepare a trial balance for Kate’s Cards as of September 30, 2016.

d. Prepare an Income Statement, Statement of Stockholder's Equity for the Month of September 2016 and a Balance Sheet for September 31, 2016.

Answer 1

a) Ledger Accounts:

Coomon Stock
To balance c/d	10000	By Cash	10000
	10000		10000

Cash
To common stock	10000	By Consulting fees	50
To Sales Revenue	5000	By equipment	4800
		By Accounts payable	1850
		By Insurance expenses	100
		By Prepaid Insurance	1100
		By salary expenses	1000
		By Balance c/d	6100
	15000		15000

Consulting Fees
To cash	50	By Income statement	50
	50		50

Equipment
To cash	4800	By balance c/d	4800
	4800		4800

Supplies Inventory
To Accounts Payable	350	By Cost of Goods sold	1750
To Accounts Payable	1500	By balance c/d	100
	1850		1850

Accounts Payable
To cash	1850	By Supplies Inventory	350
		By Supplies Inventory	1500
	1850		1850

Sales Revenue
To Income statement	5000	By Cash	5000
	5000		5000

Cost of Goods Sold
To Supplies inventory	1750	By Income statement	1750
	1750		1750

Insurance Expenses
To cash	100	By Income statement	100
	100		100

Prepaid Insurance
To Cash	1100	By Balance c/d	1100
	1100		1100

Depreciation expenses
To Accumulated Depreciation	100	By Income statement	100
	100		100

Accumulated Deprecation
To balance c/d	100	By Depreciation expenses	100
	100		100

Salary expenses
To caah	1000	By Income Staement	1000
	1000		1000

b) Trial Balance

Trial Balance
As on September 30, 2016
S.No.	Title of Account	Debit	Credit
1	Common Stock		10000
2	Cash	6100
3	Consulting Fee	50
4	Equipment	4800
5	Supplies Inventory	100
6	Accounts Payable		0
7	Sales Revenue		5000
8	Cost of Goods Sold	1750
9	Insurance	100
10	Prepaid Insurance	1100
11	Depreciation Expenses	100
12	Accumulated Depreciation-Euipment		100
13	Salary Expenses	1000
		15100	15100

c) Income Statement

Kate's Cards
Income Statement
For the month of September, 2016
Sales Revenue		5000
COGS		1750
Gross Profit		3250
Consulting Fee	50
Insurance	100
Depreciation	100
Salary expenses	1000	1250
Net Profit		2000

d) Balance Sheet

Kate's Cards
Balance Shheet
As on September 30, 2016
ASSETS
Current Assets
Supplies Inventory	100
Cash	6100
Prepiad Insurance	1100	7300
Noncurrent Assets
Equipments	4800
Less: Accumulated Depreciation	-100	4700
TOTAL ASSETS		12000
LIABILITIES AND EQUITY
Current Liabilities
Accounts Payable	0
Noncurrent liabilties
Equity
Common Stock	10000
Retained Earnings	2000	12000
TOTAL LIABILITIES AND EQUITY		12000