Question

Exercise 4-5 Record transactions and calculate financial statement amounts LO 2, 6, 7 The transactions relating to the formation of Blue Co. Stores, Inc., and its first month of operations follow. a. The firm was organized and the stockholders invested cash of $9,000. b. The firm borrowed $5,600 from the bank; a short-term note was signed. c. Display cases and other store equipment costing $1,550 were purchased for cash. The original list price of the equipment was $1,970, but a discount was received because the seller was having a sale. d. A store location was rented, and $1,350 was paid for the first month's rent. e. Inventory of $14,300 was purchased; $9,100 cash was paid to the suppliers, and the balance will be paid within 60 days. f. During the first week of operations, merchandise that had cost $3,900 was sold for $6,300 cash. g. A newspaper ad costing $140 was arranged for; it ran during the second week of the store's operations. The ad will be paid for in the next month. h. Additional inventory costing $4,150 was purchased; cash of $1,250 was paid, and the balance is due in 30 days. i. In the last three weeks of the first month, sales totaled $14,500, of which $9,800 was sold on account. The cost of the goods sold totaled $8,600. j. Employee wages for the month totaled $1,900; these will be paid during the first week of the next month. k. The firm collected a total of $3,200 from the sales on account recorded in transaction i. l. The firm paid a total of $4,750 of the amount owed to suppliers from transaction e. Required: a. Record each transaction in the appropriate columns. (Enter decreases to account balances as a negative)

Answer 1

Below will be the entries:-

a. Cash Dr 9000

Owners Equity 9000

( Owners invested 9000 in the company)

b. Cash Dr 5600

Bank Borrowings 5600

(Borrowed 5600 from bank)

c. Equipment Dr 1970

To Cash 1550

To Discount Received 420

( Being asset purchased at discount)

d. Rent Expense Dr 1350

Cash 1350

( Being rent paid in cash)

e.  Stock / Merchandise Dr 14300

Cash 9100

Accounts Payable 5200

( Being inventory purchased partially on cash & partially on credit)