Question

Sarah Bower is the owner of Sarah’s Shameless Boutique Corp. (SSBC), a newly incorporated company. Sarah believes that she has a great concept but does not have a lot of money to start the business. Sarah is fairly resourceful, though, and has been able to arrange the following:

1. On July 1, 2018, SSBC provides a vendor with a $10,500 non-interest bearing note due on July 1, 2019, in exchange for furniture with a list price of $10,000. Sarah Bower guarantees the debt.

2. On August 1, 2018, SSBC buys a photocopier listed for $3,400. The office supply store agrees to accept a $500 down payment and a $3,000, three-year note payable at $1,040 per year including interest at 2% with the first payment due on August 1, 2019. The loan is secured by a lien on the photocopier.

3. On September 1, 2018, SSBC borrows $10,000 from its bank for working capital purposes. The loan, plus interest at 6% per annum, is due on June 30, 2019. SSBC grants the bank a security interest in its accounts receivables and inventory.

SSBC’s year-end is June 30. The company’s banker has suggested that an appropriate market rate for SSBC is 6% per annum for loans that mature in one year or 8% for loans with longer maturities.

Required: Prepare journal entries to record:

i. The purchase of the office furniture.

ii. The acquisition of the photocopier.

iii. The receipt of the loan proceeds.

iv. Payments and accruals on June 30, 2019.

Answer 1