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 final 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 first 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 five 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.

Required

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.

Answer 1