PROBLEM 2.1: Simple Transactions A. Kris formed a consulting business, KrisCo Ma
ID: 2421060 • Letter: P
Question
PROBLEM 2.1: Simple Transactions A. Kris formed a consulting business, KrisCo Management Consulting in September. Operations will begin October.
The following events occurred during the month of September:
1. Kris invested $10,000 into the business.
2. She hired an assistant who will be paid $2,000 per month. The assistant begins work on Oct. 1.
3. Signed a lease agreement for office space at a cost of $1,000 per month. Paid the first three months in advance. The business will move in on October 1.
4. Borrowed $25,000 from the local bank. The loan bears interest.
5. Bought $6,000 in used office equipment. The equipment will be used for 4 years.
The following events occurred during the month of October:
1. Performed consulting Job #1 and was paid $500.
2. Performed consulting Job #2 and billed customer for $400. Bill is due in Nov.
3. Received an advance payment of $300 on Job #3. Work will begin in November.
4. Paid assistant $1,000 for the first half of the month’s work.
5. Received utility bills [electric, phone, gas, etc.] for the month of October totaling $250.
6. Made a payment of $1,200 to the bank. $200 of the payment is to cover October interest on the loan, with the remainder going to principal.
REQUIREMENTS: Same as B below B.
Tony formed a business called Tone’s Big Screen TV Emporium Inc. during the month of September. Doors will open for business on October 1. The following occurred during September:
1. Tony invested the following
Tony personally borrowed $10,000 from the bank. Tony then invested the funds in the business.
Used computer equip. $4,800, originally costing $6,000. Estimates 2 years of service remain.
Office equip. worth $2,400, originally costing $6,000. Estimates 5 years of service remain.
2. Called Sony and ordered 10 big screen TVs at a cost of $500 each. Payment is due 30 days after receipt.
3. Hired a salesperson who will be paid $500 per month plus commissions of 5% of what he sells. Salesperson will begin work on October 1.
4. Signed a five-year lease agreement with rent due of $1,000 per month. Tone will move in the first of next month and pay first and last month’s rent.
5. Tony received the 10 big screen TVs ordered from Sony.
6. Called the advertising department of the local newspaper and arranged to run an opening day advertisement. Paid $1,000 for the ad which will run on October 1.
7. Purchased new warehouse equipment for $8,000 in cash. The equipment will be useful for 5 years.
The following events occurred during the month of October:
1. Borrowed $20,000 from the bank.
2. Paid $2,000 on October 1st as required by the lease.
3. Sold 4 TVs at $800 each for a $3,200 total. The cash was collected immediately.
4. Paid Sony for the TVs ordered and received in September.
5. Sold 4 TVs at $950 each - $3,800 total. The customer will pay for the TVs in November.
6. Paid salesman his salary of $500 at the end of the month. Commissions will be paid next month.
7. Customer signed sales contract for one TV at $850. The TV will be delivered next month. The customer made an advance payment of $400.
8. Received the following bills for October services to be paid in November
$300 for October Utilities.
$50 for 2 months interest on Tone’s personal loan and $40 for one month on the company loan.
9. Paid $500 in dividends to Tone in his capacity as a stockholder/owner.
QUESTIONS: (1) Record transactions (2) Prepare any necessary adjustments (3) Prepare financial statements.
Explanation / Answer
1)Journal entries:
Oct
Adjusting entries
Depreciation expense $250
To Accumulated depreciation $250
Income statment
consulting fees $900
less:Expenses:
Salary expenses ($2,000)
interest expense (200)
Utility expense (250)
Depreciation expense (250)
Rent expense (1,000) (3,650)
Net loss (2,800)
Balance sheet
Cash 24,600 unearned service revenue 300
Prepaid rebt 2,000 Utiltiy payable 250
A/c recievable 400 Salary paayble 1,000
Office equipment 6000 Bank loan 24,000
less :dep (250) 5,750 Capital 10,000
less (2,800) 7,200
total assets 32,750 liabiltiies + capital $32,750
Description Debit Credit Cash $10,000 To capital $10,000 prepaid rent $3,000 To Cash $3,000 Cash $25,000 To Bank laoan $25,000 Office equipment $6,000 To Cash $6,000Related Questions
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