Question

Sweet shop co. is a chain of candy stores that has been in operation for the past ten years.

a. ordered and received $12,000 worth of cotton candy machines from candy makers inc., which sweet shop co. will pay for in 45 days.
b. sent a check for $6,000 to candy makers inc. for the cotton candy machines from (a).
c. received $400 from customers who bought candy on account in previous months.
d. to help raise funds for store upgrades estimated to cost $20,000, sweet shop co. issued 1,000 common shares for $15 each to existing stockholders.
e. sweet shop co. bought ice cream trucks for $60,000 total, paying $10,000 cash and signing a long-term note for $50,000. because the trucks have a lot of specialized components to store ice cream, record them as equipment (even though they could also be considered vehicles).

Answer 1

The student's question relates to different business transactions at Sweet Shop Co., such as acquiring cotton candy machines, receiving customer payments, issuing shares, and purchasing ice cream trucks for operation upgrades.

Step-by-step explanation:

The activities of Sweet Shop Co. involve a series of financial transactions that reflect typical business operations, such as purchasing equipment, handling customer payments on account, and issuing shares to raise capital. In transaction a, Sweet Shop Co. orders and receives cotton candy machines on credit, agreeing to pay for them within a specified period. For transaction b, a partial payment is made towards the purchased machines. Transaction c involves the collection of receivables from customers, improving the company's cash position. Transaction d sees the company issuing common shares to existing stockholders at a set price with the aim of raising funds for store upgrades. Lastly, in transaction e, the company invests in acquiring assets by purchasing ice cream trucks, using a combination of cash payment and long-term financing, treating the trucks as equipment in their financial records due to their specialized components.

Answer 2

(Assuming we are making Journal Entries for items a-e)

a) SS (Sweet Shop) has acquired a capital asset (equipment) and a liability (accounts payable). Debit Equipment 12,000, Credit Accounts Payable (12,000)

b) SS is reducing the amount it owes (Accounts Payable) by reducing its cash. Debit Accounts Payable 6,000, Credit Cash (6,000).

c) The company is receiving money it was already owed. Debit cash 400, credit Accounts Receivable (400).

d) The company is receiving cash by issuing common stock, in the amount of 1,000* 15 = 15,000. Debit Cash 15,000, and credit Common Stock (15,000)

e) The company has acquired equipment worth $60,000, paid for by paying $10,000 in cash and taking on a $50,000 long-term debt. Debit equipment 60,000, credit cash (10,000), and credit Notes Payable (50,000).