Question

Marjorie Knaus, an architect, organized Knaus Architects on January 1, 2018. During the month, Knaus Architects completed the following transactions:

A. Issued common stock to Marjorie Knaus in exchange for $30,000.
B. Paid January rent for office and workroom, $2,500.
C. Purchased used automobile for $28,500, paying $6,000 cash and giving a note payable for the remainder.
D. Purchased office and computer equipment on account, $8,000.
E. Paid cash for supplies, $2,100.
F. Paid cash for annual insurance policies, $3,600.
G. Received cash from client for plans delivered, $9,000.
H. Paid cash for miscellaneous expenses, $2,600.
I. Paid cash to creditors on account, $4,000.
J. Paid installment due on note payable, $1,875.
K. Received invoice for blueprint service, due in February, $5,500.
L. Recorded fees earned on plans delivered, payment to be received in February, $31,400.
M. Paid salary of assistants, $6,000.
N. Paid gas, oil, and repairs on automobile for January, $1,300.

Answer 1

1. Issuance of stock is increase in capital and cash asset by $30,000

Dr Cash Asset $30,000

Cr Equity $30,000

2. Payment of rental expenses on 1 January, 2018 means that there is no outstanding accrued expense in the accounts. So amount paid is decrease in cash asset and increase in expense.

Dr Rental expenses $2500

Cr Cash Account $2500

3. The purchases of the automobile is increase in the non current asset. The price of the automobile is $28500 of which $6000 is been paid and the remainder is financed from note payable.

This means cash asset is been reduced by $6000, Non current asset has been increased by $28500 and increase in Note payable (current liability) is by $22500.

Dr Car $28500

Cr Cash Account $6000

Cr Note Payable $22500

4. The purchases of the office equipment accounts to $8000 which is increase in non current asset and decrease in the current asset which is cash asset.

Dr Office Equipment $8000

Cr Cash account $8000

5. The payment made for the supplies is the payment made to suppliers whose invoices we had received. So it means their is outstanding debt which we owe to supplier in the accounts. The cash payment reduced the asset which must be credited against decrease in the liability which must be debited.

Dr Trade Payable $2100

Cr Cash Account $2100

6. Annual insurance payment made is an expense and insurance expense must be debited whereas cash paid is decrease in asset which must be credited.

Dr Insurance Expense $3600

Cr Cash Account $3600

7. Received cash for sales made is increase in sales and increase in cash asset. So increase in sales is always credited and increase in asset is always debited.

Dr Cash Asset $9000

Cr Sales account $9000

8. Cash paid for expenses is decrease in the asset and must be credited and increase in the expense which must be debited.

Dr Miscellaneous Expense $2600

Cr Cash Account $2600

9. The payment made to supplier is decrease in liability trade payable and also decrease in the cash asset.

Dr Trade Payable $4000

Cr Cash Account $4000

10. The installment due is reduction in the note payable and must be debited and cash paid is decrease in asset which must be credited.

Dr Note Payable $1875

Cr Cash Account $1875

11. The payment due to supplier must be recorded as accrued expense which would increase the expense and increase in the liability.

Dr Blueprint expenses $5500

Cr Accued Expense $5500

12. The income due to be received by the customer is accrued income and must be recorded as accrued income which is credited and there is also increase in the receiveable which is asset and must be debited

Dr Receivable $31400

Cr Accrued Income $31400

13. The payment made to employees is salary expenses and is increase in expense which must be debited and decrease in cash asset which must be credited.

Dr Salary Account $ 6000

Cr Cash Account $6000

14. The payment made for utility bills is utility expenses and is increase in expense which must be debited and decrease in cash asset which must be credited.

Dr Utility Expense $ 1300

Cr Cash Account $1300