Question

Ryan Terlecki organized a new Internet company, CapUniverse, Inc. The company specializes in baseball-type caps with logos printed on them. Ryan, who is never without a cap, believes that his target market is college and high school students. You have been hired to record the transactions occurring in the first two weeks of operations.

a. Issued 2,600 shares of $0.01 par value common stock to investors for cash at $26 per share.
b. Borrowed $64,000 from the bank to provide additional funding to begin operations; the note is due in two years.
c. Paid $1,100 for the current month's rent of a warehouse and another $1,100 for next month's rent.
d. Paid $1,800 for a one-year fire insurance policy on the warehouse (recorded as a prepaid expense).
e. Purchased furniture and fixtures for the warehouse for $11,000, paying $2,600 cash and the rest on account. The amount is due within 30 days.
f. Purchased for $3,200 cash The University of Pennsylvania, Notre Dame, The University of Texas at Austin, and Michigan State University baseball caps as inventory to sell online.
g. Placed advertisements on Google for a total of $270 cash.
h. Sold caps totaling $1,700, half of which was charged on account. The cost of the caps sold was $900. (Hint: Make two entries.)
i. Made full payment for the furniture and fixtures purchased on account in (e).
j. Received $230 from a customer on account.

Required:
For each of the transactions, prepare journal entries. Be sure to categorize each account as an asset (A), liability (L). stockholders' equity (SE). revenue (R), or expense (E). Note that transaction(h). will require two entries, one for revenue and one for the related expense.

Answer 1

a. (E) Common stock US$ 26 (credit) and (A) cash US$ 26 (debit)

b. (L) Loans payable US$ 64,000 (credit) and (A) cash US$ 64,000 (debit)

c. (E) Rental expenses US$ 1,100 (debit), (A)Rental paid in advance US$ 1,100 (debit) and (A)cash US$ 2,200

d. (A) Prepaid insurance US$ 1,800 (debit) and (A) cash US$ 1,800 (credit)

e. (A) Fixed Assets US $ 11,000 (debit), (A) cash US$ 2,600 (credit) and (L) accounts payable US$ 8,400 (credit)

f. (A) Inventory US$ 3,200 (debit) and (A) cash US$ 3,200 (credit).

g. (E) Advertisement expenses US$ 270 (debit) and (A) cash US$ 270 (credit)

h. (R) Sells US$ 1,700 (credit), (A)cash US$ 850 (debit) and (A) accounts receveible US$ 850 (debit). (E) Cost of sales US$ 900 (debit) and (A) Inventory US$ 900 (credit).

i. (L) Accounts payable US$ 8,400 (debit) and (A) cash US$ 8,400 (credit).

j. (L) Income in advance US$ 230 (credit) and (A)cash US$230 (debit)