Question

The following transactions occurred during March 2018 for the Wainwright Corporation.

The company owns and operates a wholesale warehouse. Issued 45,000 shares of common stock in exchange for $450,000 in cash.
Purchased equipment at a cost of $55,000. $17,500 cash was paid and a notes payable to the seller was signed for the balance owed.
Purchased inventory on account at a cost of $108,000. The company uses the perpetual inventory system.
Credit sales for the month totaled $195,000. The cost of the goods sold was $85,000.
Paid $6,500 in rent on the warehouse building for the month of March.
Paid $7,500 to an insurance company for fire and liability insurance for a one-year period beginning April 1, 2021.
Paid $85,000 on account for the merchandise purchased in 3.
Collected $70,000 from customers on account.
Recorded depreciation expense of $2,500 for the month on the equipment.
Prepare journal entries to record each of the transactions listed above.

Answer 1

Answer and Explanation:

The Journal entries are shown below:-

1. Cash Dr, $450,000

To common stock $450,000

(Being issuance of common stock is recorded)

2. Equipment Dr, $55,000

To cash $17,500

To notes payable $37,500

(Being equipment purchased is recorded)

3. Merchandise inventory Dr, $108,000

To accounts payable $108,000

(Being inventory is purchased on the account is recorded)

4. Accounts receivable Dr, $195,000

To sales revenue $195,000

(Being credit sales is recorded)

5. Cost of goods sold Dr, $85,000

To Merchandise inventory $85,000

(Being cost of goods sold is recorded)

6. Rent expense Dr, $6,500

To cash $6,500

(Being cash paid is recorded)

7. Prepaid insurance Dr, $7,500

To cash $7,500

(Being cash paid is recorded)

8. Accounts payable Dr, $85,000

To cash $85,000

(Being cash paid is recorded)

9. Cash Dr, $70,000

To accounts receivable $70,000

(Being cash paid is recorded)

10. Depreciation expense Dr, $2,500

To accumulated depreciation- equipment $2,500

(Being depreciation expense is recorded)