Question

Griffin Service Company, Inc., was organized by Bennett Griffin and five other investors. The following activities occurred during the year:

a. Received $77,000 cash from the six investors; each investor was issued 9,100 shares of common stock with a par value of $0.10 per share.
b. Purchased equipment for use in the business at a cost of $25,000; one-fourth was paid in cash and the company signed a note for the balance (due in six months).
c. Signed an agreement with a cleaning service to pay $190 per week for cleaning the corporate offices next year.
d. Received an additional contribution from investors who provided $3,700 in cash and land valued at $22,000 in exchange for 1,700 shares of stock in the company.
e. Lent $3,200 to one of the investors, who signed a note due in six months.
f. Bennett Griffin borrowed $7,700 for personal use from a local bank, signing a one-year note.

Required:
For each transactions, record the effects of the transaction in the appropriate T-accounts.

Answer 1

Griffin Service Company, Inc.

T-accounts:

Cash Account

Account Title Debit Credit

Common Stock $5,460

Paid-in Capital In Excess $71,540

Equipment $6,250

Paid-in Capital In Excess $3,700

Notes Receivable $3,200

Common Stock

Account Title Debit Credit

Cash $5,460

Land 170

Paid-in Capital In Excess

Account Title Debit Credit

Cash $71,540

Cash $3,700

Land $21,830

Equipment

Account Title Debit Credit

Cash $6,250

Notes Payable $18,750

Notes Payable

Account Title Debit Credit

Equipment $18,750

Notes Receivable

Account Title Debit Credit

Cash $3,200

Step-by-step explanation:

Journal Entries:

a. Debit Cash Account $77,000

Credit Common Stock $5,460

Credit Paid-in Capital In Excess $71,540

To record the issue of 9,100 shares with a par value of $0.10 to each investor.

b. Debit Equipment $25,000

Credit Cash $6,250

Credit Notes Payable $18,750

To record the purchase of equipment with cash and note payable.

c. No journal entry required

d. Debit Cash $3,700

Debit Land $22,000

Credit Common Stock $170

Credit Paid-in Capital In Excess $25,530

To record the receipt of cash and land for 1,700 shares.

e. Debit Notes Receivable $3,200

Credit Cash Account $3,200

To record the lending of money to one of the investors.

f. No journal entry required.

Transactions c and f do not require journal entries. Services for c will be received next year. The transaction in f does not affect the company as a legal entity.