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 month of operations.

a. Issued 2,300 shares of $0.01 par value common stock to investors for cash at $23 per share.
b. Borrowed $61,000 from the bank to provide additional funding to begin operations; the note is due in two years.
c. Paid $2,200 cash for rent of a warehouse: $1,100 for the current month’s rent and another $1,100 for next month’s rent.
d. Paid $2,160 for a one-year fire insurance policy on the warehouse (recorded as a prepaid expense).
e. Purchased furniture and fixtures for the warehouse for $20,000, paying $3,100 cash and the rest on account.The amount is due within 30 days.
f. Purchased for $3,800 cash The University of Pennsylvania, Notre Dame, The University of Texas at Austin, The Ohio State University, and Michigan State University baseball caps as inventory to sell online.
g. Placed advertisements on Google for a total of $330 cash; the ads were run immediately.
h. Sold caps totaling $1,900, half of which was charged on account.
i. The cost of the caps sold was $1,100. (Hint: Make two entries.)
j. Made full payment for the furniture and fixtures purchased on account in (e).
k. Received $210 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

CapUniverse, Inc.'s first month transactions were recorded in journal entries that involved issuing stock, taking loans, purchasing inventory, making sales, and dealing with expenses. Each entry affected assets, liabilities, equity, revenues, and expenses as per accounting standards.

Step-by-step explanation:

Journal Entries for CapUniverse, Inc.

1. Issued common stock: Debit Cash (A) $52,900; Credit Common Stock (SE) $23; Credit Additional Paid-In Capital (SE) $52,877.
2. Borrowed from bank: Debit Cash (A) $61,000; Credit Notes Payable (L) $61,000.
3. Paid rent: Debit Rent Expense (E) $1,100; Debit Prepaid Rent (A) $1,100; Credit Cash (A) $2,200.
4. Purchase insurance policy: Debit Prepaid Insurance (A) $2,160; Credit Cash (A) $2,160.
5. Purchased furniture and fixtures: Debit Furniture and Fixtures (A) $20,000; Credit Cash (A) $3,100; Credit Accounts Payable (L) $16,900.
6. Purchased inventory: Debit Inventory (A) $3,800; Credit Cash (A) $3,800.
7. Placed advertisements: Debit Advertising Expense (E) $330; Credit Cash (A) $330.
8. Sold caps on account and for cash: Debit Cash (A) $950; Debit Accounts Receivable (A) $950; Credit Sales Revenue (R) $1,900.
9. Cost of goods sold: Debit Cost of Goods Sold (E) $1,100; Credit Inventory (A) $1,100.
10. Payment for fixtures and furniture: Debit Accounts Payable (L) $16,900; Credit Cash (A) $16,900.
11. Received payment from customer: Debit Cash (A) $210; Credit Accounts Receivable (A) $210.

CapUniverse, Inc. has made various transactions including stock issuance, borrowing from a bank, paying for rent and insurance, and purchasing furniture and inventory. These transactions affected their assets, liabilities, stockholders' equity, revenue, and expenses in different ways. The journal entries for each transaction categorize the affected accounts and indicate the appropriate debits and credits under accounting principles.

Answer 2

a. Issued 2,300 shares of $0.01 par value common stock to investors for cash at $23 per share.

Dr Cash (A) 52,900

Cr Common stock (SE) 23

Cr Additional paid in capital (SE) 52,877

b. Borrowed $61,000 from the bank to provide additional funding to begin operations; the note is due in two years.

Dr Cash (A) 61,000

Cr Notes payable (L) 61,000

c. Paid $2,200 cash for rent of a warehouse: $1,100 for the current month’s rent and another $1,100 for next month’s rent.

Dr Rent expense (E) 1,100

Dr Prepaid rent (A) 1,100

Cr Cash (A) 2,200

d. Paid $2,160 for a one-year fire insurance policy on the warehouse (recorded as a prepaid expense).

Dr Prepaid insurance (A) 2,160

Cr Cash (A) 2,160

e. Purchased furniture and fixtures for the warehouse for $20,000, paying $3,100 cash and the rest on account. The amount is due within 30 days.

Dr Furniture and fixtures (A) 20,000

Cr Cash (A) 3,100

Cr Accounts payable (L) 16,900

f. Purchased for $3,800 cash The University of Pennsylvania, Notre Dame, The University of Texas at Austin, The Ohio State University, and Michigan State University baseball caps as inventory to sell online.

Dr Merchandise inventory (A) 3,800

Cr Cash (A) 3,800

g. Placed advertisements on Google for a total of $330 cash; the ads were run immediately.

Dr Advertising expense (E) 330

Cr Cash (A) 330

h. Sold caps totaling $1,900, half of which was charged on account.

i. The cost of the caps sold was $1,100. (Hint: Make two entries.)

Dr Accounts receivable (A) 1,900

Cr Sales revenue (R) 1,900

Dr Cost of goods sold (E) 1,100

Cr Merchandise inventory (A) 1,100

j. Made full payment for the furniture and fixtures purchased on account in (e).

Dr Accounts payable (L) 16,900

Cr Cash (A) 16,900

k. Received $210 from a customer on account.

Dr Cash (A) 210

Cr Accounts receivable (A) 210