Question

Whitelands, Inc. had $100 of cash and shareholders’ equity as the result of its initial sale of stock on January 1, 2012. During its first month of operations, Whitelands had the following operating transactions: Date Transaction 1/1 Paid $24 cash in advance to rent a store for one year 1/1 Purchased 2 units of inventory on credit costing $4 each 1/3 Purchased 3 units of inventory on credit costing $5 each 1/10 Purchased 4 units of inventory on credit costing $6 each 1/21 Paid for the January 1 inventory purchase 1/23 Paid for the January 3 inventory purchase 1/30 Sold 7 units of inventory at $10 each on credit 1/30 Matched the inventory cost to January 30 sales on a FIFO basis 1/31 Estimated that 10% of credit sales will not be realized in cash 1/31 Adjusted the prepaid rent account Required: 1. Record the journal entries for the above transactions. 2. Present Whitelands’ income statement for January 2014. 3. Report Whitelands’ balance sheet on January 31, 2014. 4. Close the revenue and expense accounts to retained earnings.  

Answer 1

1) Journal entries
Date	Particulars			Debit	Credit
01-Jan	Prepaid rent			$    24.00
	cash				$    24.00
01-Jan	inventory			$       8.00
	accounts payable				$       8.00
01-Mar	inventory			$    15.00
	accounts payable				$    15.00
01-Oct	inventory			$    24.00
	accounts payable				$    24.00
Jan-21	accounts payable			$    15.00
	cash				$    15.00
Jan-30	accounts receivable			$    70.00
	sale revenue				$    70.00
Jan-30	cost of goods sold			$    35.00
	inventory				$    35.00
Jan-31	Bad debts			$       7.00
	allowance for uncollectible account				$       7.00
Jan-31	rent expenses			$       2.00
	prepaid rent				$       2.00
2) Income statement Whitelands Inc for the year ended 31/1/12
Particulars				Amount
sale revenue				$    70.00
Cost of goods sold				$    35.00
Gross profit				$    35.00
Operating expenses:
Rent expenses				$       2.00
Bad debts expenses				$       7.00
Net Income				$    26.00
Balance sheet as on 31/1/12
Particulars		amount	Pariculars	amount
Cash		$    53.00	accounts payable	$    24.00
accounts receivable		$    63.00	shareholder's equity
inventory		$    12.00	Common stock	$ 100.00
prepaid rent		$    22.00	Retained earnings	$    26.00
total assets		$ 150.00	total laibilities & shareholder's equity	$ 150.00
4. Closing journal entries
Date		Particulars		Debit	Credit
1/31/12		sale revenue		$    70.00
		income summary			$    70.00
1/31/12		income summary		$    44.00
		cost of goods sold			$    35.00
		rent expenses			$       2.00
		bad debts expenses			$       7.00
1/31/12		income summary		$    26.00
		Retained earning			$    26.00