Question

You set up your own business in merchandising sector. You lease a space of 6,000 square feet to open a luxury watch shop.

The following is minimum information regarding the business:

- Specific sub-sector: Merchandising sector.

-   Business model: buying and selling luxury watches.

-   Investment by owner: $1,000,000

- You hire a shop manager, two accounting staffs who also keep the merchandise, one security officer, and 8 full-time sales assistants.

-   Business costs/expenses should have at least the following: cost of merchandise sold, rent expense, salary, utilities expense, advertising expense, interest expense, and miscellaneous expenses.

1. 1/1/2019 : Opened the business, invested $1,000,000 cash in the business.
2. 1/1/2019; bought a building for the business purpose for 100,000 cash. The building has a useful economic life of 10 years.
3. 1/1/2019; bought store and office fixture for $20000 cash.

4. 1/1/2019: purchased 100 luxury watches (Inventory) for $200,000 with $100,000 cash payment, the remaining amount payable on 2/1/2020. ( each watch costs $2,000)
5. 3/1/2019: purchased 50 luxury watches (Inventory) for $250,000. Each watch costs $5,000.
6. 4/1/2019: purchased 40 luxury watches (Inventory) for $240,000. Each cost $6,000.

7. 6/1/2019: Sold 130 watched for $1,300,000. Of which $300,000 cash was received at the time of sale. The remaining amount to be received on 5/2/2020.

8. 7/1/2019: paid $1,200 in advance for 12 months’ property insurance
9. 8/1/2019: borrowed $500,000 from a local Chase bank. Inrerest rate is 12%/year. Interest is paid every 6 months- the first payment date is 2/1/2020. Principal is paid on 8/1/2020.
10. 9/1/2019: to expand business, you rent a showroom in the next building. Paid $24,000 cash in advance for 12 month’s rent.

11. 12/31/2019: Paid 2019 utilities expense, advertising expense, and miscellaneous expense for $5000, $15,000, and $4,000, respectively.

12. Salary is paid on the last day of each month. Each month’s salary expense is $20,000.

Notes:

13. On 12/31/2019: Physical inventory showed that there were 60 luxury watches on hand at the end of the period. The company used periodic inventory system, and used FIFO costing method.
14. Your business used straight-line depreciation method for all fixed assets.
15. Ignore tax.

16. Prepare financial statements on 12/31/2019.

Answer 1

JOURNAL REGISTER
Date	Particulars	Debit	Credit
01.01.2019	Capital	$ 1,000,000.00
	Cash		$ 1,000,000.00
01.01.2019	Building	$      100,000.00
	Store and office fixture	$        20,000.00
	Cash		$      120,000.00
01.01.2019	Inventory	$      200,000.00
	Cash		$      100,000.00
	Accounts Payable		$      100,000.00
03.01.2019	Inventory	$      250,000.00
	Cash		$      250,000.00
04.01.2019	Inventory	$      240,000.00
	Cash		$      240,000.00
06.01.2019	Sales	$ 1,300,000.00
	Cash		$      300,000.00
	Accounts Receivable		$ 1,000,000.00
07.01.2019	Prepaid Insurance	$          1,200.00
	Cash		$          1,200.00
08.01.2019	Bank	$      500,000.00
	Bank Loan		$      500,000.00
09.01.2019	Prepaid Rent	$        24,000.00
	Cash		$        24,000.00
31.12.2019	Utilities	$          5,000.00
	Advertisement	$        15,000.00
	Misc Expenses	$          4,000.00
	Cash		$        24,000.00
31.12.2019	Salary	$        20,000.00
	Salary Payable		$        20,000.00
31.12.2019	Interest	$        25,000.00
	Interest Payable		$        25,000.00
31.12.2019	Insurance	$              600.00
	Prepaid Insurance		$              600.00
31.12.2019	Rent	$          4,000.00
	Prepaid Rent		$          4,000.00
31.12.2019	Depreciation	$        10,000.00
	Acc Depreciation		$        10,000.00