Question

Ozark Sports sells hunting and fishing equipment and provides guided hunting and fishing trips. Ozark is owned and operated by Eric Griffith, a well-known sports enthusiast and hunter. Eric's wife, Linda, owns and operates Lake Boutique, a women's clothing store. Eric and Linda have established a trust fund to finance their children's college education. The trust fund is maintained by Missouri State Bank in the name of the children, Mark and Steffy. a. For each of the following transactions, identify which of the entities listed should record the transaction in its records: Lake Boutique Missouri State Bank Ozark Sports None of the entities 1. Linda authorized the trust fund to purchase mutual fund shares. 2. Linda purchased two dozen spring dresses from a St. Louis designer for a special spring sale. 3. Eric paid a breeder's fee for an English springer spaniel to be used as a hunting guide dog. 4. Linda deposited a $2,000 personal check in the trust fund at Missouri State Bank. 5. Eric paid a local doctor for his annual physical, which was required by the workers' compensation insurance policy carried by Ozark Sports. 6. Eric received a cash advance from customers for a guided hunting trip. 7. Linda paid her dues to the YWCA. 8. Linda donated several dresses from inventory for a local charity auction for the benefit of a women's abuse shelter. 9. Eric paid for dinner and a movie to celebrate their twelfth wedding anniversary. 10. Eric paid for an advertisement in a hunters' magazine. b. A (An) is an economic event or condition that directly changes an entity’s financial condition or results of operations.

Answer 1

Transactions are recorded in a journal only when they have a financial impact. Keeping this in mind, let us go over the following transactions one by one:

1. Linda authorized the trust fund to purchase mutual fund shares
None of the entities need to pass an entry as only an instruction to purchase shares have been given. When the mutual fund shares are actually bought, only then an entry needs to be recorded.

2. Linda purchased two dozen spring dresses from a St. Loius designer for a special spring sale.
Lake Boutique will pass an entry debiting purchases and crediting cash/bank as a purchase is made.

3. Eric paid a breeder's fee for an English Springer Spaniel to be used as a hunting guide dog
Ozark Sports will pass an entry as this is a business expense incurred for the conduct of business.

4. Linda deposited a $2000 personal cheque in the trust fund
Missouri State Bank will pass an entry debiting cash and crediting the trust fund A/c

5. Eric paid a local doctor for his annual physical which was required by the workers compensation insurance policy carried by Ozark Sports
Ozark Sports will pass an entry as this expense is incurred due to a business policy, specifically the workers compensation insurance policy. If this was a personal expense, it need not be passsed in the business books.

6. Eric received a cash advance from customers for a guided hunting trip
Ozark Sports has to record this transaction debiting cash and crediting the customer A/c.

7. Linda paid her dues to the YWCA
This expense is of a personal nature and not for furtherance of business. Hence, no entity has to record this transaction.

8. Linda donated dresses from her inventory to a shelter
This has to be recorded in Lake Boutique's books as inventory from the business which would otherwise have been sold is being given for charity.

9. Eric paid for dinner and a movie to celebrate their 12th wedding anniversary
This is a personal and not a business expense, hence, no entity has to record this transaction

10.Eric paid for an advertisement in a hunter's magazine
Ozark Sports has to record this transaction as it is an advt. expense by debiting Advertisement expense and crediting Cash.