Question

Transaction Analysis Activity

Steamy Stacks, Inc. sells toy trains. Steamy Stacks began business on October 1 by issuing (selling) 10,000 shares of no par common stock. for $10 per share. The issuance of common stock represents investment by owners. Steamy Stacks uses the accrual method of accounting.

During the month of October, the following transactions occurred:

   10/1     Issued 10,000 shares of no par common stock for $10 per share.

   10/1     Paid rent of $1,500 for office and retail space for month of October.

10/5     Purchase 500 toy trains for $25 each. The trains were received by Steamy Stacks and payment is due on November 5.

10/10   Sold 150 trains for $45 each. The trains were delivered and cash was received.

            HINT: Remember to ‘match’ expenses to revenue they helped to generate…

10/16   Paid $3,000 wages to employees. Employees are paid on the 1^st and 16^th of each month for the periods ending on the 15^th and last day of month, respectively. For simplicity, assume all payments equal $3,000.

10/17   Sold 300 trains for $45 each. The trains were delivered. Payment is due on Nov. 17.

10/20   Ordered Christmas Steamy Stacks advertisement. The advertisements are scheduled to run the last week of November. The advertising agency required 40% payment with the order and the total charge was $1,300. Paid $520.

10/22 Received order for 125 trains to be delivered December 10.

10/31   Paid a cash dividend of $ .10 per share of common stock.

REQUIREMENTS:

1. Record transactions on worksheet according to the accrual method of accounting.
2. Prepare a multi-step income statement for the month of October.
3. Prepare a statement of stockholders equity as of October 31.
4. Prepare a classified balance sheet for Steamy Stacks as of October 31.

Answer 1

Transactions as per Accrual Basis of Accounting :

Steamy Stacks

Date	Particulars	LF	Debit Amt. ($)	Credit Amt.($)
10/1	Cash A/c                                                         Dr.      To Share Capital A/c (Being 10,000 shares of $ 10 each are issued at par)		100,000	100,000
10/1	Rent A/c                                                         Dr.      To Cash A/c (Being rent is paid for the month of October)		1,500	1,500
10/5	Purchases A/c                                                Dr.      To Creditor’s A/c (Being 500 toy trains of $ 25 each are purchased on credit)		12,500	12,500
10/10	Cash A/c                                                        Dr.      To Sales A/c (Being 150 trains for $ 45 are sold for cash)		6,750	6,750
10/16	Wages A/c                                                    Dr.      To Cash A/c (Being employees are paid for 15 days)		3,000	3,000
10/17	Debtor’s A/c                                                 Dr.      To Sales A/c (Being 300 trains of $ 45 each are sold on credit)		13,500	13,500
10/20	Prepaid Advertisement A/c                          Dr.       To Cash A/c (Being 40% payment is made for advertisement that will take place in November)		520	520
10/31	Dividend A/c                                                Dr.        To Cash A/c (Being dividend is paid at $ 0.10 per share)		1,000	1,000
10/31	Total		138,770	138,770

There will be no entry for order received for 125 trains on 10/22.

Steamy Stacks

Income Statement

For the month of October

Particulars	Amount ($)
Sales Less : Cost of goods sold GROSS PROFIT	20,250 (11,250) 9,000
Operating And Administrative Expenses : Advertisement Wages Rent TOTAL OPERATING EXPENSES	520 3,000 1,500 5020
NET INCOME	3,980

Statement of Stockholder’s Equity

Particulars	Amount ($)
Opening Balance	100,000
Cash Dividend	1,000
Profit	3,980
TOTAL	104,980

BALANCE SHEET

Particulars	Amount ($)
ASSETS : Office Debtors Stock (50 toy trains) Cash Total Assets LIABILITIES : Creditors Total Liabilities SHAREHOLDER’S EQUITY : Closing Balance Total Equity	1,500 13,500 1,250 100,730 116,980 12,500 12,500 104,980 104,980