Question

Three former college classmates decided to open a store near campus to sell wireless equipment to students. They created a public company, The Wire, and issued stock to interested investors. They plan on creating monthly financial statements.

Several transactions occurred in March. Each is described separately in this folder. For each transaction, indicate the accounts for The Wire that are affected, whether they increase or decrease, and the amount of the increase or decrease.

When you record the dollar amounts, be sure to use a minus sign to indicate a decrease in the account.

ACCOUNT OPTIONS:

Cash

Accounts Receivable

Inventory

Prepaid Rent

Fixtures and Equipment

Accounts Payable

Interest Payable

Wages Payable

Notes Payable

Paid in capital

Retained Earnings

Transaction 1: On March 1, the three classmates opened a checking account for The Wire at a local bank. They each deposited $25,000 in exchange for shares of stock. A few of their friends also purchased stock totaling $12,000 that was deposited in The Wire account.

Transaction 2: The company quickly acquired $38,000 in inventory, 60% of which was acquired on open accounts that were payable after 30 days. The rest was paid for in cash.

Transaction 3: A one-year store rental lease was signed on March 1 for $12,000 for the year, and rent for the first 3 months was paid in advance. [Note: Record the complete entry for the March 1 transaction first and the complete adjusting entry on March 31 second.]

Transaction 4: The owners paid $3,000 for website advertising. They were able to get a good deal because one of the company's owners also owns stock in the website company. The owners also paid $5,000 for some advertising in local newspapers. [Note: Combine both transactions into one entry].

Transaction 5: Sales were $60,000. Cost of merchandise sold was 50% of its sales price. 35% of the sales were for cash. [Note: Record the complete entry for the sales first and the complete entry for the expenses second]

Transaction 6: Wages and salaries in March were $11,200, of which $8,800 was actually paid to employees.

Transaction 7: Miscellaneous expenses were $2,000, all paid for with cash

Transaction 8: On March 1, fixtures and equipment were purchased for $5,000 with a downpayment of $1,000 and a $4,000 note, payable in one year. Interest of 6.5% per year was due when the note was repaid. The estimated life of the fixtures and equipment is 11 years with no expected salvage value. [Note:Record the complete entry for the March 1 equipment purchase first, the March 31 depreciation adjusting entry second, and the March 31 interest adjusting entry third. Also, round all answers to the nearest cent.]

Answer 1

1
Account	Dollar amount
Cash	87000	=(25000*3)+12000
Paid in capital	87000
2
Account	Dollar amount
Cash	-15200
Inventory	38000
Accounts Payable	22800
3
Account	Dollar amount
Cash	-3000
Prepaid rent	3000
Prepaid rent	-1000
Retained earnings	-1000
4
Account	Dollar amount
Cash	-8000
Retained earnings	-8000
5
Account	Dollar amount
Cash	21000	=60000*35%
Accounts Receivable	39000
Retained earnings	60000
Inventory	-30000
Retained earnings	-30000
6
Account	Dollar amount
Cash	-8800
Wages payable	2400
Retained earnings	-11200
7
Account	Dollar amount
Cash	-2000
Retained earnings	-2000
8
Account	Dollar amount
Cash	-1000
Fixtures and Equipment	5000
Notes Payable	4000
Fixtures and Equipment	-37.88	=5000/11/12
Retained earnings	-37.88
Interest Payable	21.67	=4000*6.5%/12
Retained earnings	-21.67