Question

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.

During the month of November, the following transactions occurred:

Start your worksheet with beginning balances (i.e. Ending balance Oct = beg. balance Nov.)

11/1 Paid $3,000 wages to employees.

11/1 Paid rent of $1,500 for office and retail space for month of November.

11/1 Paid $12,000 for one year of insurance premiums.

11/4 Paid for trains received Oct. 5.

11/6 Purchased 300 trains for $25 each. Paid cash.

11/9 Received an order for 100 trains to be delivered on Nov. 19.

11/12 Received an order for 500 trains to be delivered on Dec 10. Since such a large order, Steamy Stacks required a deposit of $11,000.

11/15 Received payment associated with sale on Oct. 17.

11/16 Paid $3,000 wages to employees.

11/19 Delivered the trains ordered on November 9 (100 trains at $45). Payment due Dec. 9.

11/20 Sold 150 trains for $45 each. The trains were delivered. Cash was received.

11/21 Fired an employee for inappropriate behavior. This will reduce the payroll from $3,000 to $2,800 for the period ending 11/30.

11/22 Purchased 1,000 business cards from Kinko’s. Delivery and payment of $100 made.

11/25 Purchased 200 trains for $25 each. Payment is due Dec. 22.

11/29 Borrowed $25,000 from the bank by signing a five-year, 6% a.p.r. note. Interest payments are due quarterly.

11/30 Christmas advertisement ran last week of November. Paid the remaining balance of $780.

REQUIREMENTS:

1. Record transactions on worksheet according to the accrual method of accounting.

2. Prepare a multi-step income statement for the month of November.

3. Prepare a statement of stockholders equity as of November 30

4. Prepare a classified balance sheet for Steamy Stacks as of November 30.

Answer 1

1.

Date	Account Titles	Debit	Credit
		$	$
10 /1	Cash	100,000
	Common Stock		100,000
10/1	Rent Expense	1,500
	Cash		1,500
10 / 5	Merchandise Inventory	12,500
	Accounts Payable		12,500
10 / 10	Cash	6,750
	Sales		6,750
10/10	Cost of Goods Sold	3,750
	Merchandise Inventory		3,750
10 / 16	Wages Expense	3,000
	Cash		3,000
10 / 17	Accounts Receivable	13,500
	Sales		13,500
10 / 17	Cost of Goods Sold	7,500
	Merchandise Inventory		7,500
10 / 20	Prepaid Advertising	520
	Cash		520
10 / 22	No journal entry required	0	0
10 /31	Dividends	1,000
	Cash		1,000
10 / 31	Wages Expense	3,000
	Wages Payable		3,000

2.

Steamy Stacks Inc. Income Statement For the month ended October 31
Sales		$ 20,250
Less: Cost of Goods Sold		11,250
Gross Profit		9,000
Less: Operating Expenses
Wages Expense	$ 6000
Rent Expense	1,500	7,500
Net Income		$ 1,500

3.

Statement of Stockholders Equity For the month ended October 31
	Common Stock	Retained Earnings	Total Stockholders Equity
Common stock issued	$ 100,000		$ 100,000
Net Income		$ 1,500	1,500
Dividends		(1,000)	(1,000)
Totals	$ 100,000	$ 500	$ 100,500

4.

Steamy Stacks Inc. Balance Sheet October 31
Assets	Liabilities
Current Assets			Current Liabilities
Cash	$ 100,730		Accounts Payable	$ 12,500
Accounts Receivable	13,500		Wages Payable	3,000
Merchandise Inventory	1,250		Total Liabilities		$ 15,500
Prepaid Advertising	520		Stockholders Equity
Total Current Assets		$ 116,000	Common Stock	100,000
			Retained Earnings	500
			Total Stockholders Equity		100,500
Total Assets		$ 116,000	Total Liabilities and Stockholders Equity		$ 116,000