Question

Comprehensive Accounting Cycle Problem: Suppose that Sit Down Inc. is a retailer which began operations on February 1^st, 2018. During February, the following transactions occurred:

On 2/1/2018 issued 17,000 shares of common stock for $17,000 cash.

On 2/1/2018 borrowed $16,000 from the bank. The note payable is due in 4 years and has a 7% annual interest rate.

On 2/1/2018, purchased a truck for $19,000, for $5,000 in cash and $14,000 on account.

On 2/4/2018, purchased inventory for $24,290 on account.

On 2/5/2018, paid $3,000 cash for a 6-month insurance policy effective February 1^st – July 31^st.

On 2/11/2018, sold inventory, costing $17,930, to customers for $25,400 on account. Customers were billed for these goods on the same day.

On 2/16/2018, paid $11,320 in cash to creditors on amounts owed from transactions c and d.

On 2/20/2018, paid $2,800 cash for employee wages.

On 2/25/2018, collected $11,470 from customers billed on February 11^th.

On 2/28/2018, declared and paid $635 cash dividend.

PART 1 – Record February transactions using Journal Entries (1pt): Record all of the above transactions for February using journal entries. Assume Sit Down, Inc. uses the following accounts: Cash, A/R, Inventory, Prepaid Insurance, Equipment, Accumulated Depreciation--Equipment, A/P, Wages payable, Interest payable, Notes payable, Common Stock, Retained Earnings, Dividends, Sales revenue, COGS, Depreciation expense, Insurance expense, Interest expense, and Wages expense.

PART 2 – Post transactions to T-Accounts (1pt): Post all of the above transactions to T-Accounts. Assume the opening balance in each of the accounts is zero ($0).

PART 3 – Prepare an unadjusted trial balance (1pt): After calculating the ending balance in each T-account in part 2, prepare an unadjusted trial balance for Sit Down, Inc. as of February 28^th, 2018 with the list of accounts in the following order: assets, liabilities, common stock, retained earnings, revenues, and expenses.

PART 4 – Record adjusting entries (1pt): Record adjusting entries for all of the below events using adjusting journal entries (AJEs):

AJE1: The truck from transaction c. above has an expected useful life of 5 years and will have no resale or value at the end of its life. Assume Sit Down, Inc. uses straight-line depreciation (i.e. the asset depreciates evenly) over the expected life of the truck.

AJE2: One month of interest from the note payable in transaction b. has accrued.

AJE3: One month of the insurance policy in transaction e. above has been used.

AJE4: Sit Down, Inc. pays wages of $2,800 to its workers every two weeks (i.e. every 14 days). Workers were paid $2,800 for two weeks’ worth of work on February 20^th (see transaction h.) and they will next be paid $2,800 on March 6^th.

Answer 1

1	Date	Particulars		Amount($)
	02-01-2018	Cash a/c	Dr	17000
		To Common Stock			17000
	02-01-2018	Bank a/c	Dr	16000
		To Loan			16000
	02-01-2018	Truck a/c	Dr	19000
		To Cash			5000
		To Accounts Payable			14000
	02-04-2018	Purchases a/c	Dr	24290
		To Accounts Payable			24290
	02-05-2018	Prepaid Insurance exp a/c	Dr	3000
		To cash			3000
	02-11-2018	Accounts Receivable a/c	Dr	25400
		To Inventory			17930
		ToProfit on Sale of Inventory			7470
	02-16-2018	Accounts payable a/c	Dr	11320
		To Cash			11320
	02.20.2018	Wages a/c	Dr	2800
		To Wages Payable			2800
	02-20-2018	Wages payable a/c	Dr	2800
		To cash			2800
	02-25-2018	Cash a/c	Dr	11470
		To Accounts Receivable			11470
	02-28-2018	Dividend a/c	Dr	635
		To Dividend Payable			635
	02-28-2018	Dividend a/c	Dr	635
		To Cash			635
2		Cash a/c
	To Balance b/d	0	By Equipment		5000
	To Common Stock	17000	By Insurance		3000
	To Account Receivable	11470	By A/cs Payable		11320
			By Wages		2800
			By Balance c/d		6350
		28470			28470
		Accounts Payable a/c
	To Cash	11320	By Balance b/d		0
	To Balance c/d	26970	By Inventory		24290
			By Equipment		14000
		38290			38290
		Equipment a/c
	To Cash	5000	By Balance c/d		19000
	To Accounts Payable	14000
		19000			19000
		A/c receivable a/c
	To Inventory	17930	By Balance c/d		25400
	To Profit on sale of Inventory	7470
		25400			25400
		Inventory a/c
	To Accounts Payable	24290	By Accounts receivable		17930
			By Balance c/d		6360
		24290			24290
		Common Stock a/c
	To balance c/d	17000	By cash		17000
		17000			17000
		Notes Payable a/c
	To balance c/d	16000	By Bank		16000
		16000			16000
		Dividend Payable a/c
	To cash	635	By Dividend		635
		635			635
		Wages Payable a/c
	To cash	2800	By Wages		2800
		2800			2800
		Interest Payable a/c
	To balance c/d	80	By Int Expense		80
		80			80
		Equipment a/c
	To Cash	5000	By Balance b/d		19000
	To A/c Payable	14000
		19000			19000
3	Trail Balance Un adjusted
	Particulars		Debit	Credit
	Cash		6350
	Accounts Receivable		25400
	Inventory		6360
	Equipment		19000
	Common Stock			17000
	Profit on sale of inventory			7470
	Accounts Payable			26970
	Interest Payable			80
	Notes Payable			16000
	Prepaid Insurance			3000
4		Accumulated Depreciation a/c	Dr	292
		To Equipment			292
		(19000/5*28/365)
		Interest exp a/c	Dr	80
		Interest Payable a/c			80
		Insurance a/c	Dr	3000
		To Prepaid Insurance			3000
		Wages a/c	Dr	2800
		Wages Payable a/c			2800