Question

P3-2    Miloslav began a magazine delivery service, which he named Miloslav’s Magazines, on January 1, 2001. The following transactions occurred during 2001:

a. Sold stock for $3,000 cash on January 1.

b.         Borrowed $20,000 cash on April 1. The interest rate on the loan is 12% annually, and the interest is due each December 31, until the note is repaid.

c.         Bought a bicycle for $1,000 cash on January 1. The bicycle has an estimated life of five years, and no salvage value.

d. Bought 10,000 magazines for $2.00 cash each on April 5.

e.         Sold magazines at various times for a total of $22,500. All sales were on account.

f. Collected $20,500 from customers.

g. Paid himself a salary of $3,000 cash.

h. Paid the stockholders a dividend of $50 on the $3,000 in stock.

i. Paid the interest on the loan in b.

j.          On December 31, Miloslav determined by a physical count that there were 1,000 magazines left in the storage bin at the warehouse.

Required

Prepare journal entries for the above transactions. Post the journal entries to appropriate T-accounts. Prepare any necessary adjusting and closing entries needed at December 31, 2001. Prepare a December 31, 2001 balance sheet and an income statement for the year ended December 31, 2001.

Answer 1

			JOURNAL ENTRY
	Ref	Date	Account Title and description	Debit	Credit
	a	Jan1, 2001	Cash	$3,000
			Common stock		$3,000
			(To record issuance of common stock)
	b	Jan1, 2001	Cash	$20,000
			loan payable		$20,000
			(To record loan with 12% annual interest)
	c	Jan1, 2001	Bi cycle asset	$1,000
			Cash		$1,000
			(To record purchase of bicycle)
	d	April 5, 2001	Purchase	$20,000
			cash		$20,000
			(To record purchase of magazines)
	e		Sales		$22,500
			Accounts receivable	$22,500
			(To record sales of magazines)
	f		Cash	$20,500
			Accounts receivable		$20,500
			(To record collection from accounts receivable)
	g		Salaries expense	$3,000
			Cash		$3,000
			(To record salaries expense)
	h		Dividend	$50
			cash		$50
			(to record payment of dividend)
	i	Dec. 31	Interest expense	$2,400		(20000*0.12)
			Cash		$2,400
			(To record payment of interest)
	j	Dec 31	Purchase		$20,000
			Closing inventory	$2,000
			Cost of goods sold	$18,000
			(To record closing inventory & cost of goods sold)
	k	Dec. 31	Depreciation expense	$200		(1000/5)
			Accumulated depreciation		$200
			T-Accounts
	Ref	Date	CASH	Debit	Credit
	a	Jan1, 2001	Common stock	$3,000
	b	Jan1, 2001	Loan Payable	$20,000
	c	Jan1, 2001	Bi cycle asset		$1,000
	d	April 5, 2001	Purchase		$20,000
	f		Accounts receivable	$20,500
	g		Salaries expense		$3,000
	h		Dividend		$50
	i	Dec. 31	Interest expense		$2,400
			BALANCE	$17,050
	Ref	Date	ACCOUNTS RECEIVALE	Debit	Credit
	e		Sales	$22,500
	f		Cash		$20,500
			BALANCE	$2,000
	Ref	Date	BCYCLE ASSET	Debit	Credit
	c	Jan1, 2001	Bi cycle asset	$1,000
	Ref	Date	ACCUMULATED DEPRECIATION	Debit	Credit
	k	Dec. 31	Depreciation expense		$200
	Ref	Date	LOAN PAYABLE	Debit	Credit
	b	Jan1, 2001	Cash		$20,000
	Ref	Date	COMMON STOCK	Debit	Credit
	a	Jan1, 2001	Cash		$3,000
	Ref	Date	SALES	Debit	Credit
	e		Accounts receivable		$22,500
	Ref	Date	PURCHASE	Debit	Credit
	d	April 5, 2001	Cash	$20,000
	Ref	Date	SALARIES EXPENSE	Debit	Credit
	g		Cash	$3,000
	Ref	Date	INTEREST EXPENSE	Debit	Credit
	i	Dec. 31	Cash	$2,400
	Ref	Date	DIVIDEND	Debit	Credit
	h		Cash	$50
	Ref	Date	DEPRECIATION EXPNSE	Debit	Credit
	k	Dec. 31	Accumulated depreciation	$200
			INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2001
		A	Sales		$22,500
		B	Purchase	$20,000
		C	Less: Closing Inventory	$2,000
		D=B-C	Cost of goods sold		$18,000
		E=A-D	Gross Income		$4,500
			Operating expenses:
		F	Salaries expense	$3,000
		G	Depreciation expense	$200
		H	Interest expense	$2,400
		I=F+G+H	Total Operating Expenses		$5,600
		J=E-I	Net Income /(Loss)		($1,100)
			BALANCE SHEET AS AT DECEMBER 31, 2001
			ASSETS:
		K	Cash	$17,050
		L	Accounts receivable	$2,000
		M	Closing stock	$2,000
		N	Bicycle asset	$1,000
		P	Accumulated depreciation	($200)
		Q=K+L+M+N+P	Total Assets	$21,850
			LIABILITIES:
		R	Loan payable	$20,000
		S=R	Total Liabilities	$20,000
			Shareholders Equity
		T	Common Stock	$3,000
		U	Dividend	($50)
		V=J	Net Loss	($1,100)
		W=T+U+V	Total Shareholders equity	$1,850
		X=S+W	Total liabilities and shareholders equity	$21,850