Question

RU Ready Incorporated began operations at the beginning of January 2011. The company maintains its inventory balances using the perpetual method, using FIFO.

A. Journalize each of the January transactions in debit/credit form, if no entry is required, list “no entry” B. Post January entries in T accounts

C. Prepare a Trial Balance as of 1/31/11

D. Record any necessary adjusting entries

E. Prepare an Adjusted Trial Balance as of 1/31/11

F. Prepare a Balance Sheet, Statement of Retained Earnings, and Income Statement.

January Transactions

1) Owners invest $105,000 at the beginning of January. 15,000 shares of $3 par Common Stock are issued.

2) A $50,000 bank loan at 9% annual interest is obtained on January 1.

3) 200 units of inventory are purchased for $15,000 on account.

4) Supplies are purchased for internal use for $900 cash.

5) Insurance is paid for a three month coverage period Jan-March for $1,500.

6) Rent of $2,000 is paid for a two month period beginning in January.

7) Office furniture is purchased on January 31 for $30,000 cash. The furniture will be depreciated straight-line over 5 years with depreciation charged monthly. Its expected salvage value is $6,000.

8) 150 units of inventory are sold for $200 each, ½ for cash and ½ on account.

9) A customer places an order and pays $200 per unit in advance for 50 units of inventory to be delivered in February.

10) An additional 200 units of inventory are purchased for $16,000 cash.

11) A van is purchased on January 1 for $22,000 cash and is expected to be used for 3 years. RU Ready Inc. will use straight-line depreciation for this asset. Its salvage value is expected to be $4,000.

Answer 1

Answer a.
Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
1	Cash	105,000.00
	Common Stock		45,000.00	15,000 shares X $3
	Paid-in Capital in Excess of Par		60,000.00	15,000 shares X $4
	(record the issue of Common Stock)
2	Cash	50,000.00
	Notes Payable		50,000.00
	(Record the bank loan taken)
3	Inventory	15,000.00
	Accounts Payable		15,000.00
	(Record the inventory-200 units purchased)
4	Supplies	900.00
	Cash		900.00
	(record the supplies purchased)
5	Prepaid Insurance	1,500.00
	Cash		1,500.00
	(record the insurance paid for 3 months)
6	Prepaid Rent	2,000.00
	Cash		2,000.00
	(Record the rent paid for 2 months)
7	Office Furniture	30,000.00
	Cash		30,000.00
	(record the office furniture purchased)
8-A	Cash	15,000.00		75 Units X $200
	Accounts Receiavable	15,000.00		75 Units X $200
	Sales Revenue		30,000.00
	(record the sale of 150 units)
8-B	Cost of Goods Sold	11,250.00		150 Units X $75
	Inventory		11,250.00
	(record the cost of goods sold of 150 units)
9	Cash	10,000.00		50 Units X $200
	Advance from Customers		10,000.00
	(record the advance recd from customers)
10	Cash	16,000.00
	Inventory		16,000.00
	(record the inventory purchased - 200 Units)
11	Van	22,000.00
	Cash		22,000.00
	(record the purchase of Van)

Answer b.
Cash					Accounts Receivable					Supplies
1	105,000.00	900.00	4		8-A	15,000.00				4	900.00
2	50,000.00	1,500.00	5
8-A	15,000.00	2,000.00	6
9	10,000.00	30,000.00	7
		16,000.00	10
		22,000.00	11
End. Bal.	107,600.00				End. Bal.	15,000.00				End. Bal.	900.00
Inventory					Common Stock					Paid-in Capital in Excess of Par
3	15,000.00	11,250.00	8-B				45,000.00	1				60,000.00	1
10	16,000.00
End. Bal.	19,750.00				End. Bal.		45,000.00			End. Bal.		60,000.00
Notes Payable					Accounts Payable					Prepaid insurance
		50,000.00	2				15,000.00	3		5	1,500.00
End. Bal.		50,000.00			End. Bal.		15,000.00			End. Bal.	1,500.00
Prepaid Rent					Office Furniture					Sales Revenue
6	2,000.00				7	30,000.00						30,000.00	8-A
End. Bal.	2,000.00				End. Bal.	30,000.00				End. Bal.		30,000.00
Cost of Goods Sold					Advance from Customers					Van
8-B	11,250.00						10,000.00	9		11	22,000.00
End. Bal.	11,250.00				End. Bal.		10,000.00			End. Bal.	22,000.00

Answer c.
RU Ready
Trial Balance
As of Jan 31, 2011
Accounts Title	Debits	Credits
Cash	107,600.00
Accounts Receivable	15,000.00
Supplies	900.00
Inventory	19,750.00
Prepaid insurance	1,500.00
Prepaid Rent	2,000.00
Office Furniture	30,000.00
Van	22,000.00
Accounts Payable		15,000.00
Advance from Customers		10,000.00
Notes Payable		50,000.00
Common Stock		45,000.00
Paid-in Capital in Excess of Par		60,000.00
Sales Revenue		30,000.00
Cost of Goods Sold	11,250.00
Total	210,000.00	210,000.00

Answer d.
Adjusting Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
1	Interest Expense	375.00		$50,000 X 9% X 1/12
	Interest Payable		375.00	$50,000 X 9% X 1/12
	(record the interest expense)
2	Insurance Expense	500.00		$1,500 /3
	Prepaid Insurance		500.00
	(record the insurance expense for Jan)
3	Rent Expenses	1,000.00		$2,000 / 2
	Prepaid Rent		1,000.00	$2,000 / 2
	(record the rent expense for Jan)
4	Depreciation Expenses	500.00		($22,000 -$4,000)/ 3 X (1/12)
	Accumulated Depreciation - Van		500.00
	(record the depreciation expense for Jan)

Answer e
RU Ready
Adjusted Trial Balance
As of Jan 31, 2011
Accounts Title	Debits	Credits
Cash	107,600.00
Accounts Receivable	15,000.00
Supplies	900.00
Inventory	19,750.00
Prepaid insurance	1,000.00
Prepaid Rent	1,000.00
Office Furniture	30,000.00
Van	22,000.00
Accumulated Depreciation - Van		500.00
Accounts Payable		15,000.00
Advance from Customers		10,000.00
Interest Payable		375.00
Notes Payable		50,000.00
Common Stock		45,000.00
Paid-in Capital in Excess of Par		60,000.00
Sales Revenue		30,000.00
Cost of Goods Sold	11,250.00
Interest Expense	375.00
Insurance Expense	500.00
Rent Expenses	1,000.00
Depreciation Expenses	500.00
Total	210,875.00	210,875.00
Answer F.
RU Ready
Income Statement
For the Month Ended Jan 31, 2011
Sales Revenue		30,000.00
Cost of Goods Sold		11,250.00
Gross Profit		18,750.00
Opearting Expenses
Insurance Expense	500.00
Rent Expenses	1,000.00
Depreciation Expenses	500.00
Total Operating Expenses		2,000.00
Net Operating Income		16,750.00
Other Income & Expenses
Interest Exp.	375.00
Total Other Income & Expenses		375.00
Net Income		16,375.00
RU Ready
Statement of Retained Earnings
For the Month Ended Jan 31, 2011
Retained Earnings - Beginning Balance	-
Net Income	16,375.00
Retained Earnings - Jan 31, 2011	16,375.00
RU Ready
Balance Sheet
As on Jan 31, 2011
Assets
Current Assets
Cash		107,600.00
Accounts Receivable		15,000.00
Supplies		900.00
Inventory		19,750.00
Prepaid insurance		1,000.00
Prepaid Rent		1,000.00
Total Current Assets			145,250.00
Property, Plant & Equipment
Office Furniture		30,000.00
Van	22,000.00
Accumulated Depreciation - Van	500.00	21,500.00
Total Property, Plant & Equipment			51,500.00
Total Assets			196,750.00
Liabilities & Stockholders' Equity
Liabilities
Current Liabilities
Accounts Payable		15,000.00
Advance from Customers		10,000.00
Interest Payable		375.00
Total Current Liabilities			25,375.00
Long-Term Liabilities
Notes Payable			50,000.00
Total Liabilities			75,375.00
Stockholders' Equity
Common Stock	45,000.00
Paid-in Capital in Excess of Par	60,000.00
Paid-in Capital		105,000.00
Retained Earnings		16,375.00
Total Stockholders' Equity			121,375.00
Total Liabilities & Stockholders' Equity			196,750.00