Question

Stackhouse, Connelly, and Teagarden Enterprises (SCT Enterprises) was formed in December 2014. During the first month of operation, the following transactions occurred:

Dec 1 - Issued common stock in exchange for $1,000,000 cash.

Dec 2 - Purchased inventory on account for $80,000 (the perpetual inventory system is used).

Dec 3 - Purchased $500,000 in equipment for cash.

Dec 4 - Paid the company’s landlord $12,000 for rent for twelve months, debiting Prepaid Rent Expense.

Dec 10 - Sold merchandise on account for $130,000. The cost of the merchandise was $75,000.

Dec 15 - Borrowed $60,000 from a local bank and signed a note. Principal and interest of 10% to be repaid in one year.

Dec 20 - Paid employees $20,000 wages for the first half of the month.

Dec 24 - Paid $60,000 to suppliers for the merchandise purchased on December 2.

Dec 26 - Collected $50,000 on account from customers.

Dec 28 - Paid various utility bills of $3,500 for the month of December.

Dec 31 - Paid $8,000 in insurance for the period January 1,2015 to March 1, 2015.

Dec 31 - Received payment of $5,000 for an order to be delivered January 20. The cost of the merchandise for the order will be $3,500.

Required (round all computations to the nearest whole dollar):

1. Prepare journal entries to record the above transactions and post these entries to their corresponding T-accounts (ledger).

2.Prepare an unadjusted trial balance.

3.Prepare adjusting entries for December, considering:

a.Depreciation on the equipment is $42,000 per year.

b. Rent expense for the month.

c. Interest expense for the month.

d. Wages for the second half of the month; assume employees earned wages evenly

throughout the month.

4. Prepare an adjusted trial balance.

5. Prepare a basic income statement, a statement of stockholders’ equity, and a balance sheet

for the year ending December 31, 2014.

6. Prepare closing entries.

7. Prepare a post-closing trial balance.

Answer 1

01-Dec	Cash	1000000
	Common stock		1000000
02-Dec	Inventory	80000
	Accounts payable		80000
03-Dec	Equipment	500000
	Cash		500000
04-Dec	Prepaid rent	12000
	Cash		12000
10-Dec	Accounts receivable	130000
	Sales revenue		130000
	Cost of goods sold	75000
	Inventory		75000
15-Dec	Cash	60000
	Notes payable		60000
20-Dec	Wages expense	20000
	Cash		20000
24-Dec	Accounts payable	60000
	Cash		60000
26-Dec	Cash	50000
	Accounts receivable		50000
28-Dec	Utilities expense	3500
	Cash		3500
31-Dec	Prepaid insurance	8000
	Cash		8000
31-Dec	Cash	5000
	Unearned revenue		5000
	Adjusting entries
31-Dec	Depreciation expense	3500	(42000/12)
	Accumulated depreciation-equipment		3500
31-Dec	Rent expense	1000	(12000/12)
	Prepaid rent		1000
31-Dec	Interest expense	250	(60000*10%*1/12*15/30)
	Interest payable		250
31-Dec	Wages expense	20000
	Wages payable		20000