Question

Bob's Chocolate Chips and More, a bakery specializing in gourmet pizza and chocolate chip cookies, started business October 1, 2017. The following transactions occurred during the month of October.

1. Common stock of $90,000 was sold at par to start the business.
2. Equipment consisting of mixers and ovens was acquired October 1 for $30,000 cash. The equipment is expected to last five years, after which it is expected to be sold for $5,000. Management uses the straight-line method to calculate depreciation expense.
3. Ingredients costing $15,000 were purchased on account during the month and all but $5,000 was paid for by the end of the month.
4. Rent is $500 a month. October, November, and December’s rent was paid October 5.
5. A payment of $800 for utilities was made during the month.
6. Sixty percent of the ingredients purchased in part c were prepared and sold for $35,000 on account; $26,000 was collected on accounts receivable during the month.
7. Wages of $5,200 were paid during the month. Moreover, wages for the last three days of the month amounted to $400 and will be paid during the first week of November.
8. Borrowed $12,000 from the bank for additional working capital requirements, and $3,000 was repaid by month-end. Interest on the unpaid loan balance amounted to $450 at the end of October and was paid on November 5.

Required:

Prepare the required journal entries and adjusting entries as well as an October income statement and a balance sheet as of October 31, 2017 for Bob's Chocolate Chips and More. (Hint: You may want to consider using T-accounts to classify and accumulate the preceding transactions before preparing the statements.)

Answer 1

In the books of Bob's Chocolate Chips and More Journal entries for month of October 2017
Date	Particulars	Debit	Credit
1 Oct 2017	Cash A/c………………………..Dr	US$ 90000.00
	To Common stock A/c		US$ 90000.00
	(Being Common stock of $90,000 was sold at par to start the business)
1 Oct 2017	Cash A/c………………………..Dr	US$ 12000.00
	To Short term borrowings A/c		US$ 12000.00
	(Being Borrowed $12,000 from the bank for additional working capital requirements)
1 Oct 2017	Equipment A/c…………………Dr.	US$ 30000.00
	To Cash A/c		US$ 30000.00
	(Being Equipment consisting of mixers and ovens was acquired October 1 for $30,000 cash)
——————	Inventory (Ingredients) A/c………….Dr.	US$ 15000.00
	To Accounts payable A/c		US$ 15000.00
	(Being Ingredients costing $15,000 were purchased on account during the month)
——————	Rent expense A/c…………………….Dr.	US$ 1500.00
	To Cash A/c		US$ 1500.00
	(Being Rent is $500 a month. October, November, and December’s rent was paid)
——————	Utilities expense A/c…………………Dr.	US$ 800.00
	To Cash A/c		US$ 800.00
	(Being payment of $800 for utilities was made during the month)
——————	Accounts receivable A/c………………Dr.	US$ 35000.00
	To Sales A/c		US$ 35000.00
	(Being ingredients sold for $35,000 on account)
——————	Cost of goods sold A/c ……………….Dr.	US$ 9000.00
	To Inventory (Ingredients) A/c		US$ 9000.00
	(Being Sixty percent of the ingredients purchased  were prepared and sold)
——————	Cash A/c………………………..Dr	US$ 26000.00
	To Accounts Receivable A/c		US$ 26000.00
	(Being $26,000 was collected on accounts receivable during the month.)
——————	Wages A/c…………………….Dr.	US$ 5200.00
	To Cash A/c		US$ 5200.00
	(Being Wages of $5,200 were paid during the month)
31 Oct 2017	Accounts payable A/c…………….Dr.	US$ 5000.00
	To Cash A/c		US$ 5000.00
	(Being $5,000 was paid for by the end of the month)
31 Oct 2017	Depreciation A/c…………….Dr.	US$ 416.67
	To Accumulated Depreciation A/c		US$ 416.67
	(Being depreciation expense for the month using the straight-line method - [$30000-5000)/5/12]
31 Oct 2017	Prepaid Rent A/c…………Dr.	US$ 1000.00
	To Rent A/c		US$ 1000.00
	(Being Rent paid fro the month of November and December transfer to prepaid rent )
31 Oct 2017	Wages A/c…………………….Dr.	US$ 400.00
	To Wages Payable A/c		US$ 400.00
	(Being wages  accrued for the last three days of the month )
31 Oct 2017	Short term borrowing A/c ……………….Dr	US$ 3000.00
	To Cash A/c		US$ 3000.00
	(Being $3,000 was repaid by month-end)
31 Oct 2017	Interest A/c ………………….Dr	US$ 450.00
	To Interest payable A/c		US$ 450.00
	(Being interest accrued on the unpaid loan balance amounted to $450 at the end of month)

Bob's Chocolate Chips and More Income statement for the month of October 2017
Revenue
Net Sales		US$ 35000.00
Cost of goods sold
Beginning Inventory
Add: Purchase	US$ 15000.00
Less : Ending Inventory	US$ 6000.00
Cost of goods sold		US$ 9000.00
Gross profit/ (loss)		US$ 26000.00
Expenses
Wages	US$ 5600.00
Rent	US$ 500.00
Utilities	US$ 800.00
Interest	US$ 450.00
Depreciation	US$ 416.67
Total Expenses		US$ 7766.67
Net Operating Income		US$ 18233.33

BALANCE SHEET Bob's Chocolate Chips and More AS AT 31 OCTOBER 2017
ASSETS		LIABILITIES
Fixed assets
Equipments	US$ 30000.00	Common Stock	US$ 90000.00
(less accumulated depreciation)	(US$ 416.67)	Retained Earnings	US$ 18233.33
Total Net fixed assets	US$ 29583.33	Total Shareholders’ Equity	US$ 108233.33
Current Assets		Current Liabilities
Cash	US$ 82500.00	Accounts payable	US$ 10000.00
Accounts Receivable	US$ 9000.00	Short-term borrowings	US$ 9000.00
Inventory	US$ 6000.00	Wages Payable	US$ 400.00
Prepaid Expenses	US$ 1000.00	Interest payable	US$ 450.00
Total current assets	US$ 98500.00	Total current liabilities	US$ 19850.00
TOTAL ASSETS	US$ 128083.33	TOTAL LIABILITIES & EQUITY	US$ 128083.33