Question

1) Prepare the Journal Entries for each transaction

2) Enter the Journal Entries in T-Accounts. Make sure to show a total on all T-Accounts

3) Prepare the adjusting journal entries that are necessary at the end of the period.

4) Prepare the Balance Sheet, Income Statement and Statement of Cash Flows as of and for the

period ending December 31, 2019.

following are the transactions for DML, Inc. who opened their manufacturing facility on October 1, 2018.

A) Sold $25,000 of Common Stock to a number of different investors on October 1, 2019.

B) Purchased a 1-year General Liability Insurance Policy on October 2, for $1,500.

C) Paid a total of $6,000 for six months of rent in advance on October 1, 2019.

D) Borrowed $12,000 from TD Bank on 10/2/19. Payment is due on September 30, 2019. The

interest rate is 6% compounding annually.

E) Purchased $12,000 in manufacturing Equipment on 10/3/19. The equipment will be

depreciated for 10 years.

F) Received $15,000 in advance for material it will deliver to a customer in January, 2020.

Answer 1

1, 2 and 3: First of all we will prepare journal entries and adjusting entries and then we will post these entries in T-Accounts.

Journal entries:

No.	Accounts title	Debit	Credit
A	Cash	25,000
	To Common stock		25,000
	[Recording of issue of common stock]
B	Prepaid Insurance	1,500
	To Cash		1,500
	[Recording of one year insurance policy payment]
C	Prepaid rent	6,000
	To Cash		6,000
	[Recording of six month advance rent payment]
D	Cash	12,000
	To Borrowing		12,000
	[Recording of loan taken from bank @6% interest rate]
E	Equipment	12,000
	To Cash		12,000
	[Recording of purchase of equipment]
F	Cash	15,000
	To Advance from customer		15,000
	[Recording of advance received from customer]

Adjusting entries

                Please refer T-Accounts below for calculation of amounts appearing in below adjusting entries.

No.	Accounts title	Debit	Credit
1	Rent expense	3,000
	To Prepaid rent		3,000
	[Recording of rent expense for 3 months]
2	Insurance expense	375
	To Prepaid insurance		375
	[Recording of insurance expense for 3 months]
3	Depreciation expense	300
	To Accumulated depreciation - Equipment		300
	[Recording of depreciation expense for 3 months]
4	Interest expense	180
	To Interest payable		180
	[Recording of interest expense for 3 months]

Entering the journal entries in T-Accounts

Cash
Particulars	Amount	Particulars	Amount
Common stock receipt	25,000	Prepaid insurance payment	1,500
Borrowing	12,000	Prepaid rent payment	6,000
Advance received from customer	15,000	Equipment purchase	12,000
		Closing balance	32,500
Total	52,000	Total	52,000
Common stock
Particulars	Amount	Particulars	Amount
Closing balance	25,000	Issue of common stock	25,000
Total	25,000	Total	25,000
Prepaid insurance
Particulars	Amount	Particulars	Amount
Insurance expense [1,500/12*3 month]	375	Insurance payment	1,500
Closing balance	1,125
Total	375	Total	1,500
Prepaid rent
Particulars	Amount	Particulars	Amount
Rent expense [6,000/6*3 months]	3,000	Rent payment	6,000
Closing balance	3,000
Total	3,000	Total	6,000
Borrowings
Particulars	Amount	Particulars	Amount
Closing balance	12,000	Receipt from loan	12,000
Total	12,000	Total	12,000
Interest payable
Particulars	Amount	Particulars	Amount
Closing balance	180	Interest expense [12,000*6%*3/12 = 180]	180
Total	180	Total	180
Equipment
Particulars	Amount	Particulars	Amount
Closing balance	12,000	Purchase of equipment	12,000
Total	12,000	Total	12,000
Accumulated depreciation - Equipment
Particulars	Amount	Particulars	Amount
Depreciation charge	300	Closing balance	300
Working: [12,000/10 years = 1,200 per year]
= 1,200/12*3 months = 300
Total	300	Total	300
Advance from customer
Particulars	Amount	Particulars	Amount
Closing balance	15,000	Advance received	15,000
Total	15,000	Total	15,000
Interest expense
Particulars	Amount	Particulars	Amount
Interest expense [12,000*6%*3/12 = 180]	180
Total	180
Depreciation expense
Particulars	Amount	Particulars	Amount
Depreciation charge [Refer Accumulated depreciation for working]	300
Total	300
Rent expense
Particulars	Amount	Particulars	Amount
Rent expense [6,000/6*3 months]	3,000
Total	3,000
Insurance expense
Particulars	Amount	Particulars	Amount
Insurance expense [1,500/12*3 month]	375
Total	375

4) prepare the Balance Sheet, Income Statement and Statement of Cash Flows as of and for the period ending December 31, 2019

Income Statement
For the year ended December 31, 2019
Revenue:	-
Expenses:
Rent expense	3,000
Insurance expense	375
Depreciation expense	300
Interest expense	180
Total Expenses	3,855
Net income / (loss)	(3,855)

Balance Sheet
31-Dec-19
Assets		Liabilities and Stockholder's Equity
Current assets		Current liabilities
Cash	32,500	Borrowing	12,000
Prepaid insurance	1,125	Interest payable	180
Prepaid rent	3,000	Advance from customer	15,000
Total Current assets	36,625	Total Liabilities	27,180
Plant, property and Equipment:		Stockholder's Equity
Equipment	12,000	Common stock	25,000
Accumulated depreciation	(300)	Retained earnings	(3,855)
Plant, property and Equipment (net)	11,700	Total Stockholder's Equity	21,145
Total Assets	48,325	Total Liabilities and Stockholder's Equity	48,325

Cash flow statement for the year ended on December 31, 2019 (Indirect method)

Cash flow statement for the year ended on December 31, 2019
Cash flow from operating activities
Net income before tax	(3,855)
Adjustments for:
Depreciation expense	300
Interest expense	180
Operating cash flow before changes in working capital	(3,375)
Changes in working capital
Prepaid rent	(3,000)
Prepaid Insurance	(1,125)
Advance from customer	15,000
Net cash generated from operations before tax	7,500
Income tax payment	-
Net cash generated from operating activities (A)	7,500
Cash flow from investing activities
Purchase of equipment	(12,000)
Net Cash flow from investing activities (B)	(12,000)
Cash flow from financing activities
Common stock issued	25,000
Borrowing taken from bank	12,000
Net cash generated from financing activities (C)	37,000
Net increase / (decrease) in cash [A+B+C]	32,500
Add: Cash balance at the beginning of the month	-
Cash balance at the end of the month	32,500

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