Question

How do I do this problem, question 3-41 in the Financial Accounting Book?

Assets

Cash 24000

Accounts receivable 40000

Merchandise inventory 131,000

Prepaid rent 4000

Store equipment 60000

Less: Accumulated depreciation 24000

Liabilities and Stockholders’ Equity 36000

Total $235,000

Accounts payable 116000

Paid-in capital 40000

Retained earnings 79000

Total 235,000

*For merchandise only.

Following is a summary of aggregate transactions that occurred during 20X1:

Purchases of merchandise inventory on open account, $550,000.

Sales, all on credit, $810,000.

Cost of merchandise sold to customers, $536,000.

Disbursed $25,000 for the rent of the store. Add to Prepaid Rent.

Disbursed $165,000 for wages through November.

Disbursed $75,000 for miscellaneous expenses such as utilities, advertising, and legal help. (Debit Miscellaneous Expenses.)

On July 1, 20X1, loaned $40,000 to the office manager. He signed a note that will mature on July 1, 20X2, together with interest at 5% per annum. Interest for 20X1 is due on December 31, 20X1.

On August 1, 20X1, borrowed $80,000 from a supplier. The note is payable in 4 years. Interest is payable yearly on December 31 at a rate of 6% per annum.

Collections on accounts receivable, $692,000.

Payments on accounts payable, $472,000.

The following entries were made on December 31, 20X1:

Recognized rent expense for 20X1: $3,000 of prepaid rent is applicable to 20X2; the remain- der expired in 20X1.

Depreciation for 20X1 was $6,000.

Wages earned by employees during December were paid on December 31, $6,000.

Interest on the loan made to the office manager was received. See transaction g.

Interest on the loan from the supplier was disbursed. See transaction h.

Required

1. Prepare journal entries in thousands of dollars.
2. Post the entries to T-accounts in the ledger, keying your postings by transaction letter. 3. Prepare a trial balance for the year ending December 31, 20X1.

3.Prepare a trial balance for the year ending December 31, 20X1.

Answer 1

1. Journal Entries

Journal Entries
Event	Account Title	Debit	Credit
a	Merchandise Inventory	550000
	Accounts Payable		550000
	(Purchase of inventory on account)
b	Accounts Receivable	810000
	Sales		810000
	(Sales on account)
c	Cost of goods sold	536000
	Merchandise Inventory		536000
	(Cost of goods sold)
d	Prepaid Rent	25000
	Cash		25000
	(Cash paid for rent)
e	Wages Expense	165000
	Cash		165000
	(Wages paid through November)
f	Miscellaneous Expenses	75000
	Cash		75000
	(Expenses paid by cash)
g	Note Receivable	40000
	Cash		40000
	(Amount loaned to ofice manager)
h	Cash	80000
	Note Payable		80000
	(Amount borrowed from supplier)
i	Cash	692000
	Accounts Receivable		692000
	(Cash collected from customers)
j	Accounts Payable	472000
	Cash		472000
	(Cash paid to accounts payable)
k	Rent Expense	26000
	Prepaid Rent		26000
	(Rent expense for 20X1 )
l	Depreciation Expense	6000
	accumulated Depreciation		6000
	(Depreciation for the year)
m	Wages Expense	6000
	Cash		6000
	(Wages paid for December)
n	Interest Receivable	1000
	Interest Income *		1000
	(Interest on loan to office manager)
o	Interest expense	2000
	Interest Payable **		2000
	(Interest on note payable)
	Interest on loan to office manager
	Amount of loan	40000
	Date of loan	July 1
	Period upto Dec.31	6 months
	Rate of interest	5%
	Interest income (40,000x5%x6)/12 *	1000
	Interest on borrowing
	Amount borrowed	80000
	Date of loan	August 1
	Period upto Dec.31	5 months
	Rate of interest	6%
	Interest income (80,000x6%x5)/12 **	2000

2. T-Accounts

Cash					Accounts Receivable
Event	Debit	Event	Credit		Event	Debit	Event	Credit
Beg.Bal.	24000	d	25000		Beg.Bal.	40000	i	692000
h	80000	e	165000		b	810000
i	692000	f	75000			850000		692000
		g	40000		End.bal.	158000
		j	472000
		13	6000
	796000		783000
End.bal.	13000
Merchandise Inventory					Prepaid Rent
Event	Debit	Event	Credit		Event	Debit	Event	Credit
Beg.Bal.	131000	3	536000		Beg.Bal.	4000	k	26000
1	550000				d	25000
	681000		536000			29000		26000
End.bal.	145000				End.bal.	3000
Store Equipment					Accumulated Depreciation
Event	Debit	Event	Credit		Event	Debit	Event	Credit
Beg.Bal.	60000						Beg.Bal.	24000
							l	6000
	60000		0			0		30000
End.bal.	60000						End.Bal.	30000
Accounts Payable					Paid-in-capital
Event	Debit	Event	Credit		Event	Debit	Event	Credit
j	472000	Beg.Bal.	116000				Beg.Bal.	40000
		a	550000
	472000		666000			0		40000
		End.Bal.	194000				End.Bal.	40000
Retained Earnings					Sales
Event	Debit	Event	Credit		Event	Debit	Event	Credit
		Beg.Bal.	79000				b	810000
	0		79000			0		810000
		End.Bal.	79000				End.Bal.	810000
Cost of goods sold					Wages Expense
Event	Debit	Event	Credit		Event	Debit	Event	Credit
c	536000				e	165000
					m	6000
	536000		0			171000		0
End.bal.	536000				End.bal.	171000
Rent Expense					Miscellaneous Expenses
Event	Debit	Event	Credit		Event	Debit	Event	Credit
k	26000				f	75000
	26000		0			75000		0
End.bal.	26000				End.bal.	75000
Note Receivable					Note Payable
Event	Debit	Event	Credit		Event	Debit	Event	Credit
g	40000						h	80000
	40000		0			0		80000
End.bal.	40000						End.Bal.	80000
Depreciation expense					Interest Expense
Event	Debit	Event	Credit		Event	Debit	Event	Credit
l	6000				o	2000
	6000		0			2000		0
End.bal.	6000				End.bal.	2000
Interest Income					Interest Receivable
Event	Debit	Event	Credit		Event	Debit	Event	Credit
		n	1000		n	1000
	0		1000			1000		0
		End.Bal.	1000
Interest Payable
Event	Debit	Event	Credit
		o	2000
	0		2000
		End.Bal.	2000

3. Trial Balance

Trial Balance
Account	Debit	Credit
Cash	13000
Accounts Receivable	158000
Merchandise Inventory	145000
Prepaid Rent	3000
Interest Receivable	1000
Note Receivable	40000
Store Equipment	60000
Accumulated Depreciation		30000
Accounts Payable		194000
Interest Payable		2000
Note Payable		80000
Paid-in-Capital		40000
Retained Earnings		79000
Sales		810000
Interest Income		1000
Cost of goods sold	536000
wages Expense	171000
Rent Expense	26000
Miscellaneous Expense	75000
Depreciation expense	6000
Interest Expense	2000
Total	1236000	1236000