Question

1. Richards Aircraft sold a four-passenger airplane for $400,000, receiving $75,000 down payment and a 10% note for the balance. The journal entry to record this sale would be:

2. Sarah Smith Co. invested $25,000 in XYZ Corporation and received common stock in exchange. Sarah Smith Co.'s journal entry to record this transaction would be:

3. Rhonda's Berries reported cost of goods sold of $4,000,000 this year. The inventory account increased by $200,000 during the year to an ending balance of $400,000. What was the cost of merchandise that Rhonda's purchased during the year?

4. Morgan's Apples opened its business on January 1, 2018, and paid for two insurance policies effective that date. The liability policy was $48,000 for 18 months, and the crop damage policy was $24,000 for a two-year term. What is the balance in Morgan's prepaid insurance as of December 31, 2018?

5. Emily Farms reported supplies expense of $3,500,000 this year. The supplies account decreased by $200,000 during the year to an ending balance of $400,000. What was the cost of supplies the Emily Farms purchased during the year?

6. Taylor Clay Pipe Company sold $58,000 of pipe to Southeast Water District #45 on April 12 of the current year with terms 1/15, n/60. Oswego uses the gross method of accounting for cash discounts.

What entry would Taylor make on April 23, assuming the customer made the correct payment on that date?

Answer 1

Solution 1:

Journal Entries
Particulars	Debit	Credit
Cash Dr	$75,000.00
Notes Receivables Dr	$325,000.00
To Sales Revenue		$400,000.00
(Being aircraft sold by Richard Aircraft)

Solution 2:

Journal Entries
Particulars	Debit	Credit
Investment in XYZ corporation Dr	$25,000.00
To Cash		$25,000.00
(Being share of XYZ corporation purchased)

Solution 3:

Cost of merchandise purchased = Cost of goods sold + increase in inventory = $4,000,000 + $200,000 = $4,200,000

Solution 4:

Insurance expense for 2018 = $48,000*12/18 + $24,000 * 12/24 = $44,000

Balance of prepaid insurance at the end of 2018 = Total insurance premium paid - Insurance expense recorded

= ($48,000 + $24,000) - $44,000 =$28,000

Solution 5:

Cost of supplies purchased = Supplies expense - Decrease in ending supplies = $3,500,000 - $200,000 = $3,300,000

Solution 6:

Journal Entries
Particulars	Debit	Credit
Cash Dr ($58,000*99%)	$57,420.00
Sales discount Dr	$580.00
To Accounts receivables		$58,000.00
(Being cash received from customer in discount period)