Question

1. Record and post each of the March transactions. Replace all xx with your birth month. You may need to establish some new accounts.

March 1      The company purchases a $15,000 short term interest-bearing investment (3 month, 8%). Chapter 7

March 1   Sold a Mac for $3,000. This asset was included in the February 5 equipment purchase and had an original purchase price of $4,000, but once in use, the owners quickly realized, it was not adequate for their needs. (Hint: remember one month of depreciation was recorded in February; remember this as you determine the gain or loss.) Chapter 8

March 2   Purchased a PC for $3,000. Chapter 8

March 2   Issue 5-year, 9% bonds payable with a face value of $10,000. The bonds were issued at 104 and pay interest on June 30 and December 31. Chapter 10

March 5   Purchased land and building for $80,000 with a 10% cash payment a 30 year mortgage for the remainder, which will be paid in annual increments. The appraised value of the land is $18,000 and the building was appraised at $72,000. The mortgage interest rate is 4%. (Chapter 8 – see page 360)

March 5   Paid salaries and wages payable ($2,900) and utilities ($600), recorded as accounts payable. See opening balances above.

March 6   Based on a customer survey, the company decided to sell motivational/self-help books and resources and purchased $6,500 of merchandise on account, with terms 2% 10, net 30. Freight costs were $100, this amount is included in the $6,500, but the discount terms do not apply to freight. If the company elects to pay within the discount period, they will reduce the inventory account by the discounted amount. Chapter 4, including appendix

March 10 The company returns $400 of the merchandise. Chapter 4

March 15 The company pays the vendor for the merchandise purchased on March 6. Chapter 4

March 15 Paid $3,2xx salaries and wages.

March 17 Purchases supplies on account for $1,6xx.

March 20 Issued 1,200 shares of $1 par value stock for $6,000. Chapter 11

March 31 Declares dividends of $.10 per share. (Hint: 22,000 shares were issued on February 1, they were issued at par value.) Chapter 11

Summary transactions for the month of March

March 31 Received $7,8xx from customers for services

March 31 Performed services for customers on account $5,6xx.

March 31 Sold merchandise that cost $3,600 for $8,000 plus $800 sales tax (which will be paid in September). 60% of the sales were for cash, the remainder on account. Chapters 4 and 9 (see page 404)

March 31 Collected cash from customers on account, $4,500.

March 31 Paid $800 of the accounts payable.

March 31 Paid the following cash expenses: (1) Advertising, $3,0xx; (2) Rent, $2,5xx.

Adjusting entries:

March 31 The controller realizes they need to establish an uncollectible account policy. Based on her research and after a lengthy discussion, the owners agree that an estimate of 10% of the accounts receivable balance is realistic. Chapter 7

March 31 Received a $7xx bill for utilities that will be paid in April (record payable in accounts payable).

March 31 Accrued employee’s salaries $3,2xx (to be paid on April 1).

March 31 Additional adjusting entries hints:

1. Refer to the adjusting entries from part 1, you’ll need to do the same for this month.
2. An inventory of supplies indicates there is a remaining balance of $850.
3. Remember to calculate interest expense for both the note and bond. Chapter 10
4. Calculate interest income for the Note Receivable. Chapter 7
5. In order to calculate income tax expense, you will need to calculate income.
6. Assuming you record each interest expense separately, you should have a total of 13 adjusting entries.

Answer 1

1. March 1      The company purchases a $15,000 short term interest-bearing investment (3 months, 8%). Chapter 7

2. March 1^st                   8% Short Term Investment A/C                $15,000

                                                   To Cash                                                          $15,000

   (Being Short term investment purchased at 8% interest)

   March 31^st                      Interest on 8% Investment                                   $100

                                                               To Interest Payable A/C                                         $100

   ($15,000 *8%*1/12 – Being 8% interest accrued proportionately for one month)

3. March 1   Sold a Mac for $3,000. This asset was included in the February 5 equipment purchase and had an original purchase price of $4,000, but once in use, the owners quickly realized, it was not adequate for their needs. (Hint: remember one month of depreciation was recorded in February; remember this as you determine the gain or loss.) Chapter 8
   
   March 1^st                   Bank A/c                                            $3,000
                                       Loss on Equipment Sales               $    967
                                       Accumulated Depreciation a/c    $       33
                                                               To Equipment A/c                           $4,000
   (Assuming that the depreciation for equipment is 10% per annum)
   (Being the equipment sold after one month of usage)
   
   March 31^st                 Profit and Loss A/c Dr.                   $967
                                                   To Loss on Equipment sales                      $967
   Being the loss on sale of equipment transferred to Profit and Loss account)
4. March 2   Purchased a PC for $3,000. Chapter 8
   
   March 2^nd        Drawing/Partners Capital A/c                 Dr.                   $3,000
                                                   To Bank                                                          $3,000
   (Assuming that PC – personal Computer purchased for partners own use)
   
5. March 2   Issue 5-year, 9% bonds payable with a face value of $10,000. The bonds were issued at 104 and pay interest on June 30 and December 31. Chapter 10
   March 2^nd                  Bank A/c                    Dr. 10,400
                                                   To 9% Bond Payable                       $10,000
                                                   To Premium on 9% Bond               $      400
   
   (Being Bond issued at a premium of $4 for the face value of $100)
   
   March 31^st                 Interest Expenses                                        $72
                                                   To Accrued Interest on 9% Bond                          $72
   (Being the interest on 9% bond accrued for 29 days and it is payable on June 30^th )
   
6. March 5   Purchased land and building for $80,000 with a 10% cash payment a 30 year mortgage for the remainder, which will be paid in annual increments. The appraised value of the land is $18,000 and the building was appraised at $72,000. The mortgage interest rate is 4%. (Chapter 8 – see page 360)

7. Land & Building A/c Dr.      $80,000

   Interest Expenses                $10,000

               To Cash                                              $8,000

               To Lease/Mortgage                        $72,000

              

8. March 5   Paid salaries and wages payable ($2,900) and utilities ($600), recorded as accounts payable. See opening balances above.
   
   Salaries & Wages                                              $2,900
   Utilities                                                                 $    600
                                   To Accounts Payable                                       $3,500

9.             (Being the amount payable accrued against payable)

10. March 6   Based on a customer survey, the company decided to sell motivational/self-help books and resources and purchased $6,500 of merchandise on account, with terms 2% 10, net 30. Freight costs were $100, this amount is included in the $6,500, but the discount terms do not apply to freight. If the company elects to pay within the discount period, they will reduce the inventory account by the discounted amount. Chapter 4, including appendix
    
    

11. March 6^th      Inventory A/c                       $6,272

    Discount A/c                         $   128

    Freight A/c                            $    100

                            To Vendor A/c          $6,500

                (Being the books and resource purchased and the debited to inventory after deducting the early pay discount of 2%)

12. March 10 The company returns $400 of the merchandise. Chapter 4
    
    Vendor A/c               $400
                To Inventory                         $392
                To Discount                           $     8

13.               Being $400 of the merchandise returned)

14. March 15 The company pays the vendor for the merchandise purchased on March 6. Chapter 4
    
    March 15^th                Vendor A/c Dr.                     $6,100
                                                    To Bank                                              $6,100
    Being the amount paid to the merchandise purchased)
    
15. March 15 Paid $3,2xx salaries and wages
    
    March 15^th          Accounts payable                             $3,200
                                                    To Bank                                                                $3,200
    
    Being the amount accrued against salary and wages payable paid)
    
16. March 17 Purchases supplies on account for $1,6xx.
    
    March 17^th Supplies A/c Dr.                                  $1605
                            To Vendor A/c                                              $1605
    (Being supplies purchased on account)
17. March 20 Issued 1,200 shares of $1 par value stock for $6,000. Chapter 11

18. Bank A/c                    $6,000

                To Share Capital                  $1,200

                To Securities Premium       $4,800

                  (Being 1,200 issued at par $1 with the premium of $4)

19. March 31 Declares dividends of $.10 per share. (Hint: 22,000 shares were issued on February 1, they were issued at par value.) Chapter 11
    

20. March 31^st.           Retained Earnings A/c                        $2,320

                                                    To Dividend Payable A/c                            $2,320

    Being dividend declared $0.10 per share on the total issue of shares 23,200)

21. March 31 Received $7,8xx from customers for services
    
    Bank A/c        Dr.                   $7,805
                To Other Operating Income                      $7,805

22. (Being amount received from Customer for services)

23. March 31 Performed services for customers on account $5,6xx.
    Customer A/c           Dr. $5,605
                To Other Operating Income                      $5,605

24. (Being the service rendered to the customer on account)

25. March 31 Sold merchandise that cost $3,600 for $8,000 plus $800 sales tax (which will be paid in September). 60% of the sales were for cash, the remainder on account. Chapters 4 and 9 (see page 404)

26. Cash A/c                   $5,280

    Customer A/c           $3,520

                            To Inventory                         $3,600

                            To revenue                            $4,400

                            To sales Tax Payable           $    800

    (Being the sales made 60% cash and the remaining on credit)

27. March 31 Collected cash from customers on account, $4,500.
    Bank A/c Dr.                         $4,500
                To Customer a/c                              $4,500
    (Being cash received from the Customer)
28. March 31 Paid $800 of the accounts payable
    
    Vendor A/c Dr.                                 $800
                            To Bank                                  $800
    (Being amount paid on payable)
29. March 31 Paid the following cash expenses: (1) Advertising, $3,0xx; (2) Rent, $2,5xx.
    
    Advertisement A/c              Dr. 3,005
    Rent                     A/c             Dr. 2,505
                            To Bank/Cash                                               $5,510
    (Being the expenses paid in cash)
30. March 31 The controller realizes they need to establish an uncollectible account policy. Based on her research and after a lengthy discussion, the owners agree that an estimate of 10% of the accounts receivable balance is realistic. Chapter 7
    
    Bad Debts                  a/c                  $462.50
                To Provision for bad debts                        $462.50
    (Being bad debt provision created on the receivable balance($5605+$3520-$4500=$4625*10%)
    
    
31. March 31 Received a $7xx bill for utilities that will be paid in April (record payable in accounts payable).
    
    Utilities A/c Dr.                    $705
                To Accounts payable                       $705
    Being utilities bill received and paid in april)
32. March 31 Accrued employee’s salaries $3,2xx (to be paid on April 1).
    
    Salaries          A/cDr.            $3,205
                            To Accounts payable A/c               $3,205
    Being Accrued employee’s salaries paid in April)