Question

For each transaction, describe what occurred and how it affected the accounting equation. Ryan Hope, controller of Hope Inc., provides you with the following information concerning Hope during 2017. (Hope Inc. began operations on January 1, 2017.)

1. Issued 1,000 shares of common stock at $95 per share.

2. Paid $2,600 for each of 12 months to rent office and warehouse space for 2017. The rent was paid on the last day of each month.

3. Made total sales for services of $190,000: $65,000 for cash and $125,000 on account.

4. Purchased land for $32,000.

5. Borrowed $75,000 on December 31. The note payable matures in two years.

6. Salaries and wages totaling $80,000 were paid during the year.

7. Miscellaneous expenses totaling $40,000 were paid during the year.

8. $56,000 was received from customers as payment on account.

9. Declared and paid a dividend of $26,000.

REQUIRED: a. Prepare journal entries for these transactions. b. Establish T-accounts for each account, and post the journal entries to these T-accounts. c. Prepare an income statement for 2017.

Answer 1

1. Issued 1,000 shares of common stock at $95 per share.
	Bank A/c	-----------Dr	95000
	To Share Capital A/c			95000
2. Paid $2,600 for each of 12 months to rent office and warehouse space for 2017. The rent was paid on the last day of each month.
	Office rent and warehouse space A/c	-----------Dr	2600
	To Bank A/c			2600
	(Entry to Passed on Every last day of Each Month)
3. Made total sales for services of $190,000: $65,000 for cash and $125,000 on account.
	Receivables A/c	-----------Dr	65000
	Cash A/c	-----------Dr	125000
	To Sales			190000
4. Purchased land for $32,000.
	Land A/c	-----------Dr	32000
	To Bank A/c			32000
5. Borrowed $75,000 on December 31. The note payable matures in two years.
	Bank A/c	-----------Dr	75000
	To Browwing A/c			75000
6. Salaries and wages totaling $80,000 were paid during the year.
	Salaries and Wages A/c	-----------Dr	80000
	To Bank A/c			80000
7. Miscellaneous expenses totaling $40,000 were paid during the year.
	Miscellaneous Expenses A/c	-----------Dr	40000
	To Bank A/c			40000
8. $56,000 was received from customers as payment on account.
	Bank A/c	-----------Dr	56000
	To Receivable A/c			56000
9. Declared and paid a dividend of $26,000.
a.	Dividend A/c	-----------Dr	26000
	To Shareholder A/c			26000
b.	Shareholder A/c	-----------Dr	26000
	To Bank A/c			26000

T accounts of Each Account:

1.
Dr	Bank A/c		Cr
Particulars	Amount	Particulars	Amount
To Share Capital	95000	By Office rent and warehouse space A/c	31200
To Sales	65000	(2600*12)
To Borrowing A/c	75000	By Land A/c	32000
To Receivables	56000	By Salaries and Wages A/c	80000
		By Miscellaneous Expenses A/c	40000
		By Shareholders A/c	26000
		By Closing Balance	81800
Total	291000	Total	291000

2
Dr	Share Capital A/c		Cr
Particulars	Amount	Particulars	Amount
By Bank	95000	To Closing Balnce	95000
3. Dr Office rent and warehouse space A/c Cr Particulars Amount Particulars Amount By P&L 31200 To Bank 2600 To Bank 2600 To Bank 2600 To Bank 2600 To Bank 2600 To Bank 2600 To Bank 2600 To Bank 2600 To Bank 2600 To Bank 2600 To Bank 2600 To Bank 2600 Total 31200 Total 31200

4.

Dr	Receivables A/c		Cr
Particulars	Amount	Particulars	Amount
By Bank	56000	To Sales	125000
By Closing Balance	69000
Total	125000	Total	125000

5.

Dr	Sales A/c		Cr
Particulars	Amount	Particulars	Amount
By Bank	65000	To P& L	190000
By Receivables	125000
Total	190000	Total	190000

6.

Dr	Land A/c		Cr
Particulars	Amount	Particulars	Amount
By Closing Balance	32000	To Bank A/c	32000
Total	32000	Total	32000

7.

Dr	Borrowing A/c		Cr
Particulars	Amount	Particulars	Amount
By Bank	75000	To Closing Balance	75000
Total	75000	Total	75000

8.

Dr	Salaries & Wages A/c		Cr
Particulars	Amount	Particulars	Amount
By P&L	80000	To Bank	80000
Total	80000	Total	80000

9.

Dr	Miscellaneous Expenses A/c		Cr
Particulars	Amount	Particulars	Amount
By P&L	40000	To Bank	40000
Total	40000	Total	40000
**Miscellaneous expenses are the petty expenses, which every
business incurr in their day to day transaction, these could
be refreshment expenses, conveyance, postage etc

9.

Dr	Shareholder A/c		Cr
Particulars	Amount	Particulars	Amount
By Dividend	26000	To Bank	26000
Total	26000	Total	26000

10.

Dr	Dividend A/c		Cr
Particulars	Amount	Particulars	Amount
By P&L	26000	To Shareholders A/c	26000
Total	26000	Total	26000

Income Statement:

Particulars	Amount	Amount
Sales		190000
Less:
Office rent and warehouse space	31200
Salaries & Wages	80000
Miscellaneous Expenses	40000	151200
Income before Appropriation		38800
Less: Dividend		26000
Net Income		12800