Question

Bob's Chocolate Chips and More, a bakery specializing in gourmet pizza and chocolate chip cookies, started business October 1, 2017. The following transactions occurred during the month of October.

a.Common stock of $90,000 was sold at par to start the business.

b. Equipment consisting of mixers and ovens was acquired October 1 for $30,000 cash. The equipment is expected to last five years, after which it is expected to be sold for $5,000. Management uses the straight-line method to calculate depreciation expense.

c. Ingredients costing $15,000 were purchased on account during the month and all but $5,000 was paid for by the end of the month.

d. Rent is $500 a month. October, November, and December’s rent was paid October 5.

e. A payment of $800 for utilities was made during the month

f. Sixty percent of the ingredients purchased in part c were prepared and sold for $35,000 on account; $26,000 was collected on accounts receivable during the month.

g. Wages of $5,200 were paid during the month. Moreover, wages for the last three days of the month amounted to $400 and will be paid during the first week of November.

h. Borrowed $12,000 from the bank for additional working capital requirements, and $3,000 was repaid by month-end. Interest on the unpaid loan balance amounted to $450 at the end of October and was paid on November 5.

Required:

Prepare the required journal entries and adjusting entries as well as an October income statement and a balance sheet as of October 31, 2017 for Bob's Chocolate Chips and More. (Hint: You may want to consider using T-accounts to classify and accumulate the preceding transactions before preparing the statements.)

Answer 1