Question

Whitelands, Inc. had $100 of cash and shareholders’ equity as the result of its initial sale of stock on January 1, 2012. During its first month of operations, Whitelands had the following operating transactions:

Date	Transaction
1/1	Paid $24 cash in advance to rent a store for one year
1/1	Purchased 2 units of inventory on credit costing $4 each
1/3	Purchased 3 units of inventory on credit costing $5 each
1/10	Purchased 4 units of inventory on credit costing $6 each
1/21	Paid for the January 1 inventory purchase
1/23	Paid for the January 3 inventory purchase
1/30	Sold 7 units of inventory at $10 each on credit
1/30	Matched the inventory cost to January 30 sales on a FIFO basis
1/31	Estimated that 10% of credit sales will not be realized in cash
1/31	Adjusted the prepaid rent account

Required:
Record the journal entries for the above transactions.
Present Whitelands’ income statement for January 2014.
Report Whitelands’ balance sheet on January 31, 2014.
Close the revenue and expense accounts to retained earnings.

Answer 1

• Requirement 1

Date	Accounts title	Debit	Credit
01-Jan	Prepaid Rent	$24
	Cash		$24
01-Jan	Inventory	$8
	Accounts Payable		$8
03-Jan	Inventory	$15
	Accounts Payable		$15
10-Jan	Inventory	$24
	Accounts Payable		$24
21-Jan	Accounts Payable	$8
	Cash		$8
23-Jan	Accounts Payable	$15
	Cash		$15
30-Jan	Accounts receivables	$70
	Sales Revenue		$70
30-Jan	Cost of Goods Sold (2x4)+ (3x5)+(2x6)	$35
	Inventory		$35
31-Jan	Bad Debt Expense [70 x 10%]	$7
	Allowance for Doubtful Accounts		$7
31-Jan	Rent Expense [24/12]	$2
	Prepaid Rent		$2

• Requirement 2

Income Statement
for the month ended 31 Jan
Sales revenue		$70
Cost of Goods Sold		$35
Gross Profits		$35
Operating Expenses:
Rent Expense	$2
Bad Debt Expense	$7
Total expenses		$9
Net [Operating] Income		$26

• Requirement 3

Balance Sheet
as at 31 Jan
ASSETS
Cash [100 - 24 - 8 - 15]		$53
Accounts receivables	$70
Less: Allowance for Doubtful Accounts	$7	$63
Inventory		$12
Prepaid Rent [ 24 - 2]		$22
Total Assets		$150
LIABILITIES
Accounts Payable [8 + 15 + 24 -8 - 15]		$24
STOCKHOLDER'S EQUITY
Common Stock	$100
Retained Earnings	$26
Total Stokcholder's Equity		$126
Total Liabilities & Equity		$150

• Requirement 4

Date	Accounts title	Debit	Credit
31-Jan	Sales revenue	$70
	Retained earnings		$70
	(revenue account closed)
31-Jan	Retained earnings	$44
	Cost of Goods Sold		$35
	Rent Expense		$2
	Bad Debt Expense		$7
	(Expenses account closed)