Question

The following transactions occurred during the month of June 2021 for the Stridewell Corporation. The company owns and operates a retail shoe store. Issued 75,000 shares of common stock in exchange for $375,000 cash. Purchased office equipment at a cost of $68,750. $27,500 was paid in cash and a note payable was signed for the balance owed. Purchased inventory on account at a cost of $150,000. The company uses the perpetual inventory system. Credit sales for the month totaled $255,000. The cost of the goods sold was $127,500. Paid $3,250 in rent on the store building for the month of June. Paid $1,800 to an insurance company for fire and liability insurance for a one-year period beginning June 1, 2021. Paid $108,375 on account for the merchandise purchased in 3. Collected $51,000 from customers on account. Paid shareholders a cash dividend of $3,750. Recorded depreciation expense of $1,375 for the month on the office equipment. Recorded the amount of prepaid insurance that expired for the month. Required: Prepare journal entries to record each of the transactions and events listed above. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Answer:

Stridewell Corporation

Journal Entries:

Debit Cash $375,000

Credit Common Stock $375,000

To record issue of 75,000 shares of common stock.

Debit Office Equipment $68,750

Credit Cash Account $27,500

Credit Notes Payable $41,250

To record purchase of office equipment.

Debit Inventory $150,000

Credit Accounts Payable $150,000

To record purchase of inventory on account

Debit Accounts Receivable $255,000

Credit Sales Revenue $255,000

To record sales on account.

Debit Cost of Goods Sold $127,500

Credit Inventory $127,500

To record cost of goods under the perpetual inventory system.

Debit Rent Expense $3,250

Credit Cash Account $3,250

To record payment of rent for June.

Debit Prepaid Insurance $1,800

Credit Cash Account $1,800

To record payment for insurance.

Debit Accounts Payable $108,375

Credit Cash Account $108,375

To record payment on account.

Debit Cash Account $51,000

Credit Accounts Receivable $51,000

To record cash collection from customers.

Debit Dividends $3,750

Credit Cash Account $3,750

To record payment of cash dividend.

Debit Depreciation Expense $1,375

Credit Accumulated Depreciation $1,375

To record depreciation charge for the month.

Debit Insurance Expense $150

Credit Prepaid Insurance $150

To record expired insurance for the month.

Explanation:

a) Journal Entries show the accounts to be debited and credited in the general ledger.  They are the first accounting records of business transactions and events.

b) Insurance Expense for June is equal to $1,800/12 = $150 per month.  This amount is deducted from the Prepaid Insurance to reduce the balance.