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 125,000 shares of common stock in exchange for $625,000 cash. Purchased office equipment at a cost of $102,500. $41,000 was paid in cash and a note payable was signed for the balance owed. Purchased inventory on account at a cost of $250,000. The company uses the perpetual inventory system. Credit sales for the month totaled $425,000. The cost of the goods sold was $212,500. Paid $5,500 in rent on the store building for the month of June. Paid $2,880 to an insurance company for fire and liability insurance for a one-year period beginning June 1, 2021. Paid $180,625 on account for the merchandise purchased in 3. Collected $85,000 from customers on account. Paid shareholders a cash dividend of $6,250. Recorded depreciation expense of $2,050 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 Account $625,000

Credit Common Stock $625,000

To record the issue of 125,000 shares for cash.

Debit Office Equipment $102,500

Credit Cash Account $41,000

Credit Note Payable $61,500

To record the purchase of office equipment.

Debit Inventory $250,000

Credit Accounts Payable $250,000

To record the purchase of inventory.

Debit Accounts Receivable $425,000

Credit Sales Revenue $425,000

To record the sale of goods on account.

Debit Cost of Goods Sold $212,500

Credit Inventory $212,500

To record the cost of goods sold.

Debit Rent Expense $5,500

Credit Cash Account $5,500

To record the payment of rent for the month.

Debit Prepaid Insurance $2,880

Credit Cash Account $2,880

To record the payment for insurance for a year.

Debit Accounts Payable $180,625

Credit Cash Account $180,625

To record the payment to suppliers on account.

Debit Cash Account $85,000

Credit Accounts Receivable $85,000

To record the receipt of cash from customers.

Debit Dividend $6,250

Credit Cash Account $6,250

To record the payment of cash dividend.

Debit Depreciation Expense - Office Equipment $2,050

Credit Accumulated Depreciation - Office Equipment $2,050

To record depreciation expense for the month.

Debit Insurance Expense $240

Credit Prepaid Insurance $240

To record insurance expense for the month.

Explanation:

Stridewell's insurance expense that expired for the month is obtained by dividing the Prepaid Insurance by 12 since it is for one year.  Thus, Stridewell obtains $240 ($2,880/12) as the expense for the month.  The balance remaining in the Prepaid Insurance is a current asset which is carried into the next month.

Journal entries help us to identify the accounts involved in each Stridewell's transaction and the account it should debit and the one it should credit. They are the initial record made by Stridewell in its accounting books for each business transaction.