Question

Laser Delivery Services, Inc. (LDS), was incorporated January 1. The following transactions occurred during the year:________. A. Received $37,000 cash from the company's founders in exchange for common stock. B. Purchased land for $14,000, signing a two-year note (ignore interest). C. Bought two used delivery trucks at the start of the year at a cost of $9,000 each; paid $3,500 cash and signed a note due in three years for $14,500 (ignore interest). D. Paid $1,800 cash to a truck repair shop for a new motor, which increased the cost of one of the trucks. E. Stockholder Jonah Lee paid $320,000 cash for a house for his personal use.

Answer 1

Question Requirements:

1. Record the transaction. Note: Enter debits before credits. Transaction General Journal Debit Credit Record entry Clear entry View general journal

2. Show the effects of the journal entries by account, using the T-account Cash Equipment Beg. Bal Beg. Bal End. Bal End. Bal Land Notes Payable Beg. Bal Beg. Bal. End. Bal. End. Bal. Common Stock Beg. Bal End. Bal

3. Extract a Trial Balance.

4. Prepare a classified balance sheet for Laser Delivery Services, Inc., at the end of December. Enter Retained earnings with a zero balance in the appropriate section. LASER DELIVERY SERVICES, INC Balance Sheet.

Answer:

1. Journal Entries

                                   Debit           Credit

A. Cash                $37,000

   Common Stock                         $37,000

To record issue of common stock.

B. Land               $14,000

   Note Payable                         $14,000

To record purchase of land for note payable.

C. Vehicles        $18,000

   Cash                                     $3,500

   Notes Payable                    $14,500

To record purchase of delivery trucks by cash and notes payable.

D. Vehicles Repairs $1,800

    Cash                                   $1,800

To record vehicle repair.

E. No journal entry required

2. Leger Accounts:

a) Cash Account

                                Debit           Credit       Balance

A. Common Stock  $37,000                         $37,000

C. Vehicles                                 $3,500       $33,500

D. Vehicle Repair                         1,800         $31,700

b) Common Stock

                               Debit           Credit       Balance

A. Cash                                      $37,000       $37,000

c) Land

                               Debit           Credit       Balance

B. Notes Payable  $14,000                         $14,000

d) Notes Payable

                               Debit           Credit          Balance

B. Land                                      $14,000       $14,000

C. Vehicles                                $14,500      $28,500

e) Vehicles

                               Debit           Credit       Balance

C. Cash                   $3,500                          $3,500

C. Notes Payable  $14,500                         $18,000

D. Cash                $1,800                             $19,800

3. Trial Balance as at December 31:

                                           Debit           Credit

Cash                                 $31,700

Common Stock                                     $37,000

Land                                $14,000

Notes Payable                                      $28,500

Vehicles                          $19,800

Total                              $65,500        $65,500

4. Balance Sheet as at December 31:

Assets:

Current Assets:

Cash                         31,700        31,700

Long-Term Assets:

Land                        14,000

Vehicles                  19,800       33,800

Total Assets                           $65,500

Liabilities + Equity:

Liabilities:

Notes Payable                         28,500

Common Stock                       37,000

Total Liabilities + Equity     $65,500

Explanation:

a) The General journal records the transactions as they occur on a daily basis, showing the accounts to be debited and the ones to be credited.

b) The house bought by Stockholder Jonah Lee is a personal transaction that does not relate to the company.  The entity concept that separates ownership from the business does not allow such personal transactions to be recorded in the accounting records of a company.

c) The balance sheet shows the assets and the owners of the financial resources used to acquire the assets.  It is always in balance, with assets equalling the liabilities and equity with the occurrence of each transaction.