Question

The following transactions occurred during March 2021 for the Wainwright Corporation. The company owns and operates a wholesale warehouse.
a. Issued 28,000 shares of common stock in exchange for $280,000 in cash.
b. Purchased equipment at a cost of $36,000. $9,000 cash was paid and a notes payable to the seller was signed for the balance owed.
c. Purchased inventory on account at a cost of $86,000. The company uses the perpetual inventory system.
d. Credit sales for the month totaled $110,000. The cost of the goods sold was $66,000.
e. Paid $4,000 in rent on the warehouse building for the month of March.
f. Paid $5,800 to an insurance company for fire and liability insurance for a one-year period beginning April 1, 2021. Paid $66,000 on account for the merchandise purchased in 3.
g. Collected $49,500 from customers on account.
h. Recorded depreciation expense of $900 for the month on the equipment.

Required:
Prepare journal entries to record each of the transactions listed above.

Answer 1

Answer:

Wainwright Corporation

Journal Entries:

a. Debit Cash $280,000

Credit Common Stock $280,000

To record the issuance of common stock shares for cash.

b. Debit Equipment $36,000

Credit Cash $9,000

Credit Notes payable $27,000

To record the purchase of equipment.

c. Debit Inventory $86,000

Credit Accounts payable $86,000

To record the purchase of inventory on account.

d. Debit Cost of goods sold $66,000

Credit Inventory $66,000

To record the cost of goods sold.

d. Debit Accounts Receivable $110,000

Credit Sales Revenue $110,000

To record the sale of goods on account.

e. Debit Rent expense $4,000

Credit Cash $4,000

To record the payment of rent for the month.

f. Debit Prepaid Insurance $5,800

Credit Cash $5,800

To record the prepayment of insurance for one year, beginning April 1.

f. Debit Accounts payable $66,000

Credit Cash $66,000

To record the payment on account.

g. Debit Cash $49,500

Credit Accounts Receivable $49,500

To record the collection of cash on account.

h. Debit Depreciation Expense $900

Credit Accumulated Depreciation - Equipment $900

To record the depreciation expense for the month.

Explanation:

Journal entries are used by Wainwright Corporation to record its business transactions as they occur daily.  They are the first records of business transactions in the accounting books.  They show the accounts to be debited and the others to be credited.  They are also used to record adjustments.