Question

1 Start with the Journal Entries worksheet. Complete the journal entries for the economic events stated. You need to compute the Cost of Goods Sold. Note that it should not be the same as the Sales. The store marks up the inventory so it makes a profit. 2 Post the journal entries to the T accounts in the T Accounts worksheet. 3 Compute the balance in each account. Be sure that you net the debits and credits when you are computing the balance. For example, an increase in an asset cash is a debit. When a cash payment is made the cash account is reduced with a credit. 4 Complete the financial statement in the Financial Stmts worksheet. Fill in the name of the account in the left column and the amount in the right hand column in the appropriate area of the worksheet. Note the five columns in the T Accounts worksheet correspond to the five areas on the statements.

Answer 1

Journal Entries

1. Cash Dr. $10,000

To Common Stock $10,000

(Being stock issued to the owner)

2. Rent Dr. $1,000

To Cash $1,000

(Being rent paid)

3. Inventory Dr. $7,500

To Accounts Payable $7,500

(Being inventory received)

4. Cash Dr. $8,750

To Sales $8,750

(Being sales made in cash)

5. Cost of goods sold Dr. $4,375

To Inventory   $4,375

(Being cost of goods sold recorded)

*Cost of goods sold = 175 toys * $25 = $4,375

T Accounts

Cash Account

Debit	Credit
1. $10,000	2. $1,000
4. $8,750
Balance $17,750

Inventory

Debit	Credit
3. $7,500	5. $4,375
Balance $3,125

Accounts Payable

Debit	Credit
	3. $7,500
	Balance $7,500

Common Stock

Debit	Credit
	1. $10,000
	Balance $10,000

Sales

Debit	Credit
	4. $8,750
	Balance $8,750

Cost of Goods Sold

Debit	Credit
5. $4,375
Balance $4,375

Rent

Debit	Credit
2. $1,000
Balance $1,000

Income Statement

Revenue / Income (Credits)
Sales	$8,750
Total Revenue (A)	$8,750
Expenses (Debits)
Cost of goods sold	$4,375
Rent Expense	$1,000
Total Expenses (B)	$5,375
Net Income (A-B)	$3,375

Retained Earnings Details

Beginning of year $0

Net Income $3,375

Dividends Paid ($0)

Total Retained Earnings $3,375

Balance Sheet

Assets (Debits)	Liabilities (Credits)
Cash Balance	$17,750	Accounts Payable	$7,500
Inventory	$3,125	Total Liabilities	$7,500
		Equity (Credits)
		Common Stock	$10,000
		Retained Earnings	$3,375
		Total Equity	$13,375
Total Assets	$20,875	Total Equity and Liabilities	$20,875