The following transactions occurred during March 2013 for the Wainwright Corpora
ID: 2376993 • Letter: T
Question
The following transactions occurred during March 2013 for the Wainwright Corporation. The company owns and operates a wholesale warehouse.
Purchased equipment at a cost of $40,000. $10,000 cash was paid and a note payable was signed for the balance owed.
Paid $6,000 to an insurance company for fire and liability insurance for a one-year period beginning April 1, 2013.
Analyze each transaction and show the effect of each on the accounting equation for a corporation. (Amounts to be deducted should be indicated by a minus sign. Enter the net change on the accounting equation.)
1. Issued 30,000 shares of common stock in exchange for $300,000 in cash. 2.Purchased equipment at a cost of $40,000. $10,000 cash was paid and a note payable was signed for the balance owed.
3. Purchased inventory on account at a cost of $90,000. The company uses the perpetual inventory system. 4. Credit sales for the month totaled $120,000. The cost of the goods sold was $70,000. 5. Paid $5,000 in rent on the warehouse building for the month of March. 6.Paid $6,000 to an insurance company for fire and liability insurance for a one-year period beginning April 1, 2013.
7. Paid $70,000 on account for the merchandise purchased in 3. 8. Collected $55,000 from customers on account. 9. Recorded depreciation expense of $1,000 for the month on the equipment.Explanation / Answer
1. Issued 30,000 shares of common stock in exchange for $300,000 in cash.
Debit Cash $300,000
Credit Common Stock $300,000
2. Purchased equipment at a cost of $40,000. $10,000 cash was paid and a note payable was signed for the balance owed.
Debit Equipment $40,000
Credit Cash $10,000
Credit Notes Payable $30,000
3. Purchased inventory on account at a cost of $90,000. The company uses the perpetual inventory system.
Debit Inventory $90,000
Credit Accounts Payable $90,000
4. Credit sales for the month totaled $120,000. The cost of the goods sold was $70,000.
Debit Accounts Receivable $120,000
Credit Sales Revenue $120,000
Debit Costs of Goods Sold $70,000
Credit Inventory $70,000
5. Paid $5,000 in rent on the warehouse building for the month of March.
Debit Rent Expense $5,000
Credit Cash $5,000
6. Paid $6,000 to an insurance company for fire and liability insurance for a one-year period beginning April 1, 2006.
Debit Prepaid Insurance $6,000
Credit Cash $6,000
7. Paid $70,000 on account for the merchandise purchased in 3.
Debit Accounts Payable $70,000
Credit Cash $70,000
8. Collected $55,000 from customers on account.
Debit Cash $55,000
Credit Accounts Receivable $55,000
9. Recorded depreciation expense of $1,000 for the month on the equipment.
Debit Depreciation Expense $1,000
Credit Accumulated Depreciation - Equipment $1,000
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