ng activity occurred during May 2016 for ABC Inc.: Description er invested $145,

Question

ng activity occurred during May 2016 for ABC Inc.: Description er invested $145,000 in cash in exchange for 1,000 shares of $1 par common stock. pany sold $5,000 worth of goods. Customer paid half cash and half on account. The merchandise s to the company of $3,500. epted $500 of advance payments from customers for services to be provided next month. eived a utlity bill for $450. Payment is due in 30 days. The company decides to wait exactly 30 days Jones paid in full the outstanding debt he had with the company. company declares a stock split. information above, what journal entry would be required to record the transaction of May 4?

Explanation / Answer

ABC Inc

The journal entry to record the transaction on May 4 is as follows,

Date

Account Titles and Explanation

Ref

Debit

Credit

4-May

Cash

$2,500

Accounts Receivable

$2,500

Cost of Goods Sold

$3,500

Revenue

$5,000

Inventory

$3,500

(Compound entry to record cash and credit sale and the cost of inventory)

Since the customer paid half cash and half on account for the goods sold worth $5,000, Cash = 50% of $5,000 = $2,500

Accounts receivable = 50% of $5,000 = $2,500

Cost of goods sold, $3,500 is credited to the inventory account.

Hence, the correct option is a.

Date

Account Titles and Explanation

Ref

Debit

Credit

4-May

Cash

$2,500

Accounts Receivable

$2,500

Cost of Goods Sold

$3,500

Revenue

$5,000

Inventory

$3,500

(Compound entry to record cash and credit sale and the cost of inventory)

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