Question

Chad Polovick organized a new company, Cap Universe Inc. The company operates a small store in an area mall and specializes in baseball- type caps with logos printed on them. Chad, who is never without a cap, believes that his target market is college students. You have been hired to record the transactions occurring in the first two weeks of operations: May + Issued 2000 shares for $ 20 per share. May + Borrowed $ 60,000 from the bank to provide additional funding to begin operations. The note is due in two years with interest at 10 percent annually.
May 1 Paid $ 1,500 for the current month’s rent and another $ 1,500 for next month’s rent.
May 1 Paid $ 2,400 for a one-year fire insurance policy (recorded as a prepaid expense).
May 3 Purchased furniture and fixtures for the store for $ 15,000 on account. The amount is due within 30 days.
May 4 Purchased for $ 2,800 cash a supply of University of Waterloo, York University, and Saint Mary’s University baseball caps to be sold online.
May 5 Placed advertisements on Google for a total of $ 350 cash.
May 9 Sold caps for a total of $ 1,700, half of which was charged on account. The cost of the caps sold was $ 900.
May 10 Made full payment for the furniture and fixtures purchased on account on May 3.
May 14 Received $ 210 from a customer on account.
Required
1. Prepare a journal entry to record each of the transactions. Be sure to categorize each account as an asset (A), a liability (L), shareholders’ equity (SE), a revenue (R), or an expense (E).
2. Complete the tabulation below for each of the transactions, indicating the effect (+ for increase and – for decrease) of each transaction. The first transaction is provided as an example. (Remember that A = L + SE, R – E = NE, and NE affects SE through retained earnings.) Write “N” if there is no effect.


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  • CreatedAugust 04, 2015
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