David Church, Sarah Williams and Edna Mitchell are partners in a carpeting sales and installation business incorporated under the name Mountain Carpets Ltd. The company began operations on January 1, 2021. David Church and Sarah Williams each loaned the company $10,000 cash and Edna Mitchell loaned the company $30,000 cash. Additionally, David Church contributed 100 Royal Bank shares with irrevocable election as a loan to the company. On January 1, 2021, the share price of Royal Bank was at $100 per share. Sarah Williams also contributed office equipment and a small warehouse building which were appraised at $5,000 and $25,000 respectively as of January 1, 2021. The three partners hold shares in proportion to their shareholder loan and contributions. The 8,000 common shares are valued at $1.00 each and are charged against the shareholder loan account. A demand loan of $50,000 (at an interest rate of 10%) was obtained from Royal Bank of Canada. Loan payments of $3,000 are made on the first date of the month, beginning in February 2021. The corporation leased retail space with a small mezzanine suitable for an office. The rent is fixed for three years at $1,800 per month. The lease required the last two months’ rent paid in advance. Basic office furniture was purchased. The corporation purchased a new van and had the company logo painted on it. A Royal Bank of Canada Term Plan Loan financed $25,000 of the total $35,000 before tax purchase price at an interest rate of 9.25%. The company has adopted the policy of declining balance method over the useful life of the van including the effect of salvage value, if any, with one month of amortization to be taken in the month of acquisition. The van is expected to last eight years and sell at that time for $5,000. All other assets are expected to last 10 years based on straight-line method, with no residual value. Items over $300 are considered to be capital assets. Incorporation costs are amortized over three years beginning in January 2, 2021. Sarah Williams and David Church are employed by the corporation at a bi-weekly salary of $1,350 each. The payroll journal is up to date and accurate to the pay period ending Friday, February 22, 2021. They began with seven lines of carpeting from five manufacturers: Canada Carpet Ltd, Factory Carpets, Quality Carpet Company, Saxony Wool Mills and XL Broadloom. The company uses weighted-average cost system for recording the inventory.

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Journal Entry Date Acccount title explanation Debit Credit 2021 01Jan Ca... View the full answer