Homework 3(1).docx (1)

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Professor June Huang Fall 2023 – ACCT 2301 (Sections 006 and 012) Homework 3 Due by 12PM CT (noon) on Tuesday, September 12 th Answers to this homework assignment must be submitted online through eLearning Section 1: Revenue recognition 1. Recall Moko’s Mouthwatering Treats, the maker of delectable cat treats. Suppose Moko’s Mouthwatering Treats has the following activities in the month of March 2023. Note the amount of revenue Moko’s Mouthwatering Treats would recognize for each activity in March 2023 . (a) On March 2, Moko’s Mouthwatering Treats delivers $2,500 worth of cat treats to a local pet store that makes the purchase on credit. Dr. Accounts Receivable(+A) 2500 Cr. Revenue (+R,+SE) 2500 (b) On March 5, Moko’s Mouthwatering Treats delivers $500 worth of cat treats to an individual customer with 10 cats. The customer pays for the treats on the same day they’re delivered. Dr. Cash (+A) 500 Cr. Revenue (+R,+SE) 500 (c) On March 10, customers paid $1,300 to Moko’s Mouthwatering Treats for February 2023 order deliveries. Dr. Cash (+A) 1300 Cr. Acc Receivable (-A) 1300 (d) On March 15, the local pet store pays $2,500 to Moko’s Mouthwatering Treats for the order in (a). Dr. Cash (+A) 2500 Cr. Acc Receivable (-A) 2500

(e) On March 21, Moko’s Mouthwatering Treats delivers $900 worth of cat treats to a local animal shelter. The shelter pays $400 in cash on the same day and agrees to pay the remainder by May 1 st . Dr. Cash (+A) 400 Dr. Acc Receivable (+A) 500 Cr. Sales Revenue (+R,+SE) 900 Section 2: Expense recognition 2. Suppose Moko’s Mouthwatering Treats has the following activities in the month of April 2023. Note the amount of expense Moko’s Mouthwatering Treats would recognize for each activity in April 2023 . (a) In April, Moko’s Mouthwatering Treats paid suppliers $2,000 for supplies received in January. Dr. Supplies (+A) 2000 Cr. Cash (-A) 2000 (b) In April, Moko’s Mouthwatering Treats sold $1,000 worth of cat treats that had taken $800 worth of supplies to manufacture. Dr. COGS (+E,-SE) 1000 Cr. Supplies (-A) 1000 (c) At the end of April, Moko’s Mouthwatering Treats received a $450 utility bill for electricity used in the month of April. The bill will be paid in May. Dr. Utilities expense (+E,-SE) 450 Cr. Utilities Payable (+L) 450 (d) At the end of April, Moko’s Mouthwatering Treats paid $1,500 to employees for work performed in April and paid $300 to employees for work performed in March. Dr. Wages Expense (+E,-SE) 1800 Cr. Cash (-A) 1800

(e) At the end of April, Moko’s Mouthwatering Treats pays $6,000 in rent for the months of April and May. Rent is $3000 per month. Dr. Rent Expense (+E,-SE) 3000 Dr. Prepaid Rent (+A) 3000 Cr. Cash (-A) 6000 (See next page for question 3) Section 3: Transaction analysis 3. Swift Tailors, founded by Betty and Marjorie Gomez, is a dry cleaner and clothing alteration company registered as a corporation on August 1, 2021. During the first month as a corporation, the following events took place. If the event results in a transaction, record journal entries (noting whether each account is an Asset, Liability, Shareholders’ Equity, Revenue, or Expense), post the transactions to T-accounts, and prepare the balance sheet and income statement for Swift Tailors as of August 31, 2021. Ignore any adjusting or closing entries that would normally be done at the end of the month, except where explicitly stated. Assume zero taxes. (a) On August 1, Betty contributed $250,000 in cash in exchange for 50,000 shares of ownership in the company. Each share has a par value of $1. Dr. Cash (A+) 250,000 Cr. Common Stock (+SE) 50,000 # of shares*par value Cr. APIC (+SE) 200,000 (b) On August 1, Marjorie contributed $75,000 in cash and $175,000 worth of dry cleaning equipment in exchange for 50,000 shares. The equipment has a remaining useful life of 6 years. Dr. Cash (+A) 75,000 Dr. Equipment (A+) 175,000 Cr. Common Stock (+SE) 50,000 Cr. APIC (+SE) 200,000

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(c) On August 1, the company hired two part-time employees. Each employee has a monthly salary of $1,200. The monthly salary is paid on the last day of each month. Dr. salary expense (+e,-SE) 2,400 Cr. Acc payable (+L) 2,400 we would not record a journal entry on August 1 and will instead record an entry at the end of the month when salaries expenses have been incurred. (d) On August 1, the company received a 3-year loan from a bank for $300,000. The interest rate is 11% annually, with interest payable at the end of each year of the loan term (e.g., the first interest payment would be by August 1, 2022). Dr. Cash (+A) 300,000 Cr. Acc Payable (+L) 300,000 Cr. Interest expense (+e,-SE) 33,000 (e) On August 1, the company signed an annual lease agreement for store space. The rent is $3,600 per month and the company paid 4 months in advance in cash. Dr. Prepaid rent (+A) 14,400 Cr. Cash (-A) 14,400 (f) On August 11, the company purchased dry cleaning chemicals from Willow Essentials. The supplies cost $22,000. Swift Tailors paid half in cash and purchased the other half on account. Dr. Supplies (+A) 22,000 Cr. Cash (-A) 11,000 Cr. Acc Payable (-L) 11,000 (g) On August 13, the company received a $12,000 bulk dry cleaning order from Enchanted Vestments, which pays $4,000 in advance and will pay the remainder when the dry cleaning order is complete. Dr. Cash (+A) 4,000 Dr. Acc Receivable (+A) 8,000 Cr. Revenue (+R, +SE) 4,000 Dr. Cash (+A) 4,000 Cr. Deferred Revenue (+L) 4,000

(h) On August 16, Swift Tailors completed the dry cleaning order from Enchanted Vestments. The order used dry cleaning chemical supplies costing $3,500. Enchanted Vestments paid the remaining balance of the $12,000 order. (Hint: Requires more than one journal entry) Dr. COGS (+E,-SE) 3,500 Cr. Revenue (+R,+SE) 12,000 Dr. Acc receivable (-A) 8,000 Cr. Cash (-A) 8,000 Dr. Cash (+A) 8,000 Cr. Revenue (+R, +SE) 8,000 Dr. Deferred Revenue (-L) 4,000 Cr. Revenue (+R, +SE) 4,000 Dr. Cost of Goods Sold (COGS) (+E, -SE) 3,500 Cr. Supplies (-A) 3,500 Note: We could also combine the revenue entries so that the answer takes two journal entries as follows: Dr. Cash (+A) 8,000 Dr. Deferred Revenue (-L) 4,000 Cr. Revenue (+R, +SE) 12,000

Dr. Cost of Goods Sold (COGS) (+E, -SE) 3,500 Cr. Supplies (-A) 3,500 (i) On August 21, the company paid for $2,100 in advertising. Dr. Advertising expense (+E,-SE) 2,100 Cr. Cash (-A) 2,100 (j) On August 24, Swift Tailors received and completed a $3,000 dry cleaning order that used dry cleaning supplies costing $875. The customer will pay in September. (Hint: Requires more than one journal entry) Dr. COGS (+E,-SE) 875 Cr. Supplies 875 Dr. Acc Receivable (+A) 3000 Cr. Revenue (+R,+SE) 3000 (k) On August 31, the company paid its two employees their salaries for the month of August (recall each employee’s salary was $1,200 per month). Dr. Salaries Expense (+E,-SE) 2400 Cr. Cash (-A) 2400 (See following 4 pages for blank T-accounts and blank pages for income statement and balance sheet answers) Cash (A) common stock (SE) APIC (SE)

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(a)250,000 (e)14,400 (A)50,000 (a)200,000 (b)75,000 (f)11,000 (b)50,000 (b)200,000 (d)300,000 (h)8,000 (g)4,000 (i)2,100 (k)2,400 591000 100,000 400,000 Equipment (A) Salaries Expense (+E,-SE) Acc Payable (L) (b)175,000 (c)2400 (c )2400 (k)2,400 (d) 300,000 (f)11,000 175,000 4,800 313,400 interest expense (+E,-SE) Prepaid Rent (A) Supplies (A) (d)33,000 (e)14,400 (f)11,000 33,000 14,400 11,000 COGS (E,SE) Acc Receivable (A) Revenue (R, SE) (f)11,000 (g)4,000 (h) 3,500 (g)8,000 (h)12,000 (j)875 (h)9,000 (j)3,000 (j)3,000 15,375 20,000 19,000

Advertising Expense (E,SE) (i)2100 2,100

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(Blank page for Income Statement answer) SWIFT TAILORS INCOME STATEMENT Month Ended August 31, 2021 (Amount in Dollars) ______________________________________________________________________________ Revenue 19,000 COGS 15,375 Gross Profit 3,625 Operating Expenses: Salaries Expense 4,800 Advertising expense 2100 Total Operating Expenses 5900 Operating Income: Interest Expense 33,000 Net Income

(Blank page for Balance Sheet answer) SWIFT TAILORS BALANCE SHEET Month Ended August 31, 2021 (Amount in Dollars) Assets: Cash 591,000 Equipment 175,000 Prepaid Rent 14,000 Accounts Receivable 20,000 Supplies 11,000 Total Assets: 811,000 Shareholders Equity: Common Stock 100,000 APIC 400,000 Total 500,000 Liabilities Accounts Payable 313,400