1. The following events occurred in October: October 1: The

  

1. The following events occurred in October:

October 1: The business owner used $25,000 from their personal savings account to buy common stock in their company. 

October 1: Purchased $8,500 worth of baking supplies from vendor, on account.

October 3: The company borrowed $10,000 in cash, in exchange for a two-year, 6% note payable. Interest and the principal are repayable at maturity.

October 7: Entered into a lease agreement for bakery space. The agreement is for one year. The rent is $1,500 per month; the last month’s rent payment of $1,500 is required at the time of the lease agreement. The payment was made in cash. Lease period is effective October 1 of this year through September 30 of the next.

October 10: Paid $375 to the county for a business license. 

October 11: Purchased a cash register for $250 (deemed to be not material enough to qualify as depreciable equipment).

October 13: The owner has baking equipment, including an oven and mixer, which they have been using for their home-based business and will now start using in the bakery. You estimate that the equipment is currently worth $5,000, and you transfer the equipment into the business in exchange for additional common stock. The equipment has a five-year useful life.

October 13: Paid $200 for business cards and flyers to use for advertising.

October 14: Paid $300 for office supplies.

October 15: Hired a part-time helper to be paid $12 per hour. One pay period is the first of the month through the fifteenth, and the other is the sixteenth through the end of the month. Paydays are the twentieth for the first pay period and the fifth of the following month for the second pay period. (No entry required on this date—for informational purposes only.)

October 30: Received telephone bill for October in amount of $75. Payment is due on November 10.

October 31: Paid $1,200 for a 12-month insurance policy. Policy effective dates are November 1 through October 31.

October 31: Accrued wages earned for employee for period of October 16 through October 31. (See Wage Calculation Data table at the end of this document.)

October 31: Total October bakery sales were $15,000 ($5,000 of these sales on accounts receivable).

  

2. The following events occurred in November:

November 5: Paid employee for period ending October 31.

November 8: Received payments from customers toward accounts receivable in amount of $3,800.

November 10: Paid October telephone bill.

November 15: Purchased additional baking supplies in amount of $5,000 from vendor, on account.

November 15: Accrued wages earned for employee from period of November 1 through November 15. (See Wage Calculation Data table at the end of this document.)

November 15: Paid rent on bakery space.

November 18: Received payments from customers toward accounts receivable in amount of $1,000.

November 20: Paid $8,500 toward baking supplies vendor payable.

November 20: Paid employee for period ending November 15.

November 22: Purchased $300 in office supplies.

November 30: Received telephone bill for November in amount of $75. Payment is due on December 10.

November 30: Accrued wages earned for employee for period of November 16 through November 30. (See Wage Calculation Data table at the end of this document.)

November 30: November bakery sales total was $20,000 ($7,500 of this total on accounts receivable).

3. Many customers have been asking for more allergy-friendly products, so in December the bakery started carrying a line of gluten-free products on a trial basis. The information below relates to the purchase and sales of the new products.

Use the perpetual inventory method with the FIFO valuation method. Please see the “Inventory Valuation” tab in your workbook for purchase and sales information.

The following events occurred in December: 

December 1: Paid dividends to self in amount of $10,000.

December 5: Paid employee for period ending November 30.

December 7: Purchased merchandise for resale. See the “Inventory Valuation” tab for details.

December 8: Received payments from customers toward accounts receivable in amount of $4,000.

December 10: Paid November telephone bill.

December 11: Purchased baking supplies in amount of $7,000 from vendor on account.

December 13: Paid on supplies vendor account in amount of $5,000.

December 15: Accrued employee wages for period of December 1 through December 15.

December 15: Paid rent on bakery space $1,500.

December 15: Recorded merchandise sales transaction. See the “Inventory Valuation” tab for details.

December 15: Recorded impact of sales transaction on COGS and the inventory asset. See the “Inventory Valuation” tab for details.

December 20: Paid employee for period ending December 15.

December 20: Purchased merchandise inventory for resale to customers. See the “Inventory Valuation” tab for details.

December 24: Recorded sales of merchandise to customers. See the “Inventory Valuation” tab for details.

December 24: Recorded impact of sales transaction on COGS and the inventory asset. See the “Inventory Valuation” tab for details.

December 30: Purchased merchandise inventory for resale to customers. See the “Inventory Valuation” tab for details.

December 31: Accrued employee wages for period of December 16 through December 31.

December 31: Total December bakery sales were $25,000 ($6,000 of these sales on accounts receivable).

4. On December 31, the following adjustments must be made:

· Depreciation of baking equipment transferred to company on October 13. Assume half month of depreciation in October using the straight-line method. Assume no salvage value.

· Accrue interest for note payable. Assume a full month of interest for October. (6% annual interest on $10,000 loan)

· Record insurance used for the year.

· Actual baking supplies on hand as of December 31 are $1,100.

· Office supplies on hand as of December 31 are $50.