Question

Blossom Company, a computer services company, entered into these transactions during May 2017, its first month of operations.
1. Stockholders invested $30,000 in the business in exchange for common stock of the company.
2. Purchased computers for office use (recorded as Equipment) for $25,000 from Ladd on account.
3. Paid $2,000 cash for May rent on storage space.
4. Performed computer services worth $15,000 on account.
5. Performed computer services for Wharton Construction Company for $3,000 cash.
6. Paid Western States Power Co. $6,000 cash for energy usage in May.
7. Paid Ladd for the computers purchased in (2).
8. Incurred advertising expense for May of $1,500 on account.
9. Received $10,000 cash from customers for contracts billed in (4).
Required:
1. Record the journal entries of above transactions.

Answer 1

Answer:

1. Debit Cash $30,000

Credit Common stock $30,00

2. Debit Equipment $25,000

Credit Accounts payable $25,000

3. Debit Rent expense $2,000

Credit Cash $2,000

4. Debit Accounts receivable $15,000

Credit Service revenue $15,000

5. Debit Cash $3,000

Credit Service revenue $3,000

6. Debit Utilities expense $6,000

Credit Cash $6,000

7. Debit Accounts payable $25,000

Credit Cash $25,000

8. Debit Advertising expense $1,500

Credit Accrued expenses $1,500

9. Debit Cash $10,000

Credit Accounts receivable $10,000

Explanation:

1. An investment made by the stockholder will result to a debit in cash and credit to common stocks issued in the amount of $30,000.

2. An acquisition on account of equipment will result to a debit in equipment and credit to accounts payable account in the amount of $25,000

3. We recognize the rent expense by debiting it and credit cash that the company parted with in the amount of $2,000

4. We recognize the service rendered whether paid or not by debiting accounts receivable and credit to service revenue in the amount of $15,000

5. We debit cash for the amount we receive in lieu of the service rendered and then credit service revenue in the amount of $3,000

6. Utilities expense is debited in such transaction and credit cash for the amount we paid

7. We debit the accounts payable we recognize in the number 4 and credit cash for the amount we paid in the amount of $6,000

8. We recognize the advertising expense at the time it incurred whether paid or not.

9. We debit cash for the consideration we received and credit accounts receivable in the amount $10,000