Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 81

Record transactions Use the horizontal model, or write the journal entry, for each of

the following transactions that occurred during the first year of operations at Kissick Co.

a. Issued 200,000 shares of $5-par-value common stock for $1,000,000 in cash.

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b. Borrowed $500,000 from Oglesby National Bank and signed a 12% note due in two years.

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c. Incurred and paid $380,000 in salaries for the year.

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d. Purchased $640,000 of merchandise inventory on account during the year.

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e. Sold inventory costing $580,000 for a total of $910,000, all on credit.

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f. Paid rent of $110,000 on the sales facilities during the first 11 months of the year.

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g. Purchased $150,000 of store equipment, paying $50,000 in cash and agreeing to pay the difference within 90 days.

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h. Paid the entire $100,000 owed for store equipment, and $620,000 of the amount due to suppliers for credit purchases previously recorded.

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i. Incurred and paid utilities expense of $36,000 during the year.

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j. Collected $825,000 in cash from customers during the year for credit sales pre­viously recorded.

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k. At year-end, accrued $60,000 of interest on the note due to Oglesby National Bank.

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l. At year-end, accrued $10,000 of past-due December rent on the sales facilities.

Step 1 of 26

The horizontal model of recording transactions records the accounting effect of the transactions based on double entry system of accounting. It adds or subtracts the effect of the accounting transaction in the affected account under the respective accounting head.

The journal entries are the accounting entries based on double entry system of accounting. One account is debited, and the other account is credited. The total of debits must equal the total of credits.