Question: William Waterspout set up a retailing business selling gardening tools, called ‘Toolgarden' on 1 November 2016.
During the first 2 months of operations ended 31 December 2016 the following business events took place:
Nov. 1. William Waterspout invested €100,000 in the business.
2. Prepaid rent of €6,000 for the following 6 months (Rented a building to use as an office and storerooms from November to April).
3. Purchased equipment for the office for €23,000 paying immediately.
5. Purchased gardening tools to the inventory from a supplier for €10,000 on credit.
10. Sold gardening tools to a customer for €6,500 on credit.
15. Purchased gardening tools from a supplier for €2,400 on credit.
18. Paid for the purchase of 5 November.
19. Received payment from the customer on the sale of 10 November.
30. Took a 5-year bank loan of €30,000.
Dec. 1 Sold gardening tools to a customer for €8,500 on credit.
5. Paid salaries to employees of €5,000.
7. Paid for the purchase of 15 November.
16. William Waterspout withdrew €8,000 from the business and used €2,500 of this to install a swimming pool in his own garden.
30. Paid €2,000 for 2 months' utilities (electricity, water, telephone, etc.)
the following additional information at the year-end for adjusting entries:
Dec. 31. Accrued salary expense for December is €4,500.
31. Prepaid rent still in force (unexpired) is €4,000.
31. Depreciation on office equipment is recorded on the straight-line basis and calculated per month. The equipment is estimated to have the residual value of €5,000. The useful life is 3 years. Consider November as a full month.
31. Accrued interest expense for the time the loan has been outstanding. The bank loan has an interest rate of 6% per annum.
It is also known that closing inventory as at 31 December 2016 is €4,100.
Required: 1. Measure business activities:
a) Post the above transactions to T-accounts.
Use the following names for the T-accounts:
Assets: Cash and bank balance; Trade receivables; Purchases; Office equipment.
Liabilities: Trade payables; Bank loan payable.
Equity: W.Waterspout, Capital; Drawings; Sales revenue; Salary expense; Rent expense; Utilities expense.