Question

Santana Rey created Business Solutions on October 1, 2017. The company has been successful, and Santana plans to expand her business. She believes that an additional $86,000 is needed and is investigating three funding sources. a. Santana’s sister Cicely is willing to invest$86,000 in the business as a common shareholder. Since Santana currently has about $129,000 invested in the business, Cicely’s investment will mean that Santana will maintain about 60% ownership and Cicely will have 40% ownership of Business Solutions. b. Santana’s uncle Marcello is willing to invest$86,000 in the business as a preferred shareholder. Marcello would purchase 860 shares of $100 par value, 7% preferred stock. c. Santana’s banker is willing to lend her$86,000 on a 7%, 10-year note payable. She would make monthly payments of $1,000 per month for 10 years. 1. Prepare the journal entry to reflect the initial$86,000 investment under each of the options (a), (b), and (c). 2. Evaluate the three proposals for expansion, providing the pros and cons of each option. 3. Which option do you recommend Santana adopt? Explain.

Solution

Verified

Step 1

1 of 7

Known variables: Investment of Santana Rey = $86,000

1.

We have to prepare journal entries for each situation.

a.

Date Description POST.REF. DEBIT CREDIT
Cash 86,000
Common stock 86,000
Sister Cicely invests in Business Solutions. Cash is received in exchange for common stock. So the cash account is debited and the Common stock account is credited.

Create an account to view solutions

By signing up, you accept Quizlet's Terms of Service and Privacy Policy
Continue with GoogleContinue with Facebook

Create an account to view solutions

By signing up, you accept Quizlet's Terms of Service and Privacy Policy
Continue with GoogleContinue with Facebook

Recommended textbook solutions

Glencoe Accounting: First Year Course 1st Edition by Glencoe McGraw-Hill

Glencoe Accounting: First Year Course

1st EditionGlencoe McGraw-Hill
548 solutions
Financial and Managerial Accounting 7th Edition by Barbara Chiappetta, John J. Wild, Ken W. Shaw

Financial and Managerial Accounting

7th EditionBarbara Chiappetta, John J. Wild, Ken W. Shaw
2,277 solutions
Financial Accounting 4th Edition by Don Herrmann, J. David Spiceland, Wayne Thomas

Financial Accounting

4th EditionDon Herrmann, J. David Spiceland, Wayne Thomas
1,097 solutions
Century 21 Accounting: General Journal 11th Edition by Claudia Bienias Gilbertson, Debra Gentene, Mark W Lehman

Century 21 Accounting: General Journal

11th EditionClaudia Bienias Gilbertson, Debra Gentene, Mark W Lehman
1,012 solutions

Related questions

accounting

Laker Company reported the following January purchases and sales data for its only product.

DateActivitiesUnits Acquired at CostUnits Sold at RetailJan. 1Beginning inventory140 units @ $6.00 = $840Jan. 10Sales100 units @ $15Jan. 20Purchase60 units @ $5.00 = 300Jan. 25Sales80 units @ $15Jan. 30Purchase180 units @ $4.50 = 810Totals380 units$1,950180 units\begin{matrix} \text{Date} & \text{Activities} & \text{Units Acquired at Cost} & \text{Units Sold at Retail}\\ \text{Jan. 1} & \text{Beginning inventory} & \text{140 units @ \$6.00 = } & \text{\$840}\\ \text{Jan. 10} & \text{Sales} & \quad & \quad & \text{100 units @ \$15}\\ \text{Jan. 20} & \text{Purchase} & \text{60 units @ \$5.00 = } & \text{300}\\ \text{Jan. 25} & \text{Sales} & \quad & \quad & \text{80 units @ \$15}\\ \text{Jan. 30} & \text{Purchase} & \text{180 units @ \$4.50 = } & \text{810}\\ \quad & \text{Totals} & \text{380 units} & \text{\$1,950} & \text{180 units}\\ \end{matrix}

The company uses a perpetual inventory system. Determine the cost assigned to ending inventory and to cost of goods sold using (a) specific identification, (b) weighted average, (c) FIFO, and (d) LIFO. (Round per unit costs and inventory amounts to cents.) For specific identification, ending inventory consists of 200 units, where 180 are from the January 30 purchase, 5 are from the January 20 purchase, and 15 are from beginning inventory.

accounting

Chavez Company most recently reconciled its bank statement and book balances of cash on August 31 and it reported two checks outstanding, No. 5888 for $1,028.05 and No. 5893 for$494.25. The following information is available for its September 30, 2017, reconciliation.

From the September 30 Bank StatementPREVIOUS BALANCETOTAL CHECKS AND DEBITSTOTAL DEPOSITS AND CREDITSCURRENT BALANCE16,800.459,620.0511,272.8518,453.25\begin{matrix} \text{From the September 30 Bank Statement}\\ \text{PREVIOUS BALANCE} & \text{TOTAL CHECKS AND DEBITS} & \text{TOTAL DEPOSITS AND CREDITS} & \text{CURRENT BALANCE}\\ \text{16,800.45} & \text{9,620.05} & \text{11,272.85} & \text{18,453.25}\\ \end{matrix}

CHECKS AND DEBITS DEPOSITS AND CREDITSDateNoAmountDateAmount09/0358881,028.0509/051,103.7509/045902719.9009/122,226.9009/0759011,824.2509/214,093.0009/17600.25 NSF09/252,351.7009/205905937.0009/3012.50 IN09/225903399.1009/301,485.00 CM09/2259042,090.0009/285907213.8509/2959091,807.65\begin{matrix} \text{CHECKS AND DEBITS} & \quad & \quad & \text{ DEPOSITS AND CREDITS}\\ \text{Date} & \text{No} & \text{Amount} & \text{Date} & \text{Amount}\\ \text{09/03} & \text{5888} & \text{1,028.05} & \text{09/05} & \text{1,103.75}\\ \text{09/04} & \text{5902} & \text{719.90} & \text{09/12} & \text{2,226.90}\\ \text{09/07} & \text{5901} & \text{1,824.25} & \text{09/21} & \text{4,093.00}\\ \text{09/17} & \quad & \text{600.25 NSF} & \text{09/25} & \text{2,351.70}\\ \text{09/20} & \text{5905} & \text{937.00} & \text{09/30} & \text{12.50 IN}\\ \text{09/22} & \text{5903} & \text{399.10} & \text{09/30} & \text{1,485.00 CM}\\ \text{09/22} & \text{5904} & \text{2,090.00}\\ \text{09/28} & \text{5907} & \text{213.85}\\ \text{09/29} & \text{5909} & \text{1,807.65}\\ \end{matrix}

From Chavez Company’s Accounting RecordsCash Receipts DepositedDateCash Date DebitSep.1,103.7552,226.90124,093.00212,351.70251,682.753011,458.10\begin{matrix} \text{From Chavez Company’s Accounting Records}\\ \text{Cash Receipts Deposited}\\ \text{Date} & \quad & \text{Cash Date Debit}\\ \text{Sep.} & \quad & \text{1,103.75}\\ \text{5} & \quad & \text{2,226.90}\\ \text{12} & \quad & \text{4,093.00}\\ \text{21} & \quad & \text{2,351.70}\\ \text{25} & \quad & \text{1,682.75}\\ \text{30} & \quad & \text{11,458.10}\\ \end{matrix}

From Chavez Company’s Accounting RecordsCash DisbursementsCheck no.Cash Credit59011,824.255902719.905903399.1059042,060.005905937.005906982.305907213.855908388.0059091,807.659,332.05\begin{matrix} \text{From Chavez Company’s Accounting Records}\\ \text{Cash Disbursements}\\ \text{Check no.} & \quad & \text{Cash Credit}\\ \text{5901} & \quad & \text{1,824.25}\\ \text{5902} & \quad & \text{719.90}\\ \text{5903} & \quad & \text{399.10}\\ \text{5904} & \quad & \text{2,060.00}\\ \text{5905} & \quad & \text{937.00}\\ \text{5906} & \quad & \text{982.30}\\ \text{5907} & \quad & \text{213.85}\\ \text{5908} & \quad & \text{388.00}\\ \text{5909} & \quad & \text{1,807.65}\\ \quad & \quad & \text{9,332.05}\\ \end{matrix}

CashAcct. No. 101DateExplanationPRDebitCreditBalanceAug. 31Balance15,278.15Sep. 30Total receiptsR1211,458.1026,736.2530Total disbursementsD239,332.0517,404.20\begin{matrix} \quad & \text{Cash} & \quad & \quad & \quad & \text{Acct. No. 101}\\ \text{Date} & \text{Explanation} & \text{PR} & \text{Debit} & \text{Credit} & \text{Balance}\\ \text{Aug. 31} & \text{Balance} & \quad & \quad & \quad & \text{15,278.15}\\ \text{Sep. 30} & \text{Total receipts} & \text{R12} & \text{11,458.10} & \quad & \text{26,736.25}\\ \text{30} & \text{Total disbursements} & \text{D23} & \quad & \text{9,332.05} & \text{17,404.20}\\ \end{matrix}

Check No. 5904 is correctly drawn for $2,090 to pay for computer equipment; however, the recordkeeper misread the amount and entered it in the accounting records with a debit to Computer Equipment and a credit to Cash of$2,060. The NSF check shown in the statement was originally received from a customer, S. Nilson, in payment of her account. Its return has not yet been recorded by the company. The credit memorandum (CM) is from the collection of a $1,500 note for Chavez Company by the bank. The bank deducted a$15 collection expense. The collection and fee are not yet recorded. 1. Prepare the September 30, 2017, bank reconciliation for this company. 2. Prepare the journal entries (in dollars and cents) to adjust the book balance of cash to the reconciled balance. 3. The bank statement reveals that some of the prenumbered checks in the sequence are missing. Describe three situations that could explain this.

accounting

The following information is available to reconcile Branch Company’s book balance of cash with its bank statement cash balance as of July 31, 2017. a. On July 31, the company’s Cash account has a $27,497 debit balance, but its July bank statement shows a$27,233 cash balance. b. Check No. 3031 for $1,482 and Check No. 3040 for$558 were outstanding on the June 30 bank reconciliation. Check No. 3040 is listed with the July canceled checks, but Check No. 3031 is not. Also, Check No. 3065 for $382 and Check No. 3069 for$2,281, both written in July, are not among the canceled checks on the July 31 statement. c. In comparing the canceled checks on the bank statement with the entries in the accounting records, it is found that Check No. 3056 for July rent expense was correctly written and drawn for $1,270 but was erroneously entered in the accounting records as$1,250. d. The July bank statement shows the bank collected $8,000 cash on a noninterest-bearing note for Branch, deducted a$45 collection expense, and credited the remainder to its account. Branch had not recorded this event before receiving the statement. e. The bank statement shows an $805 charge for a$795 NSF check plus a $10 NSF charge. The check had been received from a customer, Evan Shaw. Branch has not yet recorded this check as NSF. f. The July statement shows a$25 bank service charge. It has not yet been recorded in miscellaneous expenses because no previous notification had been received. g. Branch’s July 31 daily cash receipts of $11,514 were placed in the bank’s night depository on that date but do not appear on the July 31 bank statement. 1. Prepare the bank reconciliation for this company as of July 31, 2017. 2. Prepare the journal entries necessary to bring the company’s book balance of cash into conformity with the reconciled cash balance as of July 31, 2017. 3. Assume that the July 31, 2017, bank reconciliation for this company is prepared and some items are treated incorrectly. For each of the following errors, explain the effect of the error on (i) the adjusted bank statement cash balance and (ii) the adjusted Cash account book balance. a. The company’s unadjusted Cash account balance of$27,497 is listed on the reconciliation as $27,947. b. The bank’s collection of the$8,000 note less the $45 collection fee is added to the bank statement cash balance on the reconciliation.