Sweet Dreams Chocolatiers Ltd began operations on January 1

Sweet Dreams Chocolatiers Ltd. began operations on January 1, 2016. During its first year, the following transactions occurred:

1.Issued common shares for $200,000 cash.

2.Purchased $475,000 of inventory on account.

3.Sold inventory on account for $640,000. The original cost of the inventory that was sold was $380,000.

4.Collected $580,000 from customers on account.

5.Paid $430,000 to suppliers for the inventory previously purchased on account.

6.Bought a delivery vehicle for $36,000 cash.

7.Paid $26,000 for rent, including $2,000 related to the next year.

8.Incurred $20,000 of operating expenses, of which $18,000 was paid.

9.Recorded $2,000 of depreciation on the vehicle.

10.Declared and paid dividends of $6,000.

Required

a.  

Prepare journal entries to record each of the above transactions.

b.  

Create T accounts and post the journal entries to the T accounts.

c.  

Prepare a December 31, 2016, trial balance.

Solution

Sweet Dreams Chocolatiers Ltd a. JOURNAL ENTRIES (Amount in $) SL. NO DATE PARTICULARS DEBIT CREDIT 1 Cash A/c                200,000 To Share Capital A/c       200,000 (Being issue of shares for cash) 2 Purchase A/c              475,000 To Creditors A/c       475,000 (Purchase of inventory by credit) 3 Debtors A/c              640,000 To Sales A/c       640,000 (Sale of inventory by credit) 4 Cash A/c              580,000 To Debtors A/c       580,000 (Collected cash from customers) 5 Creditors A/c              430,000 To Cash       430,000 (Payment made to creditors) 6 Vehicle A/c                36,000 To Cash         36,000 (Cash purchase of a delivery vehicle) 7 Rent A/c                24,000 Prepaid Rent A/c                  2,000 To Cash         26,000 (Payment of Rent which includes $ 2000 relate to next year) 8 Operating Expenses A/c                20,000 To Cash         18,000 To Expense Payable           2,000 (Incurred operating expenses of which $ 2000 is payable) 9 Depreciation A/c                  2,000 To Vehicle A/c           2,000 (Being recording of current year depreciation) 10 Divident A/c                  6,000 To Cash           6,000 (Declaration and payment of dividend for the year) b LEDGER ACCOUNTS (AMOUNT IN $) CASH A/C DATE PARTICULARS AMOUNT (DR) DATE PARTICULARS AMOUNT (CR) To Share Capital A/c              200,000 By Creditors A/c              430,000 To Debtos A/c              580,000 By Vehicle A/c                36,000 By Rent A/c                24,000 By Prepaid Rent A/c                  2,000 By Operating Expenses                18,000 By Divident                  6,000 31.12.2016 By Balance C/d              264,000 TOTAL              780,000 TOTAL              780,000 SHARE CAPITAL A/C DATE PARTICULARS AMOUNT (DR) DATE PARTICULARS AMOUNT (CR) By Cash              200,000 31.12.2016 To Balance C/d              200,000 TOTAL              200,000 TOTAL              200,000 PURCHASE A/C DATE PARTICULARS AMOUNT (DR) DATE PARTICULARS AMOUNT (CR) To Creditors              475,000 31.12.2016 By Balance C/d              475,000 TOTAL              475,000 TOTAL              475,000 CREDITORS A/C DATE PARTICULARS AMOUNT (DR) DATE PARTICULARS AMOUNT (CR) To Cash A/c              430,000 By Purchase A/c              475,000 31.12.2016 To Balance C/d                45,000 TOTAL              475,000 TOTAL              475,000 SALES A/C DATE PARTICULARS AMOUNT (DR) DATE PARTICULARS AMOUNT (CR) By Debtors A/c              640,000 31.12.2016 To Balance C/d              640,000 TOTAL              640,000 TOTAL              640,000 DEBTORS A/C DATE PARTICULARS AMOUNT (DR) DATE PARTICULARS AMOUNT (CR) To Sales A/c              640,000 By Cash A/c              580,000 31.12.2016 By Balance C/d                60,000 TOTAL              640,000 TOTAL              640,000 VEHICLE A/C DATE PARTICULARS AMOUNT (DR) DATE PARTICULARS AMOUNT (CR) To Cash                36,000 By Depreciation                  2,000 31.12.2016 By Balance C/d                34,000 TOTAL                36,000 TOTAL                36,000 PREPAID RENT A/C DATE PARTICULARS AMOUNT (DR) DATE PARTICULARS AMOUNT (CR) To Cash A/c                  2,000 31.12.2016 By Balance C/d                  2,000 TOTAL                  2,000 TOTAL                  2,000 RENT A/C DATE PARTICULARS AMOUNT (DR) DATE PARTICULARS AMOUNT (CR) To Cash A/c                24,000 31.12.2016 By Balance C/d                24,000 TOTAL                24,000 TOTAL                24,000 OPERATING EXPENSES A/C DATE PARTICULARS AMOUNT (DR) DATE PARTICULARS AMOUNT (CR) To Cash A/c                18,000 To Expenses Payable A/c                  2,000 31.12.2016 By Balance C/d                20,000 TOTAL                20,000 TOTAL                20,000 EXPENSE PAYABLE A/C DATE PARTICULARS AMOUNT (DR) DATE PARTICULARS AMOUNT (CR) By Operating Expenses                  2,000 31.12.2016 To Balance C/d                  2,000 TOTAL                  2,000 TOTAL                  2,000 DEPRECIATION A/C DATE PARTICULARS AMOUNT (DR) DATE PARTICULARS AMOUNT (CR) To Vehicle A/c                  2,000 31.12.2016 By Balance C/d                  2,000 TOTAL                  2,000 TOTAL                  2,000 DIVIDEND A/C DATE PARTICULARS AMOUNT (DR) DATE PARTICULARS AMOUNT (CR) To Cash A/c                  6,000 31.12.2016 By Balance C/d                  6,000 TOTAL                  6,000 TOTAL                  6,000 c. TRIAL BALANCE AS ON 31ST DECEMBER\' 2016 (AMOUNT IN $) PARTICULARS AMOUNT(DR) AMOUNT(CR) CASH              264,000 SHARE CAPITAL       200,000 PURCHASE              475,000 CREDITORS         45,000 SALES       640,000 DEBTORS                60,000 VEHICLE                34,000 PREPAID RENT                  2,000 RENT                24,000 OPERATING EXPENSES                20,000 EXPENSE PAYABLE           2,000 DEPRECIATION                  2,000 DIVIDENT                  6,000 TOTAL              887,000       887,000