Reference no: EM132969531

Ryan Terlecki organized a new Internet company, CapUniverse, Inc. The company specializes in baseball-type caps with logos printed on them. Ryan, who is never without a cap, believes that his target market is college and high school students.

You have been hired to record the transactions occurring in the first month of operations.

a. Issued 2000 shares of $0.01 par value common stock to investors for cash at $20 per share.

b. Borrowed $60000 from the bank to provide additional funding to begin operations; the note is due in two years.

c. Paid $3000 cash for rent of a warehouse: $1500 for the current month's rent and another $1500 for next month's rent.

d. Paid $2400 for a one-year fire insurance policy on the warehouse (recorded as a prepaid expense).

e. Purchased furniture and fixtures for the warehouse for $15000, paying $3000 cash and the rest on account. The amount is due within 30 days.

f. Purchased for $2800 cash The University of Pennsylvania, Notre Dame, The University of Texas at Austin, The Ohio State University, and Michigan State University baseball caps as inventory to sell online.

g. Placed advertisements on Google for a total of $350 cash; the ads were run immediately..

h. Sold caps totaling $1700, half of which was charged on account. The cost of the caps sold was $900. (Hint: Make two entries.)

i. Made full payment for the furniture and fixtures purchased on account in (e).

j. Received $210 from a customer on account.

Required:

Problem 1: For each of the transactions, prepare journal entries. Be sure to categorize each account as an asset (A), liability (L), stockholders' equity (SE), revenue (R), or expense E). Note that transaction (h) will require two entries, one for revenue and one for the related expense.

Problem 2: Determining Financial Statement Effects of Various Transactions and Identifying Cash Flow Effects