Waltham Oil

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Waltham Oil and Lube Center, Inc. Question 1 The journal entries are: 1) $40,000 Capital contribution Cash 40,000 Capital 40,000 2) $40,000 Deposit with National Deposit – National 40,000 Cash 40,000 3) $6,000 furniture purchase Furniture 6,000 Cash 6,000 4) $10,000 Capital contribution Cash 10,000 Capital 10,000 5) $1,200 Insurance payment (12 months) Prepaid Insurance 1,200 Cash 1,200 6) $35,450 deductions from deposit Oil and grease inventory 6,320 Operating supplies and uniforms 4,130 Equipment 25,000 Deposit 35,450 7) $1500 Lease payment Lease expense…show more content…
The offsetting credit is to deferred revenues (realized but not earned.) E) Accounts Receivable ($340 + $730= $1070) F) Liabilities There are three liabilities at the end of the three month operating period. Two are the current liabilities accrued payroll $2,100 and accrued utilities $350. The third is the longer term obligation for the equipment ($47,310.) The liability account balance is $49,760. The current liability balance is $12,410 ($12,410 = $2,100 + 350 + 9,960 current maturity of equipment payable [$830 + 12 = $9,960]). The two accrued liabilities mentioned above plus the current maturity on the long-term obligation. Question 2 a) Withdrawals The amount of the withdrawals is not the interesting question. The interesting question is how Knight should view his withdrawals in his assessment of the progress of his business to date. Is the $4,500 withdrawal a dividend? Wages? If Knight is trying to assess how well his business has done, he might account for the withdrawals as “wages.” On the other hand, if he is trying to answer how much he has earned on his investment, he might regard the withdrawals as dividends.” In either case the instructor might consider including the opportunity cost of wages foregone by not working elsewhere. b) Cost of Sales Beginning Inventory $ 6,320 Purchases 8,230
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