what are the journal entries for this problem?
View the step-by-step solution to:

Question

# what are the journal entries for this problem?On 1/1/2019, North‐Gear Inc. began business

with \$1,000 in its bank account contributed by the owner. North‐Gear was a retail business that bought athletic apparel from a different manufacturer and sold the products in their local store in St. Paul, MN. In order to get the business up and running, North‐Gear took out a \$1 million bank loan from a local bank. The loan was a 30 year loan, at 3.6% interest, and monthly payments beginning on 1/31/2017 and payable on the last day of every month. The required monthly payment is \$8,026, split between interest and principal repayment.

On the same day, North‐Gear used \$750,000 to purchase a building, land, and the necessary equipment to get the business up and running. The breakdown of the purchase price consisted of \$500,000 for the building (non‐residential property depreciated straight‐line monthly over 39 years), \$150,000 for the land, and \$100,000 for the equipment (treated as 7 year assets depreciated straight‐line monthly).

With the remaining \$250,000, North‐Gear purchased 25,000 units of inventory so that they could begin business immediately. When North‐Gear negotiated their inventory purchasing contract with their manufacturer, their manufacturer required North‐Gear to purchase inventory in equal monthly installments on the first day of every month, throughout the year. The agreed upon amount was \$100,000 per month. North‐Gear was allowed to purchase more than this amount if the consumer demand was there, however North‐Gear could not purchase any less than \$100,000 or the equivalent of 10,000 units of inventory each month.

Now that North‐Gear had the inventory to sell, they went on to hire two store managers and eight cashiers/floor employees. The monthly payroll expense was \$25,000 per month of which half was paid on the 15th of every month and the other half was paid on the last day of every month.

Once business began, North‐Gear averaged 10,000 units sold at \$20 per unit in monthly sales. Of these sales, 80% were made with cash and the remaining 20% were made with credit cards. The credit card companies agreed to pay 100% of the credit card sales to North‐Gear on the 1st day of the following month. Assume that these sales are incurred evenly throughout the month but sales are recorded on their books at the end of each month.

ACCT 1320 - Accounting Principles II ‐ Page 1 of 2

Outside of these monthly recurring events, North‐Gear would make one‐time year‐end entries for their returns and allowances, office expenses, repairs and maintenance, advertising/marketing, and miscellaneous expenses. These expenses were as follows: 2,500 units of returns and allowances, \$10,000 office expenses, \$5,000 repairs and maintenance, \$2,500 advertising/marketing, and \$1,500 miscellaneous. For simplicity, these expenses were treated as incurred and paid at the end of the year.

Record all the necessary journal entries for North‐Gear's first year of operations on the "Journal Entries" tab. After recording all the necessary journal entries, create North‐Gear's 12/31/2019 Balance Sheet, a single‐step Income Statement & a Statement of Cash Flow.

### Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

• ### -

Study Documents

Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

Browse Documents