1. On January 1, Peter incorporates Peter Stores, Inc., a DVD store. He contributes $25,000 cash. Peter is the sole owner. 2. On January 1, the corporation borrows $12,500 from a bank.
3. On January 1, the business buys inventory (merchandize for sale) in the amount of $5,000 paying cash.
4. On January 1, the business purchases a three-year insurance policy for $1,224 paying cash.

The company also records the following transactions in January:

5. The company buys inventory for $5,000, agreeing to pay within 60 days.
6. The company purchases land for $24,000 by paying cash $6,000 and taking a 10-year mortgage for $18,000 (assume zero interest rate).
7. The company sells half of this land for $12,000. It receives $3,000 cash and the buyer assumes $9,000 of the mortgage; that is, the company is no responsible for this half.
8. Peter receives an acquisition offer of $53,000 for the business; he rejects the offer, because it is evident that the market value of the store’s assets is $56,000.

Required:
Prepare Peter Stores. Inc.'s income statement for January and balance sheet as of January 31.

Revenue                   $0

Expenses:

Insurance expense ($34)

Net income             ($34)

Assets

Cash $28,276

Inventory $10,000

Prepaid insurance $1,190

Land $12,000

Total assets                                               $51,466

Liabilities

Accounts payable $5,000

Notes payable $21,500

Total liabilities                        $26,500

Equity

Capital $25,000

Retained earnings ($34)        $24,966

Total equity

Liabilities + equity                                       $51,466

Explanation:

1. On January 1, Peter incorporates Peter Stores, Inc., a DVD store. He contributes $25,000 cash. Peter is the sole owner.

Dr Cash 25,000

    Cr Capital 25,000

2. On January 1, the corporation borrows $12,500 from a bank.

Dr Cash 12,500

    Cr Notes payable 12,500

3. On January 1, the business buys inventory (merchandize for sale) in the amount of $5,000 paying cash.

Dr Inventory 5,000

    Cr Cash 5,000

4. On January 1, the business purchases a three-year insurance policy for $1,224 paying cash.

Dr Prepaid insurance 1,224

    Cr Cash 1,224    

5. The company buys inventory for $5,000, agreeing to pay within 60 days.

Dr Inventory 5,000

    Cr Account payable 5,000

6. The company purchases land for $24,000 by paying cash $6,000 and taking a 10-year mortgage for $18,000 (assume zero interest rate).

Dr Land 24,000

    Cr Cash 6,000

   Cr Notes payable 18,000

7. The company sells half of this land for $12,000. It receives $3,000 cash and the buyer assumes $9,000 of the mortgage; that is, the company is no responsible for this half.

Dr Cash 3,000

Dr Notes payable 9,000

    Cr Land 12,000

8. Peter receives an acquisition offer of $53,000 for the business; he rejects the offer, because it is evident that the market value of the store's assets is $56,000.

no journal entry

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