Aracel Engineering completed the following transactions in the month of June.
Using the following transactions, record journal entries, create financial statements, and assess the impact of each transaction on the financial statements.
Jun. 1 Jenna Aracel, the owner, invested $100,000 cash, office equipment with a value of $5,000, and $60,000 of drafting equipment to launch the company in exchange for common stock.
Jun. 2 The company purchased land worth $49,000 for an office by paying $6,300 cash and signing a long-term note payable for $42,700.
Jun. 3 The company purchased a portable building with $55,000 cash and moved it onto the land acquired on June 2.
Jun. 4 The company paid $3,000 cash for the premium on an 18-month insurance policy.
Jun. 5 The company completed and delivered a set of plans for a client and collected $6,200 cash.
Jun. 6 The company purchased $20,000 of additional drafting equipment by paying $9,500 cash and signing a long-term note payable for $10,500.
Jun. 7 The company completed $14,000 of engineering services for a client. This amount is to be received in 30 days.
Jun. 8 The company purchased $1,150 of additional office equipment on credit.
Jun. 9 The company completed engineering services for $22,000 on credit.
Jun. 10 The company received a bill for rent of equipment that was used on a recently completed job. The $1,333 rent cost must be paid within 30 days.
Jun. 12 The company collected $7,000 cash in partial payment from the client billed on June 9.
Jun. 14 The company paid $1,200 cash for wages to a drafting assistant.
Jun. 17 The company paid $1,150 cash to settle the account payable created in on June 8.
Jun. 20 The company paid $925 cash for minor maintenance of its drafting equipment.
Jun. 23 The company paid $9,480 cash in dividends.
Jun. 28 The company paid $1,200 cash for wages to a drafting assistant.
The Correct Answer and Explanation is :
Explanation of Transactions and Financial Impact
In June, Aracel Engineering recorded multiple transactions affecting its financial position. Here’s a breakdown of their impact:
- Owner’s Investment (June 1)
- Jenna Aracel invested $100,000 cash, $5,000 office equipment, and $60,000 drafting equipment.
- Impact: Increased cash, office, and drafting equipment on the balance sheet while increasing common stock (owner’s equity).
- Land and Building Purchases (June 2 & 3)
- The company acquired land for $49,000, paying $6,300 in cash and signing a $42,700 note payable.
- A $55,000 portable building was purchased in cash.
- Impact: Land and building assets increased, cash decreased, and liabilities (notes payable) increased.
- Prepaid Insurance (June 4)
- A $3,000 premium for an 18-month insurance policy was paid in advance.
- Impact: Increased prepaid insurance (asset), decreased cash.
- Revenue Earned (June 5, 7, & 9)
- Services worth $6,200 were collected in cash (June 5).
- Services worth $14,000 and $22,000 were performed on credit (June 7 & 9).
- Impact: Increased cash and accounts receivable, increased service revenue (income statement).
- Equipment Purchase (June 6 & 8)
- $20,000 drafting equipment was purchased, partly on credit ($9,500 cash, $10,500 note payable).
- $1,150 office equipment was bought on account.
- Impact: Increased assets, decreased cash, increased liabilities.
- Expenses (June 10, 14, 20, & 28)
- $1,333 rent bill for equipment rental increased liabilities.
- $1,200 wages were paid on June 14 & 28.
- $925 minor maintenance expense was paid.
- Impact: Increased expenses, decreasing net income and cash.
- Accounts Receivable Collection (June 12)
- $7,000 was collected from the client billed on June 9.
- Impact: Increased cash, reduced accounts receivable.
- Liabilities Settlement (June 17)
- Paid $1,150 to settle an office equipment purchase.
- Impact: Decreased liabilities, decreased cash.
- Dividends (June 23)
- $9,480 was paid to shareholders.
- Impact: Decreased retained earnings and cash.
Financial Statement Impact
- Balance Sheet: Cash, equipment, land, and liabilities were affected.
- Income Statement: Revenues from engineering services and expenses (wages, maintenance, rent) impacted net income.
- Statement of Cash Flows: Shows cash inflows from services and investments, and outflows for expenses, purchases, and dividends.
This thorough financial review ensures a clear understanding of Aracel Engineering’s financial health.