Challenge Exercise 1

Presented below is information related to Shawshank Real Estate Agency.

Oct. 1 Pete Shawshank begins business as a real estate agent with a cash investment of $25,000 in

exchange for common stock.

2 Hires an administrative assistant.

3 Purchases office furniture for $2,900 by paying $700 cash with the balance on the account.

6 Sells a house and lot for N. Kidman, earning a fee of $3,600, with $600 collected in cash and the balance billed to N. Kidman.

27 Pays $900 on the balance related to the transaction of October 3.

30 Pays the administrative assistant $2,300 in salary for October.

31 Collects $1,200 of the balance owed by N. Kidman.

Instructions:

(a) Journalize the transactions. (You may omit explanations.)

(b) What balance would Shawshank Real Estate Agency report for Accounts Payable in its October 31 financial statements? In which category of which financial statements would it be found?

(c) What balance would Shawshank Real Estate Agency report for Accounts Receivable in its October 31 financial statements? In which category of which financial statements would it be found?