Veronica Regaldo creates a new business in Mexico on January 1, Year 8, to operate a retail

Question:

Veronica Regaldo creates a new business in Mexico on January 1, Year 8, to operate a retail store. Transactions of Regaldo Department Stores during January Year 8 in preparation for opening its first retail store in February Year 8 appear below. Regaldo applies IFRS and reports its results in thousands of Mexican pesos ($).

(1) January 1, Year 8: Receives $500,000 from Veronica Regaldo for all of the common stock of Regaldo Department Stores. The stock has no par or stated value.

(2) January 5, Year 8: Pays another firm $20,000 for a patent, and pays the Mexican government $4,000 to register the patent. IFRS treats the cost to register the patent as part of its acquisition cost.

(3) January 10, Year 8: Orders merchandise from various suppliers at a cost of $200,000.

See transactions (5), (6), and (7) for later information regarding these merchandise orders.

(4) January 15, Year 8: Signs a lease to rent land and a building for $30,000 a month. The rental period begins February 1, Year 8. Regaldo pays $60,000 for the first two months’ rent in advance.

(5) January 20, Year 8: Receives the merchandise ordered on January 10, Year 8. Regaldo delays payment for the merchandise until it receives an invoice from the supplier—see transaction (7) below.

(6) January 21, Year 8: Discovers that merchandise costing $8,000 is defective and returns the items to the supplier.

(7) January 25, Year 8: Receives invoices for $160,000 for the merchandise received on

January 20, Year 8. After subtracting an allowed discount of 2% of the invoice for paying promptly, Regaldo pays the suppliers the amount due of $156,800 (0.98 × $160,000). The firm treats cash discounts taken as a reduction in the acquisition cost of the merchandise.

(8) January 30, Year 8: Obtains fire and liability insurance coverage from Windwards Islands Insurance Company for the period beginning February 1, Year 8. It pays the one-year insurance premium of $12,000.

a. Record these eight transactions in T-accounts.

b. Prepare a balance sheet for Regaldo Department Stores on January 31, Year 8.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...