Journal entry preparation

On January 1 of the current year, MuniServ began operations with $100,000 cash. The cash was obtained from an owner investment by Peter Houston of $70,000 and a $30,000 bank loan. Shortly thereafter, the company acquired selected assets of a bankrupt competitor. The acquisition included land ($15,000), a building ($40,000), and vehicles ($10,000). MuniServ paid $45,000 at the time of the transaction and agreed to remit the remaining balance due of $20,000 (an account payable) by February 15.

During January, the company had additional cash outlays for the following items: Purchases of store equipment 4,600

Loan payment, including $100 interest 500

Salaries expense 2,300

Advertising expense 700

The January utilities bill of $200 was received on January 31 and will be paid on February 10. MuniServ rendered services to clients on account amounting to $9,400. All customers have been billed; by month-end, $3,700 had been received in settlement of account balances.


a. Present journal entries that reflect MuniServ’s January transactions, including the $100,000 raised from the owner investment and loan.

b. Compute the total debits, total credits, and ending balance that would be found in the company’s Cash account.

c. Determine the amount that would be shown on the January 31 trial balance for Accounts Payable. Is the balance a debit or a credit?