Transcribed Image Text: I’ve decided to start a business that manufactures and sells comic books/graphic novels. The business will use FIFO to manage inventory and makes adjusting entries at the

Transcribed Image Text: I’ve decided to start a business that manufactures and sells comic books/graphic
novels. The business will use FIFO to manage inventory and makes adjusting entries
at the end of each month.
a) To get started, on January 1st | take out a loan of $100,000 from the bank, with a
10% interest rate. The principal will not have to be repaid until the end of the loan,
in 4 years.
b) Also on January 1st, I spend $44,000 cash on a printing press (a piece of
equipment that will produce the comic books).
The equipment has a five year life and a $2,000 salvage value.
c) On January 5th | issue 1,000 common shares of my company in exchange for
$20,000 cash.
d) On January 10th I purchase 100 comic books from an external supplier for $1
each in cash.
e) On January 12th I purchase another 50 of the same comic books from the same
supplier for $1.25 each on credit.
f) On January 15th I sell 125 of the comic books that I had purchased. I sell them for
$3 each on account.
g) The company’s Allowance for Doubtful Accounts is currently $10. On January
31st, the company estimates that it will not collect 10% of its current accounts
receivable.
Instructions
1) Provide journal entries for all of the above transactions, where applicable.
2) Provide any adjusting entries relating to the above transactions as at January
31st.
3) On February 1st, an annoyed customer walks into the business and repeatedly
hits the equipment with a wrench. The equipment will now only be able to generate
$3,000 in profit in the future. Alternatively, the equipment could be sold for $4,000,
but I would have to ship it, which would cost $700. Does this impact my accounting
for the equipment? If so, provide the journal entry.

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