Chestnut Corp., a ski shop, opened for business on October 1. It uses a periodic inventory system.
The following transactions occurred during the first month of business:
October 1: Purchased three units from Elm Inc. for $249 total, terms 2/10, net 30, FOB destination.
October 10: Paid for the October 1 purchase.
October 15: Sold one unit for $200 cash.
October 18: Purchased ten units from Wausau Company for $800 total, with terms 2/10,
net/30, FOB destination.
October 25: Sold three units for $200 each, cash.
October 30: Paid for the October 18 purchase.
1. For each of the preceding transactions of Chestnut, prepare the appropriate journal entry.
2. Determine the number of units on hand on October 31.
3. If Chestnut started the month with $2,000, determine its balance in cash at the end of the
month assuming that these are the only transactions that occurred during October. Why has
the cash balance decreased when the company reported net income?