Chapter 8 what entry is needed to record each time one of

134. A company borrowed $50,000 on November 1, 2012, at 9% interest. The interest and principal are due on

October 31, 2013.

Prepare the company’s journal entries on November 1, 2012, December 31, 2012, and October 31, 2013.

135. Grayson Flowers borrowed $400,000 from the bank on a six-month, 7% interest-bearing note on October

1, 2013. The company’s year-end is December 31st. The note and all related interest was repaid to the bank on

April 1, 2014.

A)

Prepare the company’s entry for this note on October 1, 2013.

B)

Record the adjusting entry for this note on December 31, 2013.

C)

Indicate how the note and the accrued interest would be reported on the balance sheet on December 31, 2013.

D)

Prepare the entry to record the repayment of the note on April 1, 2014.

A)

Oct. 1

Cash

400,000

Notes Payable

B)

Dec. 31

Interest Expense (400,000 ´ .07 ´ 3/12)

7,000

Interest Payable

D)

Apr. 1

Interest Expense (400,000 ´ .07 ´ 3/12)

7,000

Interest Payable

7,000

Notes Payable

400,000

Cash

Nov. 1

Cash

50,000

Notes Payable

Dec. 31

Interest Expense (50,000 ´ .09 ´ 2/12)

Interest Payable

Oct. 31

Interest Expense (50,000 ´ .09 ´ 10/12)

3,750

Interest Payable

Notes Payable

50,000

Cash

54,500

136. Graphic Designs, Inc. engaged in the following transactions during 2013:

Date

Transaction

Feb. 10

Purchased $10,000 of merchandise on credit.

Feb. 27

Paid for the merchandise purchased on Feb. 10th.

May 1

Borrowed $100,000 on a 9-month, 9% interest-bearing note.

May 15

Received a $5,000 deposit from a customer for custom-made products to be manufactured and delivered next month.

June 30

Remitted quarterly installments of FICA and income tax withholdings of $106,000 and $417,000, respectively. The

payroll entries, including the employer’s payroll taxes, have already been recorded.

Dec. 31

Recorded accrued interest on the note payable.

Prepare journal entries for each of these transactions.

Date

Accounts

Debit

Credit

Feb. 10

Merchandise Inventory

10,000

Accounts Payable

Feb. 27

Accounts Payable

10,000

Cash

May 1

Cash

100,000

Notes Payable

May 15

Cash

5,000

June 30

FICA Tax Payable (employee)

106,000

FICA Tax Payable (employer)

106,000

Federal Income Tax Payable

417,000

Cash

Dec. 31

Interest Expense

6,000

Interest Payable

($100,000 ´ 9% ´ 9/12) = $6,750 x 8/9

137. During May 2013, Grant Park Refinery sold, on credit, 1,200,000 gallons of motor fuel at $1.89 each plus

Georgia sales tax of 6%. Included in the price per gallon was a $.42 federal excise tax. All taxes collected are

paid to the appropriate taxing authority at the end of the quarter.

Prepare the appropriate journal entries on May 31, 2013, and June 30, 2013.

138. Grand Strand Power & Light provides utilities to a gulf coast community. On November 30, 2012, the

utility billed 1,500 residential customers a total of $118,500 for electricity. In addition, the company is required

to collect state taxes of 1.5% and Federal excise taxes of 0.95%. Both of these taxes are used to fund the energy

commission.

A)

What total amount should be billed to customers for November 2012?

B)

Provide the journal entry to record the November billings.

C)

Record the remittance of the taxes to the appropriate governmental units on December 31, 2012.

B)

Nov. 30, 2012

Accounts Receivable

121,404

Sales Revenue

State Taxes Payable (118,500 ´ .015)

1,778

Federal Excise Taxes Payable (118,500 ´ .0095)

1,126

C)

Dec. 31, 2012

State Tax Payable

1,778

Federal Excise Tax Payable

1,126

Cash

May 31

Accounts Receivable

2,404,080

Sales Revenue*

Georgia Sales Tax Payable**

Federal Excise Tax Payable***

June 30

Georgia Sales Tax Payable

136,080

Federal Excise Tax Payable

504,000

Cash

*

1,200,000 ´ ($1.89 – .42)

1,200,000 ´ $1.89 ´ 6%

***

1,200,000 ´ $.42

139. Great Dane Trailers has the following data available for its March 31, 2013, payroll:

Gross pay*

$180,000

Federal income taxes withheld

43,200

State income taxes withheld

7,200

*All subject to FICA matching and withholding at 7.65%

Federal unemployment tax and state unemployment tax are also applicable at rates of 0.8% and 3.5%, respectively. All wages are subject to these

taxes.

Prepare the journal entries to record the wages earned and payroll taxes.

Mar. 31

Wages Expense

180,000

Federal income taxes payable

State income taxes payable

FICA taxes payable

Cash

Mar. 31

Federal unemployment tax expense

1,440

State unemployment tax expense

6,300

Employer FICA expense

13,770

Federal unemployment tax payable

State unemployment tax payable

FICA taxes payable

140. Grady Company’s hourly employees earned $55,600 in the pay period ending March 31. Assume further

that federal and state income taxes withheld are $9,452 and $2,224, respectively. In addition, social security and

medicare taxes are applicable at rates of 6.2% and 1.45%, respectively, and federal and state unemployment

taxes are applicable at rates of 4.5% and 3%, respectively. All wages are subject to these taxes.

A)

Prepare the journal entry related to the $55,600 gross pay earned by the company’s employees. Round all amounts to the nearest

dollar, if necessary.

B)

Prepare the journal entry for the company’s payroll taxes over and above gross pay. Round all amounts to the nearest dollar, if

necessary.

141. During January, a travel company sold forty cruise vacation packages for $147,960. Customers are

required to pay in advance, but the package price is refundable until the date the cruise departs. The cruises

begin in February.

A)

Record the entry on January 31 to book the amounts collected from customers.

B)

What entry is needed to record each time one of its customers departs on the cruise vacation?

A)

Jan. 31

Cash

147,960

Unearned sales revenue

Feb. x

Unearned sales revenue

3,699

Sales revenue

Mar. 31

Wages Expense

55,600

Federal income tax payable

9,452

State income tax payable

2,224

Social Security tax payable

3,447

Medicare tax payable

Cash

39,671

Mar. 31

Federal unemployment tax expense

2,502

State unemployment tax expense

1,668

Employer Social Security tax expense

3,447

Employer Medicare tax expense

Federal unemployment tax payable

2,502

State unemployment tax payable

1,668

Employer Social Security tax payable

3,447

Employer Medicare tax payable

142. Gottlieb Pool n’ Pub, Inc. sold $25,000 in gift cards during December 2013. The expiration date on these

gift cards is December 31, 2014. During 2014, $23,940 of the gift cards were redeemed by customers.

A)

Record the sale of the gift cards.

B)

Record the redemption of the gift cards.

C)

Record the expiration of the remaining gift cards.

143. On August 3, 2012, Grace Electric Supply agreed to manufacture and supply 650 electrical control units

for a particular customer who deposited $136,500 toward the purchase price upon signing the one-year purchase

agreement, which set the selling price of each control unit at $1,050. In December 2012, 125 units were

delivered to the customer and the remaining units were delivered in January 2013. The customer pays in cash

upon delivery for any units not covered by the deposit.

A)

Record the journal entry to record the receipt of the customer deposit during 2012.

B)

Record the journal entry for the delivery of 125 units to the customer in 2012. How would the customer’s deposit be reported in the

financial statements at the end of 2012?

C)

Record the entry for the delivery of the remaining units to the customer in 2013.

A)

Aug. 3, 2012

Cash

136,500

Unearned sales revenue

136,500

B)

Dec. 2012

Unearned sales revenue

131,250

Sales revenue

131,250

(125 ´ $1,050)

C)

2013

Cash ((650 ´ $1,050) – 136,500)

546,000

Unearned sales revenue

5,250

Sales revenue

551,250

A)

Dec. 2013

Cash

25,000

Unearned sales revenue

25,000

B)

2014

Unearned sales revenue

23,940

Sales revenue

23,940

C)

Dec. 31, 2014

Unearned sales revenue

1,060

Sales revenue

1,060

144. Good Time Carts offers a one-year warranty on all its golf carts. Estimates suggest that two percent of

carts sold will require warranty service and that the average warranty claim will cost $215. During 2013, the

company sold 450 golf carts.

A)

Record the entry at the end of 2013 to record the warranty expenses.

B)

Assume the company incurred costs of $280 in inventory and $680 in cash paid for wages in connection with warranty work

performed during the first quarter of 2014. Record the proper entry to recognize these costs.

145. Golden Sound sells premium car stereo systems and various equipment for home sound systems as well.

Sales and expected warranty claims for 2012 are as follows:

Product

Unit

Expected Warranty Claims

Cost per

Group

Sales

for Warranty Period

Claim

Receivers

14,700

1 claim per 100 sold

$150

CD Changers

19,500

3 claims per 100 sold

125

Speakers

7,500

2 claims per 100 sold

100

Prepare the journal entry to record warranty expense for 2012.

Accounts

Debit

Credit

Warranty expense

110,175

Estimated warranty liability

110,175

Receivers:

(14,700 / 100) = 147 ´ $150 = $22,050

Changers:

((19,500 / 100) x 3) = 585 ´ $125 = $73,125

Speakers:

((7,500 / 100) x 2) = 150 ´ $100 = $15,000

Date

Accounts

Debit

Credit

A)

Dec. 31, 2013

Warranty expense

1,935

Estimated warranty liability

(450 ´ 2% ´ $215)

March 31, 2014

Estimated warranty liability

Inventory

Cash

146. For each of the following transactions, indicate the impact on the accounting equation as a result of

recording the related journal entry. Include an entry in each column for each transactions, whether an increase

(+), decrease (-), or no effect (NE). The first transaction is shown as an example.

Transaction:

Assets

=

Liabilities

+

Equity

Purchase of inventory on credit

+

NE

Issued a note payable

Repaid a note and interest at maturity

Record accrual of interest expense

Record accrual of wages expense

Collect in advance for sales of gift cards

Record redemption of gift cards

Record warranty expense

Record costs incurred for warranty work

147. What is meant by the term “current maturities of long-term debt” in the current liabilities section of a

balance sheet?

148. What is the purpose of the current ratio? How does it differ from the quick ratio?

Purchase of inventory on credit

+

NE

Issued a note payable

+

NE

Repaid a note and interest at maturity

–

Record accrual of interest expense

NE

+

–

Record accrual of wages expense

+

–

Collect in advance for sales of gift cards

+

NE

Record redemption of gift cards

NE

–

+

Record warranty expense

NE

+

–

Record costs incurred for warranty work

–

149. What are accrued liabilities, and what are some examples of accounts that would be classified as accrued

liabilities in the current liabilities section of a balance sheet?

150. What type of entry is made to create a credit balance in the Estimated Warranty Liability account on the

balance sheet? What account would be debited in this entry?

151. Why is the liability for warranties recognized during the period when products are sold rather than the

period when warranty claims are satisfied?

152. List several employee withholdings that impact an employee’s net pay. Describe the types of payroll taxes

that an employer might be required to pay.

153. Why are unearned revenues considered current liabilities?

154. Goldberg Financials

The following footnote accompanied this company’s financial statements:

Note 7 – Litigation

On December 2, 2012, the Company was served with a class action complaint filed in federal court filed in

Covington, Kentucky. The complaint, captioned Bradford Haynes vs. The Company, was filed by a shareholder

of the Company on behalf of himself and other shareholders who purchased the Company’s common stock

during the period of March 31, 2011, through December 31, 2011. The plaintiff alleges that the Company

violated federal securities laws by making untrue statements of material facts and omitting material facts

concerning the Company’s construction and start-up of its new manufacturing facility in Plano, Texas. Also

named as defendants in the complaint are certain officers and directors of the Company. The Plaintiff is seeking

an unspecified amount of monetary damages. While this action is in its preliminary stages, management

believes that the allegations are without merit and the Company intends to defend the lawsuit vigorously.

Refer to Goldberg Financials. What type of liability is presented in this disclosure?

155. Goldberg Financials