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Chapter 11: Q4SE (page 605)

:On December 31, 2017, Franklin purchased $13,000 of merchandise inventory on a one-year, 9% note payable. Franklin uses a perpetual inventory system. Requirements

1. Journalize the company’s purchase of merchandise inventory on December 31, 2017.

2. Journalize the company’s accrual of interest expense on June 30, 2018, its fiscal year-end.

3. Journalize the company’s payment of the note plus interest on December 31, 2018

Short Answer

Expert verified
  1. Merchandise account Debit $13,000 and Note payable account credit $13,000
  2. Interest account Debit $585 and interest payable account credit $585.
  3. Note payable, Interest expense, Interest payable account Debit $14,170 and Cash account Credit $14,170.

Step by step solution

01

Journal Entries

Date

Particulars

Debit

Credit

Dec 31,

2017

Merchandise inventory

$13,000

Note payable

$13,000

(To record purchased merchandise inventory in exchange for 9% note payable.)

02

Journal Entries

Date

Particulars

Debit

credit

June 30,

2018

Interest expense

$585

Interest payable

$585

(To record accrued interest expense at the fiscal year-end.)

03

Journal Entries

Date

Particulars

Debit

Credit

Dec 31, 2018

Note payable

$13,000

Interest expense

$585

Interest payable

$585

Cash

$14,170

(To record paid note and interest at maturity.)

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Most popular questions from this chapter

The income statement for California Communications follows. Assume California Communications signed a 3-month, 9%, $3,000 note on June 1, 2018, and that this was the only note payable for the company.

Requirements

1. Fill in the missing information for California’s year ended July 31, 2018, income statement. Round to the nearest dollar.

2. Compute the times-interest-earned ratio for the company. Round to two decimals.

The general ledger of Prompt Ship at June 30, 2018, the end of the company’s fiscal year, includes the following account balances before payroll and adjusting entries.

Accounts Payable \( 118,000

Interest Payable 0

Salaries Payable 0

Employee Income Taxes Payable 0

FICA—OASDI Taxes Payable 0

FICA—Medicare Taxes Payable 0

Federal Unemployment Taxes Payable 0

State Unemployment Taxes Payable 0

Unearned Rent Revenue 5,400

Long-term Notes Payable 198,000

The additional data needed to develop the payroll and adjusting entries at June 30 areas follows:

a. The long-term debt is payable in annual installments of \)39,600, with the next installment due on July 31. On that date, Prompt Ship will also pay one year’s interest at 10%. Interest was paid on July 31 of the preceding year. Make the adjusting entry to accrue interest expense at year-end.

b. Gross unpaid salaries for the last payroll of the fiscal year were \(4,800. Assume that employee income taxes withheld are \)920 and that all earnings are subject to OASDI.

c. Record the associated employer taxes payable for the last payroll of the fiscal year,\(4,800. Assume that the earnings are not subject to unemployment compensation taxes

d. On February 1, the company collected one year’s rent of \)5,400 in advance.

Requirements

1. Using T-accounts, open the listed accounts and insert the unadjusted June 30balances.

2. Journalize and post the June 30 payroll and adjusting entries to the accounts thatyou opened. Identify each adjusting entry by letter. Round to the nearest dollar.

3. Prepare the current liabilities section of the balance sheet at June 30, 2018.

What payroll taxes is the employer responsible for paying?

Consider the following transactions of Sapphire Software: Mar. 31 Recorded cash sales of $230,000, plus sales tax of 7% collected for the state of New Jersey. Apr. 6 Sent March sales tax to the state. Journalize the transactions for the company. Ignore cost of goods sold.

List the required employee payroll withholding deductions, and provide the tax rate for each.
See all solutions

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