L (Liability Entries and Adjustments) Listed below are selected transactions of Schultz Department Store for the current year ending December 31.

1. On December 5, the store received \(500 from the Selig Players as a deposit to be returned after certain furniture to be used in stage production was returned on January 15.

2. During December, cash sales totaled \)798,000, which includes the 5% sales tax that must be remitted to the state by the fifteenth day of the following month.

3. On December 10, the store purchased for cash three delivery trucks for \(120,000. The trucks were purchased in a state that applies a 5% sales tax.

4. The store determined it will cost \)100,000 to restore the area (considered a land improvement) surrounding one of its store parking lots, when the store is closed in 2 years. Schultz estimates the fair value of the obligation at December 31 is $84,000.

Instructions

Prepare all the journal entries necessary to record the transactions noted above as they occurred and any adjusting journal entries relative to the transactions that would be required to present fair financial statements at December 31. Date each entry. For simplicity, assume that adjusting entries are recorded only once a year on December 31.

Step by step solution

01

Definition of Adjusting Entries

The journal entries that are made for adjusting the balances of the accounts at the year-end are known as adjusting entries. These entries are made for accrual and deferrals. These are also made for any estimates made by the business entity.

02

Journal entries and adjusting journal entries

Date	Accounts and Explanation	Debit $	Credit $
1	Cash	$500
	Due to customer		$500
2	Cash	$798,000
	Sales$\left(\frac{\$798,000}{1.05}\right)$		$760,000
	Sales tax payable $\left(\$760,000\times 0.5\right)$		$38,000
3	Truck$\left(\$120,000\times 105\%\right)$	$126,000
	Cash		$126,000
4	Land improvement	$84,000
	Asset retirement obligation		$84,000
		$1,008,500	$1,008,500

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