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Chapter 11: Q5RQ (page 603)
What do short-term notes payable represent?
It is a written promise that needs to pay. It hasseveral essential features, including afixed date for payback, aclear payable sum,interest rates, andthe potential for debt sale to a third party.
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Golden Bear Construction operates throughout California. The owner, Gaylan Beavers, employs 15 work crews. Construction supervisors report directly to Beavers, and the supervisors are trusted employees. The home office staff consists of an accountant and an office manager.
Because employee turnover is high in the construction industry, supervisors hire and fire their own crews. Supervisors notify the office of all personnel changes. Also, supervisors forward the employee W-4 forms to the home office. Each Thursday, the supervisors submit weekly time sheets for their crews, and the accountant prepares the payroll. At noon on Friday, the supervisors come to the office to get paychecks for distribution to the workers at 5 p.m.
The company accountant prepares the payroll, including the paychecks. Beavers signs all paychecks. To verify that each construction worker is a bona fide employee, the accountant matches the employee鈥檚 endorsement signature on the back of the canceled paycheck with the signature on that employee鈥檚 W-4 form.
Requirements
Discuss a control feature that the company can use to safeguard against the fraud you identified in Requirement 1.
Sell-Soft is the defendant in numerous lawsuits claiming unfair trade practices. SellSoft has strong incentives not to disclose these contingent liabilities. However, GAAP requires that companies report their contingent liabilities.
Requirements
: On June 1, Hunting Man Magazine collected cash of $63,000 on future annual subscriptions starting on July 1. Requirements
1. Journalize the transaction to record the collection of cash on June 1.
2. Journalize the transaction required at December 31, the magazine鈥檚 year-end, assuming no revenue earned has been recorded. (Round adjustment to the nearest whole dollar.)
How might a business use a payroll register?
The following transactions of Plymouth Pharmacies occurred during 2017 and 2018:
2017
Jan. 9 Purchased computer equipment at a cost of \(12,000, signing a six-month, 9% note payable for that amount.
29 Recorded the week鈥檚 sales of \)63,000, three-fourths on credit and onefourth for cash. Sales amounts are subject to a 6% state sales tax. Ignore cost of goods sold.
Feb. 5 Sent the last week鈥檚 sales tax to the state.
Jul. 9 Paid the six-month, 9% note, plus interest, at maturity.
Aug. 31 Purchased merchandise inventory for \(9,000, signing a six-month, 10% note payable. The company uses the perpetual inventory system.
Dec. 31 Accrued warranty expense, which is estimated at 4% of sales of \)609,000.
31 Accrued interest on all outstanding notes payable.
2018
Feb. 28 Paid the six-month 10% note, plus interest, at maturity.
Journalize the transactions in Plymouth鈥檚 general journal. Explanations are not required. Round to the nearest dollar.
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