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Chapter 13: 2P (page 658)

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.

Short Answer

Expert verified

Both sides of the journal totals$1,008,500.

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$798,0001.05

$760,000

Sales tax payable

$760,000脳0.5

$38,000

3

Truck$120,000脳105%

$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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Most popular questions from this chapter

How should a debt callable by the creditor be reported in the debtor鈥檚 financial statements?

(Multiple-Step and Single-Step Statements) Two accountants for the firm of Elwes and Wright are arguing about the merits of presenting an income statement in a multiple-step versus a single-step format. The discussion involves the following 2017 information related to P. Bride Company (\(000 omitted).

Administrative expense

Officers鈥� salaries \)4,900

Depreciation of office furniture and equipment \(3,960

Cost of goods sold \)60,570

Rent revenue \(17,230

Selling expense

Delivery expense \)2,690

Sales commissions \(7,980

Depreciation of sales equipment \)6,480

Sales revenue \(96,500

Income tax \)9,070

Interest expense $1,860

Instructions

  1. Prepare an income statement for the year 2017 using the multiple-step form. Common shares outstanding for 2017 total 40,550 (000 omitted).
  2. Prepare an income statement for the year 2017 using the single-step form.
  3. Which one do you prefer? Discuss.

(Equity Method) Parent Co. invested $1,000,000 in Sub Co. for 25% of its outstanding stock. Sub Co. pays out

40% of net income in dividends each year.

Instructions

Use the information in the following T-account for the investment in Sub to answer the following questions.

Investment in Sub Co.

1,000,000

110,000

44,000

(a) How much was Parent Co.鈥檚 share of Sub Co.鈥檚 net income for the year?

(b) What was Sub Co.鈥檚 total net income for the year?

(c) What were Sub Co.鈥檚 total dividends for the year?

(d) How much was Parent Co.鈥檚 share of Sub Co.鈥檚 dividends for the year?

(Cash Flow Hedge) On January 2, 2017, Parton Company issues a 5-year, \(10,000,000 note at LIBOR, with

interest paid annually. The variable rate is reset at the end of each year. The LIBOR rate for the first year is 5.8%.

Parton Company decides it prefers fixed-rate financing and wants to lock in a rate of 6%. As a result, Parton enters into an

interest rate swap to pay 6% fixed and receive LIBOR based on \)10 million. The variable rate is reset to 6.6% on January 2, 2018.

Instructions

(a) Compute the net interest expense to be reported for this note and related swap transactions as of December 31, 2017.

(b) Compute the net interest expense to be reported for this note and related swap transactions as of December 31, 2018.

(Premium Entries and Financial Statement Presentation) Sycamore Candy Company offers an MP3 download (seven-single medley) as a premium for every five candy bar wrappers presented by customers together with \(2.50. The candy bars are sold by the company to distributors for 30 cents each. The purchase price of each download code to the company is \)2.25. In addition, it costs 50 cents to distribute each code. The results of the premium plan for the years 2017 and 2018 are as follows. (All purchases and sales are for cash.)

2017 2018

MP3 codes purchased 250,000 330,000

Candy bars sold 2,895,400 2,743,600

Wrappers redeemed 1,200,000 1,500,000

2017 wrappers expected to be redeemed in 2018 290,000

2018 wrappers expected to be redeemed in 2019 350,000

Instructions

(a) Prepare the journal entries that should be made in 2017 and 2018 to record the transactions related to the premium plan of the Sycamore Candy Company.

(b) Indicate the account names, amounts, and classifications of the items related to the premium plan that would appear on the balance sheet and the income statement at the end of 2017 and 2018
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