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Chapter 13: Q8BE (page 692)

Mayaguez Corporation provides its officers with bonuses based on net income. For 2017, the bonuses total $350,000 and are paid on February 15, 2018. Prepare Mayaguez鈥檚 December 31, 2017, adjusting entry and the February 15,2018, entry.

Short Answer

Expert verified

On December 31,2017, salaries and wages expense will be debited and salaries and wages payable will be credited by $350,000, respectively.

On February 15,2018, salaries and wages payable will be debited and cash will be credited by $350,000, respectively.

Step by step solution

01

Explanation on salaries and wages payable

Salaries and wages payable are the accrued expenses related to salaries, wages or bonuses, which will be paid in future. It is reported as current liability.

02

Journal entries

Date

Accounts & Explanations

Debit

Credit

Dec.31,2017

Salaries and Wages Expense

$350,000

Salaries and Wages Payable

$350,000

To record accrued bonuses

Feb.15, 2018

Salaries and Wages Payable

$350,000

Cash

$350,000

To record payment of bonuses

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Most popular questions from this chapter

Question: EXCEL (Derivative Financial Instrument) The treasurer of Miller Co. has read on the Internet that the stock

price of Wade Inc. is about to take off. In order to profit from this potential development, Miller Co. purchased a call option on

Wade common shares on July 7, 2017, for \(240. The call option is for 200 shares (notional value), and the strike price is \)70. (The

market price of a share of Wade stock on that date is \(70.) The option expires on January 31, 2018. The following data are available

with respect to the call option.

Date Market Price of Wade Shares Time Value of Call Option

September 30, 2017 \)77 per share $180

December 31, 2017 75 per share 65

January 4, 2018 76 per share 30

Instructions

Prepare the journal entries for Miller Co. for the following dates.

(a) July 7, 2017鈥擨nvestment in call option on Wade shares.

(b) September 30, 2017鈥擬iller prepares financial statements.

(c) December 31, 2017鈥擬iller prepares financial statements.

(d) January 4, 2018鈥擬iller settles the call option on the Wade shares.

Dos Passos Company sells televisions at an average price of \(900 and also offers to each customer a separate 3-year warranty contract for \)90 that requires the company to perform periodic services and to replacedefective parts. During 2017, the company sold 300 televisions and 270 warranty contracts for cash. It estimates the 3-year warrantycosts as \(20 for parts and \)40 for labor, and accounts for warranties separately. Assume sales occurred on December 31,2017, and straight-line recognition of warranty revenues occurs.

Instructions

(a) Record any necessary journal entries in 2017.

(b) What liability relative to these transactions would appear on the December 31, 2017, balance sheet and how would it beclassified?

In 2018, Dos Passos Company incurred actual costs relative to 2017 television warranty sales of \(2,000 for parts and \)4,000 forlabor.

(c) Record any necessary journal entries in 2018 relative to 2017 television warranties.

(d) What amounts relative to the 2017 television warranties would appear on the December 31, 2018, balance sheet andhow would they be classified?

E13-11 (L03) (Warranties) Early in 2017, Sheryl Crow Equipment Company sold 500 Rollomatics during 2017 at \(6,000each. During 2017, Crow spent \)20,000 servicing the 2-year assurance warranties that accompany the Rollomatic. All applicabletransactions are on a cash basis.Instructions(a) Prepare 2017 entries for Crow. Assume that Crow estimates the total cost of servicing the warranties will be \(55,000 for2 years.(b) Prepare 2017 entries for Crow assuming that the warranties are not an integral part of the sale (a service-type warranty).Assume that of the sales total, \)56,000 relates to sales of warranty contracts. Crow estimates the total cost of servicingthe warranties will be $55,000 for 2 years. Estimate revenues to be recognized on a straight-line basis.

(Fair Value Option) Presented below is selected information related to the financial instruments of

Dawson Company at December 31, 2017. This is Dawson Company鈥檚 first year of operations.

Carrying Fair Value

Amount (at December 31)

Investment in debt securities (intent is to hold to maturity) \( 40,000 \) 41,000

Investment in Chen Company stock 800,000 910,000

Bonds payable 220,000 195,000

Instructions

(a) Dawson elects to use the fair value option for these investments. Assuming that Dawson鈥檚 net income is $100,000 in2017 before reporting any securities gains or losses determine Dawson鈥檚 net income for 2017. Assume that the differencebetween the carrying value and fair value is due to credit deterioration.

(b) Record the journal entry, if any, necessary at December 31, 2017, to record the fair value option for the bonds payable

Question: Distinguish between debt security and equity security.
See all solutions

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