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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

(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

(Current Liability Entries and Adjustments) Described below are certain transactions of Edwardson Corporation. The company uses the periodic inventory system.

1. On February 2, the corporation purchased goods from Martin Company for \(70,000 subject to cash discount terms of 2/10, n/30. Purchases and accounts payable are recorded by the corporation at net amounts after cash discounts. The invoice was paid on February 26.

2. On April 1, the corporation bought a truck for \)50,000 from General Motors Company, paying \(4,000 in cash and signing a 1-year, 12% note for the balance of the purchase price.

3. On May 1, the corporation borrowed \)83,000 from Chicago National Bank by signing a \(92,000 zero-interest-bearing note due 1 year from May 1.

4. On August 1, the board of directors declared a \)300,000 cash dividend that was payable on September 10 to stockholders of record on August 31.

Instructions

(a) Make all the journal entries necessary to record the transactions above using appropriate dates.

(b) Edwardson Corporation鈥檚 year-end is December 31. Assuming that no adjusting entries relative to the transactions above have been recorded, prepare any adjusting journal entries concerning interest that are necessary to present fair financial statements at December 31. Assume straight-line amortization of discounts.

Question: On October 15, 2017, Oil Products Co. purchased 4,000 barrels of fuel oil with a cost of

\(240,000 (\)60 per barrel). Oil Products is holding this inventory in anticipation of the winter 2018 heating season. Oil Products

accounts for its inventory at the lower-of-FIFO-cost-or-net realizable value. To hedge against potential declines in the value of

the inventory, Oil Products also purchased a put option on the fuel oil. Oil Products paid an option premium of \(300 for the put

option, which gives Oil Products the option to sell 4,000 barrels of fuel oil at a strike price of \)60 per gallon. The option expires

on March 1, 2018. The following data are available with respect to the values of the fuel of inventory and the put option.

Date Market Price of Fuel Oil Time Value of Put Option

October 31, 2017 \(58 per gallon \)175

November 30, 2017 57 per gallon 105

December 31, 2017 54 per gallon 40

Instructions

(a) Prepare the journal entries of Oil Products for the following dates.

(1) October 15, 2017鈥擮il Products purchases fuel oil and the put option on fuel oil.

(2) October 31, 2017鈥擮il Products prepares financial statements.

(3) November 30, 2017鈥擮il Products prepares financial statements.

(4) December 31, 2017鈥擮il Products prepares financial statements.

(b) Indicate the amount(s) reported on the balance sheet and income statement related to the fuel oil inventory and the put

option on November 30, 2017.

(c) Indicate the amount(s) reported on the balance sheet and income statement related to the fuel oil and the put option on

December 31, 2017.

Wynn Company offers a set of building blocks to customers who send in 3 UPC codes from Wynn cereal, along with 50垄. The block sets cost Wynn $1.10 each to purchase and 60垄 each to mail to customers. During 2017, Wynn sold 1,200,000 boxes of cereal. The company expects 30% of the UPC codes to be sent in. During 2017, 120,000 UPC codes were redeemed. Prepare Wynn鈥檚 December 31, 2017, adjusting entry.

Question: (Cash Flow Hedge) LEW Jewelry Co. uses gold in the manufacture of its products. LEW anticipates that it will

need to purchase 500 ounces of gold in October 2017, for jewelry that will be shipped for the holiday shopping season. However,

if the price of gold increases, LEW鈥檚 cost to produce its jewelry will increase, which would reduce its profit margins.

To hedge the risk of increased gold prices, on April 1, 2017, LEW enters into a gold futures contract and designates this

futures contract as a cash flow hedge of the anticipated gold purchase. The notional amount of the contract is 500 ounces, and

the terms of the contract give LEW the right and the obligation to purchase gold at a price of \(300 per ounce. The price will be

good until the contract expires on October 31, 2017.

Assume the following data with respect to the price of the futures contract and the gold inventory purchase:

Date Spot Price for October Delivery

April 1, 2017 \)300 per ounce

June 30, 2017 310 per ounce

September 30, 2017 315 per ounce

Instructions

Prepare the journal entries for the following transactions.

(a) April 1, 2017鈥擨nception of the futures contract, no premium paid.

(b) June 30, 2017鈥擫EW Co. prepares financial statements.

(c) September 30, 2017鈥擫EW Co. prepares financial statements.

(d) October 10, 2017鈥擫EW Co. purchases 500 ounces of gold at \(315 per ounce and settles the futures contract.

(e) December 20, 2017鈥擫EW sells jewelry containing gold purchased in October 2017 for \)350,000. The cost of the finished

goods inventory is $200,000.

(f) Indicate the amount(s) reported on the balance sheet and income statement related to the futures contract on June 30, 2017.

(g) Indicate the amount(s) reported in the income statement related to the futures contract and the inventory transactions

on December 31, 2017.-
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