Question

B 1

On December 1, Destin Corporation borrowed $10,000 on a 120-day, 8% note. Prepare the entries to record the issuance of the note, the accrual of interest at year end, and the payment of the note.

B 3

Mary Stine’s regular hourly wage rate is $12, and she receives an hourly rate of $18 for work in excess of 40 hours. During a March pay period, Mary works 47 hours. Mary’s federal income tax withholding is $70, and she has no voluntary deductions. Compute Mary Stine’s gross earnings and net pay for the pay period.

B 4

Stiner Company has the following selected accounts after posting adjusting entries:

Accounts Payable $ 45,000

Notes Payable, 3-month 80,000

Accumulated Depreciation—Equipment 14,000

Payroll and Benefits Payable 27,000

Notes Payable, 5-year, 8% 30,000

Estimated Warranty Liability 34,000

Payroll Tax Expense 6,000

Interest Payable 3,000

Mortgage Payable 200,000

Sales Tax Payable 16,000

Instructions

(a) Prepare the current liability section of Stiner Company's balance sheet, assuming $25,000 of the mortgage is payable next year. (List liabilities in magnitude order, with largest first.)

(b) Comment on Stiner 's liquidity, assuming total current assets are $450,000.

B 5

Brandy and Johnson decide to organize a partnership. Brandy invests $25,000 cash, and Johnson contributes $5,000 and equipment having a book value of $3,500 and a fair market value of $10,000.

Instructions

Prepare the entry to record each partner’s investment.

BE 6

The Jill & Frill Co. reports net income of $28,000. Interest allowances are Jill $3,000 and Frill $5,000; partner salary allowances are Jill $18,000 and Frill $10,000 and the remainder is shared equally.

Instructions

Indicate the division of net income to each partner, and prepare the entry to distribute the net income.

Answer 1

B1:

Date	Account Titles	Debit	Credit
		$	$
Dec 1	Cash	10,000
	Notes Payable		10,000
	To record the issuance of the note
Dec 31	Interest Expense ( 10,000 x 8 % x 30 / 360 )	66.67
	Interest Payable		66.67
	To record accrual of interest on note payable
April 1	Interest Expense	200
	Interest Payable	66.67
	Note Payable	10,000
	Cash		10,266.67
	To record payment of the note

B 3 : Gross earnings for March = 40 x $ 12 + 7 x $ 18 = $ 606

Net pay for the period = $ 606 - $ 70 = $ 536

B 4 :

a.

Steiner Company Balance Sheet ( Partial )
Current Liabilities
Notes Payable	$ 80,000
Accounts Payable	45,000
Estimated Warranty Payable	34,000
Payroll and Benefits Payable	27,000
Mortgage Payable ( current )	25,000
Sales Tax Payable	16,000
Interest Payable	3,000
Total Current Liabilities		$ 230,000

b. Current ratio = Total Current Assets / Total Current Liabilities = $ 450,000 / $ 230,000 = 1.96

The current assets are 1.96 times the current liabilities. Therefore the short term payment obligations are sufficiently backed by the current assets. Therefore, the liquidity position of Steiner Company is good.

B 5 :

Account Titles	Debit	Credit
	$	$
Cash	30,000
Equipment	10,000
Brandy, Capital		25,000
Johnson, Capital		15,000

B 6 :

	Jill	Frill	Total
Partners Salaries	$ 18,000	$ 10,000	$ 28,000
Interest Allowances	3,000	5,000	8,000
Total Salaries and Interest	21,000	15,000	36,000
Share of Remaining Income [28,000 - 36,000 = ( 8,000) ]	(4,000)	(4,000)	(8,000)
Totals	$17,000	$ 11,000	$ 28,000

The entry to record the distribution of net income:

Accounts	Debit	Credit
Income Summary	28,000
Jill, Capital		17,000
Frill, Capital		11,000