Question

Selected transactions of Shadrach Computer Corporation during November and December of 2016 are as follows:

Nov.	1	Borrowed money from the bank by issuing a non-interest-bearing, $40,000, 90-day note. The note is discounted on a 12% basis.
	9	Sold 100 computers with a 1-year assurance-type warranty for $5,000 each on credit (ignore cost of goods sold). Past experience indicates that warranty costs average $125 per computer.
	12	Sold 100 software packages at $300 each on credit (ignore cost of goods sold). With each software package, Shadrach offered a premium in the form of a USB drive for the return of one proof of purchase. The offer expires June 30, 2017. The cost of each USB drive is $5, and Shadrach estimates that 80% of the premiums will be redeemed; therefore, 80 USB drives were purchased on credit.
	20	Paid $2,900 in fulfillment of the warranty agreement on several of the computers sold on November 9.
	30	Accrued monthly vacation pay. Shadrach has 90 employees who are each paid an average of $160 per day. Shadrach has a policy of allowing each employee 12 days’ paid vacation per year; the related liability is recorded on a monthly basis. Employees are paid monthly.
	30	Paid monthly payroll. Gross salaries were $432,000. No vacations were taken during November. Income tax withholdings of 20% are applicable to the salaries of all employees. A F.I.C.A. tax of 8% for both employees and employers is also applicable. These rates apply to all salaries because no employee’s salary has exceeded the maximum wage limit. The state allows the corporation a 1% unemployment compensation merit-rating reduction from the normal rate of 5.4%. The federal unemployment rate is 0.6%. Prior to October, each individual employee had accumulated a gross salary in excess of $7,000 for 2016.
Dec.	14	Twenty proofs of purchase were returned from the November 12 sale.
	29	An individual filed suit against Shadrach for damages caused in a November 5 accident that resulted when a member of the sales force hit the individual’s car while on personal business. The amount of the suit filed was $1,500. Because the employee was on personal business, the company’s insurance company will not pay the claim. In Shadrach’s attorney’s opinion, the amount of the suit is reasonable; furthermore, the company believes it is likely to lose the suit.
	31	Accrued monthly vacation pay.
	31	Paid monthly payroll. Gross salaries were $435,000. The salaries included $6,800 of vacation pay in the sales force and $3,200 of vacation pay in the office staff. The F.I.C.A. tax rate still applies to all wages because no employee’s salary exceeded the maximum wage limit.
	31	Recorded president’s bonus. The president receives a 10% bonus on any income over $200,000, before deducting income taxes and the bonus. Shadrach’s effective income tax rate is 30%, and income before income taxes and bonus for 2016 was $560,000. The bonus will be paid in January 2017.

Required:

Prepare journal entries to record the preceding transactions of Shadrach Computer Corporation for 2016. Include year-end accruals. Round all calculations to the nearest dollar. DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Prepare journal entries to record the December transactions of Shadrach Computer Corporation for 2016. Include year-end accruals. Round all calculations to the nearest dollar. Additional Instructions GENERAL JOURNAL DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

Answer 1

1. November 1

Cash Dr. 38800

Discount on notes payable Dr. 1200

To Notes Payable 40,000

December 31

Interest Expense Dr.800

To discount on notes payable 800

[40,000 * 12% * 2/12]

2. November 9

(a) Accounts receivable Dr. 500,000

To sales revenue 500,000

(b) Warranty expense Dr. 12,500

To estimated warranty liability 12,500

3. November 12

(a) Accounts receivable Dr. 30,000

To sales revenue 30,000

(b) Premium expense Dr. 400

To Estimated premium liability 400

4. November 20

Estimated warranty liabilty Dr. 2900

To cash 2900

5. November 30

(a) Salary expenses Dr. 14,400

To liability for compensated absences 14,400

(b) Salary expenses Dr. 432,000

To federal income taxes 86,400

To FICA taxes payable 34,560

To cash (b/f) 311,040

(c) Payroll tax expense Dr. 34,560

To FICA taxes payable 34,560

6. December 14

Estimated premium liabilty Dr. 100

To cash 100

7. December 29

Loss from accident Dr. 1500

To estimated liability from lawsuit 1500

8. December 31

(a) Salary expenses Dr. 14,400

To liability for compensated absences 14,400

(b) Salary expenses Dr. 19,200

To bonus payable 19,200

[560,000 * 70% = 392,000]

[(392,000 - 200,000) *10%]

(c) Salary expenses Dr. 435,000

To federal income taxes 87,000

To FICA taxes payable 34,800

To cash (b/f) 313,200

(d) Payroll tax expense Dr. 34,800

To FICA taxes payable 34,800

(e) Salary expenses Dr. 56,000

To Bonus payable 56,000