Presented below is a list of possible transactions. · 1. Purchased inventory for $80,000 on account...

Presented below is a list of possible transactions.

· 1. Purchased inventory for $80,000 on account (assume perpetual system is used).

· 2. Issued an $80,000 note payable in payment on account (see item 1 above).

· 3. Recorded accrued interest on the note from item 2 above at 10%. Assume the note is a one-year note and 3 months have passed.

· 4. Signed a $100,000 note from the bank by signing a 6-month, zero-interest-bearing note. Prevailing annual interest rate is 10%.

· 5. Recognized 4 months' interest expense on the note from item 4 above.

· 6. Recorded sales revenue of $75,260 on account, which includes 5% sales tax.

· 7. Incurred a contingency loss of $45,000 on a lawsuit. The company’s lawyer believes there is a reasonable possibility that the company could lose.

· 8. Accrued warranty expense of 15,000 on sales.

· 9. Paid warranty costs that were accrued in item 8 above.

· 10. Purchased goods for $85,000 subject to a cash discount, terms of 2/10, n/30. Purchases and accounts payable are recorded at net amounts after cash discounts (assume perpetual system is used).

· 11. Paid the invoice from 10. above, thirty days later.

Required

Record the journal entries (if needed) for the above transactions.

Solutions

Expert Solution

Date	Account Titles and Explanation	Debit	Credit
1	Inventory	$ 80,000
	Accounts Payable		$ 80,000

2	Accounts Payable	$ 80,000
	Notes Payable		$ 80,000

3	Interest Expense	$ 2,000
	Interest Payable (80000 x 10% x 3/12)		$ 2,000

4	Cash (100000/1.05)	$ 95,238
	Discount on notes payable	$ 4,762
	Notes Payable		$ 100,000

5	Interest Expense (95238 x 10% x 4/12)	$ 3,175
	Discount on notes payable		$ 3,175

6	Accounts receivable	$ 75,260
	Sales revenue (75260/105%)		$ 71,676
	sales tax payable		$ 3,584

7	Loss from lawsuit-estimated	$ 45,000
	Estimated liability from lawsuit		$ 45,000

8	Warranty Expense	$ 15,000
	Accrued warranty liability		$ 15,000

9	Accrued warranty liability	$ 15,000
	Cash		$ 15,000

10	Inventory (85000-85000 x 2%)	$ 83,300
	Accounts Payable		$ 83,300

11	Accounts Payable	$ 83,300
	Inventory	$ 1,700
	Cash		$ 85,000

ekkarill92 answered 1 year ago

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