Question

Presented below are the transactions of Lucky Luck Company:

September 1      Borrowed $300,000 from New York Bank for 8%, 6 months note

September 8      Sold 550 units merchandise at $25 per unit, plus 10% sales tax, but not billed yet to customer

September 16    Sold merchandise for cash total $38,000, which includes 10% sales taxes

September 22    Received $4,000 cash payment for merchandise that will be delivered in the next two weeks

September 28    Sold 700 units of a new product on credit at $25 per unit, plus 10% sales tax. This new product is subject to a 1‐year warranty

Instructions:

1. Journalize the September transactions

2. Journalize the adjusting entries on September 30 for: (A) the interest of note payable and (B) estimated warranty liability assuming warranty costs are expected to equal 8% of sales of the new product

3. Prepare the current liabilities section of the statement of financial position on September 30

Answer 1

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Ans :1

1) Cash Dr . 300000

Notes payable Cr. 300000

2) Accounts Receivable   Dr. 15125

Sales Revenue Cr. ( 550*25)   13750

Sales tax payable (10% * 13750) 1375

3) Cash   Dr. 38000

Sales Revenue Cr. (38000 * 100 / 110 )   34545

Sales tax payable (38000 * 10 / 110 )          3455

4) Cash Dr. 4000

Unearned service revenue Cr.   4000

5) Accounts Receivable   Dr. 19250

Sales Revenue Cr. ( 700 *25) 17500

Sales tax payable   Cr. (10% * 17500 ) 1750

  Ans :2 (A) the interest of note payable

Interest Expense Dr. 2000

Interest Payable Cr.       2000

(To record interest expense) ( 300000 *8% * 6/12 * 1/6)

(B) estimated warranty liability

Warranty Expense Dr. 1400

Estimated warranty Payable Cr. ( 17500 * 8%) 1400

Ans 3 : Current liabilities section

Sales Tax Payable (1375 + 3455 +1750 ) 6580

Unearned Service Revenue                    4000

Note Payable                                        300000

Interest Payable                                    2000

Warranty Liability                                   1400

Total                                                     313980