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, $20,000, 90-day note. The note is discounted on a 12% basis.
	9	Sold 125 computers with a 1-year assurance-type warranty for $6,000 each on credit (ignore cost of goods sold). Past experience indicates that warranty costs average $105 per computer.
	12	Sold 125 software packages at $260 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 $10, and Shadrach estimates that 80% of the premiums will be redeemed; therefore, 100 USB drives were purchased on credit.
	20	Paid $2,200 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 $190 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 $436,000. 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 $1,350. 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 $439,000. The salaries included $6,100 of vacation pay in the sales force and $3,500 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 $220,000, 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 $600,000. 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.

CHART OF ACCOUNTS
Shadrach Computer Corporation
General Ledger
ASSETS 111 Cash 121 Accounts Receivable 132 Inventory of Premiums 152 Prepaid Insurance 181 Equipment 189 Accumulated Depreciation LIABILITIES 211 Accounts Payable 221 Bonus Payable 222 Liability for Compensated Absences 224 FICA Taxes Payable 225 Federal Income Taxes Withholding Payable 231 Salaries Payable 240 Estimated Warranty Liability 241 Estimated Premium Liability 245 Estimated Liability from Lawsuit 250 Unearned Revenue 260 Notes Payable 261 Discount on Notes Payable 271 Federal Income Taxes Payable EQUITY 311 Common Stock 331 Retained Earnings	REVENUE 411 Sales Revenue EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 521 Salaries Expense 522 Payroll Taxes Expense 532 Bad Debt Expense 540 Interest Expense 541 Depreciation Expense 551 Warranty Expense 552 Premium Expense 559 Miscellaneous Expenses 561 Loss from Accident 910 Income Tax Expense

Prepare journal entries to record the November transactions of Shadrach Computer Corporation for 2016. Include year-end accruals. Round all calculations to the nearest dollar. Additional Instructions

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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
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

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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
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19

Answer 1

JOURNAL
Date	Particulars	Debit	Credit
Nov-01	Cash	$    17,600.00
	($20,000 x 88%)
	Discount on Notes Payables	$      2,400.00
	($20,000 x 12%)
	Notes Payables		$    20,000.00
Nov-09	Accounts Receivables	$ 750,000.00
	(125 x $6000)
	Sales		$ 750,000.00
Nov-09	Warranty Exp	$    13,125.00
	Estimated Liabilities Under Warranties		$    13,125.00
	(125 x 105)
Nov-12	Accounts Receivables	$    32,500.00
	Sales		$    32,500.00
	(125 x 260)
Nov-12	Inventory - Disk	$      1,000.00
	Accounts Payables		$      1,000.00
	(100 x 10)
Nov-20	Estimated Liabilities Under Warranties	$      2,200.00
	Cash		$      2,200.00
Nov-30	Salaries Exp	$    17,100.00
	Liability for Employees		$    17,100.00
	(90 x 190)
Nov-30	Salaries Exp	$ 436,000.00
	Employee Federal Income Tax		$    87,200.00
	(436000 x 20%)
	FICA Tax Payable		$    34,880.00
	(436000 x 8%)
	Cash		$ 313,920.00
Nov-30	Payroll Tax expenses	$    34,880.00
	FICA Tax Payables		$    34,880.00
Dec-14	Premium Exp	$          200.00
	Inventory - Disk		$          200.00
	(20 x 10)
Dec-29	Loss in Accident	$      1,350.00
	Estimated Liability due to litigations		$      1,350.00
31-Dec	Salaries Exp	$    17,100.00
	Liability for Employees		$    17,100.00
	(90 x 190)
Dec-31	Salaries Exp (439000-6100-3500)	$ 429,400.00
	Liability for Employees	$      9,600.00
	(6100 + 3500)
	Employee Federal income tax		$    87,800.00
	(439000 x 20%)
	FICA Tax Payable		$    35,120.00
	(439000 x 8%)
	Cash		$ 316,080.00
31-Dec	Payroll Tax expenses	$    35,120.00
	FICA Tax Payables		$    35,120.00
Dec-31	Salaries Exp - bonus	$    38,000.00
	Bonus Payable		$    38,000.00
	(600000 - 220000) x 10%