Question

The following transactions apply to Ozark Sales for Year 1:  

1. The business was started when the company received $50,000 from the issue of common stock.
2. Purchased equipment inventory of $380,000 on account.
3. Sold equipment for $510,000 cash (not including sales tax). Sales tax of 8 percent is collected when the merchandise is sold. The merchandise had a cost of $330,000.
4. Provided a six-month warranty on the equipment sold. Based on industry estimates, the warranty claims would amount to 2 percent of sales.
5. Paid the sales tax to the state agency on $400,000 of the sales.
6. On September 1, Year 1, borrowed $50,000 from the local bank. The note had a 4 percent interest rate and matured on March 1, Year 2.
7. Paid $6,200 for warranty repairs during the year.
8. Paid operating expenses of $78,000 for the year.
9. Paid $250,000 of accounts payable.
10. Recorded accrued interest on the note issued in transaction no. 6.

Prepare the journal entries for the preceding transactions and post them to the appropriate T-accounts. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your answers nearest dollar amount.)

Answer 1

No.	General Journal	Debit	Credit
1	Cash	50000
	Common stock		50000
2	Merchandise Inventory	380000
	Accounts payable		380000
3a.	Cash	550800
	Sales		510000
	Sales tax payable (8% x $510000)		40800
3b.	Cost of goods sold	330000
	Merchandise Inventory		330000
4	Warranty expense (2% x $510000)	10200
	Warranty payable		10200
5	Sales tax payable (8% x $400000)	32000
	Cash		32000
6	Cash	50000
	Notes payable		50000
7	Warranty payable	6200
	Cash		6200
8	Operating expenses	78000
	Cash		78000
9	Accounts payable	250000
	Cash		250000
10	Interest expense ($50000 x 4% x 4/12)	667
	Interest payable		667

Cash					Merchandise Inventory
1	50000	32000	5		2	380000	330000	3b.
3a.	550800	6200	7
6	50000	78000	8
		250000	9
End. Bal.	284600				End. Bal.	50000
Accounts Payable					Sales Tax Payable
9	250000	380000	2		5	32000	40800	3a.
End. Bal.		130000			End. Bal.		8800
Warranty Payable					Interest Payable
7	6200	10200	4				667	10
End. Bal.		4000			End. Bal.		667
Notes Payable					Common Stock
		50000	6				50000	1
End. Bal.		50000			End. Bal.		50000
Sales Revenue					Cost of Goods Sold
		510000	3a.		3b.	330000
End. Bal.		510000			End. Bal.	330000
Warranty Expense					Operating Expenses
4	10200				8	78000
End. Bal.	10200				End. Bal.	78000
Interest Expense
10	667
End. Bal.	667