Question
In: Accounting
The following selected transactions were taken from the books of Ripley Company for Year 1: On...
The following selected transactions were taken from the books of
Ripley Company for Year 1:
- On February 1, Year 1, borrowed $50,000 cash from the local bank. The note had a 8 percent interest rate and was due on June 1, Year 1.
- Cash sales for the year amounted to $235,000 plus sales tax at the rate of 7 percent.
- Ripley provides a 90-day warranty on the merchandise sold. The warranty expense is estimated to be 3 percent of sales.
- Paid the sales tax to the state sales tax agency on $195,000 of the sales.
- Paid the note due on June 1 and the related interest.
- On November 1, Year 1, borrowed $44,000 cash from the local bank. The note had a 7 percent interest rate and a one-year term to maturity.
- Paid $3,200 in warranty repairs.
- A customer has filed a lawsuit against Ripley for $80,000 for breach of contract. The company attorney does not believe the suit has merit.
Required
a. Answer the following questions:
1. What amount of cash did Ripley pay for interest
during Year 1?
2. What amount of interest expense is reported on
Ripley’s income statement for Year 1?
3. What is the amount of warranty expense for Year
1?
b. Post the liabilities transactions to T-accounts
and prepare the current liabilities section of the balance sheet at
December 31, Year 1.
c. Show the effect of these transactions on the
financial statements using a horizontal statements model like the
one shown next. Use + for increase, − for decrease, and NA for not
affected. In the Cash Flow column, indicate whether the item is an
operating activity (OA), investing activity (IA), or financing
activity (FA) or not affected (NA). The first transaction has been
recorded as an example.
Solutions
Expert Solution
a.
1. Cash paid for interest = $50000 x 8% x 4/12 = $1333.33
2. Interest expense = $1333.33 + ($44000 x 7% x 2/12) = $1333.33 + $513.33 = $1846.66
3. Warranty expense = 3% x $235000 = $7050
Kindly round off as required since no instructions have been provided with the question regarding the same.
b.
| Interest Payable | Sales Tax Payable | |||||||
| 513 | 6 | 16450 | 2 | |||||
| Bal. | 513 | 4 | 13650 | |||||
| Bal. | 2800 | |||||||
| $44000 x 7% x 2/12 = $513 | $235000 x 7% = $16450 | |||||||
| $195000 x 7% = $13650 | ||||||||
| Warranty Payable | Notes Payable | |||||||
| 7050 | 3 | 50000 | 1 | |||||
| 7 | 3200 | 5 | 50000 | |||||
| Bal. | 3850 | 44000 | 6 | |||||
| $235000 x 3% = $7050 | Bal. | 44000 | ||||||
| RIPLEY COMPANY | |
| Balance Sheet (Partial) | |
| As of December 31, Year 1 | |
| Current liabilities: | |
| Warranty payable | 3850 |
| Interest payable | 513 |
| Sales tax payable | 2800 |
| Notes payable | 44000 |
| Total current liabilities | 51163 |
c.
| RIPLEY COMPANY | ||||||||||||
| Horizontal Statements Model | ||||||||||||
| Event | Assets | = | Liabilities | + | Equity | Revenue | - | Expense | = | Net Income | Cash Flow | |
| 1 | + | = | + | + | NA | NA | - | NA | = | NA | + | FA |
| 2 | + | = | + | + | + | + | - | NA | = | + | + | OA |
| 3 | NA | = | + | + | - | NA | - | + | = | - | NA | |
| 4 | - | = | - | + | NA | NA | - | NA | = | NA | - | OA |
| 5a. | - | = | - | + | NA | NA | - | NA | = | NA | - | FA |
| 5b. | - | = | NA | + | - | NA | - | + | = | - | - | OA |
| 6 | + | = | + | + | NA | NA | - | NA | = | NA | + | FA |
| 7 | - | = | - | + | NA | NA | - | NA | = | NA | - | OA |
| 8 | NA | = | NA | + | NA | NA | - | NA | = | NA | NA | |
Note: 5a. is for the payment of the note and 5b. is for the payment of the related interest.
The lawsuit filed against Ripley by a customer for $80,000 for breach of contract should not be recorded since it is a contingent liability with probability of its occurrence being remote as the attorney believes the suit does not have merit.
ekkarill92 answered 1 year agoRelated Solutions
The following selected transactions were taken from the books of Ripley Company for Year 1: On...
The following selected transactions were taken from the books of
Ripley Company for Year 1:
On February 1, Year 1, borrowed $45,000 cash from the local
bank. The note had a 7 percent interest rate and was due on June 1,
Year 1.
Cash sales for the year amounted to $235,000 plus sales tax at
the rate of 8 percent.
Ripley provides a 90-day warranty on the merchandise sold. The
warranty expense is estimated to be 4 percent of sales....
The following selected transactions were taken from the books of Ripley Company for Year 1: On...
The following selected transactions were taken from the books of
Ripley Company for Year 1:
On February 1, Year 1, borrowed $47,000 cash from the local bank.
The note had a 5 percent interest rate and was due on June 1, Year
1.
Cash sales for the year amounted to $245,000 plus sales tax at
the rate of 6 percent.
Ripley provides a 90-day warranty on the merchandise sold. The
warranty expense is estimated to be 4 percent of sales....
The following selected transactions were taken from the books of Ripley Company for Year 1: On...
The following selected transactions were taken from the books of
Ripley Company for Year 1:
On February 1, Year 1, borrowed $46,000 cash from the local
bank. The note had a 6 percent interest rate and was due on June 1,
Year 1.
Cash sales for the year amounted to $245,000 plus sales tax at
the rate of 7 percent.
Ripley provides a 90-day warranty on the merchandise sold. The
warranty expense is estimated to be 2 percent of sales....
The following selected transactions were taken from the books of Ripley Company for 2016: 1....
The following selected
transactions were taken from the books of Ripley Company for
2016:
1.
On February 1, 2016, borrowed $58,000 cash from the local bank.
The note had a 5 percent interest rate and was due on June 1,
2016.
2.
Cash sales for the year amounted
to $225,000 plus sales tax at the rate of 6 percent.
3.
Ripley provides a 90-day warranty on the merchandise sold. The
warranty expense is estimated to be 2 percent of...
The following selected transactions were taken from the books of Ripley Company for 2018: 1. On...
The following selected transactions were taken from the books of
Ripley Company for 2018:
1. On February 1, 2018, borrowed $70,000 cash from the
local bank. The note had a 6 percent interest rate and was due on
June 1, 2018.
2. Cash sales for the year amounted to $240,000 plus
sales tax at the rate of 7 percent.
3. Ripley provides a 90-day warranty on the
merchandise sold. The warranty expense is estimated to be 1 percent
of sales....
The following selected transactions were taken from the records of Shipway Company for the first year...
The following selected transactions were taken from the records
of Shipway Company for the first year of its operations ending
December 31:
Apr. 13.
Wrote off account of Dean Sheppard, $4,040.
May 15.
Received $2,020 as partial payment on the $5,370 account of Dan
Pyle. Wrote off the remaining balance as uncollectible.
July 27.
Received $4,040 from Dean Sheppard,
whose account had been written off on April 13. Reinstated the
account and recorded the cash receipt.
Dec. 31.
Wrote off...
The following selected transactions were taken from the records of Shipway Company for the first year...
The following selected transactions were taken from the records
of Shipway Company for the first year of its operations ending
December 31:
Apr.
13.
Wrote off account of Dean Sheppard, $8,030.
May
15.
Received $500 as partial payment on the $7,430 account of Dan
Pyle. Wrote off the remaining balance as uncollectible.
July
27.
Received $8,030 from Dean Sheppard, whose account had been
written off on April 13. Reinstated the account and recorded the
cash receipt.
Dec.
31.
Wrote off...
The following selected transactions were taken from the records of Shipway Company for the first year...
The following selected transactions were taken from the
records of Shipway Company for the first year of its operations
ending December 31:
Apr. 13. Wrote off account of Dean Sheppard, $8,450.
May 15. Received $500 as partial payment on the $7,100 account
of Dan Pyle. Wrote off the remaining balance as
uncollectible.
July 27. Received $8,450 from Dean Sheppard, whose account had
been written off on April 13. Reinstated the account and recorded
the cash receipt.
Dec. 31. Wrote off...
The following selected transactions were taken from the records of Shipway Company for the first year...
The following selected transactions were taken from the records
of Shipway Company for the first year of its operations ending
December 31:
Apr. 13
Wrote off account of Dean Sheppard, $5,190.
May 15
Received $2,600 as partial payment on the $6,900 account of Dan
Pyle. Wrote off the remaining balance as uncollectible.
July 27
Received $5,190 from Dean Sheppard, whose account had been
written off on April 13. Reinstated the account and recorded the
cash receipt.
Dec. 31
Wrote off...
The following were taken from the books of Marvin Company. The company uses the FIFO method...
The following were taken from the books of Marvin Company. The
company uses the FIFO method for costing inventories. January 1
March 31 Raw materials Work in process Finished goods P 268,000 0
43,000 (100 units) P 167,000 0 ? (200 units) Raw materials
purchased Direct labor Factory overhead Sales P 1,946,700 2,125,800
764,000 12,400 units @ P535
8.The number of units manufactured is a. 11,900 b. 12,000 c.
12,500 d. 15,200
9. Refer to No. 8. The cost of...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Suppose a company is looking to hedge a risk in the derivatives market. What, fundamentally, is...
- Training and Development assignment. Describe the usage of Computer Based Training (CBT) in McDonald's Company training...
- PUT IN JAVA PROGRAMMING LANGUAGE The Rectangle class: Design a class named Rectangle to represent a...
- Journal article summary on inter-group conflict Peer Reviewed Journal article from past 3 years. Please include...
- "Ethical Considerations" Please respond to the following: Reflect upon the responsibilities placed on auditors by the...
- A Japanese company has a bond outstanding that sells for 93 percent of its ¥100,000 par...
- What is the difference among the principles of modularization, abstraction, encapsulation, and separation of interface and...
ADVERTISEMENT