Question

Question 1

Fantastic Fashions has just completed its first quarter of operations. Below are transactions that have not yet been recorded. Prepare the journal entries listed below.

      

       Jan 1     Pre-tax cash sales amounted to $75,000. HST is collected on all sales at a rate of 13%.

       Jan 15 Signed a three month note for $12,000 to extend amounts owing on account to Trendy Taste Inc. Interest is 6% annually and due at maturity.

       Mar 1     Received the annual property tax bill for $7,500 payable on June 1.

       Apr 1      Paid salaries of $10,000; of this amount $495 is CPP, $178 is EI and $3,465 is for income taxes (record the employer portion as well).

       Apr 15    Paid the note due.

       Apr 29    A customer sued Fantastic Fashions for $200,000. Legal counsel has advised that it is unlikely damages will be awarded.

       Jun 1     Paid the property taxes bill in full.

Question 2

On January 1, Wonder Water borrowed $300,000 for 5 years at 4.5% to finance expansion. Fixed Principal Payments are to be made quarterly beginning Mar 1. Below is an instalment schedule for Wonder Water.

WONDER WATER

INSTALMENT PAYMENT SCHEDULE- FIXED PRINCIPAL PAYMENTS

Interest Period	Cash Pmt	Interest Expense	Reduction of Principal	Principal
Jan 1				300,000
Mar 1	?	3,375	5,000	295,000
Jun 1	8,320	?	5,000	?
Sep 1	?	3,263	?	285,000
Dec 1	?	?	5,000	?

Instructions

(a) Determine the missing values (round to the nearest dollar).

(b) Prepare the journal entries for the payments made on March 1 and Sept 1.

Answer 1

Question 1 :

In the books of Fantastic Fashions:

Date	Account Titles	Debit	Credit
		$	$
Jan 1	Cash	84,750
	HST Payable		9,750
	Sales		75,000
Jan 15	Cash	12,000
	Notes Payable		12,000
Mar 1	Property Tax Expense	7,500
	Accounts Payable		7,500
Apr. 1	Salaries Expense	10,000
	CPP Payable		495
	EI Payable		178
	Income Taxes Payable		3,465
	Cash		5,862
April 15	Interest Expense	180
	Notes Payable	12,000
	Cash		12,180
Apr. 29	No journal entry required	0	0
June 1	Accounts Payable	7,500
	Cash		7,500

Question 2 :

a.

Interest Period	Interest Payment	Interest Expense	Reduction of Principal	Principal
Jan 1				$300,000
Mar 1	8,375	3,375	5,000	295,000
June 1	8,320	3,320	5,000	290,000
Sept 1	8,263	3,263	5,000	285,000
Dec 1	8,206	3,206	5,000	280,000

b.

Date	Account Titles	Debit	Credit
		$	$
Mar 1	Interest Expense	3,375
	Notes Payable	5,000
	Cash		8,375
Sep 1	Interest Expense	3,263
	Notes Payable	5,000
	Cash		8,263