LO 12.1Campus Flights takes out a bank loan in the amount of $200,500 on March 1. The terms of the loan include a repayment of principal in ten equal installments, paid annually from March 1. The annual interest rate on the loan is 8%, recognized on December 31. (Round answers to the nearest whole dollar if needed.)
- Compute the interest recognized as of December 31 in year 1 rounded to the whole dollar.
- Compute the principal due in year 1.
LO 12.1Consider the following accounts and determine if the account is a current liability, a noncurrent liability, or neither.
- federal income tax payable this year
- long-term note payable
- current portion of a long-term note payable
- note payable due in four years
- interest expense
- state income tax
LO 12.1Lamplight Plus sells lamps to consumers. The company contracts with a supplier who provides them with lamp fixtures. There is an agreement that Lamplight Plus is not required to provide cash payment immediately and instead will provide payment within thirty days of the invoice date.
- Lamplight purchases thirty light fixtures for $20 each on August 1, invoice date August 1, with no discount terms
- Lamplight returns ten light fixtures (receiving a credit amount for the total purchase price per fixture of $20 each) on August 3.
- Lamplight purchases an additional fifteen light fixtures for $15 each on August 19, invoice date August 19, with no discount terms.
- Lamplight pays $100 toward its account on August 22.
What amount does Lamplight Plus still owe to the supplier on August 30? What account is used to recognize this outstanding amount?
LO 12.2Review the following transactions and prepare any necessary journal entries for Olinda Pet Supplies.
- On March 2, Olinda Pet Supplies receives advance cash payment from a customer for forty dog food dishes (from their Dish inventory), costing $25 each. Olinda had yet to supply the dog food bowls as of March 2.
- On April 4, Olinda provides all of the dog food bowls to the customer.
LO 12.2Review the following transactions and prepare any necessary journal entries for Tolbert Enterprises.
- On April 7, Tolbert Enterprises contracts with a supplier to purchase 300 water bottles for their merchandise inventory, on credit, for $10 each. Credit terms are 2/10, n/60 from the invoice date of April 7.
- On April 15, Tolbert pays the amount due in cash to the supplier.
LO 12.2Elegant Electronics sells a cellular phone on September 2 for $450. On September 6, Elegant sells another cellular phone for $500. Sales tax is computed at 3.5% of the total sale. Prepare journal entries for each sale, including sales tax, and the remittance of all sales tax to the tax board on October 23.
LO 12.2Homeland Plus specializes in home goods and accessories. In order for the company to expand its business, the company takes out a long-term loan in the amount of $650,000. Assume that any loans are created on January 1. The terms of the loan include a periodic payment plan, where interest payments are accumulated each year but are only computed against the outstanding principal balance during that current period. The annual interest rate is 8.5%. Each year on December 31, the company pays down the principal balance by $80,000. This payment is considered part of the outstanding principal balance when computing the interest accumulation that also occurs on December 31 of that year.
- Determine the outstanding principal balance on December 31 of the first year that is computed for interest.
- Compute the interest accrued on December 31 of the first year.
- Make a journal entry to record interest accumulated during the first year, but not paid as of December 31 of that first year.
LO 12.2Bhakti Games is a chain of board game stores. Record entries for the following transactions related to Bhakti’s purchase of inventory.
- On October 5, Bhakti purchases and receives inventory from XYZ Entertainment for $5,000 with credit terms of 2/10 net 30.
- On October 7, Bhakti returns $1,000 worth of the inventory purchased from XYZ.
- Bhakti makes payment in full on its purchase from XYZ on October 14.
LO 12.3Following is the unadjusted trial balance for Sun Energy Co. on December 31, 2017.
You are also given the following supplemental information: A pending lawsuit, claiming $2,700 in damages, is considered likely to favor the plaintiff and can be reasonably estimated. Sun Energy Co. believes a customer may win a lawsuit for $3,500 in damages, but the outcome is only reasonably possible to occur. Sun Energy calculated warranty expense estimates of $210.
- Using the unadjusted trial balance and supplemental information for Sun Energy Co., construct an income statement for the year ended December 31, 2017. Pay particular attention to expenses resulting from contingencies.
- Construct a balance sheet, for December 31, 2017, from the given unadjusted trial balance, supplemental information, and income statement for Sun Energy Co., paying particular attention to contingent liabilities.
- Prepare any necessary contingent liability note disclosures for Sun Energy Co. Only give one to three sentences for each contingency note disclosure.
LO 12.4Barkers Baked Goods purchases dog treats from a supplier on February 2 at a quantity of 6,000 treats at $1 per treat. Terms of the purchase are 2/10, n/30. Barkers pays half the amount due in cash on February 28 but cannot pay the remaining balance due in four days. The supplier renegotiates the terms on March 4 and allows Barkers to convert its purchase payment into a short-term note, with an annual interest rate of 6%, payable in 9 months.
Show the entries for the initial purchase, the partial payment, and the conversion.
LO 12.4Scrimiger Paints wants to upgrade its machinery and on September 20 takes out a loan from the bank in the amount of $500,000. The terms of the loan are 2.9% annual interest rate and payable in 8 months. Interest is due in equal payments each month.
Compute the interest expense due each month. Show the journal entry to recognize the interest payment on October 20, and the entry for payment of the short-term note and final interest payment on May 20. Round to the nearest cent if required.
LO 12.5Following are payroll deductions for Mars Co. Classify each payroll deduction as either a voluntary or involuntary deduction. Record a (V) for voluntary and an (I) for involuntary.
|Payroll Deduction||Voluntary (V) or Involuntary (I)?|
|FICA Social Security Tax|
|401(k) retirement plan contribution|
|Federal Unemployment Tax (FUTA)|
|Health insurance plan contribution|
|FICA Medicare Tax|
|State Unemployment Tax (SUTA)|
LO 12.5Toren Inc. employs one person to run its solar management company. The employee’s gross income for the month of May is $6,000. Payroll for the month of May is as follows: FICA Social Security tax rate at 6.2%, FICA Medicare tax rate at 1.45%, federal income tax of $400, state income tax of $75, health-care insurance premium of $200, and union dues of $50. The employee is responsible for covering 30% of his or her health insurance premium.
- Record the journal entry to recognize employee payroll for the month of May, dated May 31, 2017.
- Record remittance of the employee’s salary with cash on June 1.
- May is the first pay period for this employee. FUTA taxes are 0.6% and SUTA taxes are 5.4% of the first $7,000 paid to the employee. FICA Social Security and FICA Medicare match employee deductions. The employer is responsible for 70% of the health insurance premium.
Using the information from Exercise 12.14 and the additional information provided:
- Record the employer payroll for the month of May, dated May 31, 2017.
- Record the payment in cash of all employer liabilities only on June 1.
LO 12.5An employee and employer cost-share pension plan contributions and health insurance premium payments. If the employee covers 35% of the pension plan contribution and 25% of the health insurance premium, what would be the employee’s total benefits responsibility if the total pension contribution was $900, and the health insurance premium was $375?
Include the journal entry representing the payroll benefits accumulation for the employer in the month of February.