LO 12.1Everglades Consultants takes out a loan in the amount of $375,000 on April 1. The terms of the loan include a repayment of principal in eight, equal installments, paid annually from the April 1 date. The annual interest rate on the loan is 5%, recognized on December 31. (Round answers to the nearest cent, if needed.)
- Compute the interest recognized as of December 31 in year 1.
- Compute the principal due in year 1.
LO 12.1Match each of the following accounts with the appropriate transaction or description.
|A. Sales Tax Payable||i. A customer pays in advance for services|
|B. Income Taxes Payable||ii. A risk incentive rate for a loan|
|C. Current portion of a long-term note payable||iii. State withholding from an employee’s paycheck|
|D. Interest Payable||iv. The portion of a note due within the operating period|
|E. Accounts Payable||v. A credit line between a purchaser and a supplier|
|F. Unearned Revenue||vi. Extra tax collected on the sale of a product|
LO 12.1Pianos Unlimited sells pianos to customers. The company contracts with a supplier who provides it with replacement piano keys. There is an agreement that Pianos Unlimited is not required to provide cash payment immediately, and instead will provide payment within thirty days of the invoice date.
- Pianos Unlimited purchases 400 piano keys for $7 each on September 1, invoice date September 1, with discount terms 2/10, n/30.
- Pianos Unlimited returns 150 piano keys (receiving a credit amount for the total purchase price per key of $7 each) on September 8.
- The company purchases an additional 230 keys for $5 each on September 15, invoice date September 15, with no discount terms.
- The company pays 50% of the total amount due to the supplier on September 24.
What amount does Pianos Unlimited still owe to the supplier on September 30? What account is used to recognize this outstanding amount?
LO 12.2Review the following transactions and prepare any necessary journal entries for Bernard Law Offices.
- On June 1, Bernard Law Offices receives an advance cash payment of $4,500 from a client for three months of legal services.
- On July 31, Bernard recognizes legal services provided.
LO 12.2Review the following transactions and prepare any necessary journal entries for Lands Inc.
- On December 10, Lands Inc. contracts with a supplier to purchase 450 plants for its merchandise inventory, on credit, for $12.50 each. Credit terms are 4/15, n/30 from the invoice date of December 10.
- On December 28, Lands pays the amount due in cash to the supplier.
LO 12.2Monster Drinks sells twenty-four cases of beverages on October 18 for $120 per case. On October 25, Monster sells another thirty-five cases for $140 per case. Sales tax is computed at 4% 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 November 5.
LO 12.2McMasters Inc. specializes in BBQ accessories. In order for the company to expand its business, they take out a long-term loan in the amount of $800,000. 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 9%. Each year on December 31, the company pays down the principal balance by $50,000. 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 12.3Following is the unadjusted trial balance for Pens Unlimited on December 31, 2017.
You are also given the following supplemental information: A pending lawsuit, claiming $4,200 in damages, is considered likely to favor the plaintiff and can be reasonably estimated. Pens Unlimited believes a customer may win a lawsuit for $5,000 in damages, but the outcome is only reasonably possible to occur. Pens Unlimited records warranty estimates on the basis of 2% of annual sales revenue.
- Using the unadjusted trial balance and supplemental information for Pens Unlimited, 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 Pens Unlimited. Pay particular attention to contingent liabilities.
- Prepare any necessary contingent liability note disclosures for Pens Unlimited. Only give one to three sentences for each contingency note disclosure.
LO 12.4Airplanes Unlimited purchases airplane parts from a supplier on March 19 at a quantity of 4,800 parts at $12.50 per part. Terms of the purchase are 3/10, n/30. Airplanes pays one-third of the amount due in cash on March 30 but cannot pay the remaining balance due. The supplier renegotiates the terms on April 18 and allows Airplanes to convert its purchase payment into a short-term note, with an annual interest rate of 9%, payable in six months.
Show the entries for the initial purchase, the partial payment, and the conversion.
LO 12.4Whole Leaves wants to upgrade their equipment, and on January 24 the company takes out a loan from the bank in the amount of $310,000. The terms of the loan are 6.5% annual interest rate, payable in three 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 February 24, and the entry for payment of the short-term note and final interest payment on April 24. Round to the nearest cent if required.
- Determine the federal income tax withholdings amount per monthly pay period for each employee.
- Record the employee payroll entry (all employees) for the month of January assuming FICA Social Security is 6.2%, FICA Medicare is 1.45%, and state income tax is equal to 3% of gross income. (Round to the nearest cent if necessary.)
LO 12.5Marc & Associates employs Janet Evanovich at its law firm. Her gross income for June is $7,500. Payroll for the month of June follows: federal income tax of $650, state income tax of $60, local income tax of $30, FICA Social Security tax rate at 6.2%, FICA Medicare tax rate at 1.45%, health-care insurance premium of $300, donations to a charity of $50, and pension plan contribution of $200. The employee is responsible for covering 40% of his or her health insurance premium.
- Record the journal entry to recognize employee payroll for the month of June; dated June 30, 2017.
- Record remittance of the employee’s salary with cash on July 1.
LO 12.5In Exercise 12.13, you prepared the journal entries for Janet Evanovich, an employee of Marc & Associates. You have now been given the following additional information: June 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 60% of the health insurance premium. The employer matches 50% of employee pension plan contributions.
Using the information from Exercise 12.13 and the additional information provided:
- Record the employer payroll for the month of June, dated June 30, 2017.
- Record the payment in cash of all employer liabilities only on July 1.
LO 12.5An employee and employer cost-share 401(k) plan contributions, health insurance premium payments, and charitable donations. The employer also provides annual vacation compensation equal to ten days of pay at a rate of $30 per hour, eight-hour work day. The employee makes a gross wage of $3,000 monthly. The employee decides to use five days of vacation during the current pay period. Employees cover 30% of the 401(k) plan contribution and 30% of the health insurance premium. The employee also donates 1% of gross pay to a charitable organization.
- What would be the employee’s total benefits responsibility if the total 401(k) contribution is $700 and the health insurance premium is $260?
- Include the journal entry representing the payroll benefits accumulation for the employer in the month of March, if the employer matches the employee’s charitable donation of 1%.