Question

Payson Sports, Inc., sells sports equipment to customers. Its fiscal year ends on December 31. The following transactions occurred in the current year: A.Purchased $250,000 of new sports equipment inventory; paid $90,000 in cash and owed the rest on account. B.Paid employees $180,300 in wages for work during the year; an additional $3,700 for the current year's wages will be paid in January of the next year. C.Sold sports equipment to customers for $750,000; received $500,000 in cash with the customers owing the rest on account. D.The cost of the equipment was $485,000. Paid $17,200 cash for utilities for the year. Received $70,000 from customers as deposits on orders of new winter sports equipment to be sold to the customers in January of the next year. E.Received a $1,930 utilities bill for December of the current year that will be paid in January of the next year.

Answer 1

Answer & Explanation:

Req. A

Journal Entries

a. Debit        Inventory           $250,000

  Credit                Cash                           $90,000

  Credit                Accounts payable     $160,000

Note: Purchase of raw materials with cash and on account.

b. Debit        Wages expense   $184,000

  Credit                 Cash                          $180,300

  Credit                  Wages payable        $3,700

Note: Total salary (180,300 + 3,700)= 184,000 usd. 180,300 were charged over the course of the year, $3,700 only being compensated, thereby the responsibility (salaries payable).

c. Debit        Cash                            $500,000

  Debit        Accounts receivable  $250,000

  Credit                 Sales revenue            $750,000

Note: Offer cash and on account to consumers pillows.

Since the company is a sales business, the expense of the products sold must be registered.

Debit       Cost of goods sold      $485,000

Credit               Inventory                           $485,000

d. Debit      Utilities expense       $17,200

  Credit                   Cash                           $17,200

e. Debit     Cash                             $70,000

  Credit                    Unearned revenue       $70,000

Note: If the service is done in the future and cash is earned now, taxes are reported on an accrual basis as earned, not when the service is conducted.

f. Debit      Utilities expense        $1,930

 Credit           Utilities payable                      $1,930

Note: As it is unpaid, a liability will arise.

Req. B

Accrual accounting framework provides owners, borrowers and other consumers with more accurate and powerful knowledge. This shows distinctly the savings, profits and obligations of the company against its internal and external employees. Owing to the fact that all documents (whether charged or not) were kept independently under an accrual accounting.