Question

Listed below are selected transactions of Schultz Department Store for the current year ending December 31. 1. On December 5, the store received $500 from the Selig Players as a deposit to be returned after certain furniture to be used in stage production was returned on January 15. 2. During December, cash sales totaled $798,000, which includes the 5% sales tax that must be remitted to the state by the fifteenth day of the following month. 3. On December 10, the store purchased for cash three delivery trucks for $120,000. The trucks were purchased in a state that applies a 5% sales tax. 4.The store determined it will cost $100,000 to restore the area (considered a land improvement) surrounding one of its store parking lots, when the store is closed in 2 years. Schultz estimates the fair value of the obligation at December 31 is $84,000. InstructionsPrepare all the journal entries necessary to record the transactions noted above as they occurred and any adjusting journal entries relative to the transactions that would be required to present fair financial statements at December 31. Date each entry. For simplicity, assume that adjusting entries are recorded only once a year on December 31.

Answer 1

Answer:

1. Dec 5

Dr Cash 500

Cr Due to Customer 500

2. Dec 31

Dr Cash 798,000

Cr Sales 760,000

Cr Sales Taxes Payable 38,000

3. Dec 10

Dr Delivery truck 126,000

Cr Cash 126,000

4. Dec 31

Dr Parking lot 84,000

Cr Asset Retirement Obligation 84,000

Explanation:

Preparation of Journal entries

1. Based on the information given we were told that the store received the amount of $500 on December 5 which means that the transaction will be recorded as;

Dr Cash 500

Cr Due to Customer 500

2. Based on the information given we were told that the cash sales was the amount of $798,000 which as well include 5% sales tax which means that the transaction will be recorded as:

Dec 31

Dr Cash 798,000

Cr Sales 760,000

($798,000 / 1.05)

Cr Sales Taxes Payable 38,000

($760,000 × 5%)

3. Based on the information given we were told that three delivery trucks was purchased for the amount of $120,000 in which 5% sales tax was applied, hence the transaction will be recorded as:

Dec 10

Dr Delivery Truck 126,000

($120,000 × 1.05)

Cr Cash 126,000

4. Based on the information given we were told that the fair value at December 31 was estimated as $84,000 which means that the transaction will be recorded as:

Dec 31

Dr Parking lot 84,000

Cr Asset Retirement Obligation 84,000