Question

On January 1, 2015, the ledger of Accardo Company contains the following liability accounts. Accounts Payable $53,140 Sales Taxes Payable 8,010 Unearned Service Revenue 15,990 During January, the following selected transactions occurred. Jan. 5 Sold merchandise for cash totaling $20,520, which includes 8% sales taxes. 12 Performed services for customers who had made advance payments of $10,270. (Credit Service Revenue.) 14 Paid state revenue department for sales taxes collected in December 2014 ($8,010). 20 Sold 800 units of a new product on credit at $50 per unit, plus 8% sales tax. 21 Borrowed $24,750 from Girard Bank on a 3-month, 8%, $24,750 note. 25 Sold merchandise for cash totaling $12,420, which includes 8% sales taxes.
Journalize the January transactions.
Journalize the adjusting entry on January 31 for the outstanding note payable. (Hint: Use one-third of a month for the Girard Bank note.)
Prepare the current liabilities section of the balance sheet at January 31, 2015. Assume no change in accounts payable.

Answer 1

Answer:

Accardo Company

1. Journalize January transactions:

Jan. 5:

Debit Cash Account with $20,520

Credit Sales with $19,000

Credit Sales Taxes Payable with $1,520

To record cash sales, including 8% sales taxes.

Jan. 12:

Debit Unearned Service Revenue with $10,270

Credit Service Revenue with $10,270

To record service revenue earned.

Jan. 14:

Debit Sales Taxes Payable with $8,010

Credit Cash Account with $8,010

To record payment of sales taxes.

Jan. 20:

Debit Accounts Receivable with $43,200

Credit Sales Account with $40,000

Credit Sales Taxes Payable with $3,200

To record sales of 800 units at $50 per unit, plus 8% sales tax.

Jan. 21:

Debit Cash Account with $24,750

Credit Notes Payable (Girard Bank) with $24,750

To record a 3-month, 8% note.

Jan. 25:

Debit Cash Account with $12,420

Credit Sales Account with $11,500

Credit Sales Taxes Payable with $920

To record cash sales, including 8% sales taxes.

2. Journalize adjusting entry for Note Payable:

Jan. 31:

Debit Interest on Note with $660

Credit Interest on Note Payable with $660

To record January interest on the note.

3. Current Liabilities Section of the Balance Sheet at January 31, 2015:

Interest on Note Payable $660

Accounts Payable - $53,140

Notes Payable $24,750

Sales Taxes Payable $5,640 ($8,010 + 1,520 -8,010 + 3,200 + 920)

Unearned Service Revenue $5,720 ($15,990 - 10,270)

Total = $89,910

Explanation:

a) The sales and taxes for January 5 transaction is calculated as follows: Sales = $20,520/1.08 = $19,000.  Sales taxes of 8% on $19,000 equals $1,520.

b) Jan. 12: The Service Revenue is credited with $10,270 and the Unearned Service Revenue is debited with the same amount to recognize the performance of services and earning of revenue.

c) Sales on Jan. 20 equals $50 x 800 units, i.e. $40,000.  Sales Taxes of 8% of $40,000 equals $£,200.

d) Interest on the Bank Note for January is calculated as follows: ($24,750 x 8%) / 3, which is equal to $660.

e) The sales and taxes for January 25 transaction is also calculated as follows: Sales = $12,420/1.08 = $11,500.  Sales taxes of 8% on $11,500 equals $920.