Acc1220-Lab 5.2,5.3
Ash.k
lab_5.1_and_2.docxAC1220 Lab 5.2
Introduction
On July 25, 20x1, Jake’s Computer Sales and Repair enters into an agreement with Inner-Tech, a local computer software development firm. Inner-Tech pays Jake’s Computer Sales and Repair $45,000 in advance for ongoing computer repair services. At year-end, Jake determines that $38,500 of this amount has been earned.
Requirement 1
a. Journalize the unearned revenue transaction on July 25, 20x1.
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DATE |
Account and Explanation |
DEBIT |
CREDIT |
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Jul 25 |
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To record unearned revenue |
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b. Journalize the necessary adjustment for December 31, 20x1.
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DATE |
Account and Explanation |
DEBIT |
CREDIT |
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Dec 31 |
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To adjust unearned revenue |
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Requirement 2
Analysis shows that around 2 percent of A-line sales require after-sale repairs. Beginning July 1, 20x1, Jake’s Computer Sales and Repair provides customers with a limited product warranty on each A-line computer sold. Sales of A-line computers total to $74,500 in July 20x1.
a. Compute the estimated warranty expense payable amount.
b. Journalize the estimated warrantee expense.
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DATE |
Account and Explanation |
DEBIT |
CREDIT |
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Jul 31 |
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To accrue warranty payable |
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c. Actual repairs made during August 20x1 to products under warranty results in cash expenditures of $800. Journalize the warranty repair cost.
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DATE |
Account and Explanation |
DEBIT |
CREDIT |
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Aug 30 |
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To accrue warranty payable |
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d. At what amount is warranty expense reported on the income statement for the month ended August 20x1?
Requirement 3
Jake’s Computer Sales and Repair has one employee, Dave, who earns a monthly gross salary of $3,415 for the month of August 20x1. So far, in 20x1, Dave has earned a gross salary amounting to $23,905.
Jake’s Computer Sales and Repair withholds the following amounts from Dave’s gross salary:
· Social Security taxes and Medicare taxes—Federal Insurance Contributions Act (FICA)—at 7.65 percent of gross salary up to $106,800
· Income tax withheld: 10 percent
· Other amounts withheld:
· Health insurance: $200 per month
· Retirement plan contribution: $400 per pay period
· Charitable contribution: $20 per pay period
AC1220 ACCOUNTING I Lab 5.2
1
a. Compute Dave’s net salary by completing the following table:
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Gross pay: |
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Less withholding deductions: |
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Income tax |
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Employee FICA tax |
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Health insurance |
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Employee retirement contribution |
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Employee charitable contribution |
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Net pay |
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b. Journalize salaries, payroll taxes, and benefits payable. In addition, journalize the salary payment.
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DATE |
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DEBIT |
CREDIT |
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Aug 31 |
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To record salaries payable |
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DATE |
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DEBIT |
CREDIT |
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31 |
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To record payment of salary |
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c. As Dave’s employer, Jake’s Computer Sales and Repair must also make a payroll tax payment. Journalize the entry to record employer payroll taxes.
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DATE |
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DEBIT |
CREDIT |
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Aug 31 |
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To record employer payroll taxes |
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DATE |
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DEBIT |
CREDIT |
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Aug 31 |
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To record payment of payroll taxes to government |
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d. Journalize the payment of taxes to the federal government.
AC1220 Lab 5.3
Introduction
Jake’s Computer Sales and Repair acquired land, land improvements, and a building in exchange for a $180,000 note payable. The building was renovated at a cost of $15,000 before being placed into use. The cost of the renovation work was capitalized, and Jake’s Computer Sale and Repair signed a note payable for the full amount.
Notes payable are dated June 1, 20x1, totaling $195,000. The notes are payable over 10 years at an annual interest rate of 6 percent. The principal is to be repaid in equal annual installments of $19,500 each. Interest and principal payments are scheduled for June 1 each year, from 20x1 to 2x11.
Requirement 1
a. Journalize the issuance of the long-term note payable.
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Date |
Account and Explanation |
Debit |
Credit |
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6/1/x1 |
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To record long-term note payable |
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b. Compute the interest accrued on the long-term notes payable at December 31, 20x1.
b. Journalize the accrual of interest at December 31, 20x1.
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Date |
Account and Explanation |
Debit |
Credit |
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12/31/x1 |
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To accrue interest on long-term note payable |
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c. Make the entry necessary at December 31, 20x1, to reclassify the first principal installment on the note payable as the current portion of the long-term notes payable.
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Date |
Account and Explanation |
Debit |
Credit |
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12/31/x1 |
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To accrue interest on long-term note payable |
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AC1220 ACCOUNTING I Lab 5.3
8
d. Enter the correct amounts into the shaded cells of the following partial balance sheet dated December 31, 20x1:
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In the Income Statement for the Year Ended Dec. 31, 20x1 |
In the Balance Sheet at Dec. 31, 20x1 |
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Expenses |
Current Liabilities |
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Interest Expense |
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Current Portion of Long-Term Notes Payable |
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Long-Term Liabilities |
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Long-Term Notes Payable |
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Requirement 2
Jake is considering raising additional cash by issuing $100,000 in bonds with a stated interest rate of 6 percent and a maturity of 10 years.
a. Compute the annual interest payment on the bonds payable.
b. Compute the present value of the bonds if the market interest rate is 8 percent. To compute the present value of the bonds, you can use the present value tables in Appendices B-1 and B-2 of your textbook, or you can set up the following formulas using Microsoft Excel:
c. Would these bonds be issued at a discount or at a premium? Explain.
d. Compute the bond discount or premium.
e. Journalize the issue of the bonds.
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Date |
Account and Explanation |
Debit |
Credit |
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6/1/x1 |
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To accrue interest on long-term note payable |
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f. Compute the amount by which the discount or premium would be amortized in each period, assuming straight-line amortization.
