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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Payable Transactions

Richmond Company engaged in the following transactions during 2019:

a. Purchased $160,000 of supplies from ABC Supplies on February 16. Amount due in full on March 31.

b. Paid for 25% of the purchased merchandise (Transaction a) on February 26.

c. On March 31 negotiated a payment extension with ABC for the remainder of the balance from the February 16 purchase by signing a 1-year, 10% note.

d. Borrowed $300,000 on a 10-month, 8% interest-bearing note on April 30.

e. Purchased $78,000 of merchandise on June 4. Amount due in full on June 30.

f. Paid for the purchased merchandise (Transaction e) on June 24.

g. Received from Haywood Inc. on August 19, a $22,000 deposit against a total selling price of $220,000 for services to be performed for Haywood.

h. Paid quarterly installments of Social Security and Medicare and individual income tax with-holdings, as shown below, on October 15. The Social Security and Medicare were previously recorded as expenses during the quarter and the amounts paid represent both the employee and employer shares (50% each):

i. On December 15, Richmond completed the services ordered by Haywood on August 19. Haywood’s remaining balance of $198,000 is due on January 31.

Chapter 8, Problem 73APSA, Payable Transactions Richmond Company engaged in the following transactions during 2019: a.

Required:

1. Prepare journal entries for these transactions.

2. Prepare any adjusting entries necessary at December 31, 2019.

To determine

(a)

Introduction:

Journal entries are recording of financial transactions in the journal book which is further used to prepare the ledger accounts. It is the first step of bookkeeping.

To prepare:

Journal entries.

Explanation

a) Supplies are purchased but the amount is yet to be paid. So, supplies will be debited and accounts payable will be credited.

b) 25% of the amount has been paid. So, accounts payable as well as cash decreased. Hence, accounts payable will be debited and cash will be credited.

25%×$160,000=$40,000

c) Remaining amount was converted to notes payable. Thus, accounts payable will decrease and notes payable will increase. This means, accounts payable will be debited and notes payable will be credited.

Remaining amount = $160,000 - $40,000 = $120,000

d) Borrowed amount by issuing 8% notes payable for 10 months. This will increase cash as well as notes payable. Thus, cash will be debited and notes payable will be credited.

e) Merchandise is purchased but the amount is yet to be paid. So, merchandise inventory will be debited and accounts payable will be credited.

f) The amount for merchandise inventory has been paid. So, accounts payable as well as cash decreased

To determine

(b)

Introduction:

Adjusting entries are passed to adjust the expenses and revenue incurred during the accounting year.

To prepare:

Adjusting journal entries at year end.

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