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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

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

Daniels Company engaged in the following transactions during 2020:

a. Purchased $25,000 of merchandise from XYZ Supplies on January 26. Amount due in full on February 28.

b. Paid for 40% of the purchased merchandise (Transaction a) on February 26.

c. On February 28, negotiate a payment extension with XYZ for the remainder of the balance from the January 26 purchase by signing a 1-year, 8% note.

d. Borrowed $300,000 on an 8-month, 9% interest-bearing note on July 31.

e. Purchased $150,000 of merchandise on August 2. Amount due in full on September 30.

f. Paid for the purchased merchandise (Transaction e) on September 28.

g. Received from Martel Inc. on October 4, a $40,000 deposit against a total selling price of $400,000 for services to be performed for Martel.

h. Paid quarterly installments of Social Security, Medicare, and individual income tax with-holdings, as shown below, on October 10. 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).

Chapter 8, Problem 73BPSB, Payable Transactions Daniels Company engaged in the following transactions during 2020: a. Purchased

i. On December 15, Daniels completed the services ordered by Martel on October 4. Martel’s remaining balance of $360,000 is due on January 31.

Required:

1. Prepare journal entries for these transactions.

2. Prepare any adjusting entries necessary at December 31, 2020.

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) 40% 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.

40%×$25,000=$10,000

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 = $25,000 - $10,000 = $15,000

d) Borrowed amount by issuing 9% notes payable for 8 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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