only have 20 dollarsUse the numbers for May -June you have to change the numbers in the line with the yellow square to May- June numbers.ACC205: Chapter 7 Exercise 2
I’m going to review chapter 7, exercise 2. Here we have a company that
borrowed $225,000 on a long-term basis. And the bank requires that
they pay interest and $75,000 of principal on July 1, 2002, 2003, and
2004. The unpaid balance of the loan accrues interest at the rate of 10%.
So I put this information in my input area. The loan amount of $225,000.
Origination date of July 1, interest rate of 10% and the payment on July
1, 2002, of $75,000. Now requirement A compute all accrued interest as
of December 31, 2000 x1. Remember they borrowed the loan on July 1st
for $225,000, so we have to calculate the amount of interest from July 1
to December 31. So I multiply $225,000 but times 10% and divide that
by 2 and debit interest expense $11,250 and credit interest payable for
$11,250.
Part B. Present the appropriate balance sheet disclosure for the accrued
interest and the current and long-term portion of the outstanding debt as
of 12/31/2001. And my disclosure note reads this [? Hall ?] company
borrowed $225,000 on 7/1/x1 from XXX Bank.
The terms of the agreement include a payment of $75,000 on 07/01/x2,
x3, and x4, and accrued interest at each payment date. Interest of
$11,250 has been accrued at 12/31/x1. Current liabilities include the
7/1/x2 payment of $75,000. That payment’s due in six months, so that’s
less than a year, so we’ll include that entry.
Next part. Part C. Repeat parts A and B using the date as December 31,
20×2, so we’re going out a year. So remember now that in the middle of
x2, July 1, they paid $75,000 principal and interest for that first year. So
the outstanding balance on 7/31 will be $225,000 minus the $75,000.
And you calculate the interest. That $150,000 times 10% equals $7,500.
So we debited interest expense of $7,500 and credited interest payable
for $7,500.
And my disclosure note changes because the amount changes, but which
amount we borrowed remains $225,000. However, down below, interest
of only $7,500 has been accrued at the end of year 2, based on the
outstanding balance of $150,000.
Chapter 7 Exercise 4
I will review Chapter 7, Exercise 4, which deals with payroll. As you can
see on the screen, the problem gives us information pertaining to the
payroll payment.
We had the Social Security tax rate is 6%. Medicare at 1 and 1/2%.
Federal taxes were withheld for $7,500. The state tax rate is 5%.
Insurance rate is 1%. State unemployment is 5.4%. Federal
unemployment is 0.8%. And they paid $50,000 in salaries.
So we need to make the journal entry when they make the payment.
And there’s also an additional journal entry, which the company has to
make. And we’ll go over that in a second. So let’s review the first
payment. It will be debit Salary Expense $50,000. And now, we’ve taken
out of the employee’s pay these deductions, including Social Security.
And we calculate that by multiplying the $50,000 times the Social
Security rate of 0.06%. And that’s a payable. We have to pay that to the
IRS. Medicare payable. We do a similar calculation of $50,000 times the
rate of 1 and 1/2% Federal taxes is not a calculation. Because they told
us they withdrew $7,500 from the paychecks. State taxes payable is 5%
times the $50,000. Insurance payable is $50,000 times 1%. And the
remaining credit goes to Cash at $35,750. And that’s what the check is
made out to employee or employees for.
Now in addition, they have some other payments the company has to
make. And let’s look at the credits first. Social Security and Medicare
has to be matched by the employer. So whatever they take out of your
pay– in this case, $3,000 for Social Security and $750 in Medicare– they
have to match and pay that. So we also add that to payables.
We also have to pay, as a corporation, the state unemployment, which
is $2,700. And that’s $50,000 times the rate of 5.4%. And the federal
unemployment, $400, which is $50,000 times 0.8%. We add up those
four credits and debit Payroll Tax Expense for $6,850.
So every time payroll occurs, not only do you have to make the first
journal entries when you pay all the employees and take the
deductions out and issue the checks, they have to make the second
journal entry to match their Social Security and Medicare and pay the
state unemployment and federal unemployment.
Chapter 7 Problem 2
And I will review Chapter 7, Problem 2, which deals with current
liabilities and accrual of current liabilities. And as you can see on the
screen, we have several transaction. I’m going to go over each
transaction and put the important information in the in info areas.
That’s those down below. And then, we’ll use the info area to create
the journal entries and do any calculations that we must see.
So on 12/1, we borrowed $20,000, 15% note. And you can see, I’ve
added the note payable $20,000 at the interest rate of 15%. 2/10, we
established a warranty liability, expected a total 1,000 units at the
month. Past experience indicates 2%, will require a [INAUDIBLE]. The
2% of 1,000– I put 20 units down below. And they stated the cost as
$27 per unit. 12/22, we purchased 16,000 merchandise on account.
12/26, we borrowed $5,000 from First City Bank, signed a 5,120 node
table. And you can see, that has a node table. This is down to $5,000,
and the 12/26 interest separate.
All right, 12/31, we repaired six of the units at the total cost of $163. So
I’ve added that down below in the Warranty Repair. 12/31, we accrued
three days of salary, $1,400. That is noted down below. And in the last,
we accrued vacation pay around in the 6% of December’s $36,000 total
wage. So I’ll know the vacation rate and the amount.
All right, let’s take a look at each one of the individual journal entries
for those transactions. December 1, we borrowed $20,000. So we debit
Cash and we credit Notes Payable. February 10, we established the
warranty expense. It numbers 20 units and $27. So I debit the Warranty
Expense, $540, and credit the Warranty Liability $540.
December 22, we bought merchandise on account for $16,000. So I
debit Merchandising and Credit accounts payable $16,000. December
26, we borrowed $5,000. So I debit Cash to $5,000 and credit Note
Payable for $5,000. December 31, we had to repair a couple of those
units for $162. So we debit the Warranty Liability and credit Cash for
$162.
December 31, we accrue the salary expense of $1,400. So debit Salary
Expense $1,400 and credit Salaries Payable $1,400. And then, the last
one. We accrue vacation. We debit Payroll Expense for $2,160 and
credit
Accrued Vacation for $2,160.
Accrued Vacation for $2,160.
Now, the next part of the problem– they want us to determine the
accrued interest as of December 31 and prepare the necessary
adjusting entry or entries. I see we have two notes outstanding. The
12/1 note, there’s a one month accrual. So using the rates from above
in the input area, there’s a $20,000 note at 15% interest rate.
So I multiply the $20,000 times 15% and divided that by 12. You get
$250. The 12/26 note was $5,000– 60-day note. So I multiplied the
note times the rate, divided that by 60 and multiplied it times 5 days.
You get $10. So the total interest accrual is $260, where I debited
Interest Expense and credited Interest Payable.
By the third and last part, they want us to accrue the current liabilities
section. So the current liabilities, Accounts Payable– that was the
merchandise we bought. Note Payable– that was the two notes. We
borrowed $20,000 and $5,000. Salaries Payable at $1,400. Vacation
Payable at $2,160. And the Warranty Payable was $378. The total
current liabilities is $44,938.
Chapter 8 Problem 1
reviewing chapter 8 problem 1, which deals with corporate capital
stock. We have four transactions we have to journalize. The first
transaction I put all of the information into the input area. You can see
on 7/1 we sold 45,000 shares with a PAR value of $10, and the price of
$18 for each share.
On 7/7, we received the bill from the attorney for $12,600, and the
attorney agreed to take 600 shares of stock.
On August 11th, we sold 20,000 shares for $22 a share and then on
12/14 we received land worth $900,000, and we exchanged 30,000
shares for that land.
Let’s take a look at each of the transactions. First one we issued 45,000
shares for $18, so we debit cash for $810,000. Now for common stock
we credit common stock only for the PAR value of $10, not the $18. So
45,000 times 10 is $450,000. And above the PAR amount, from $10 to
$18, we credit common stock, additional paid in capital, $360,000.
Now in the second journal entry, we received a bill from the attorney
for $12,600, so we debit attorney expense.
But we issued the 600 shares of stock to the attorney, so 600 times the
$10 PAR of $6,000 and the remain from $10 the $18, 23 credit
additional paid in capital, $6,600.
On 8/11 we sold 20,000 shares at $22, so we debit cash for $440,000
We debit common stock for $20,000 times the $10 PAR for $200,000,
and the remainder, $240,000, we credit common stock, additional paid
in capital.
On 12/14 we received land, a value of $900,000. We exchange for
40,000 shares of stock. So we credit common stock for 30,000 times
$10, $300,000 and the remaining $600,000 we credit common stock,
additional paid in capital.
Complete the following problems and exercises:
Chapter Seven, Exercises 2 and 4
Chapter Seven, Problem 2
Chapter Eight, Problem 1
Chapter Seven, Exercises 2 and 4
2. Accrued liability: current portion of longterm debt. On July 1, 20X1, Hall Company borrowed $225,000 via a longterm loan. Terms of the loanrequire that Hall pay interest and $75,000 of principal on July 1, 2
0X2, 20X3, and 20X4. The unpaid balance of the loan accrues interest at therate of 10% per ye
ar. Hall has a December 31 year-end.
a. Compute Hall’s accrued interest as of December 31, 20X1.
b. Present the appropriate balance sheet disclosure for the accrued interest and the current and
long-term portion of the outstanding debt asof December 31, 20X1.
c. Repeat parts (a) and (b) using a date of December 31, 20X2, rather than December 31, 20X
1. Assume that Hall is in compliance with theterms of the loan agreement.
4. Payroll accounting. Assume that the following tax rates and payroll information pertain to Br
ookhaven Publishing:
5. Social Security taxes: 6% on the first $55,000 earned
6. Medicare taxes: 1.5% on the first $130,000 earned
7. Federal income taxes withheld from wages: $7,500
8. State income taxes: 5% of gross earnings
9. Insurance withholdings: 1% of gross earnings
10. State unemployment taxes: 5.4% on the first $7,000 earned
11. Federal unemployment taxes: 0.8% on the first $7,000 earned
The company incurred a salary expense of $50,000 during February. All employees had earned l
ess than $5,000 by month-end.
a. Prepare the necessary entry to record Brookhaven’s February payroll that will be paid on M
arch 1.
b. Prepare the journal entry to record Brookhaven’s payroll tax expense.
Chapter Seven, Problem 2
2. Current liabilities: entries and disclosure. A review of selected financial activities of Visconti’
s during 20XX disclosed the following:
12/1: Borrowed $20,000 from the First City Bank by signing a 3month, 15% note payable. Interest and principal are due at maturity.
2/10: Established a warranty liability for the XY80, a new product. Sales are expected to total 1,000 units during the month. Pastex
perience with similar products indicates that 2% of the units will require repair, wit
h warranty costs averaging $27 per unit.
12/22: Purchased $16,000 of merchandise on account from Oregon Company, terms 2/10,
n/30.
12/26: Borrowed $5,000 from First City Bank; signed a $5,120 note payable due in 60 days.
12/31: Repaired six XY-80s during the month at a total cost of $162.
12/31: Accrued 3 days of salaries at a total cost of $1,400.
12/31: Accrued vacation pay amounting to 6% of December’s $36,000 total wage and salar
y expense.
Instructions
a. Prepare journal entries to record the preceding transactions and events.
b. Determine accrued interest as of December 31, 20XX, and prepare the necessary adjusting
entry or entries.
c. Prepare the current liability section of Visconti’s December 31, 20XX balance sheet.
Chapter Eight, Problem 1
Issuance of stock: organization costs. Snowbound Corporation was incorporated in July. The fi
rm’s charter authorized the sale of 200,000 sharesof $10 parvalue common stock. The following transactions occurred during the year:
7/1:
Sold 45,000 shares of common stock to investors for $18 per share. Cash was collected and the shares
7/7:
Issued 600 shares to Sharon Dale, attorney-atlaw, for services rendered during the corporation’s organizational phase. Dale charged$12,600 for her
8/11:
Sold 20,000 shares to investors for $22 per share. Cash was collected and the shares were issued.
12/14: Issued 30,000 shares to the MJB Company for land valued at $900,000.
Instructions
Prepare journal entries to record each transaction.
Ashford Univers
Guidance R
Week Fo
LISTEN TO AUDIO/VIDEO EXPLAINING THE GUIDANCE REPORT
Account to
be changed
Ch 7 Ex 2
Loan
Original
Amount
$
Questions
225,000
YOUR ANSWERS BASED UPON COURSE
START DATE
a. Compute Hall’s accrued interest as of
December 31, 20X1.
b. Present the appropriate balance sheet
disclosure for the accrued interest and the
current and long-term portion of the
outstanding debt as of December 31, 20X1.
c. Repeat parts (a) and (b) using a date of
December 31, 20X2, rather than December
31, 20X1. Assume that Hall is in compliance
with the terms of the loan agreement.
Accrued interest 12/31/X2
Disclosure
Account to
be changed
Original
Amount
Ch 7 Ex 4
Salary expense
50000
YOUR ANSWERS BASED UPON COURSE
START DATE
Questions
Salary expense
Social Security Payable
Medicare Payable
Fed Taxes Payable
State Taxes Payable
Insurance Payable
Cash
Payroll Tax Expense
Social Security Payable
Medicare Payable
State unemployment
Fed unemployment
Account to
be changed
Original
Amount
Ch 7 Pb 2
12/1 Note payable
12/1 Interest rate
Warranty
Purchase on account
Note payable
Warranty repair
Salary accural
Vacation
12/26 interest
20
6%
a. Prepare journal entries to record the preceding transactions and events.
Cash
Notes Payable
Warranty expense
Warranty Liability
Merchandise
Accounts Payable
Cash
Note Payable
Warranty Liability
20000
0
27
16000
5000
162
1400
36000
120
Cash
Salary Expense
Salary Payable
Payroll Expense
Accrued Vacation Payable
b. Determine accrued interest as of
December 31, 20XX, and prepare the
necessary adjusting entry or entries.
12/1 one month accrual
12/26 60 day note-accrue 5 days
Total Interest Accrual
Prepare ournal entry:
Interest expense
Interest payable
c. Prepare the current liability section of
Visconti’s December 31, 20XX balance sheet.
Current Liabilities:
Accounts payable
Note payable
Salaries payable
Vacation payable
Warranty payable
Total Current Liabilities
Account to
be changed
Ch 8 Pb 1
Par
Original
Amount
10
Questions
7/1 Cash
Common Stock
C/S additional Paid-in-Capital
7/7 Attorney expense
Common Stock
C/S additional Paid-in-Capital
YOUR ANSWERS BASED UPON COURSE
START DATE
Cash
Common Stock
C/S additional Paid-in-Capital
Land
Common Stock
C/S additional Paid-in-Capital
Ashford University ACC205
Guidance Report
Week Four
YELLOW INDICATES ACCOUNT AMOUNTS CHANGED
Change Account to:
Based Upon Course Start Date
Jan – Feb
$
250,000
Jan – Feb
Mar-Apr
$
260,000
Mar-Apr
May-Jun
$
270,000
May-Jun
Jul-Aug
$
280,000
Jul-Aug
Sept-Oct
$
Nov-Dec
290,000 $
Sept-Oct
450,000
Nov-Dec
51,000
52,000
53,000
Jan – Feb
20
6%
25,000
15%
28
17,000
6,000
172
1,500
37,000
$
120
54,000
55,000
Mar-Apr
20
6%
26,000
15%
29
18,000
7,000
182
1,600
38,000
$
120
56,000
May-Jun
20
6%
28,000
15%
30
19,000
8,000
192
1,700
39,000
$
120
Jul-Aug
20
6%
$
11.00
$
12.00
$
13.00
$
14.00
$
15.00
$
16.00
Jul-Aug
30,000
15%
31
20,000
9,000
202
1,800
40,000
$
120
Sept-Oct
20
6%
31,000
15%
32
21,000
10,000
222
1,900
41,000
$
120
Nov-Dec
20
6%
33,000
15%
33
22,000
11,000
232
2,000
42,000
$
120

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