Question

Jack Hammer Company completed the following transactions. The annual accounting period ends December 31.

Apr.		30		Received $705,000 from Commerce Bank after signing a 12-month, 7 percent, promissory note.
June		6		Purchased merchandise on account at a cost of $82,000. (Assume a perpetual inventory system.)
July		15		Paid for the June 6 purchase.
Aug.		31		Signed a contract to provide security service to a small apartment complex starting in September, and collected six months’ fees in advance amounting to $28,200.
Dec.		31		Determined salary and wages of $47,000 were earned but not yet paid as of December 31 (ignore payroll taxes).
Dec.		31		Adjusted the accounts at year-end, relating to interest.
Dec.		31		Adjusted the accounts at year-end, relating to security service.

Required:

1. 1. & 2. Prepare journal entries for each of the transactions through August 31 and adjusting entries required on December 31.

2. 3. Show how all of the liabilities arising from these items are reported on the balance sheet at December 31.

No	Date	General Journal	Debit	Credit
1	Apr 30	Cash	705,000
		Notes Payable (short-term)		705,000
2	Jun 06	Inventories	82,000
		Accounts Payable		82,000
3	Jul 15	Accounts Payable	82,000
		Cash		82,000
4	Aug 31	Cash	28,200
		Deferred Revenue		28,200
5	Dec 31	Salaries and Wages Expense
		Salaries and Wages Payable
6	Dec 31	Interest Expense
		Interest Payable
7	Dec 31	Deferred Revenue
		Service Revenue

JACK HAMMER COMPANYBalance Sheet (partial)At December 31Current LiabilitiesSalaries and Wages Payable$47,000Interest PayableDeferred RevenueNotes Payable (short-term)705,000Total Current Liabilities$752,000

Answer 1

A В E G 1 Solution (a): Remarks Debit Credit No. Date General Journal Entry passed correctly 705,000 Entry passed correctly April 30 Cash 1 705,000 Notes Payable (Short term) Entry passed correctly 82,000 Entry passed correctly Inventories June 6 82,000 Accounts Payable Entry passed correctly 82,000 Entry passed correctly July 15 Accounts Payable 3 82,000 Cash 10 11 Entry passed correctly 28,200 Entry passed correctly Aug 31 Cash 4 28,200 Deferred Revenue/ Advance Revenue 13 14 Dec 31 Salaries and Wages Expense This is the expense that pertains to the period ended Dec 31 15 5 47,000 Since this expense is not yet paid, we have created a liability Salaries and Wages Payable 47,000 account 16 17 Interest to be accrued on the promissory note taken on April 30, hence for a period of 8 months- from May to Dec. Interest calculation- 705000*7%*8/12 = 32900 Since question mentions that accounts are adjusted and not that this interest is paid already, we have credited a liability 32,900 18 6 Dec 31 Interest Expense To Interest Payable 32,900 account 19 20 Revenue was accrued for 6 months starting Sept. At the end of Dec 31, we have completed 4 months- Sep to Dec. Hence we book 4 months' revenue in the current period. Calculation 28200*4/12 Deferred Revenue/ Advance Revenue Revenue Earned 21 Dec 31 18,800 22 18,800 7

23 24 25 26 Partial Balance sheet as on Dec 31 Amount Assets 705,000 Inventories Amount 27 Liabilities 28 Notes Payable (Short term) 82,000 Deferred Revenue/ Advance Revenue 29 Accounts Payable 9,400 30 Salaries and Wages Payable 31 To Interest Payable 47,000 Cash 651,200 32,900 32 33 34 35