Question

as the following liabi 7,700 GLS cludes 8% sales taxes. ade advance payments of PROBLEMS: SET A Prepare current liability P10-14 On January 1, 2017, the ledger of Accardo Company contains entries, adjusting entries, and ity accounts. current liabilities section. Accounts Payable $52,000 (LO 1,5) Sales Taxes Payable Unearned Service Revenue 16,000 During January, the following selected transactions occurred. Jan. 5 Sold merchandise for cash totaling $20,520, which includes 20 12 Performed services for customers who had made advance po $10,000. (Credit Service Revenue.) 14 Paid state revenue department for sales taxes collected in December 20 Sold 900 units of a new product on credit at $50 per unit, plus go 21 Borrowed $27.000 from Girard Bank on a 3-month, 8%. $27.000 25 Sold merchandise for cash totaling $12,420, which includes 8% sale Instructions (a) Journalize the January transactions. (b) Journalize the adjusting entry at January 31 for the outstanding note p Use one-third of a month for the Girard Bank note.) (c) Current liability total (c) Prepare the current liabilities section of the balance sheet at January 31, 2017 $91,100 no change in accounts payable. December 2016 ($7,700) unit, plus 8% sales tax. $27,000 note. des 8% sales taxes. tstanding note payable. (Hint:

Answer 1

Refer to the solution below. Entries are explained below the solution

Date	Particuliars	Debit	Credit
Jan-05	Cash	20520
	To Sales		19000
	To Sales Tax Payable		1520
Jan-12	Unearned Service Revenue	10000
	To Revenue		10000
Jan-14	Sales Tax Payable	7700
	To Cash		7700
Jan-20	Accounts Recievable	48600
	To Sales		45000
	To Sales Tax Payable		3600
Jan-21	Cash	27000
	To Notes Payable		27000
Jan-25	Cash	12420
	To Sales		11500
	To Sales Tax Payable		920
Jan-30	Interest Payable	60
	To Notes Payable		60

Lets go through this sum one adjustment at a time.

When recording cash sales that include tax, we need to segregate the amount into sales and tax payable.

Calculation is quite simple, first find out if it is inclusive or exclusive. if inclusive deduct the amount from It. Sales value= Cash received *100/108. 108 being sales value + tax @ 8%. then just deduct the sales value from the proceeds to get the tax payable this is applicable to Jan 5 and 25 transactions. For Jan 20 transaction it is exclusive so first calculate the sales value which is 900* 50 = 45000 and then sales tax over it which is 45000*8% =3600. Also when sales are not in cash it receivables account should be debited( Jan25 transaction)

Advanced revenue is a liability and can be recognized only when the service or goods have been received, thus we record the transaction by debited the Unearned revenue account and crediting to sales (for the amount that in recognized) the remaining amount will stand as a liability till it is recognized.

Sales tax paid it a basic tax debit to cash credit entry. it means that the balance in tax payable account which is a liability will be reduced by 7700 and cash will be paid for the same.

Jan 21 transaction is a loan transaction. which is simple its cash coming in hence cash being debited and being credited to a new account which will be current liability call Notes Payable.

Interest on this note will be recorded and if not paid will be credited to notes payable account, the interest for the same is calculated as follows (27000* 8%*1/12)*1/3

first the interest for one month is calculated and then since only one third of it is payable we divide it by 3 as shown in the formula above. this is the month transaction adjustment.

c)

Balance sheet as on Jan 31 2017
Liabilities	Amt	Amt
Accounts Payable		52000
Sales Tax Payable		6040
Unearned Service Revenue		6000
Note Payable		27060
Total Liabilities		91100

Accounts Payable remains the same as mentioned in the question

Sales tax Payable is calculated as follows = Opening balances + additional payables - paid

= 7700 +1520+3600+920- 7700 = 6040. Less 7700 since it was paid during the month.

Unearned Service Revenue will be reduced by 10000 since that amount has been recognized the balance will remain outstanding still the service has been completed.

Note Payable is 27000 + 60 which is the interest component. This is recorded as a liability as it has not yet been paid. thus the notes payable account will increase by interest component.