Question

Jack Hammer Company completed the following transactions. The annual accounting period ends December 31 Apr. 30 Received $548,eee from Commerce Bank after signing a 12-month, 5 percent, promissory note. June 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 6 Purchased merchandise on account at a cost of $71,eee. (Assume a perpetual inventory system.) fees in advance amounting to $21,600. Dec. 31 Determined salary and wages of $36,e00 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. & 2. Prepare journal entries for each of the transactions through August 31 and adjusting entries required on December 31 3. Show how all of the liabilities arising from these items are reported on the balance sheet at December 31

Answer 1

1) Record the borrowing of $540,000
Date	General Journal	Debit	Credit
Apr'30	Cash A/c	540,000
	Notes Payable (Short Term)		540,000
	(Being Promissory Notes taken from commerce bank of for 12 Months @ 5% )
2) Record the Purchase of inventory worth $71,000 on Account
Date	General Journal	Debit	Credit
June'06	Inventory A/c	71,000
	Accounts Payable A/c		71,000
	(Being Purchase of Merchandise Inventory )
June'06	Accounts Payable A/c	71,000
	Cash A/c		71,000
	(Being cash paid for Inventory purchase )
3) Record the collection of six month's security services fees in advance amounting to $21,600
Date	General Journal	Debit	Credit
August'31	Cash A/c	21,600
	Deferred Revenue A/c		21,600
	(Being cash Received towards security services fee in advance for 6 months)
4) Record the wages earned , but not yet paid as of december 31
Date	General Journal	Debit	Credit
Decemer'31	Salary & Wages A/c	36,000
	Salary & Wages payable A/c		36,000
	(Being salary & wages recorded for the period)
5) Record adjusting entry related to Interest
Date	General Journal	Debit	Credit
Decemer'31	Interest on Promissory Notes A/c	18,000
	Interest Payable A/c		18,000
	(Being Interest recorded for 8 months on Promissory note @ 5%)
6) Record adjusting entry related to Security services fees
Date	General Journal	Debit	Credit
Decemer'31	Deferred Revenue A/c	14,400
	Security Services fees A/c		14,400
	(Being security services fees recorded for 4 months)
	JACK HAMMER COMPANY
	BALANCE SHEET (PARTIAL)
	AT DECEMBER 31
	Current Liability	Amount	Amount
	Notes Payable (Short Term)		540,000
	Deferred Revenue	21,600
	Less: Revenue Recorded for 4 months	14,400	7,200
	Salaries & Wages Payable		36,000
	Interest Payable		18,000
	Total Current Liability		601,200