Question

Jack Hammer Company completed the following transactions. The annual accounting period ends December 31. Apr 30 Received $600,000 from Commerce Bank after signing a twelve-month, 6 percent, promissory note June 6 Purchased merchandise on account at a cost of $75,000 (Assume a perpetual inventory system.) July 15 Paid for the June 6 purchase Aug. 31 Signed a contract to provide security services to a small apartment complex and collected six months' fees in advance, amounting to $24,000 (Use an account called Deferred Revenue. ) Dec. 31 Determined salary and wages of $40,000 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 services Required: 1. Prepare journal entries for each of the transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet 2 3 4 Received $600,000 from Commerce Bank after signing a twelve-month, 6 percent, promissory note. Note: Enter debits before credits. General Journal Debit Credit Date Apr 30 Record entry Clear entry View general journal

Answer 1

Liabilities expected to be settled within one year or within one operating cycle of the business, whichever is greater, after the reporting period are classified as current liabilities. The specific criteria for classification of a liability as current include the following:

> It is expected to be settled in the entity’s normal operating cycle;

> It is held primarily for the purpose of being traded;

> It is due to be settled within one year after the balance sheet date;

> The entity does not have an unconditional right to defer settlement of the liability for at least one year after the balance sheet date.

Credit Date Apr 30 $600,000 Jack Hammer Company Balance Sheet (Partial) Dec 31 Salaries and Wages Payable $40,000 Interest Payable $24,000 Deferred Revenue $8,000 Notes Payable $600,000 Total Current Liabilities $672,000 June 6 $75,000 July 15 $75,000 Aug 31 Account Title Debit Cash $600,000 Notes Payable (To record notes payable) Merchandise Inventory $75,000 Accounts Payable (To record purchase of inventory) Accounts Payable $75,000 Cash (To record payment to vendor) Cash $24,000 Deferred Revenue (To record receipt from customer in advance) Salaries and Wages Expense $40,000 Salaries and Wages Payable (To record accrual of salaries and wages expense) Interest Expense [($600000 x 6%)/12 x 8] Interest Payable (To record accrual of interest expesne) Deferred Revenue $16,000 Service Revenue ($24000 / 6x4] (To record service revenue) $24,000 Dec 31 $40,000 Dec 31 $24,000 Dec 31 $16,000