Question

Need help with Journal entry and T Accounts

Mr. Cardell’s first action was to close four furniture showrooms in Chicago, Los Angeles, New York and Atlanta, because the leases had been cancelled in bankruptcy. These closures would save $950,000 annually; Mr. Cardell believed sales would decline only marginally. He also negotiated a more favorable labor contract with former employees, which would save another $750,000 annually. On July 2, 2009, the firm reopened for business. The following is a summary of Holton-Central’s activity for the second half of 2009:

1. Paid the $875,000 of accounts payable.

2. Paid $154,500 for utilities, professional services and other administrative expenses.

3. Paid $1,408,000 for office wages and related payroll taxes and benefits.

4. Paid $2,785,000 for selling and marketing expenses.

5. Paid $900,000 for production machinery. The machinery was purchased October 1, 2009. The machinery had a useful life of five years with no salvage value.

6. Paid $228,000 for various one-year insurance policies.

7. Purchased $5,345,000 of raw material; $835,000 was unpaid as of December 31, 1998.

8. Manufacturing records showed $4,935,000 of raw material transferred to work in process.

9. Paid $7,878,000 in cash for production wages and charged the costs to work-in- process inventory.

10. Charged $6,662,000 to work-in-process inventory for manufacturing overhead items, including $6,400,000 paid in cash and $262,000 for depreciation on manufacturing facilities.

11. Manufacturing records showed $19,123,000 of work-in-process inventory transferred to finished goods inventory.

12. Sold chairs for $25,563,000. Of that, $4,587,000 had not been paid as of December 31, 2008.

13. Manufacturing records showed cost of goods sold of $18,593,000.

14. Recorded depreciation expense of $86,000.

15. Recorded accrued interest expense.

16. Recorded insurance expense of $95,000.

17. In late December, Mr. Cardell received a call from Holton-Central’s largest customer. To cut costs, previous management had substituted a low-grade fabric on 1,800 chairs that the customer purchased in 2008 and 2009. Repairing those chairs would cost $360,000. Mr. Cardell estimated that customers would request repairs to another several thousand chairs, which would cost another $560,000. Although that liability was discharged in bankruptcy, Mr. Cardell believed failure to repair the chairs would irreparably damage the firm’s reputation. He notified customers that Holton-Central would repair the chairs at no cost.

18. Computed income tax expenses of $365,000 for 2009, payable in 2010. Required Prepare and record journal entries for Holton-Central’s sale of stock, incurrence of debt, and the 18 activities listed above.

Answer 1

Date	Account title	Debit	Credit
1	Accounts payable	875000
	Cash		875000
2	Utilities, etc.	154500
	Cash		154500
3	Wages expense	1408000
	Cash		1408000
4	Selling expense	2785000
	Cash		2785000
5	Production machinery	900000
	Cash		900000
6	Insurance expense	228000
	Cash		228000
7	Raw materials inventory	5345000
	Cash		4510000
	Accounts payable		835000
8	WIP inventory	4935000
	Raw materials inventory		4935000
9	WIP inventory	7878000
	Cash		7878000
10	WIP inventory	6662000
	Cash		6400000
	Accumulated depreciation		262000
11	Finished goods inventory	19123000
	WIP inventory		19123000
12	Cash	20976000
	Accounts receivables	4587000
	Sales Revenue		25563000
13	COGS	18593000
	Finished goods inventory		18593000
14	Depreciation expense	86000
	Accumulated depreciation		86000
15	Interest expense	300000
	Interest payable		300000
	(6000000*10%/2)
16	Prepaid Insurance	133000
	Insurance expense		133000
	(228000-95000)
17	Repair expenses	920000
	Liability for repair		920000
	(360000+560000)
18	Income tax expense	365000
	Income tax payable		365000
		111793500	111793500