Question

Question 1

Fantastic Fashions has just completed its first quarter of operations. Below are transactions that have not yet been recorded. Prepare the journal entries listed below.

      

       Jan 1     Pre-tax cash sales amounted to $75,000. HST is collected on all sales at a rate of 13%.

       Jan 15 Signed a three month note for $12,000 to extend amounts owing on account to Trendy Taste Inc. Interest is 6% annually and due at maturity.

       Mar 1     Received the annual property tax bill for $7,500 payable on June 1.

       Apr 1      Paid salaries of $10,000; of this amount $495 is CPP, $178 is EI and $3,465 is for income taxes (record the employer portion as well).

       Apr 15    Paid the note due.

       Apr 29    A customer sued Fantastic Fashions for $200,000. Legal counsel has advised that it is unlikely damages will be awarded.

       Jun 1     Paid the property taxes bill in full.

Instructions

Prepare the journal entries listed above.

Question 2

On January 1, Wonder Water borrowed $300,000 for 5 years at 4.5% to finance expansion. Fixed Principal Payments are to be made quarterly beginning Mar 1. Below is an installment schedule for Wonder Water.

WONDER WATER

INSTALMENT PAYMENT SCHEDULE- FIXED PRINCIPAL PAYMENTS

Interest Period	Cash Pmt	Interest Expense	Reduction of Principal	Principal
Jan 1				300,000
Mar 1	?	3,375	5,000	295,000
Jun 1	8,320	?	5,000	?
Sep 1	?	3,263	?	285,000
Dec 1	?	?	5,000	?

Instructions

(a) Determine the missing values (round to the nearest dollar).

(b) Prepare the journal entries for the payments made on March 1 and Sept 1.

Answer 1

sol! - Date General Journal Debit credit. Jan cash ($75-000+9.750 $84-750 Sales $ 75.000 $9.750 ust payable (75.000x1200) (To record sale) $ 12.000 Jan 15 accounts Payable $12.000 Notes payable (To record exchange of notes Payable) mar 1 Property Tax $ 7.500 Expense property Tax Payable $7.500 $10.000 APT 1 salaries expenser $495 CPP deductions $178 EI deductions $3.465 provincial tax deduction cash $5.862

Date General Journal Debit credit. Apri5 Notes payable $19.000 Interest Expense $180 cash (12.000 +180) $12.180 Jan 1 o cash z Sales + HST payable cash 75.000 +9.750 I cosh - $84-750 HST payable = Sales x 100 = 75.000 X 0-13 TUST payable -$9.750) ADN 15 - Interest Eupense - notes payable x 694X 32 12.000 X 6% X0.95 Interest expense = 180) cash - Notes Payable t Interest Expense - 12000 + 180 cash = $12180

ao Interest leash pouy meal Interest Period -t expense Reduction of principal principal Jan 1 $ 300.000 mao 1 $8.375.00 $ 3.395,00 $ 5.000,00 $295.000 Jun 1 $ 8.38000 $3.320.00 $5.000.00 $ 290.000 Sep 1 $ 8.263.00 $ 3.868.00 $5.000,00 $285.000 bec $ 8.2060D $ 3.00 6.00 $500.00 $ 280 000. the payment made on (6) The Journal march 1 and Entries for sept 1. Date Particulars Debit Credit. 1-meo Interest Expense Dehit) $ 3.395.00 Notes Payable (Debit) $5.000.00 To cash $8.375.00 sep-1 Interest penser $ 3.263.00 Notes Payable Debit) $5.000.00 To cash $8.26300 To record installment Payment)

(29 mas 1 : cash payment - Interest Expense + Reduction of Principal 2 3.375175.000 $8.375 Tcash payment Jun 1 : Interest Expense - Reduction of Principal - cash payment 75.000 -8.320 Interest Gepense = 3.320 sep cash payment - Interest cupense + Reduction of principal. cash payment = 3.263 +5000 cash payment = 8.263] cash payment - Interest Expen Reduction of principal - 8-263-3.263 Reduction Os Poindpal - 5.000

Dec 1 : cash payment = Interest opense + Reduction of poincipal = 3.206 75.000 28,206 I Cash payment $8, 2061 - Pal Interest expense e cash payment - Reduction of Prince 8.206-5.000 $3.206 $ 3.206 Interest Expense