Question

On January 1, 2018, the general ledger of Freedom Fireworks includes the following account balances: Credit Debit $ 103, 100 37,800 153,900 86,300 139,000 Accounts Cash Accounts Receivable Inventory Land Buildings Allowance for Uncollectible Accounts Accumulated Depreciation Accounts Payable Bonds Payable Discount on Bonds Payable Common Stock Retained Earnings Totals $ 3,700 11,500 38,600 139,000 31,900 219,000 140,200 $552,000 $552,000 During January 2018, the following transactions occur: January 1 Borrow $119,000 from Captive Credit Corporation. The installment note bears interest at 6% annually and matures in 5 years. Payments of $2,170 are required at the end of each month for 60 months. January 1 Called the bonds at the contractual call price of $119,000. The 7% bonds pay interest semiannually each June 30 and December 31. January 4 Receive $32,900 from customers on accounts receivable. January 10 Pay cash on accounts payable, $30,000. January 15 Pay cash for salaries, $30,800. January 30 Firework sales for the month total $210,800. Sales include $66,900 for cash and $143,900 on account. The cost of the units sold is $122,000. January 31 Pay the first monthly installment of $2,170 related to the $119,000 borrowed on January 1. Round your interest calculation to the nearest dollar. The following information is available on January 31, 2018. a. Depreciation on the building for the month of January is calculated using the straight-line method. At the time the building was purchased, the company estimated a service life of 10 years and a residual value of $27,400. b. At the end of January, $4,900 of accounts receivable are past due, and the company estimates that 50% of these accounts will not be collected. Of the remaining accounts receivable, the company estimates that 2% will not be collected. No accounts were written off as uncollectible in January. c. Unpaid salaries at the end of January are $28,000. d. Accrued income taxes at the end of January are $6,900. Require... General General Journal Ledger Trial Income Balance Balance Statem... || Sheet Analysis Record each of the transactions listed above in the 'General Journal' tab (these are shown as items 1-8) assuming a FIFO perpetual inventory system. The transaction on January 30 requires two entries: one to record sales revenue and one to record cost of goods sold. Review the 'General Ledger' and the 'Trial Balance' tabs to see the effect of the transactions on the account balances. Record adjusting entries on January 31. in the 'General Journal' tab (these are shown as items 9-12). Record the closing entries in the 'General Journal' tab (these are shown as items 13-15). (If no entry is required for a transaction/event, select "No inrunnlent w rivad" in the fivet Aunt field

Answer 1

Journal entries to be passed are:

1. Bank a/c ...dr 119000$

To credit corporation bank 119000$

(Being loan taken from credit corporation)

2. Bonds payable a/c..dr 139000

To bank ....119000

To discount income...20000

(Being bonds redeemed)

3.bank a/c ...dr 32900

To accounts receivable 32900

(Being recovery from debtors)

4. Accounts payable a/c ...dr 30000

To bank....30000

(Being amount paid to creditors)

5.salary a/c ...dr 30800

To cash. ..... 30800

(Being salary paid)

6. Cash..a/c ...dr 66900

Accounts receivable a/c..dr 143900

To sales....210800

7. Cogs...a/c dr 122000

To purchases ...122000

(Being entry for cogs recorded)

8.Interest expenses...a/c..dr 595

Loan principal a/c....dr 1575

To bank ....2170

(Being payment made for loan taken)

Ratio analysis

Debt ....119000

Equity...359200=. 119000/359200= .3313

It shows company is less leverage

If we talk about times interest earned it would be...

Profit= sales - cogs

= 210800-122000

= 88800

Interest for an year =119000*6%=7140

Times earned would be = 88800/7140= 12.44 times I,e less than industry average...

Co. Is less than industry to meet its coverage

However co. Has been favoured in debt to equity ratio but times the interest earned seems to be good as it is able to return it's previous obligation of 139000 bonds hence it would depend on the negotiations by the company........