Chapter 10 Problems

Chapter 10 ACCT 2500 1) On March 1, Cooper Company borrows $80,000 from New National Bank by signing a 6-month, 6%, interest-bearing note. Prepare the necessary entries below associated with the note payable on the books of Cooper Company. (a) Prepare the entry on March 1 when the note was issued. (b) Prepare any adjusting entries necessary on June 30 in order to prepare the semiannual financial statements. Assume no other interest accrual entries have been made. (c) Prepare the entry to record payment of the note at maturity. 2) Peterson Company billed its customers a total of $840,000 for the month of November. The total includes a 5% state sales tax. (a) Determine the proper amount of revenue to report for the month. (b) Prepare the general journal entry to record the revenue and related liabilities for the month.

3) Mantle Publications publishes a golf magazine for women. The magazine sells for $4.00 a copy on the newsstand. Yearly subscriptions to the magazine cost $36 per year (12 issues). During December 2016, Mantle Publications sells 4,000 copies of the golf magazine at newsstands and receives payment for 6,000 subscriptions for 2017. Financial statements are prepared monthly. (a) Prepare the December 2016 journal entries to record the newsstand sales and subscriptions received. (b) Prepare the necessary adjusting entry on January 31, 2017. The January 2017 issue has been mailed to subscribers. 4) During the month of March, Preston Company's employees earned wages of $90,000. Withholdings related to these wages were $6,885 for Social Security (FICA), $14,200 for federal income tax, $6,200 for state income tax, and $600 for union dues. The company incurred no cost related to these earnings for federal unemployment tax but incurred $1,300 for state unemployment tax. Instructions (a) Prepare the necessary March 31 journal entry to record wages expense and wages payable. Assume that wages earned during March will be paid during April. (b) Prepare the entry to record the company's payroll tax expense.

3. Mantle Publications publishes a golf magazine for women. The magazine sells for $4.00 a copy on the newsstand. Yearly subscriptions to the magazine cost $36 per year (12 issues). During December 2016, Mantle Publications sells 4,000 copies of the golf magazine at newsstands and receives payment for 6,000 subscriptions for 2017. Financial statements are prepared monthly. (a) Prepare the December 2016 journal entries to record the newsstand sales and subscriptions received. December 2016 Sales for 2016 magazines = 4,000 x 4 = $16,000 December 2016 Sales for 2017 subscriptions = 6,000 x 36 = $216,000 Dec. 31 Cash 232,000 Subscription Revenue 16,000 Unearned Subscription Revenue 216,000 (To record the receipt of magazine revenue for December and sale of 6,000 2017 subscriptions) (c) Prepare the necessary adjusting entry on January 31, 2017. The January 2017 issue has been mailed to subscribers. Monthly cost of subscription = 36/12 = $3 January 2017 Revenue = 6,000 x 3 = $18,000 Jan. 31 Unearned Subscription Revenue 18,000 Subscription Revenue 18,000 (To record magazine revenue) 4. During the month of March, Preston Company's employees earned wages of $90,000. Withholdings related to these wages were $6,885 for Social Security (FICA), $14,200 for federal income tax, $6,200 for state income tax, and $600 for union dues. The company incurred no cost related to these earnings for federal unemployment tax, but incurred $1,300 for state unemployment tax. Instructions (a) Prepare the necessary March 31 journal entry to record wages expense and wages payable. Assume that wages earned during March will be paid during April. Mar. 31 Salary and Wages Expense 90,000 FICA Taxes Payable 6,885 Federal Income Tax Payable 14,200 State Income Tax Payable 6,200 Union Dues 600 Salaries and Wages Payable 62,115 (To record payroll and withholding taxes for March) (b) Prepare the entry to record the company's payroll tax expense. Mar. 31 Payroll Tax Expense 1,300 State Unemployment Tax Payable 1,300 (To record employer payroll taxes for March)

ACCT 2500 Chapter 10 Practice Questions (and answers below it) 1.As interest is recorded on an interest-bearing note, the Interest Expense account is a. increased; the Notes Payable account is increased. b. increased; the Notes Payable account is decreased. c. increased; the Interest Payable account is increased. d. decreased; the Interest Payable account is increased. 2.On October 1, Sam's Painting Service borrows $150,000 from National Bank on a 3-month, $150,000, 4% note. What entry must Sam's Painting Service make on December 31 before financial statements are prepared? a. Interest Payable .................................................................................. 1,500 Interest Expense ............................................................ 1,500 b. Interest Expense ................................................................................. 6,000 Interest Payable ............................................................. 6,000 c. Interest Expense ................................................................................. 1,500 Interest Payable ............................................................. 1,500 d. Interest Expense ................................................................................. 1,500 Notes Payable ................................................................ 1,500 3.On October 1, Sam's Painting Service borrows $150,000 from National Bank on a 3-month, $150,000, 4% note. The entry by Sam's Painting Service to record payment of the note and accrued interest on January 1 is a. Notes Payable ................................................................................ 151,500 Cash .......................................................................... 151,500 b. Notes Payable ................................................................................ 150,000 Interest Payable .................................................................................. 1,500 Cash .......................................................................... 151,500 c. Notes Payable ................................................................................ 150,000 Interest Payable .................................................................................. 6,000 Cash .......................................................................... 156,000 d. Notes Payable ................................................................................ 150,000 Interest Expense ................................................................................. 1,500 Cash .......................................................................... 151,500 4.The interest charged on a $300,000 note payable, at the rate of 6%, on a 90-day note would be a. $18,000. b. $9,000. c. $4,500. d. $1,500. 5.A company receives $348, of which $28 is for sales tax. The journal entry to record the sale would include a a debit to Sales Taxes Expense for $28. b. debit to Sales Taxes Payable for $28. c. debit to Sales Revenue for $348. d. debit to Cash for $348.

Answer Key to practice questions: 1. C 2. C Solution: $150,000  .04  3/12  $1,500 (Amount bor.  4%  3/12) 3. B Solution: $150,000  .04  3/12  $1,500 (Amount bor.  4%  3/12) 4. C Solution: $300,000  .06  90/360  $4,500 (Face val.  6%  90/360) 5. D 6. D Solution: ($294,000  1.05)  .05  $14,000 (Sal. Rev.  1.05)  5% 7. A 8. B Solution: $120,000  $9,180  $25,000  $4,500  $81,320 (Salar. – FICA tax. – inc. tax. – ins. ded.)