For each of the following events you are to determine the amount and name of the

Question

For each of the following events you are to determine the amount and name of the expense (or cost) and associated liability, if any that should be reported for the month of May (assume in all cases that a calendar year is used for financial reporting purposes). Received May's electric bill for $500 on June 5. Paid employees' salary of $3,000 for the first half of May on May 16. The second half of May salary of $2,800 is to be paid on June 2. Borrowed $10,000 at 6% per year from the bank on April 1 of the current year. The principal ($10,000) and interest ($150) is to be paid in full on July 1 of the current year. Purchased a machine on July 1 of the prior year. The machine cost $14,000, had a useful life of 4 years and a salvage value of $2,000 when purchased Paid $4,800 on February 28 of the current year for a 2 year insurance policy. Entered into an agreement on May 1, of the current year to hire a new Chief Information Officer (CIO) at a salary of $360,000 per year. The CIO will begin work on June 1 of the current year. Began the month of May with $50,000 of merchandise inventory on hand, purchased an additional $30,000 of merchandise inventory during May, paid $40,000 for merchandise inventory during the month of May and had $35,000 of merchandise inventory on hand at the end of May. Paid $60,000 on October 1 of the prior year for a patent. The patent has a legal life of 15 years but management believes that the useful life is 10 years. a. b. C. d. e. f. g. h.

Explanation / Answer

S.No. Amount Expenses A/c Amount Liability A/c a $       500 Electricity Expenses $      500 Electricity Expenses Payable A/c b $   5,800 Salaries & Wages A/c $ 2,800 Salaries & Wages Payable A/c c $         50 Interest Expenses A/c $        50 Interest on Loan Payable A/c d Depreciation is to be reported in the month of December e Prepaid Insurance will be accounted for in the month of February last year and yearly insurance expenses will be recognized in the month of April current year. f Agreement of hiring of New CEO does not accrue any expenses or liability in the month of May, since he will start his work from June 1. g $ 45,000 Cost of Goods Sold A/c $           - NA Cost of Goods sold is the difference between Opening Stock+Additions during the year-Closing Stock. There is no additional liabilit during the month. h Amortisation Cost of Patent is to be reported in the month of December

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