Grossman Products began operations in 2011. The following selected transactions
ID: 2377957 • Letter: G
Question
Grossman Products began operations in 2011. The following selected transactions occurred from September 2011 through March 2012. Grossman's fiscal year ends on December 31.
2011:
(a.) On September 5, Grossman opened a checking account and negotiated a short-term line of credit of up to $10,000,000 at 10% interest. The company is not required to pay any commitment fees.
(b.) On October 1, Grossman borrowed $8,000,000 cash and issued a 5-month promissory note with 10% interest payable at maturity.
(c.) Grossman received $3,000 of refundable deposits in December for reusable containers.
(d.) For the September through December period, sales totaled $5,000,000. The state sales tax rate is 4% and 75% of sales are subject to sales tax.
(e.) Grossman recorded accrued interest.
2012:
(f.) Grossman paid the promissory note on the March 1 due date.
(g.) Half of the storage containers are returned in March, with the other half expected to be returned over the next 6 months.
Required:
1. Prepare the appropriate journal entries for the 2011 transactions.
2. Prepare the liability section of the balance sheet at December 31, 2011, based on the data supplied.
3. Prepare the appropriate journal entries for the 2012 transactions.
Explanation / Answer
1. Prepare the appropriate journal entries for the 2011 transactions.
(a.) On September 5, Grossman opened a checking account and negotiated a short-term line of credit of up to $10,000,000 at 10% interest. The company is not required to pay any commitment fees.
Sep 5 No Entry reqd here
(b.) On October 1, Grossman borrowed $8,000,000 cash and issued a 5-month promissory note with 10% interest payable at maturity.
Oct 1 Cash Dr 8000,000
Note Payable Cr 8000,000
(c.) Grossman received $3,000 of refundable deposits in December for reusable containers.
Oct1 Cash Dr 3000
Refundable Deposit Cr 3000
(d.) For the September through December period, sales totaled $5,000,000. The state sales tax rate is 4% and 75% of sales are subject to sales tax.
Dec 31 States Sales Tax Dr $150,000
State Sales Tax payable Cr 150,000
(75%*5000000*4% = $150,000)
(e.) Grossman recorded accrued interest.
Dec 31 Interest exp Dr $200,000
Interest Payable Cr $200,000
(Int on Note Payable 10%*8000000*(3/12) = $200,000)
2. Prepare the liability section of the balance sheet at December 31, 2011, based on the data supplied.
Liability :
Note Payable $8000,000
Refundale dposit $3000
State Sales Tax payable 150,000
Interest Payable $200,000
3. Prepare the appropriate journal entries for the 2012 transactions.:
(f.) Grossman paid the promissory note on the March 1 due date.
Mar 1 Int Exp Dr $133,333
Int Paybale Dr 200,000
Cash Cr 333,333
(Int on Note Payable 10%*8000000*(2/12) = $133,333)
(g.) Half of the storage containers are returned in March, with the other half expected to be returned over the next 6 months.
Mar 31 Refundable Depoist Dr 1500
Cash Cr 1500
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