Morgan Company’s balance sheet at December 31, 2016, is presented below. MORGAN
ID: 2433174 • Letter: M
Question
Morgan Company’s balance sheet at December 31, 2016, is presented below.
MORGAN COMPANY
Balance Sheet
December 31, 2016
Cash 30,000 Accounts Payable 13,750
Inventory 30,750 Interest Payable 250
Prepaid Insurance 6,000 Notes Payable 50,000
Equipment 38,000 Owner’s Capital 40,750
104,750 104,750
During January 2017, the following transaction occurred. (Morgan Company uses the perpetual inventory system.)
Morgan paid $250 interest on the note payable on January 1, 2017. The note is due December 31, 2018.
Morgan purchased $261,000 of inventory on account
Morgan sold for $440,000 cash, inventory which cost $265,000. Morgan also collected $28,600 in sales taxes.
Morgan paid $230,000 in accounts payable
Morgan paid $17,000 in sales taxes to the state.
Paid other operating expenses $30,000
On January 31, 2017, the payroll for the month consists of salaries and wages of $60,000. All salaries and wages are subject o 7.65% FICA taxes. A total of $8,900 federal income taxes are withheld. The salaries and wages are paid on February 1.
Adjustment Data:
Interest expense of $250 has been incurred on the notes payable.
The insurance for the year 2017 was prepaid on December 31, 2016.
The equipment was acquired on December 31, 2016 and will be depreciated on a straight-line basis over 5 years with a $2,000 salvage value.
Employer’s payroll taxes include 7.65% FICA taxes, a 5.4% state unemployment tax, and an 0.8% federal unemployment tax.
Instruction:
(you may need to set up T-accounts to determine ending balances.)
Prepare journal entries for the transactions listed above and the adjusting entries.
Date
Accounts Titles and Explanation
Dr.
Cr
Jan. 1
Interest Expense
250
Cash
250
(to record interest on notes payable)
(2)
Inventory
261,000
Accounts Payable
261,000
(3)
Cash
440,000
Sales revenue
413,200
Sales Tax Payable
26,800
(to record sale of inventory/collected sales tax)
Cost of goods sold
265,000
Finished goods inventory
265,000
(to record cost of goods sold)
(4)
Accounts Payable
230,000
Cash
230,000
(to record payment to accounts payable)
(5)
Sales Tax payable
17,000
Cash
17,000
(to records payment of state sales tax)
(6)
Other Operating Expenses
30,000
Cash
30,000
(to record payment of other operating expenses)
(7)
Salaries and Wages Expense
60,000
Federal Income tax withheld
8,900
FICA taxes payable
4,590
Salaries and Wages Payable
46,510
(to record salaries/wages and tax)
Adjustment Entries
(8)
Interest Expense
250
Interest payable
250
(to record interest)
(9)
Insurance Expense
500
Prepaid Insurance
500
Cont. Next page
(10)
Depreciation
7,200
Accumulated Depreciation - Equipment
7,200
[(38,000 – 2,000)/5 = 7,200]
(to record equipment depreciation for one month)
(11)
Employer’s Payroll taxes expense
8,310
FICA taxes payable @ 7.65%
4,590
State unemployment tax payable @ 5.4%
3,240
Federal Unemployment tax payable @ 0.8%
480
(all calculation on gross payroll of 58,000)
(to record payroll tax)
Prepare an adjusted trial balance at January 31, 2017.
Prepare an income statement, an owner’s equity statement for the month ending January 31, 2017 and a classified balance sheet as of January 31, 2017.
Income Statement
Description Amount
Sales
440,000
Gain on Bond Redemption
Total revenue
Less: Expenses
Cost of Goods Sold
265,000
Operating Expense
30,000
Depreciation Expense
7,200
Interest on Bond
Insurance Expense (
Total Expenses
Net Income Before tax
Less: income tax
Net Income After Tax
Date
Accounts Titles and Explanation
Dr.
Cr
Jan. 1
Interest Expense
250
Cash
250
(to record interest on notes payable)
(2)
Inventory
261,000
Accounts Payable
261,000
(3)
Cash
440,000
Sales revenue
413,200
Sales Tax Payable
26,800
(to record sale of inventory/collected sales tax)
Cost of goods sold
265,000
Finished goods inventory
265,000
(to record cost of goods sold)
(4)
Accounts Payable
230,000
Cash
230,000
(to record payment to accounts payable)
(5)
Sales Tax payable
17,000
Cash
17,000
(to records payment of state sales tax)
(6)
Other Operating Expenses
30,000
Cash
30,000
(to record payment of other operating expenses)
(7)
Salaries and Wages Expense
60,000
Federal Income tax withheld
8,900
FICA taxes payable
4,590
Salaries and Wages Payable
46,510
(to record salaries/wages and tax)
Adjustment Entries
(8)
Interest Expense
250
Interest payable
250
(to record interest)
(9)
Insurance Expense
500
Prepaid Insurance
500
Cont. Next page
(10)
Depreciation
7,200
Accumulated Depreciation - Equipment
7,200
[(38,000 – 2,000)/5 = 7,200]
(to record equipment depreciation for one month)
(11)
Employer’s Payroll taxes expense
8,310
FICA taxes payable @ 7.65%
4,590
State unemployment tax payable @ 5.4%
3,240
Federal Unemployment tax payable @ 0.8%
480
(all calculation on gross payroll of 58,000)
(to record payroll tax)
Explanation / Answer
T-Accounts: debit$ credit$ Cash ob 30000 1 250 3 440000 4 230000 5 17000 6 30000 cb 192750 Inventory ob 30750 3 265000 2 261000 cb 26750 Prepaid insurance ob 6000 9 500 cb 5500 Equipment ob 38000 Salaries & Wages exp 7 60000 Insurance expense 9 500 Depre expen 10 7200 Acc Dep - Eq 10 7200 Employer's Payroll taxes exp 11 8310 debit$ credit$ Accounts payable 4 230000 ob 13750 cb 44750 2 261000 Interest Payable ob 250 8 250 500 Notes payable ob 50000 Owner's Capital ob 40750 interest expense 1 250 8 250 500 Sales revenue 3 413200 Sales Tax payable 5 17000 3 26800 cb 9800 COGS 3 265000 Other Operating expense 6 30000 Employer & Employee salary payable 7 8900 7 4590 11 4590 11 3240 11 480 21800 Salary and wages payable 7 46510 Adjusted Trial Balance Debit $ Credit $ cash 192750 inventory 26750 AP 44750 Int payabel 500 Note Payable 50000 pre-pd insu 5500 S & W Expenses 60000 owner capi 40750 inter exp 500 Sales 413200 Equip 38000 Ins exp 500 COGS 265000 ST payable 9800 dep exp 7200 Acc Dep - eq 7200 Other operat exp 30000 Payroll tax exp 8310 Payroll tax payable 21800 Salary and wages payable 46510 Total 634510 634510 Income Statement: Amount$ Sales 413200 Less: COGS 265000 GP 148200 Less: Exp.: salary & wages 60000 interest 500 insur 500 dep 7200 other operating exp 30000 payroll tax exp 8310 total expn 106510 NI 41690 Balance Sheet: Assets: Amount$ cash 192750 inventory 26750 P paid insu 5500 equip 38000 Acc Dep Eq -7200 Total Assets 255800 Liabilities: Amount$ AP 44750 Int payable 500 N payable 50000 ST payable 9800 Payroll tax payable 21800 Salary & wages payable 46510 Owner Capital 40750 Add: NI 41690 Total Liabilities 255800
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.