On February 1, 2016, borrowed $52,000 cash from the local bank. The note had a 5
ID: 2456715 • Letter: O
Question
On February 1, 2016, borrowed $52,000 cash from the local bank. The note had a 5 percent interest rate and was due on June 1, 2016.
Ripley provides a 90-day warranty on the merchandise sold. The warranty expense is estimated to be 4 percent of sales.
On November 1, 2016, borrowed $37,000 cash from the local bank. The note had a 8 percent interest rate and a one-year term to maturity.
A customer has filed a lawsuit against Ripley for $100,000 for breach of contract. The company attorney does not believe the suit has merit.
Answer the following questions:
What amount of cash did Ripley pay for interest during 2016? (Round your answer nearest dollar amount.)
What amount of interest expense is reported on Ripley’s income statement for 2016? (Round your answer nearest dollar amount.)
Post the liabilities transactions to T-accounts and prepare the current liabilities section of the balance sheet at December 31, 2016. (Round your answers nearest dollar amount.)
Show the effect of these transactions on the financial statements using a horizontal statements model like the one shown here. Use + for increase, for decrease, and NA for not affected. In the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA) or not affected (NA). The first transaction has been recorded as an example.
The following selected transactions were taken from the books of Ripley Company for 2016:
Explanation / Answer
Answer the following questions:
1.What amount of cash pay for interest during the year?
Interest paid in cash = 52000*.05/12*4 = $867
2.What amount of interest expense is reported on income statement for the year?
INterest expense = 867 + (37000*.08/12*2)
=$867 +$493
= $1,360
3.What is the amount of warranty expense for the year?
Sales X warranty percentage:
= 230,000 * .04
= 9,200
2.Prepare the current liabilities section of the balance sheet at December 31, 2008. (Hint: first post the liabilities transactions to T-accounts.)
Current liabilities:
Sales tax payable 2,4001
Interest payable 493
Notes payable 37,000
Provision for warranties 6,1002
Note 1: ($230,000-200,000)*.08 = 2400
Note 2: 9200-3100 = 6,100
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