Safe and Sound Security, Inc. is a security business with the following account
ID: 2472759 • Letter: S
Question
Safe and Sound Security, Inc. is a security business with the following account balances as of 1/1/2015.
Cash $ 7,020
Petty cash 250
Accounts receivable 15,000
Allowance for doubtful accounts 3,000
Supplies inventory 500
Prepaid rent 6,000
Merchandise inventory (40 @ $400) 16,000
Equipment 4,000 Van 35,000
Accumulated depreciation 19,100
Sales tax payable 400
Federal income tax payable 750
FICA - Social Security tax payable 1,240
FICA - Medicare tax payable 270
Warranty payable 850
Unemployment tax payable 300
Interest payable 600
Note payable - State Bank 10,000
Common stock 20,000
Retained earnings 27,260
Note: although all accounts are shown with a positive balance, they have the normal debit or credit balance that accounts in their account type have (e.g. - assets have a debit balance, liabilities have a credit balance).
During 2015, Safe and Sound Security, Inc. experienced the following transactions:
1) Paid the sales tax payable from 2014.
2) Paid the balance of all the payroll liabilities due for 2014.
3) On January 1, 2015, purchased land and a building for $100,000. The building was appraised at $75,000 and the land at $25,000. Safe and Sound paid $10,000 cash and financed the balance. The balance was financed with a 10-year installment note. The note had an interest rate of 5% and annual payments of $11,655 (including both principal and interest) due on the last day of the year. 4) Purchased $1,000 of Supplies inventory.
5) Purchased 50 alarm systems at a cost of $375. Cash was paid for the purchase.
6) After numerous attempts to collect from customers, wrote off $2,000 of uncollectible accounts receivable.
7) Sold 80 alarm systems for $500 each plus sales tax of 6 percent. All sales were on account. (Be sure to compute cost of goods sold using the FIFO cost flow method).
8) Billed $100,000 of monitoring services for the year. Credit card sales amounted to $36,000, and the credit card company charged a 3% fee. The remaining $64,000 were sales on account. Sales tax is not charged on this service. Net credit card sales are posted to accounts receivable until cash is received from the credit card company.
9) Replenished the petty cash fund at June 30. The fund had $50 cash and receipts of $125 for yard mowing and $75 for office supplies expense.
10) Collected the amount due from the credit card company.
11) Paid the sales tax collected on $20,000 of the alarm sales.
12) Collected $115,000 of accounts receivable during the year.
13) Paid installers and other employees a total of $60,000 for salaries for the year. Use the current Social Security tax and Medicare rates of 6.2% and 1.45%, respectively. Federal income taxes withheld amounted to $6,000. The net amount of salaries was paid in cash. (Disregard unemployment taxes in this entry).
14) Paid $1,000 in warranty repairs during the year for systems installed in the previous year. Prior year warranty expense was estimated at 2% of sales.
15) On September 1, paid in full the note payable owed to State Bank plus $1,100 of interest. All interest payable at January 1 was owed to State Bank relating to this note payable.
16) Paid $9,000 of advertising expense during the year.
17) Paid payroll liabilities, both the amounts withheld from the salaries plus the employer share of Social Security tax and Medicare tax, on $50,000 of the salaries plus $5,000 of the federal income tax that was withheld. (Disregard unemployment taxes in this entry).
18) Payment was made on the building note payable.
Adjustments:
19) There was $500 of supplies inventory on hand at the end of the year.
20) Recognized the expired rent for the office building for the year. Twenty-four months of rent was originally paid at 1/1/2014.
21) Recognized the uncollectible accounts expense for the year using the allowance method. Safe and Sound now estimates that 2.0% of sales on account will not be collected.
22) Recognized depreciation expense on the equipment, van, and building. The equipment has a five-year life, the van has a four-year life, and the building has a 40-year life. The company uses straight-line method for all fixed assets. The equipment and van were purchased in 2013 and had a full year depreciation in both 2013 and 2014. Assume no residual value on any of the assets.
Required: Record the above transactions. Round all amounts to the nearest dollar (do not include cents). Use the transaction/adjustment numbers above to identify each of the transactions in your general journal. Your general journal should be set up as follows: Event # Account Title Debit Credit
Explanation / Answer
The journal entries for the transactions are as under: Event Account Title Debit Credit 1 Sales Tax Payable $ 400 Cash $ 400 (Being sales tax payable paid) 2 FICA-Social Security Tax Payable $ 1,240 FICA-Medicare Tax Payable $ 270 Federal Income Tax Payable $ 750 Unemployment Tax Payable $ 300 Cash $ 2,560 (Being payroll liabilities paid for the year 2014) 3 Building $ 75,000 Land $ 25,000 Cash $ 10,000 Notes Payable $ 90,000 (Being building and land was appraised during the year) 4 Supplies Inventory $ 1,000 Cash $ 1,000 (being supplies purchased) 5 Merchandise Inventory $ 18,750 Cash $ 18,750 (Being inventory of 50 alarms purchased at $375 each) 6 Uncollectible Accounts Receivable $ 2,000 Accounts Receivables $ 2,000 (Being accounts receivables wrote off as uncollectible) 7 Accounts Receivables $ 42,400 Sales $ 40,000 Sales tax Payable $ 2,400 (Being 80 alarm sets sold on account) Cost of goods sold $ 31,000 Merchandise Inventory $ 31,000 (cost of goods sold for 80 alarm sets transferred under FIFO method) Cost of goods sold 40 units @ $400 $16,000 40 units @ $375 $ 15,000 Total $31,000 8 Accounts Receivables $ 98,920 Credit card fees $ 1,080 Sales $ 64,000 Credit card sales $ 34,920 Credit card fees payable $ 1,080 (Being credit card sales and and fees on credit card sales recorded) 9 Yard moving $ 125 Petty cash $ 125 (Being received pety cash from yard moving) Petty cash $ 325 Office supplies expenses $ 75 Other expenses $ 250 (Being expenses recorded out of pety cash) ($250+$125)-$75=$300 ($300-$50)=$250 Ending balance on June 30 is $50. Therefore expenses to be recorded of $250 10 Cash $ 34,920 Accounts receivables $ 34,920 (Being cash collected from credit card company for sales) 11 Sales Tax Payable $ 1,200 Cash $ 1,200 (Being sales tax payable @ 6% on sale of $20,000 has been paid) 12 Cash $ 115,000 Accounts Receivables $ 115,000 (Being cash collected from accounts receivables) 13 Salaries $ 60,000 Cash $ 49,410 Social security tax payable $ 3,720 Medicare payable $ 870 Federal Income Tax payable $ 6,000 (Being social security tax @ 6.2% and medicare of 1.45% and federal income tax of 6,000 has been recorded) 14 Warranty expenses $ 1,000 Cash $ 1,000 (Being warranty expenses paid) 15 Notes payable $ 10,000 Interest on notes $ 1,100 Cash $ 11,100 (Being state bank notes payable paid alongwith interest on 1st Sept.) 16 Advertisement Expenses $ 9,000 Cash $ 9,000 (Being advertisement expenses paid) 17 Social Security Tax payable $ 6,820 Medicare Payable $ 1,595 Federal Income tax payable $ 11,000 Cash $ 19,415 (Being employees payrol liabilities and employers contribution on salary of $50,000 is paid) 18 Notes Payable $ 6,255 Interest on note $ 5,400 Cash $ 11,655 (Being notes payable installment paid) Interest on notes=$90,000* 6%=$5,400) 19 Supplies Expenses $ 1,000 Supplies Inventory $ 1,000 (Being supplies exp. Incurred) Beginning inventory 500 Purchased 1000 Ending -500 Supplies exp. 1000 20 Rent expenses $ 6,000 Prepaid rent $ 6,000 (Being rent expenses recorded for the year)
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