The following transactions were taken from the books of Sanchez Co. for 2017: -
ID: 2522539 • Letter: T
Question
The following transactions were taken from the books of Sanchez Co. for 2017:
- On February 1, 2017 borrowed $70,000 cash from the local bank. The note had a 6% interest rate and was due on June 30, 2017
- Cash sales for he year amounted to $240,000 plus sales tax at a rate of 6%.
- Sanchez provides a 90-day warranty on the merchandise sold. The warranty expense is estimated to be 1% of sales.
- Paid the sales tax to the state sales tax agency on $210,000 of the sales.
- Paid the note due on June 30 including the related interest
- On November 1, 2017, borrowed $20,000 cash from the local bank. The note had a 6% interest rate and a one year term to maturity.
- Paid $2,100 in warranty repairs
- A customer has filed a lawsuit against Ripley for $1 million for breach of contract. The company attorney does not believe the suit has any merit.
REQUIRED
A) Answer the following questions:
- What amount of cash did Sanchez pay for interest in 2017?
- What amount of interest expense is reported on Sanchez's income statement for 2017?
- What is the amount of warranty expense for 2017?
B) Prepare the Current Liabilities portion of the balance sheet at December 31, 2017 (T-Accounts might help!)
Explanation / Answer
A.
Cash paid for interest in 2017
= Principal x Interest rate x Time
= $70,000 x 6% x 5/12
= $1,750
Interest expense reported on income statement for 2017
= Cash paid for interest + Accrued interest
= $1,750 + [$20,000 x 6% x 2/12]
= $1,950
Warranty expense = Sales x Estimated percentage = $240,000 x 1% = $2,400
B.
Current liability section of the balance sheet will be prepared as follows:
S Co. Balance Sheet (Partial) December 31, 2017 Current Liabilities: Sales tax payable [($240000 - $210,000) x 6%] 1800 Interest payable ($20,000 x 6% x 2/12) 200 Warranty payable [($240,000 x 1%) - $2,100] 300 Total current liabilities 2300Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.