Current liabilities The following selected transactions were taken from the book
ID: 2530341 • Letter: C
Question
Current liabilities
The following selected transactions were taken from the books of Ripley Company for 2018:
1. On February 1, 2018, borrowed $70,000 cash from the local bank. The note had a 6 percent interest rate and was due on June 1, 2018.
2. Cash sales for the year amounted to $240,000 plus sales tax at the rate of 7 percent.
3. Ripley provides a 90-day warranty on the merchandise sold. The warranty expense is estimated to be 1 percent of sales.
4. Paid the sales tax to the state sales tax agency on $210,000 of the sales.
5. Paid the note due on June 1 and the related interest.
6. On November 1, 2018, borrowed $20,000 cash from the local bank. The note had a 6 percent interest rate and a one-year term to maturity.
7. Paid $2,100 in warranty repairs.
8. A customer has filed a lawsuit against Ripley for $1 million for breach of contract. The company attorney does not believe the suit has merit.
Please format answers similar to below examples
Net Inc. Cash Flow + FA Exp. AssetsLiaiities Equity Rev. + NA NA NA NAExplanation / Answer
a.(1) Cash paid for interest: $70000 x 6% x 4/12 = $1400
(2) Interest expense: $70000 x 6% x 4/12 = $1400
$20000 x 6% x 2/12 = $200
Total interest expense $1600
(3) Warranty expense: $240000 x 1% = $2400
b.
The lawsuit filed against Ripley by a customer for $1 million for breach of contract should not be recorded since it is a contingent liability with probability of its occurrence being remote as the attorney believes the suit does not have merit.
c.
Note: For event 5, repayment of note payable is financing activity (FA) while payment of interest on the note is operating activitiy (OA).
Interest Payable Sales Tax Payable 6 200 2 16800 Bal. 200 4 14700 Bal. 2100 $20000 x 6% x 2/12 = $200 $240000 x 7% = $16800 $210000 x 7% = $14700 Warranty Payable Notes Payable 3 2400 1 70000 7 2100 5 70000 Bal. 300 6 20000 $240000 x 1% = $2400 Bal. 20000Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.