Exam

1.  Partner investments; journal entries.

The LP partnership was formed on January 1, 19X7, by investments from Bill Levy and Marv Parcells. Levy contributed $30,000 cash and $80,000 of land. Parcells contributed cash of $50,000 and equipment with a value of $20,000.

Prepare the journal entries needed to record the investments of Levy and Parcells.

2. Payroll accounting.

Assume that the following tax rates and payroll information pertain to Brookhaven Publishing:

·  Social Security taxes: 6% on the first $55,000 earned

·  Medicare taxes: 1.5% on the first $130,000 earned

·  Federal income taxes withheld from wages: $7,500

·  State income taxes: 5% of gross earnings

·  Insurance withholdings: 1% of gross earnings

·  State unemployment taxes: 5.4% on the first $7,000 earned

·  Federal unemployment taxes: 0.8% on the first $7,000 earned

The company incurred a salary expense of $50,000 during February. All employees had earned less than $5,000 by month-end.

a. Prepare the necessary entry to record Brookhaven’s February payroll. The entry will include deductions for the following:

·  Social Security taxes

·  Medicare taxes

·  Federal income taxes withheld

·  State income taxes

·  Insurance withholdings

b. Prepare the journal entry to record Brookhaven’s payroll tax expense. The entry will include the following:

·  Matching Social Security taxes

·  Matching Medicare taxes

·  State unemployment taxes

·  Federal unemployment taxes

3.  Current liabilities: entries and disclosure.

A review of selected financial activities of Visconti’s during 20XX disclosed the following:

1-Dec  Borrowed $20,000 from the First City Bank by signing a 3-month, 15% note payable. Interest and principal are due at maturity.

10-Feb Established a warranty liability for the XY-80, a new product. Sales are expected to total 1,000 units during the month. Past experience with similar products indicates that 2% of the units will require repair, with warranty costs averaging $27 per unit.

22-Dec   Purchased $16,000 of merchandise on account from Oregon Company, terms 2/10, n/30.

26-Dec   Borrowed $5,000 from First City Bank; signed a note payable due in 60 days.

31-Dec   Repaired six XY-80s during the month at a total cost of $162.

31-Dec   Accrued 3 days of salaries at a total cost of $1,400.

Instructions

a. Prepare journal entries to record the transactions.

b. Prepare adjusting entries on December 31 to record accrued interest.

c. Prepare the Current Liability section of Visconti’s balance sheet as of December 31. Assume that the Accounts Payable account totals $203,600 on this date.

4. Issuance of stock: organization costs.

Snowbound Corporation was incorporated in July. The firm’s charter authorized the sale of 200,000 shares of $10 par-value common stock. The following transactions occurred during the year:

1-Jul    Sold 45,000 shares of common stock to investors for $18 per share. Cash was collected and the shares were issued.

11-Aug   Sold 20,000 shares to investors for $22 per share. Cash was collected and the shares were issued.

1-Sep   Declared a cash dividend on 9/1 for $1.00 a share for shareholders on record 10/1 with payment being made on 11/1.

Instructions

a.  Prepare journal entries for the two stock issues.

b.  Prepare journal entries for the cash dividend declaration and payment.

5. Notes payable.

Red Bank Enterprises was involved in the following transactions during the fiscal year ending October 31:

8/2:   Borrowed $75,000 from the Bank of Kingsville by signing a 120-day note.

8/20: Issued a $40,000 note to Harris Motors for the purchase of a $40,000 delivery truck. The note is due in 180 days and carries a 12% interest rate.

9/10:  Purchased merchandise from Pans Enterprises in the amount of $15,000. Issued a 30-day, 12% note in settlement of the balance owed.

9/11:  Issued a $60,000 note to Datatex Equipment in settlement of an overdue account payable of the same amount. The note is due in 30 days and carries a 14% interest rate.

10/10: The note to Pans Enterprises was paid in full.

10/31: The note to Datatex Equipment was paid in full.

11/30: Paid note to Bank of Kingville

Instructions

a. Prepare journal entries to record the transactions.

b. Prepare adjusting entries on October 31 to record accrued interest.

c. Prepare the Current Liability section of Red Bank’s balance sheet as of October 31. Assume that the Accounts Payable account totals $203,600 on this date.

 

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