Question

Accounting 5205

Please answer the questions under the "required" section. I started section "A" already. Please check my answers. "B" and "C" need to be done please.

Problem 7-29 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. rcn

Answer 1

Answer a-1.
Interest Expense paid in 2016 = $70,000 X 6% X 4/12
Interest Expense paid in 2016 = $1,400 (approx.)
Answer a-2.
Interest Expense Reported in Income Statement:
Interest Expense on Note 1 - $70,000 X 6% X 4/12	1400
Interest Expense on Note 2 - $20,000 X 6% X 2/12	200
Total Interest Expense	1600
Answer a-3.
Warranty Expense - 2016 = $240,000 X 1%	2,400.00

Answer b & c.
Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
1	Cash	70,000.00
	Notes Payable		70,000.00
	(To record the amount borrowed)
2	Cash	256,800.00
	Sales		240,000.00
	Sales Tax Payable ($240,000 X 7%)		16,800.00
	(to record the cash sales )
3	Warranty Expense ($240,000 X 1%)	2,400.00
	Estimated Warranty Liability		2,400.00
	(to record the warranty expense)
4	Sales Tax Payable ($210,000 X 7%)	14,700.00
	Cash		14,700.00
	(To record the sales tax paid)
5	Notes Payable	70,000.00
	Interest Expense	1,400.00
	Cash		71,400.00
	(To record the note paid)
6	Cash	20,000.00
	Notes Payable		20,000.00
	(To record the amount borrowed)
7	Estimated Warranty Liability	2,100.00
	Cash		2,100.00
	(To record the warranty repairs)
8	No Entry Required
9	Interest Expense	200.00
	Interest Payable		200.00
	(To record the interest exense on note)

Notes Payable					Interest Payable
5	70,000.00	70,000.00	1				200.00	9
		20,000.00	6
End. Bal.		20,000.00			End. Bal.		200.00
Estimated Warranty Laibility					Sales Tax Payable
7	2,100.00	2,400.00	3		4	14,700.00	16,800.00	2
End. Bal.		300.00			End. Bal.		2,100.00

Balance Sheet (Partial)
Current Liabilities
Estimated warranty Liability	300.00
Notes Payable	20,000.00
Interest Payable	200.00
Sales Tax Payable	2,100.00
Total Current Liabilities	22,600.00

Answer c.

Sr. No.

Assets

=

Liabilities

+

Equity

Revenue

-

Expenses

=

Net Income

Cash Flow

1

Increase

Increase

Incerase

Financing

2

Increase

Increase

Increase

Increase

Increase

Incerase

Operating

3

No Effect

Increase

Decrease

Increase

Decrease

No Effect

4

Decrease

Decrease

Decrease

Operating

5

Decrease

Decrease

Decrease

Increase

Decrease

Decrease

Opearting - Interest

Decrease

Financing - Note

6

Increase

Increase

Increase

Financing

7

Decrease

Decrease

Decrease

Operating

8

No Effect

9

No Effect

Incerase

Decrease

Increase

Decrease

No Effect