Transaction Analysis
Polly's Cards & Gifts Shop had the following transactions during the year:
a. Polly's purchased inventory on account from a supplier for $8,000. Assume that Polly's uses a periodic inventory system.
b. On May 1, land was purchased for $44,500. A 20% down payment was made, and an 18- month, 8% note was signed for the remainder.
c. Polly's returned $450 worth of inventory purchased in (a), which was found broken when the inventory was received.
d. Polly's paid the balance due on the purchase of inventory.
e. On June 1, Polly signed a one-year, $15,000 note to First State Bank and received $13,800.
f. Polly's sold 200 gift certificates for $25 each for cash. Sales of gift certificates are recorded as a liability. At year-end, 35% of the gift certificates had been redeemed.
g. Sales for the year were $120,000, of which 90% were for cash. State sales tax of 6% applied to all sales must be remitted to the state by January 31.
Required
1. Record all necessary journal entries relating to these transactions.
2. Assume that Polly's accounting year ends on December 31. Prepare any necessary adjusting journal entries.
3. What is the total of the current liabilities at the end of the year?