Assignment
Part 1:
Described below are certain transactions of Smith Corporation. The company uses the periodic inventory system.
1. On February 2, the corporation purchased goods from Martin Company for $85,000 subject to cash discount terms of 2/10, n/30. Purchases and accounts payable are recorded by the corporation at net amounts after cash discounts. The invoice was paid on February 26.
2. On April 1, the corporation bought a truck for $45,000 from General Motors Company, paying $5,000 in cash and signing a one-year 12% note for the balance of the purchase price.
3. On May1, the corporation borrowed $91,140 from Chicago National bank by signing a $98,000 zero-interest-bearing note due one year from May 1. The prevailing interest rate is 7%.
4. On August 1, the board of directors declared a $300,000 cash dividend that was payable on September 10 to stockholders of record on August 31.
Required:
(a) Make all the Journal Entries necessary to record the transactions above using appropriate dates.
(b) Smith Corporation's year-end is December 31. Record adjusting journal entries to accrue interest needed at year-end. Assume the implicit interest rate in 3. Above is 7.53%.
Part 2:
Listed below are selected transactions of Schultz Department Store for the current year ending December 31.
1. On December 5, the store received $2,500 from the Jackson Players as a deposit to be returned after certain furniture to be used in stage production was returned on January 15.
2. During December, cash sales totaled $798,000, which includes the 5% sales tax that must be remitted to the state by the fifteenth day of the following month.
3. On December 10, the store purchased for cash three delivery trucks for $120,000. The trucks were purchased in a state that applies a 5% sales tax.
4. The store installed a fence around its parking lot in late December. The costs totaled $84,000 and were paid in cash.
Required:
Prepare all the journal entries necessary to record the transactions noted above as they occurred Date each entry. For simplicity, assume that adjusting entries are recorded only once a year on December 31.
Part 3:
On January, 1, 20X3, Junior Company contracts to lease equipment for 5 years, agreeing to make a payment of $137,899 (including executory costs of $6,000) at the beginning of each year, starting January 1, 20X3.The taxes, insurance, and the maintenance, estimated at $6,000 per year, are the obligations of the lessee. The fair value of the lease equipment on 1/1/X3 is approximately $550,000. The asset is to be depreciated on a double-declining basis, and the obligation is to be reduced on an effective-interest basis. Junior's incremental borrowing rate is 12% and the implicit rate in the lease is 10%, which is known by Junior. Title to the equipment transfers to Junior when the lease expires. The asset has an estimated useful life of 5 years and no residual value.
Required:
1. Is this a capital lease? Explain in detail your answer.
2. Prepare the journal entry or entries that should be recorded on January 1, 20X3.
3. Prepare the journal entry to record depreciation of the leased asset for the year 20X3.
4. Prepare the journal entry to record the interest expense for the year 20X3.
5. Prepare the journal entry to record the lease payment of January 1, 20X4, assuming reversing entries are not made.
6. What amounts will appear on the lessee's balance sheet at December 31, 20X3, assuming reversing entries were not made.