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 $8,260. Assume that Polly's uses a periodic inventory system.
b. On May 1, land was purchased for $45,000. A 10% down payment was made, and an 18-month, 10% note was signed for the remainder.
c. Polly's returned $460 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, $18,800 note to First State Bank and received $17,484.
f. Polly's sold 200 gift certificates for $20 each for cash. Sales of gift certificates are recorded as a liability. At year-end, 34% of the gift certificates had been redeemed.
g. Sales for the year were $121,000, of which 70% were for cash. State sales tax of 8% applied to all sales must be remitted to the state by January 31.
Required:
1. Record the journal entry relating to the transaction (a). How does this entry affect the accounting equation?
Indicate the effect on financial statement items by selecting "-" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement.
Record the journal entry relating to the transaction (b). How does this entry affect the accounting equation?
Indicate the effect on financial statement items by selecting "-" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement.
Record the journal entry relating to the transaction (c). How does this entry affect the accounting equation?
Indicate the effect on financial statement items by selecting "-" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement.
Record the journal entry relating to the transaction (e). How does this entry affect the accounting equation?
Indicate the effect on financial statement items by selecting "-" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement.
Record the journal entry relating to the transaction (g). How does this entry affect the accounting equation?
Indicate the effect on financial statement items by selecting "-" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement.
2. Assume that Polly's accounting year ends on December 31. Prepare any necessary adjusting journal entries. Do not round intermediate calculations. If required, round your final answers to the nearest cent. Use full months instead of days when calculating interest expense.
(b) Record accrued interest on note payable. How does this entry affect the accounting equation?
Indicate the effect on financial statement items by selecting "-" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement.
(e) Record interest in advance as interest expense. How does this entry affect the accounting equation?
Indicate the effect on financial statement items by selecting "-" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement.
3. What is the total of the current liabilities at the end of the year? Do not round intermediate calculations. Round your final answer to the nearest cent.