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E9-8A Midsouth Equipment

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Exercise 9-8A Current liabilities
The following transactions apply to Midsouth Equipment Sales Corp. for 2013

1. The business was started when Midsouth received $50,000 from the issue of common stock.
2. Purchased 160,000 of merchandise on account.
3. Sold merchandise for $220,000 cash (not including sales tax). Sales tax of 8% is collected
when the merchandise is sold. The merchandise had a cost of $140,000
4. Provided a six-month warranty on the merchandise sold. Based on industry estimates, the warranty
claims would amount to 4% of merchandise sales.
5. Paid the sales tax to the state agency on $180,000 of the sales.
6. On September 1, 2013 borrowed $40,000 from the local bank. The note had a 6% interest
rate and matures on March 1, 2014.
7. Paid $6,600.00 for warranty repairs during the year.
8. Paid operating expenses of $61,000 for the year.
9. Paid $145,000 of accounts payable
10. Recorded accrued interest at the end of the year.

a. Show the effect of these transactions on the financial statements using a horizontal statements
model like the one shown here. Use a to indicate increase, a for decrease, and NA for not affected.
In the Cash Flow column, indicate whether the item is an operating activity (OA), investing
activity (IA), or financing activity (FA). The first transaction is recorded as an example.
b. Prepare the journal entries for the above transactions and post them to the appropriate T-accounts.
c. Prepare the income statement, balance sheet, and statement of cash flows for 2013.
d. What is the total amount of current liabilities at December 31, 2013?

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