BE13.

1 (LO 1) Roley Corporation uses a periodic inventory system and the gross method of accounting
for purchase discounts. On July 1, Roley purchased $60,000 of inventory, terms 2/10, n/30, FOB
shipping point. Roley paid freight costs of $1,200. On July 3, Roley returned damaged goods and
received credit of $6,000. On July 10, Roley paid for the goods. Prepare all necessary journal entries
for Roley.

July 1: Purchase 60,000

Acc payables 60,000

Freight-in 1,200

Cash 1,200

July 3: Acc payable 6,000

Purchase return 6,000

July 10: Acc payable 54,000

Discount 1,080

Cash 52,920

BE13.2 (LO 1) Upland Company borrowed $40,000 on November 1, 2020, by signing a $40,000, 9%, 3-
month note. Prepare Upland’s November 1, 2020, entry; the December 31, 2020, annual adjusting
entry; and the February 1, 2021, entry.

1 Nov: Cash 40,000

Note payable 40,000

31 Dec: Interest exp 600 (40,000x9%x2/12)

Interest payable 600

1 Feb: Note payable 40,000

Interest payable 600

Interest expense 300

Cash 40,900

BE13.3 (LO 1) Takemoto Corporation borrowed $60,000 on November 1, 2020, by signing a $61,350, 3-
month, zero-interest-bearing note. Prepare Takemoto’s November 1, 2020, entry; the December 31,
2020, annual adjusting entry; and the February 1, 2021, entry.

Nov 1: Cash 60,000

Discount on Note payable 1,350

Note payable 61,350

Dec 31: Interest exp 900

 Discount on Note payable 900 (1,350x2/3)

1 Feb: Interest exp 450

Discount on note payable 450

Note Payable 61,350

Cash 61,350

BE13.4 (LO 1) Sport Pro Magazine sold 12,000 annual subscriptions on August 1, 2020, for $18 each.
Prepare Sport Pro’s August 1, 2020, journal entry and the December 31, 2020, annual adjusting entry,
assuming the magazines are published and delivered monthly.

1 Aug: Cash 216,000 (12,000x18)

Unearned revenue 216,000

31 Dec: Unearned Revenue 90,000

Revenue 90,000

BE13.5 (LO 1) Dillons Corporation made credit sales of $30,000 which are subject to 6% sales tax. The
corporation also made cash sales which totaled $20,670 including the 6% sales tax. (a) Prepare the
entry to record Dillons’ credit sales. (b) Prepare the entry to record Dillons’ cash sales.

a) Account receivable 31,800

Revenue 30,000
Sales taxes 1,800
b) Cash 20,670
Revenue 19,500
Sale tax 1,170

BE13.6 (LO 1) Lexington Corporation’s weekly payroll of $24,000 included FICA taxes withheld of
$1,836, federal taxes withheld of $2,990, state taxes withheld of $920, and insurance premiums
withheld of $250. Prepare the journal entry to record Lexington’s payroll.

Salaries and wages exp 24,000

FICA taxes payable 1,836

Withholding taxes payable 3,910 (2,990 + 920)

Insurance Premiums payable 250

Cash 18,004

BE13.7 (LO 1) Kasten Inc. provides paid vacations to its employees. At December 31, 2020, 30
employees have each earned 2 weeks of vacation time. The employees’ average salary is $500 per
week. Prepare Kasten’s December 31, 2020, adjusting entry.

Salaries and wages exp 30,000

 Salaries and wages payable 30,000 (30x2x500)

BE13.8 (LO 1) Mayaguez Corporation provides its officers with bonuses based on net income. For
2020, the bonuses total $350,000 and are paid on February 15, 2021. Prepare Mayaguez’s December
31, 2020, adjusting entry and the February 15, 2021, entry.

Dec 31: Salaries and wages exp 350,000

Salaries and wages payable 350,000

Feb 15: Salaries and wages payable 350,000

Cash 350,000

BE13.10 (LO 3) Scorcese Inc. is involved in a lawsuit at December 31, 2020. (a) Prepare the December
31 entry assuming it is probable that Scorcese will be liable for $900,000 as a result of this suit. (b)
Prepare the December 31 entry, if any, assuming it is not probable that Scorcese will be liable for any
payment as a result of this suit.

a) Lawsuit Loss 900,000

Lawsuit payable 900,000

b) No entry

BE13.13 (LO 3) Streep Factory provides a 2-year warranty with one of its products which was first sold
in 2020. Streep sold $1,000,000 of products subject to the warranty. Streep expects $125,000 of
warranty costs over the next 2 years. In that year, Streep spent $70,000 servicing warranty claims.
Prepare Streep’s journal entry to record the sales (ignore cost of goods sold) and the December 31
adjusting entry, assuming the expenditures are inventory costs.

During 2020: Warranty exp 70,000

Inventory 70,000

Cash 1,000,000

Sales 1,000,000

31 Dec: Warranty exp 55,000

Warranty payable 55,000

BE13.14 (LO 3) Leppard Corporation sells DVD players. The corporation also offers its customers a 4-
year warranty contract. During 2020, Leppard sold 20,000 warranty contracts at $99 each. The
corporation spent $180,000 servicing warranties during 2020. Prepare Leppard’s journal entries for (a)
the sale of contracts, (b) the cost of servicing the warranties, and (c) the recognition of warranty
revenue. Assume the service costs are inventory costs.

a) Cash 1,980,000

Unearned revenue 1,980,000 (20,000x99)

 b) Warranty exp 180,000
Inventory 180,000
c) Unearned revenue 495,000
Revenue 495,000 ( 1,980,000/4)

E13.11 (LO 3) (Warranties) Early in 2020, Crow Equipment sold 500 Rollomatics at $6,000 each. During
2020, Crow spent $20,000 servicing the 2-year assurance warranties that accompany the Rollomatic.
All applicable transactions are on a cash basis.

Instructions

a. Prepare 2020 entries for Crow. Assume that Crow estimates the total cost of servicing the
warranties in the second year will be $35,000.

At sale:

Cash 3,000,000

Sales 3,000,000

During 2020:

Warranty exp 20,000

Cash, supplies, wages payable 20,000

31/12:

Warranty exp 35,000

Warranty liabilities 35,000

b. Prepare 2020 entries for Crow assuming that the warranties are not an integral part of the sale (a
service-type warranty). Assume that of the sales total, $56,000 relates to sales of warranty contracts.
Warranty costs incurred in 2020 were $20,000. Estimate revenues to be recognized on a straight-line
basis.

At sale:

Cash 3,000,000

Sales 3,000,000

Dunring 2020:

Warranty exp 20,000

Cash, supplies, wages payable 20,000

31/12:

Unearned warranty revenue 28,000

Warranty revenue 28,000 (56/2)

E13.12 (LO 3) (Premium Entries) No Doubt Company includes one coupon in each box of soap powder
that it packs, and 10 coupons are redeemable for a premium (a kitchen utensil). In 2020, No Doubt
Company purchased 8,800 premiums at 80 cents each and sold 110,000 boxes of soap powder at $3.30
per box; 44,000 coupons were presented for redemption in 2020. It is estimated that 60% of the
coupons will eventually be presented for redemption.

Instructions

Prepare all the entries that would be made relative to sales of soap powder and to the premium plan
in 2020.

Inventory of premiums 7,040 (8,800x0.8)

Cash 7,040

During 2020:

Cash 363,000

Sales 363,000

Premium exp 3,520 (44,000/10x0.8)

Inventory of premium 3,520

31/12:

Premium exp 1,760

Premium liability 1,760 ((110,000x60%) – 44,000)/10 x 0.8

E13.13 (LO 3) (Contingencies) Presented below are three independent situations. Answer the question
at the end of each situation.

1. During 2020, Salt-n-Pepa Inc. became involved in a tax dispute with the IRS. Salt-n-Pepa’s attorneys
have indicated that they believe it is probable that Salt-n-Pepa will lose this dispute. They also believe
that Salt-n-Pepa will have to pay the IRS between $900,000 and $1,400,000. After the 2020 financial
statements were issued, the case was settled with the IRS for $1,200,000. What amount, if any, should
be reported as a liability for this contingency as of December 31, 2020?

900,000

2. On October 1, 2020, Jackson Chemical was identified as a potentially responsible party by the
Environmental Protection Agency. Jackson’s management along with its counsel have concluded that
it is probable that Jackson will be responsible for damages, and a reasonable estimate of these
damages is $5,000,000. Jackson’s insurance policy of $9,000,000 has a deductible clause of $500,000.
How should Jackson Chemical report this information in its financial statements at December 31,
2020?

5,000,000
3. Etheridge Inc. had a manufacturing plant in Sudan, which was destroyed in the civil war. It is not
certain who will compensate Etheridge for this destruction, but Etheridge has been assured by
governmental offi cials that it will receive a defi nite amount for this plant. The amount of the
compensation will be less than the fair value of the plant, but more than its book value. How should
the contingency be reported in the fi nancial statements of Etheridge Inc.?

Gain contingencies are not recorded and disclosed

P13.1 (LO 1) Groupwork (Current Liability Entries and Adjustments) Described below are certain
transactions of Edwardson Corporation. The company uses the periodic inventory system.

1. On February 2, the corporation purchased goods from Martin Company for $70,000 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 $50,000 from General Motors Company, paying
$4,000 in cash and signing a 1-year, 12% note for the balance of the purchase price.

3. On May 1, the corporation borrowed $83,000 from Chicago National Bank by signing a $92,000
zero-interest-bearing note due 1 year from May 1.

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.

Instructions

a. Make all the journal entries necessary to record the transactions above using appropriate dates.

W1:

2 Feb: Purchases 68,600

Account payables 68,600

26 Feb: Account payables 68,600

Purchase discount loss 1,400

Cash 70,000

W2:

Truck 50,000

Cash 4,000

Note payables 46,000

W3:

Cash 83,000

Discount on note payable 9,000

 Note payable 92,000

W4:

1 Aug: Retained earning 300,000

Dividend payable 300,000

10 Sep: Dividend payable 300,000

Cash 300,000

b. Edwardson Corporation’s year-end is December 31. Assuming that no adjusting entries relative to
the transactions above have been recorded, prepare any adjusting journal entries concerning interest
that are necessary to present fair financial statements at December 31. Assume straight-line
amortization of discounts.

W1: No

W2: Interest exp 4140 (46,000x12%x9/12)

Interest payable 4140

W3: Interest exp 6000 (9,000x8/12)

Discount on note 6000

W4: no

P13.2 (LO 1, 3) Excel (Liability Entries and Adjustments) Listed below are selected transactions of
Schultz Department Store for the current year ending December 31.

1. On December 5, the store received $500 from the Selig Players as a deposit to be returned after
certain furniture to be used in stage production was returned on January 15.

Cash 500

Due to customer 500

2. During December, cash sales totaled $798,000, which includes the 5% sales tax that must be
remitted to the state by the fi fteenth day of the following month.

Cash 798,000

Revenue 760,000

Sale tax 38,000

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.

Truck 126,000

Cash 126,000
4. The store determined it will cost $100,000 to restore the area (considered a land improvement)
surrounding one of its store parking lots, when the store is closed in 2 years. Schultz estimates the fair
value of the obligation at December 31 is $84,000.

Land improvements 84,000

Asset retirement obligation 84,000

Instructions

Prepare all the journal entries necessary to record the transactions noted above as they occurred and
any adjusting journal entries relative to the transactions that would be required to present fair fi
nancial statements at December 31. Date each entry. For simplicity, assume that adjusting entries are
recorded only once a year on December 31.