Knockoff Corporation sells a videogame unit known as the Gii

Knockoff Corporation sells a videogame unit known as the Gii. During the month of December, the following events occur. Prepare any necessary journal entries and adjusting entries that Knockoff should record.

a. Knockoff purchased $300,000 of inventory on account.

b. The company incurs salary expense of $45,000, although employees will not be paid until the

beginning of January. The company also owes an additional $7,000 to the government for payroll

taxes.

c. Knockoff determines that it owes the IRS $120,000 in income taxes for this year.

d. A retail customer places an advance order for Giis and pays Knockoff $23,000. The Giis will be

shipped in January.

e. Knockoff owes a local bank $4,000 in interest on a loan.

f. Knockoff rents a warehouse of $3,000 per week. No payments were made for the last three weeks

of the year.

Solution

Date Account Debit credit a Merchandise inventory 300,000 Accounts payable 300,000 [Being inventory purchased on account] b salary expense 45000 salary payable 45000 [Being salary accrued but not paid] c Income tax expense 120000 Income tax payable 120000 [Being tax accrued but not paid] d cash 23000 unearned sales revenue 23000 [Being cash received for sales to be made in january] e Interest expense 4000 Interest payable 4000 [Being interest accrued but not paid] f Rent expense 9000 rent payable 9000 [being rent accrued but not paid 3000*3]