Exercise 98B Current liabilities The following transactions

Exercise 9-8B Current liabilities The following transactions apply to Farmer\'s Equipment Sales Corp. for 2016: 1. The business was started when Farmer\'s received $60,000 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 percent is col- lected when the merchandise is sold. The merchandise had a cost of $140,000.

Solution

Journal Entries :-

S. No.	Particulars	Debit($)	Credit($)
1)	Cash A/c Dr.	60000
	To Common Stock a/c		60000
2)	Merchendise A/c Dr.	160000
	To Account Payable A/c		160000
3)a	Cash A/c Dr. ($220000+$17600)	237600
	To Sales Tax Payable A/c ($220000*8%)		17600
	To Sales Revenue A/c		220000
3)b	Cost of Goods Sold A/c Dr.	140000
	To Merchandise A/c		140000
4)	Warranty Expense A/c Dr. ($220000*4%)	8800
	To Warranty Payable A/c		8800
5)	Sale Tax Payable A/c Dr. ($180000*8%)	14400
	To Cash A/c		14400
6)	Cash A/c Dr.	40000
	To Notes Payable A/c		40000
7)	Warranty Payable A/c Dr.	6600
	To Cash A/c		6600
8)	Operating Expense A/c Dr.	61000
	To Cash A/c		61000
9)	Accounts Payable A/c Dr.	145000
	To Cash A/c		145000
10)	Interest Expense A/c Dr. ($40000*6%*(4/12))	800
	To Interest Payable A/c		800