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Question

The following transactions of Philadelphia Pharmacies occurred during 2017 and 2018:

2017

Jan. 9 Purchased computer equipment at a cost of \(7,000, signing a six-month, 8% note payable for that amount.

29 Recorded the week’s sales of \)68,000, three-fourths on credit and one-fourth for cash. Sales amounts are subject to a 6% state sales tax. Ignore cost of goods sold.

Feb. 5 Sent the last week’s sales tax to the state.

Jul. 9 Paid the six-month, 8% note, plus interest, at maturity.

Aug. 31 Purchased merchandise inventory for \(3,000, signing a six-month, 10% note payable. The company uses the perpetual inventory system.

Dec. 31 Accrued warranty expense, which is estimated at 2% of sales of \)609,000.

31 Accrued interest on all outstanding notes payable.

2018

Feb. 28 Paid the six-month 10% note, plus interest, at maturity.

Journalize the transactions in Plymouth’s general journal. Explanations are not required.

Step-by-Step Solution

Verified

Answer

Credit Sales Amount: $54,060

Cash Sales Amount: $18,020

1Step 1: Journal entries

2Step 2: Working notes

$Computation of sales tax = Sales Revenue \times Sales tax rate = $ 68, 000 \times \frac{6}{100} = $ 4, 080$

$credit Sales Amount = (Sales revenue + Sales Tax) \times \frac{3}{4} = ($ 68, 000 + $ 4, 080) \times \frac{3}{4} = $ 54, 060 Cash Sales Amount = (Sales revenue + Sales Tax) \times \frac{1}{4} = ($ 68, 000 + $ 4, 080) \times \frac{1}{4} = $ 18.020$

Interest expense of 8 % Notes payable = Notes Payable Amount \times Rate \times \frac{No . of months}{12} = $ 7, 000 \times \frac{8}{100} \times \frac{6}{12} = $ 280 Interest expense of 10 % Notes payable = Notes Payable Amount \times Rate \times \frac{No . of months}{12} = $ 3, 000 \times \frac{10}{100} \times \frac{6}{12} = $ 150

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