Question

1. Fish and Tackle Co. receives $100,000 from a 3-month note with 4% annual interest. What journal entry would Fish and Tackle make at the end of the note’s 3 month period? Assume that Fish and Tackle Co. has made adjusting journal entries to accrue for interest at the end of each month.

2. Fish and Tackle Co. has Sales Revenue of $50,000. If Fish and Tackle Co. is responsible for 3% sales tax and makes one Sales Tax adjusting entry at the end of the period what would the balance of the Sales Revenue account be after the adjusting journal entry was made? What would the balance of the Sales Tax Payable account be after the adjusting journal entry was made?

Answer 1

1.

Account Titles and Explanation	Debit	Credit
Interest Receivable	$333.33
Interest Income ($100000 x 4% x 1/12)		$333.33
Cash	$101,000
Interest Receivable ($100,000 x 4% x 3/12)		$1,000
Note Receivable		$100,000

2.

Account Titles and Explanation	Debit	Credit
Sales Revenue	$1,456.31
Sales Tax Payable ($50,000 /103x3)		$1,456.31

Sales Tax Payable account balance = $1456.31

Sales Revenue account = $50,000 - $1456.31 = $48,543.69