Question

Lynbrook Securities engaged in the following transactions during 2020:

1. Purchased $160,000 of supplies from Scan House Supplies on February 1, terms 2/15, net 30. Use the Net Method to record the purchase.

2. Paid for the purchase of merchandise (Transaction 1) on February 26.

3. On April 1 negotiated a payment extension with Capital Products for a $10,000 Accounts Payable balance by signing a 1-year, 9% note.

4. Borrowed $200,000 on a 9-month, 6% interest-bearing note on May 31.

5. Purchased $78,000 of merchandise on June 4, terms 2/15, net 30. Use the Net Method to record the purchase.

6. Paid for the purchased merchandise (Transaction 5) on June 16.

7. Received from Scan House Inc. on August 20, a $20,000 deposit against a total selling price of $120,000 for services to be performed for Scan House during the 4th quarter of the year.

8. Paid quarterly installments of Social Security and Medicare and individual income tax withholdings, as shown below, on October 15. The Social Security and Medicare were recorded as expenses during the previous quarter ending September 30. The amounts paid represent both the employee and employer shares (50% each): a. Social Security taxes withheld $185,000 b. Medicare taxes withheld 43,266 c. Federal income taxes withheld 319,000

9. On December 10, Lynbrook completed the services ordered by Scan House on August 20. Scan House’s remaining balance of $100,000 is due on January 9. Required:

1. Prepare journal entries for these transactions. 2. Prepare any adjusting journal entries required at December 31, 2020 relating to the above transactions.

Answer 1

1.

Date	General Journal	Debit	Credit
Feb. 1	Supplies ($160000 x 0.98)	156800
	Accounts payable		156800
	(To record supplies purchased on account)
Feb. 26	Accounts payable	156800
	Supplies	3200
	Cash		160000
	(To record payment on account)
Apr. 1	Accounts payable	10000
	Notes payable		10000
	(To record note issued against account payable)
May 31	Cash	200000
	Notes payable		200000
	(To record amount borrowed against note)
June 4	Merchandise inventory ($78000 x 0.98)	76440
	Accounts payable		76440
	(To record merchandise purchased on account)
June 16	Accounts payable	76440
	Cash		76440
	(To record payment on account)
Aug. 20	Cash	20000
	Unearned revenue		20000
	(To record receipt of unearned revenue)
Oct. 15	Social security taxes payable (2 x $185000)	370000
	Medicare taxes payable (2 x $43266)	86532
	Employees' federal income taxes payable	319000
	Cash		775532
	(To record payment of quarterly installments)
Dec. 10	Unearned revenue	20000
	Accounts receivable	100000
	Service revenue		120000
	(To record service revenue earned)

2.

Date	General Journal	Debit	Credit
Dec. 31	Interest expense ($10000 x 9% x 9/12)	675
	Interest payable		675
	(To record interest accrued on Capital Product note)
Dec. 31	Interest expense ($200000 x 6% x 7/12)	7000
	Interest payable		7000
	(To record interest accrued on borrowing)