Problem 10-1A (Part Level Submission) On January 1, 2017, the ledger of Accardo Company contains the following liability accounts. Accounts Payable $52,000 Sales Taxes Payable 7,700 Unearned Service Revenue 16,000 During January, the following selected transactions occurred. Jan. 5 Sold merchandise for cash totaling $20,520, which includes 8% sales taxes. 12 Performed services for customers who had made advance payments of $10,000. (Credit Service Revenue.) 14 Paid state revenue department for sales taxes collected in December 2016 ($7,700). 20 Sold 900 units of a new product on credit at $50 per unit, plus 8% sales tax. 21 Borrowed $27,000 from Girard Bank on a 3-month, 8%, $27,000 note. 25 Sold merchandise for cash totaling $12,420, which includes 8% sales taxes.

Explanation:

The journal entries are shown below:

On  Jan 05

Cash$20,520

             To Sales  $19,000             ($20,520 ÷ 1.08)

              To Sales Tax Payable      $1,520    ($20,520 × 0.08 ÷ 1.08)

(Being the merchandise is sold for cash)

On Jan 12

Unearned Service Revenue$10,000

               To Service Revenue  $10,000

(Being the unearned service revenue is recorded)

On Jan 14

Sales Tax Payable     $7,700.

           To Cash      $7,700

(Being the sales tax payable is recorded)

On Jan 20

Accounts Receivable$48,600

                To Sales  $45,000     (900 units × $50)

                 To Sales Tax Payable      $3,600      ($45,000 × .08)

(Being sales is recorded)

On Jan 21

Cash$27,000  

          To Short term note payable  $27,000

(Being the borrowed amount is recorded)

On Jan 25

Cash$12,420  

         To Sales  $11,500       ($12,420  ÷ 1.08)

          To Sales Tax Payable         $920         ($11,500 ×.08)

(Being the merchandise sold for cash is recorded)

The closing entries are as follows

On Jan 31

Interest Expense           $60  

              To Interest Payable            $60

(Being the interest expense is recorded)

The computation is shown below:

= $27,000 × 8% ÷ 3 months ÷ 12 months

= $60

The current liabilities section is presented below:  

                                   Current liabilities section

Accounts Payable$52,000  

Sales Tax Payable     $6,040  

Short term note payable$27,000  

Interest Payable on note           $60  

Unearned Service Revenue     $6,000  

Total Current Liabilities             $91,100