The following selected transactions were taken from the books of Ripley Company
ID: 2529585 • Letter: T
Question
The following selected transactions were taken from the books of Ripley Company for 2016: 1. On February 1, 2016, borrowed $56,000 cash from the local bank. The note had a 7 percent interest rate and was due on June 1, 2016 2. Cash sales for the year amounted to $240,000 plus sales tax at the rate of 6 percent. 3. Ripley provides a 90-day warranty on the merchandise sold. The warranty expense is estimated to be 3 percent of sales. 4. Paid the sales tax to the state sales tax agency on $190,000 of the sales. 5. Paid the note due on June 1 and the related interest. 6. On November 1, 2016, borrowed $38,000 cash from the local bank. The note had a 7 percent interest rate and a one-year term to maturity. 7. Paid $3,600 in warranty repairs. 8. A customer has filed a lawsuit against Ripley for $100,000 for breach of contract. The company attorney does not believe the suit has merit. Required a. Answer the following questions: 1. What amount of cash did Ripley pay for interest during 2016? (Round your answer nearest dollar amount.) Cash paid for interest 2. What amount of interest expense is reported on Ripley's income statement for 2016? (Round your answer nearest dollar amount.) nterest expense 3. What is the amount of warranty expense for 2016? Warranty expenseExplanation / Answer
1)
Interest paid in cash
(march 1 - Sept 1)
57,000*6%*6/12=
1710
2)
Amount of interest expense reported
interest expense of March1,2016 loan
1,710
Interest expense accrued from oct1-dec 31
(37,000*7%*3/12)
647.5
total interest expense reported
2358
3)
Warranty expense for the year
$250,000*3%
7500
4)
Balance Sheet
Current liabilities
income tax payable
648
Warranty liability
3600
Sales tax payable
3600
Note payable (short term)
37,000
total current liabilities
44848
Law suit will only be reported in notes to financial statements.
warranty liability
7500
paid
-3900
warranty liability
3600
Sales tax payable (250000*6%)
15000
Paid (190000*6%)
-11400
sales tax payable at year end
3600
5)
Horizontal Statements Model
Event
Assets
liabilities
Equity
revenue
expense
net income
stat Cash fl
1
57000
57000
57000
FA
2
265000
15000
250000
250000
250000
265000
OA
3
7500
-7500
-7500
-7500
4
-11400
-11400
-11400
OA
5a
-57000
-57000
-57000
FA
5b
-1710
-1710
-1710
-1710
-1710
OA
6
37000
37000
37000
FA
7
-3900
-3900
-3900
OA
8
No Effect
total
284990
44200
240790
250000
-9210
240790
284990
1)
Interest paid in cash
(march 1 - Sept 1)
57,000*6%*6/12=
1710
2)
Amount of interest expense reported
interest expense of March1,2016 loan
1,710
Interest expense accrued from oct1-dec 31
(37,000*7%*3/12)
647.5
total interest expense reported
2358
3)
Warranty expense for the year
$250,000*3%
7500
4)
Balance Sheet
Current liabilities
income tax payable
648
Warranty liability
3600
Sales tax payable
3600
Note payable (short term)
37,000
total current liabilities
44848
Law suit will only be reported in notes to financial statements.
warranty liability
7500
paid
-3900
warranty liability
3600
Sales tax payable (250000*6%)
15000
Paid (190000*6%)
-11400
sales tax payable at year end
3600
5)
Horizontal Statements Model
Event
Assets
liabilities
Equity
revenue
expense
net income
stat Cash fl
1
57000
57000
57000
FA
2
265000
15000
250000
250000
250000
265000
OA
3
7500
-7500
-7500
-7500
4
-11400
-11400
-11400
OA
5a
-57000
-57000
-57000
FA
5b
-1710
-1710
-1710
-1710
-1710
OA
6
37000
37000
37000
FA
7
-3900
-3900
-3900
OA
8
No Effect
total
284990
44200
240790
250000
-9210
240790
284990