AC1220 Lab 5.3 Introduction Jake’s Computer Sales and Repair acquired land, land improvements, and a building in exchange for a $180,000 note payable. The building was renovated at a cost of $15,000 before being placed into use. The cost of the renovation work was capitalized, and Jake’s Computer Sale and Repair signed a note payable for the full amount. Notes payable are dated June 1, 20x1, totaling $195,000. The notes are payable over 10 years at an annual interest rate of 6 percent. The principal is to be repaid in equal annual installments of $19,500 each. Interest and principal payments are scheduled for June 1 each year, from 20x1 to 2x11. Requirement 1 a. Journalize the issuance of the long-term note payable. Date Account and Explanation Debit Credit 6/1/x1 To record long-term note payable b. Compute the interest accrued on the long-term notes payable at December 31, 20x1. b. Journalize the accrual of interest at December 31, 20x1. Date Account and Explanation Debit Credit 12/31/x1 To accrue interest on long-term note payable c. Make the entry necessary at December 31, 20x1, to reclassify the first principal installment on the note payable as the current portion of the long-term notes payable. Date Account and Explanation Debit Credit 12/31/x1 To accrue interest on long-term note payable AC1220 ACCOUNTING I Lab 5.3 1 d. Enter the correct amounts into the shaded cells of the following partial balance sheet dated December 31, 20x1: In the Income Statement for the Year Ended Dec. 31, 20x1 In the Balance Sheet at Dec. 31, 20x1 Expenses Current Liabilities Interest Expense Current Portion of Long-Term Notes Payable Long-Term Liabilities Long-Term Notes Payable Requirement 2 Jake is considering raising additional cash by issuing $100,000 in bonds with a stated interest rate of 6 percent and a maturity of 10 years. a. Compute the annual interest payment on the bonds payable. b. Compute the present value of the bonds if the market interest rate is 8 percent. To compute the present value of the bonds, you can use the present value tables in Appendices B-1 and B-2 of your textbook, or you can set up the following formulas using Microsoft Excel: c. Would these bonds be issued at a discount or at a premium? Explain. d. Compute the bond discount or premium. e. Journalize the issue of the bonds. Date Account and Explanation Debit Credit 6/1/x1 To accrue interest on long-term note payable f. Compute the amount by which the discount or premium would be amortized in each period, assuming straight-line amortization. AC1220 Lab 5.2 Introduction On July 25, 20x1, Jake’s Computer Sales and Repair enters into an agreement with Inner-Tech, a local computer software development firm. Inner-Tech pays Jake’s Computer Sales and Repair $45,000 in advance for ongoing computer repair services. At year-end, Jake determines that $38,500 of this amount has been e.

1. AC1220 Lab 5.3
Introduction
Jake’s Computer Sales and Repair acquired land, land
improvements, and a building in exchange for a $180,000 note
payable. The building was renovated at a cost of $15,000 before
being placed into use. The cost of the renovation work was
capitalized, and Jake’s Computer Sale and Repair signed a note
payable for the full amount.
Notes payable are dated June 1, 20x1, totaling $195,000. The
notes are payable over 10 years at an annual interest rate of 6
percent. The principal is to be repaid in equal annual
installments of $19,500 each. Interest and principal payments
are scheduled for June 1 each year, from 20x1 to 2x11.
Requirement 1
a. Journalize the issuance of the long-term note payable.
Date
Account and Explanation
Debit
Credit
6/1/x1
To record long-term note payable

2. b. Compute the interest accrued on the long-term notes payable
at December 31, 20x1.
b. Journalize the accrual of interest at December 31, 20x1.
Date
Account and Explanation
Debit
Credit
12/31/x1
To accrue interest on long-term note payable
c. Make the entry necessary at December 31, 20x1, to
reclassify the first principal installment on the note payable as
the current portion of the long-term notes payable.

3. Date
Account and Explanation
Debit
Credit
12/31/x1
To accrue interest on long-term note payable
AC1220 ACCOUNTING I
Lab 5.3
1
d. Enter the correct amounts into the shaded cells of the
following partial balance sheet dated December 31, 20x1:
In the Income Statement for the Year Ended
Dec. 31, 20x1
In the Balance Sheet at Dec. 31, 20x1
Expenses
Current Liabilities
Interest Expense
Current Portion of Long-Term Notes Payable

4. Long-Term Liabilities
Long-Term Notes Payable
Requirement 2
Jake is considering raising additional cash by issuing $100,000
in bonds with a stated interest rate of 6 percent and a maturity
of 10 years.
a. Compute the annual interest payment on the bonds
payable.
b. Compute the present value of the bonds if the market
interest rate is 8 percent. To compute the present value of the
bonds, you can use the present value tables in Appendices B-1
and B-2 of your textbook, or you can set up the following
formulas using Microsoft Excel:
c. Would these bonds be issued at a discount or at a
premium? Explain.
d. Compute the bond discount or premium.

5. e. Journalize the issue of the bonds.
Date
Account and Explanation
Debit
Credit
6/1/x1
To accrue interest on long-term note payable
f. Compute the amount by which the discount or premium
would be amortized in each period, assuming straight-line
amortization.
AC1220 Lab 5.2
Introduction

6. On July 25, 20x1, Jake’s Computer Sales and Repair enters into
an agreement with Inner-Tech, a local computer software
development firm. Inner-Tech pays Jake’s Computer Sales and
Repair $45,000 in advance for ongoing computer repair
services. At year-end, Jake determines that $38,500 of this
amount has been earned.
Requirement 1
a. Journalize the unearned revenue transaction on July 25, 20x1.
DATE
Account and Explanation
DEBIT
CREDIT
Jul 25
To record unearned revenue
b. Journalize the necessary adjustment for December 31, 20x1.
DATE
Account and Explanation
DEBIT
CREDIT

7. Dec 31
To adjust unearned revenue
Requirement 2
Analysis shows that around 2 percent of A-line sales require
after-sale repairs. Beginning July 1, 20x1, Jake’s Computer
Sales and Repair provides customers with a limited product
warranty on each A-line computer sold. Sales of A-line
computers total to $74,500 in July 20x1.
a. Compute the estimated warranty expense payable amount.
b. Journalize the estimated warrantee expense.
DATE
Account and Explanation
DEBIT

8. CREDIT
Jul 31
To accrue warranty payable
c. Actual repairs made during August 20x1 to products under
warranty results in cash expenditures of $800. Journalize the
warranty repair cost.
DATE
Account and Explanation
DEBIT
CREDIT
Aug 30

9. To accrue warranty payable
d. At what amount is warranty expense reported on the income
statement for the month ended August 20x1?
Requirement 3
Jake’s Computer Sales and Repair has one employee, Dave, who
earns a monthly gross salary of $3,415 for the month of August
20x1. So far, in 20x1, Dave has earned a gross salary amounting
to $23,905.
Jake’s Computer Sales and Repair withholds the following
amounts from Dave’s gross salary:
· Social Security taxes and Medicare taxes—Federal Insurance
Contributions Act (FICA)—at 7.65 percent of gross salary up to
$106,800
· Income tax withheld: 10 percent
· Other amounts withheld:
· Health insurance: $200 per month
· Retirement plan contribution: $400 per pay period
· Charitable contribution: $20 per pay period
AC1220 ACCOUNTING I
Lab 5.2

10. 3
a. Compute Dave’s net salary by completing the following table:
Gross pay:
Less withholding deductions:
Income tax
Employee FICA tax
Health insurance
Employee retirement contribution
Employee charitable contribution
Net pay
b. Journalize salaries, payroll taxes, and benefits payable. In
addition, journalize the salary payment.
DATE
DEBIT

11. CREDIT
Aug 31
To record salaries payable
DATE
DEBIT
CREDIT
31

12. To record payment of salary
c. As Dave’s employer, Jake’s Computer Sales and Repair must
also make a payroll tax payment. Journalize the entry to record
employer payroll taxes.
DATE
DEBIT
CREDIT
Aug 31

13. To record employer payroll taxes
DATE
DEBIT
CREDIT
Aug 31
To record payment of payroll taxes to government
d. Journalize the payment of taxes to the federal government.