Question

Wave Marine Products had sales revenue of $850,000 for the year-ended December 31, 2017.

a. December revenue totaled $120,000, and in addition, Big Wave collected sales tax of 5%. The tax amount will be sent to the state of Florida early in January.
b. On August 31, Big Wave signed a six-month, 4% note payable to purchase a boat costing $85,000. The note requires payment of principal and interest at maturity
c. On August 31 Big Wave received cash of S2,400 in advance for service revenue. This revenue will be earned evenly over six months.
d. Revenues of $850,000 were covered by Big Wave service warranty. At January 1, estimated warranty payable was $11,600. During the year, Big Wave recorded warranty expense of $34,000 and paid warranty claims of $34,800.
e. Big Wave owes $70,000 on a long-term note payable. At December 31, 12% interest for the year plus $35,000 of this principal are payable within one year.

Required:
For each item, indicate the account and the related amount to be reported as a current liability on the Big Wave Marine balance sheet at December 31.

Answer 1

Answer: Check explanation

Step-by-step explanation:

a. Sales tax payable

Amount = $120,000 × 5%

= $120,000 × 0.05

= $6000

b. Notes payable, short term

Amount = $85000

Interest payable = $85000 × 4% × 4/12

= $1133.3

c. Unearned revenue

Amount: $2400 × 2/6

= $800

d. Accrued Warranty Payable

Amount = $11600 + $34000 - $34800

= $10800

e. Current portion of long term note payable

Amount = $35,000

Interest payable

Amount = $70000 × 12%

= $8400