StJohn Laurulry (SJL)recently Hired Huck as Its Payable Clerk,a Position

question 75

Essay

St.John Laurulry (SJL)recently hired Huck as its payable clerk,a position that has been vacant for two months.While the other accounting staff have taken care of the "must do's," there are a number of transactions that have not yet been recorded.
• Nov.15,2017-SJL purchases $8,000 supplies inventory on account.The terms offered are 2/10,net 30.
• Nov.22,2017-SJL purchases 10 washing machines.SJL issues a $3,000 non-interest bearing note payable due on 01/15/18.
• Nov.28,2017-SJL borrows $131,400 from the bank.SJL signs a demand note for this amount and authorizes the bank to take the interest payments from its bank account.Interest is payable monthly at 10% per annum.
• Dec.18,2017-SJL purchases $1,000 supplies inventory on account.The terms offered are 2/10,net 30.
• Dec.21,2017-SJL purchases 15 dryers.SJL issues a $25,000 non-interest bearing note payable due on Dec.21,2018.
• Dec.22,2017-Huck pays the Nov.15,2017 and Dec.18,2017 invoices.
• Dec.31,2017-Huck processes the payroll for the month.The gross payroll is $80,000; $2,700 is withheld for the employees' Canada Pension Plan and Employment Insurance premiums.
Other Info
• SJL uses the net method to record accounts payable.
• SJL's year-end is Dec.31 and interim statements are normally prepared on a monthly basis.
• Due to the vacancy in the accounting department,SJL's latest interim statements are for the period ended Oct.31,2017.The necessary accruals were made at that time.
• The market rate of interest for SJL's short-term borrowings is 10%.
Requirements:
a.Prepare journal entries to record the documented events and the necessary accruals for the months of November and December.Compute interest accruals based on the number of days,rather than months.
b.Contrast the gross and net methods of accounting for trade payables.

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Definitions:

Profit and Loss Ratio

An indicator that measures the ratio of profits earned to losses incurred over a particular period, often used to assess a company's financial health.

Income Summary

A temporary account in the ledger that summarizes revenue and expenses and transfers the balance (net income or net loss) to Capital. This account does not have a normal balance, i.e. it could have a debit or a credit balance.

Capital Balances

The amounts recorded in the capital accounts of a company or partnership, reflecting the initial capital contributions and subsequent changes including profits earned and withdrawals.

Losses

Financial reductions resulting from business activities, such as the sale of assets for less than their book value or operational losses.