Problem 9-20B: Accounting for Short-Term Debt and Sales Tax

Accounting for Current Liabilities and Payroll

Problem 9-20B: Accounting for Short-Term Debt and Sales Tax—Two Accounting Cycles

The following transactions apply to Barclay Co. for Year 1, its first year of operations:

1. Received $50,000 cash from the issue of a short-term note with a 5 percent interest rate and a one-year maturity. The note was made on April 1, Year 1.
2. Received $140,000 cash plus applicable sales tax from performing services. The services are subject to a sales tax rate of 6 percent.
3. Paid $84,000 cash for other operating expenses during the year.
4. Paid the sales tax due on $110,000 of the service revenue for the year. Sales tax on the balance of the revenue is not due until Year 2.
5. Recognized the accrued interest at December 31, Year 1.

The following transactions apply to Barclay Co. for Year 2:

1. Paid the balance of the sales tax due for Year 1.
2. Received $155,000 cash plus applicable sales tax from performing services. The services are subject to a sales tax rate of 6 percent.
3. Repaid the principal of the note and applicable interest on April 1, Year 2.
4. Paid $96,000 of other operating expenses during the year.
5. Paid the sales tax due on $135,000 of the service revenue. The sales tax on the balance of the revenue is not due until Year 3.

Required:

a. Record the Year 1 transactions in general journal form.
b. Post the transactions to T-accounts.
c. Prepare a balance sheet, statement of changes in stockholders’ equity, income statement, and statement of cash flows for Year 1.
d. Prepare the closing entries and post them to the T-accounts.
e. Prepare a post-closing trial balance.
f. Repeat Requirements a through e for Year 2.