Lyrtricks Ltd., which has a December 31 year end, had the following transactions

Question

Lyrtricks Ltd., which has a December 31 year end, had the following transactions in December 2016 and January 2017: 2016 Dec. 1 The company borrowed $108,000 from a bank on a five-year loan payable. The terms of the loan stipulate that Lyrtricks must repay 1/5 of the principal every November 30 plus the interest accrued to that date. The loan bears interest at 10% per annum. Dec. 31 Accrued warranty expense, which is estimated at 2% of sales for the month of $139,800. Dec. 31 Recorded employee wages for December. The wages earned by employees amounted to $10,700 and the company withheld CPP of $582, EI of $522, and income taxes of $2,354. Lyrtricks’ employer contributions were $582 for CPP and $731 for EI. Dec. 31 Recorded the adjusting entry to record the interest incurred on the bank loan during December. Dec. 31 Recorded the entry to reclassify the current portion of the bank loan. 2017 Jan. 2 The company paid the wages recorded on December 31. Jan. 10 A customer returned a defective product that was still under warranty. The product was not usable and the customer requested and received a full refund in the amount of $870. Jan. 15 Made the remittance to the government related to the December 31 payroll. a. Prepare all necessary journal entries related to the above transactions.

Explanation / Answer

JOURNAL ENTRIES

DATE PARTICULARS DEBIT($) CREDIT($) 12/1/16 BANK A/C DR 1,08,000 TO LOAN A/C 1,08,000 (BEING LOAN TAKEN) 12/31/16 WARRANTY EXPENSE A/C DR 2,796 TO ACCRUED WARRANTY EXPENSE 2,796 (BEING WARRANTY EXPENSE RECORDED) 12/31/16 WAGES A/C DR 10,700 TO DUES TO GOVERNMENT A/C 3,458 TO WAGES OUTSTANDING A/C 7,242 (BEING WAGES RECORDED) 12/31/16 CPP FOR EMPLOYEES A/C DR 582 EI FOR EMPLOYEES A/C DR 731 TO DUES TO GOVERNMENT A/C 1,313 (BEING EMPLOYER CONTRIBUTION RECORDED) 12/31/16 INTEREST A/C DR 900 TO ACCRUED INTEREST A/C 900 (BEING INTEREST RECORDED) 01/02/17 WAGES OUTSTANDING A/C DR 7,242 TO CASH A/C 7,242 (BEING WAGES PAID) 01/10/17 SALES A/C DR 870 TO CASH A/C 870 (BEING GOODS RETURNED RECORDED) 01/15/17 DUES TO GOVERNMENT A/C DR 4,771 TO CASH A/C 4,771 (BEING REMITTANCE TO GOVERNMENT MADE)

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