Polly's Cards & Gifts Shop had the following transactions during the year:

Polly's purchased inventory on account from a supplier for $7,770. Assume that Polly's uses a periodic inventory system.

On May 1, land was purchased for $49,200. A 20% down payment was made, and an 18-month, 6% note was signed for the remainder.

Polly's returned $420 worth of inventory purchased in (a), which was found broken when the inventory was received.

Polly's paid the balance due on the purchase of inventory.

On June 1, Polly signed a one-year, $13,000 note to First State Bank and received $12,090.

Polly's sold 240 gift certificates for $20 each for cash. Sales of gift certificates are recorded as a liability. At year-end, 38% of the gift certificates had been redeemed.

Sales for the year were $140,000, of which 70% were for cash. State sales tax of 6% applied to all sales must be remitted to the state by January 31.

Required:

1. Record the journal entry relating to the transaction (a). How does this entry affect the accounting equation? Indicate the effect on financial statement items by selecting "" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement.

Journal

Balance Sheet

Income Statement

Stockholders

Net

Description

Debit

Credit

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

a.

Record the journal entry relating to the transaction (b). How does this entry affect the accounting equation? Indicate the effect on financial statement items by selecting "" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement.

Journal

Balance Sheet

Income Statement

Stockholders

Net

Description

Debit

Credit

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

b.

Record the journal entry relating to the transaction (c). How does this entry affect the accounting equation? Indicate the effect on financial statement items by selecting "" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement.

Journal

Balance Sheet

Income Statement

Stockholders

Net

Description

Debit

Credit

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

c.

Record the journal entry relating to the transaction (d). How does this entry affect the accounting equation? Indicate the effect on financial statement items by selecting "" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement.

Journal

Balance Sheet

Income Statement

Stockholders

Net

Description

Debit

Credit

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

d.

Record the journal entry relating to the transaction (e). How does this entry affect the accounting equation? Indicate the effect on financial statement items by selecting "" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement.

Journal

Balance Sheet

Income Statement

Stockholders

Net

Description

Debit

Credit

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

e.

Record the journal entry relating to the transaction (f). How does this entry affect the accounting equation? Indicate the effect on financial statement items by selecting "" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement.

Journal

Balance Sheet

Income Statement

Stockholders

Net

Description

Debit

Credit

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

f.

Record the journal entry relating to the transaction (g). How does this entry affect the accounting equation? Indicate the effect on financial statement items by selecting "" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement.

Journal

Balance Sheet

Income Statement

Stockholders

Net

Description

Debit

Credit

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

g.

2. Assume that Polly's accounting year ends on December 31. Prepare any necessary adjusting journal entries. Do not round intermediate calculations. If required, round your final answers to the nearest cent. Use full months instead of days when calculating interest expense.

(b) Record accrued interest on note payable. How does this entry affect the accounting equation? Indicate the effect on financial statement items by selecting "" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement.

Journal

Balance Sheet

Income Statement

Stockholders

Net

Description

Debit

Credit

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

b.

(e) Record interest in advance as interest expense. How does this entry affect the accounting equation? Indicate the effect on financial statement items by selecting "" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement.

Journal

Balance Sheet

Income Statement

Stockholders

Net

Description

Debit

Credit

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

e.

(f) Record gift certificates redeemed. How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign.

Journal

Balance Sheet

Income Statement

Stockholders

Net

Description

Debit

Credit

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

f.

3. What is the total of the current liabilities