On January 1, 2017, the ledger of Khan plc contains the following liability accounts.
Accounts Payable........................£52,000
Sales Taxes Payable........................7,700
Unearned Service Revenue...............16,000
During January, the following selected transactions occurred.
Jan. 5 Sold merchandise for cash totaling £17,496, which includes 8% sales taxes.
12 Performed services for customers who had made advance payments of £10,000. (Credit Service Revenue.)
14 Paid revenue department for sales taxes collected in December 2016 (£7,700).
20 Sold 600 units of a new product on credit at £54 per unit, plus 8% sales tax. This new product is subject to a 1-year warranty.
21 Borrowed £18,000 from Commerce Bank on a 3-month, 6%, £18,000 note.
25 Sold merchandise for cash totaling £12,420, which includes 8% sales taxes.
Instructions
(a) Journalize the January transactions.
(b) Journalize the adjusting entries at January 31 for
(1) The outstanding notes payable, and
(2) Estimated warranty liability, assuming warranty costs are expected to equal 5% of sales of the new product.
(c) Prepare the current liabilities section of the statement of financial position at January 31, 2017. Assume no change in accounts payable.