The following selected transactions were taken from the books ofRipley Company for Year 1:On...The...

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Accounting

The following selected transactions were taken from the books ofRipley Company for Year 1:
On February 1, Year 1, borrowed $46,000 cash from the localbank. The note had a 6 percent interest rate and was due on June 1,Year 1.
Cash sales for the year amounted to $245,000 plus sales tax atthe rate of 7 percent.
Ripley provides a 90-day warranty on the merchandise sold. Thewarranty expense is estimated to be 2 percent of sales.
Paid the sales tax to the state sales tax agency on $185,000 ofthe sales.
Paid the note due on June 1 and the related interest.
On November 1, Year 1, borrowed $37,000 cash from the localbank. The note had a 6 percent interest rate and a one-year term tomaturity.
Paid $3,200 in warranty repairs.
A customer has filed a lawsuit against Ripley for $8 millionfor breach of contract. The company attorney does not believe thesuit has merit.
Required
a. Answer the following questions:
1. What amount of cash did Ripley pay for interestduring Year 1?
2. What amount of interest expense is reported onRipley’s income statement for Year 1?
3. What is the amount of warranty expense for Year1?
b. Prepare the current liabilities section of thebalance sheet at December 31, Year 1.
c. Show the effect of these transactions on thefinancial statements using a horizontal statements model like theone below. Use + for increase or ? for decrease. In the Cash Flowcolumn, indicate whether the item is an operating activity (OA),investing activity (IA), or financing activity (FA). Columns forevents that have no effect on any of the elements should be leftblank. The first transaction has been recorded as an example.
1. Cash paid for interest
2. Interest expense
3. Warranty expense
RIPLEY COMPANY
Balance Sheet (Partial)
As of December 31, Year 1
Current liabilities
Total currentliabilities $0
RIPLEY COMPANY
Horizontal Statements Model
Event Assets = Liabilities + Equity Revenue – Expense = Net Income Cash Flow
1. + = + + – = + FA
2. = + – =
3. = + – =
4. = + – =
5a. = + – =
5b. = + – =
6. = + – =
7. = + – =
8. = + – =

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Transcribed Image Text

In: AccountingThe following selected transactions were taken from the books ofRipley Company for Year 1:On...The following selected transactions were taken from the books ofRipley Company for Year 1:On February 1, Year 1, borrowed $46,000 cash from the localbank. The note had a 6 percent interest rate and was due on June 1,Year 1.Cash sales for the year amounted to $245,000 plus sales tax atthe rate of 7 percent.Ripley provides a 90-day warranty on the merchandise sold. Thewarranty expense is estimated to be 2 percent of sales.Paid the sales tax to the state sales tax agency on $185,000 ofthe sales.Paid the note due on June 1 and the related interest.On November 1, Year 1, borrowed $37,000 cash from the localbank. The note had a 6 percent interest rate and a one-year term tomaturity.Paid $3,200 in warranty repairs.A customer has filed a lawsuit against Ripley for $8 millionfor breach of contract. The company attorney does not believe thesuit has merit.Requireda. Answer the following questions:1. What amount of cash did Ripley pay for interestduring Year 1?2. What amount of interest expense is reported onRipley’s income statement for Year 1?3. What is the amount of warranty expense for Year1?b. Prepare the current liabilities section of thebalance sheet at December 31, Year 1.c. Show the effect of these transactions on thefinancial statements using a horizontal statements model like theone below. Use + for increase or ? for decrease. In the Cash Flowcolumn, indicate whether the item is an operating activity (OA),investing activity (IA), or financing activity (FA). Columns forevents that have no effect on any of the elements should be leftblank. The first transaction has been recorded as an example.1.Cash paid for interest2.Interest expense3.Warranty expenseRIPLEY COMPANYBalance Sheet (Partial)As of December 31, Year 1Current liabilitiesTotal currentliabilities$0RIPLEY COMPANYHorizontal Statements ModelEventAssets=Liabilities+EquityRevenue–Expense=Net IncomeCash Flow1.+=++–=+FA2.=+–=3.=+–=4.=+–=5a.=+–=5b.=+–=6.=+–=7.=+–=8.=+–=