Reference no: EM132951782

Saint Nick Inc. is gearing up for the holiday season. The following transactions and events have occurred:

Dec. 1 Borrowed $20,000 from the Far NorthBank for three years, at 6% interest. Interest is due on the first day of every month, starting on January 1 next year.

Dec. 5 Hired seven elves to package toys (they start work tomorrow) and nine reindeer to deliver them on Christmas Eve.

Dec. 24 Since they were hired, the seven elves have worked for 14 days each, 7.5 hours per day, and today Santa pays them $22 per hour.

Dec. 24 As the North Pole is in Canada, Santa has deducted the following in total from the elves' pay: EIT $2525; CPP $550; and EI $350. The appropriate employer portion is also accrued

Dec. 26 The deliveries were successful and the reindeer are paid with apples, oats, honey, and whatever milk and cookies Santa was able to take away.

Dec. 28 Santa's accountants, Scrooge, Grinch & Partners, tell Santa that he owes $8000 for last year's income taxes. He has not paid this amount yet. It will be paid in April.

Dec. 31 The first interest amount on the loan, due tomorrow, is accrued.

Jan. 1 The bank deducts the interest from Santa's account.

Jan. 15 Santa pays Revenue Canada the amount owed with respect to the elves' payroll.

Problem 1: How does Santa record the December 1 transaction?

a) no entry needed until the loan is paid

b) increase both Cash and Retained Earnings

c) increase both Cash and Accounts Payable

d) increase both Cash and Bank Loan Payable

e) increase both Cash and Owner's Equity

Problem 2: Which of the above items are events, not transactions, and require no entry?

a) December 5, 26, and 28

b) December 5 and 26 only

c) December 24, 26, and 28

d) All of the items are transactions which require entries.

e) December 5, 24, and 26

Problem 3: How does Santa record the December 28 transaction?

a) Increase Income Tax Expense and decrease Cash

b) increase both Income Tax Payable and EIT Expense

c) increase both Income Tax Payable and Income Tax Expense

d) increase both EIT Payable and Income Tax Expense

e) increase both EIT Payable and EIT Expense

Problem 4: How does Santa record the interest accrual on December 31?

a) increase both Interest Payable and Interest Expense

b) increase both Accounts Payable and Interest Expense

c) no entry required

d) increase both Interest Payable and Bank Fee Expense

e) increase both Bank Loan Payable and Interest Expense

f) increase both Accounts Payable and Bank Fee Expense

Problem 5: How does Santa record the interest payment on January 1?

a) decrease both Accounts Payable and Cash

b) decrease both Bank Loan Payable and Cash

c) decrease both Interest Payable and Cash

d) decrease both Interest Expense and Cash

e) decrease Interest Payable, Bank Loan Payable, and Cash

Problem 6: Which accounts will be affected, and how, by the January 15 payment? Select all that apply.

a) Employee Benefits Expense decreases

b) Wages Expense increases

c) Employee Benefits Expense increases

d) Wages Payable increases

e) EIT Payable increases

f) CPP Payable decreases

g) EI Payable decreases

h) Wages Expense decreases

i) Cash decreases

j) Wages Payable decreases

k) CPP Payable increases

l) EI Payable increases

m) Cash increases

n) EIT Payable decreases