PR 11-1A Liability transactions
The following items were selected from among the transactions completed by Isis Co. during the current year:
Feb 15. Purchased merchandise on account from Viper Co., $260,000, terms n/30.
Mar. 17. Issued a 45-day, 5% note for $260,000 to Viper Co., on account.
May 1. Paid Viper Co. the amount owed on the note of March 17.
June 15. Borrowed $300,000 from Ima Bank, issuing a 60-day, 9% note.
July 21. Purchased tools by issuing a $240,000, 60-day note to Charger Co., which discounted the note at the rate of 7%.
Aug. 14. Paid Ima Bank the interest due on the note of June 15 and renewed the loan by issuing a new 30-day, 10% note for $300,000. (Journalize both the debit and credit to the notes payable account.)
Sept. 13. Paid Ima Bank the amount due on the note of August14.
19. Paid Charger Co. the amount due on the note of July 21.
Dec. 1. Purchased offi ce equipment from Challenger Co. for $235,000, paying $35,000 and issuing a series of ten 7.5% notes for $20,000 each, coming due at 30-day intervals.
12. Settled a product liability lawsuit with a customer for $121,600, payable in January. Isis accrued the loss in a litigation claims payable account.
31. Paid the amount due Challenger Co. on the fi rst note in the series issued on December 1.
Instructions
1. Journalize the transactions.
2. Journalize the adjusting entry for each of the following accrued expenses at the end of the current year: (a) product warranty cost, $26,240; (b) interest on the nine remaining notes owed to Challenger Co.
Answer:
1.
Feb. 15 Merchandise Inventory ........................................ 260,000
Accounts Payable—Viper Co. ....................... 260,000
Mar. 17 Accounts Payable—Viper Co. ............................ 260,000
Notes Payable ................................................. 260,000
May 1 Notes Payable....................................................... 260,000
Interest Expense ($260,000 × 45/360 × 5%)........ 1,625
Cash................................................................. 261,625
June 15 Cash ...................................................................... 300,000
Notes Payable ................................................. 300,000
July 21 Tools ..................................................................... 237,200
Interest Expense ($240,000 × 60/360 × 7%)........ 2,800
Notes Payable ................................................. 240,000
Aug. 14 Notes Payable....................................................... 300,000
Interest Expense ($300,000 × 60/360 × 9%)........ 4,500
Notes Payable ................................................. 300,000
Cash................................................................. 4,500
Sept. 13 Notes Payable....................................................... 300,000
Interest Expense ($300,000 × 30/360 × 10%)...... 2,500
Cash................................................................. 302,500
19 Notes Payable....................................................... 240,000
Cash................................................................. 240,000
Dec. 1 Office Equipment ................................................. 235,000
Notes Payable ................................................. 200,000
Cash................................................................. 35,000
12 Litigation Loss...................................................... 121,600
Litigation Claims Payable .............................. 121,600
31 Notes Payable....................................................... 20,000
Interest Expense ($20,000 × 30/360 × 7.5%)....... 125
Cash................................................................. 20,125
2. a. Product Warranty Expense ..................................... 26,240
Product Warranty Payable ................................. 26,240
Warranty expense for the current year.
b. Interest Expense ...................................................... 1,125
Interest Payable .................................................. 1,125
Interest on notes, $20,000 × 7.5% ×
30/360 × 9.
Feb 15. Purchased merchandise on account from Viper Co., $260,000, terms n/30.
Mar. 17. Issued a 45-day, 5% note for $260,000 to Viper Co., on account.
May 1. Paid Viper Co. the amount owed on the note of March 17.
June 15. Borrowed $300,000 from Ima Bank, issuing a 60-day, 9% note.
July 21. Purchased tools by issuing a $240,000, 60-day note to Charger Co., which discounted the note at the rate of 7%.
Aug. 14. Paid Ima Bank the interest due on the note of June 15 and renewed the loan by issuing a new 30-day, 10% note for $300,000. (Journalize both the debit and credit to the notes payable account.)
Sept. 13. Paid Ima Bank the amount due on the note of August14.
19. Paid Charger Co. the amount due on the note of July 21.
Dec. 1. Purchased offi ce equipment from Challenger Co. for $235,000, paying $35,000 and issuing a series of ten 7.5% notes for $20,000 each, coming due at 30-day intervals.
12. Settled a product liability lawsuit with a customer for $121,600, payable in January. Isis accrued the loss in a litigation claims payable account.
31. Paid the amount due Challenger Co. on the fi rst note in the series issued on December 1.
Instructions
1. Journalize the transactions.
2. Journalize the adjusting entry for each of the following accrued expenses at the end of the current year: (a) product warranty cost, $26,240; (b) interest on the nine remaining notes owed to Challenger Co.
Answer:
1.
Feb. 15 Merchandise Inventory ........................................ 260,000
Accounts Payable—Viper Co. ....................... 260,000
Mar. 17 Accounts Payable—Viper Co. ............................ 260,000
Notes Payable ................................................. 260,000
May 1 Notes Payable....................................................... 260,000
Interest Expense ($260,000 × 45/360 × 5%)........ 1,625
Cash................................................................. 261,625
June 15 Cash ...................................................................... 300,000
Notes Payable ................................................. 300,000
July 21 Tools ..................................................................... 237,200
Interest Expense ($240,000 × 60/360 × 7%)........ 2,800
Notes Payable ................................................. 240,000
Aug. 14 Notes Payable....................................................... 300,000
Interest Expense ($300,000 × 60/360 × 9%)........ 4,500
Notes Payable ................................................. 300,000
Cash................................................................. 4,500
Sept. 13 Notes Payable....................................................... 300,000
Interest Expense ($300,000 × 30/360 × 10%)...... 2,500
Cash................................................................. 302,500
19 Notes Payable....................................................... 240,000
Cash................................................................. 240,000
Dec. 1 Office Equipment ................................................. 235,000
Notes Payable ................................................. 200,000
Cash................................................................. 35,000
12 Litigation Loss...................................................... 121,600
Litigation Claims Payable .............................. 121,600
31 Notes Payable....................................................... 20,000
Interest Expense ($20,000 × 30/360 × 7.5%)....... 125
Cash................................................................. 20,125
2. a. Product Warranty Expense ..................................... 26,240
Product Warranty Payable ................................. 26,240
Warranty expense for the current year.
b. Interest Expense ...................................................... 1,125
Interest Payable .................................................. 1,125
Interest on notes, $20,000 × 7.5% ×
30/360 × 9.
