PR 11-1B Liability transactions
The following items were selected from among the transactions completed by Javelin, Inc. during the current year:
Mar. 1. Borrowed $80,000 from Nova Company, issuing a 30-day, 9% note for that amount.
15. Purchased equipment by issuing a $180,000, 180-day note to Shelby Manufacturing Co., which discounted the note at the rate of 7.5%.
31. Paid Nova Company the interest due on the note of March 1 and renewed the loan by issuing a new 60-day, 9% note for $80,000. (Record both the debit and credit to the notes payable account.) May 30. Paid Nova Company the amount due on the note of March 31.
July 6. Purchased merchandise on account from Pacer Co., $56,000, terms, n/30.
Aug. 5. Issued a 45-day, 8% note for $56,000 to Pacer Co., on account.
Sept. 11. Paid Shelby Manufacturing Co. the amount due on the note of March 15.
19. Paid Pacer Co. the amount owed on the note of August 5.
Nov. 16. Purchased store equipment from Gremlin Co. for $190,000, paying $40,000 and issuing a series of fi fteen 6% notes for $10,000 each, coming due at 30- day intervals.
Dec. 16. Paid the amount due Gremlin Co. on the fi rst note in the series issued on November 16.
21. Settled a personal injury lawsuit with a customer for $55,250, to be paid in January. Javelin, Inc. accrued the loss in a litigation claims payable account.
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, $13,520.
b. Interest on the 14 remaining notes owed to Gremlin Co.
Answer:
1.
Mar. 1 Cash ...................................................................... 80,000
Notes Payable ................................................. 80,000
15 Equipment............................................................. 173,250
Interest Expense ($180,000 × 180/360 × 7.5%)... 6,750
Notes Payable ................................................. 180,000
31 Notes Payable....................................................... 80,000
Interest Expense ($80,000 × 30/360 × 9%).......... 600
Notes Payable ................................................. 80,000
Cash................................................................. 600
May 30 Notes Payable....................................................... 80,000
Interest Expense ($80,000 × 60/360 × 9%).......... 1,200
Cash................................................................. 81,200
July 6 Merchandise Inventory ........................................ 56,000
Accounts Payable—Pacer Co........................ 56,000
Aug. 5 Accounts Payable—Pacer Co. ............................ 56,000
Notes Payable ................................................. 56,000
Sept. 11 Notes Payable....................................................... 180,000
Cash................................................................. 180,000
19 Notes Payable....................................................... 56,000
Interest Expense ($56,000 × 45/360 × 8%).......... 560
Cash................................................................. 56,560
Nov. 16 Store Equipment .................................................. 190,000
Notes Payable ................................................. 150,000
Cash................................................................. 40,000
Dec. 15 Notes Payable....................................................... 10,000
Interest Expense ($10,000 × 30/360 × 6%).......... 50
Cash................................................................. 10,050
21 Litigation Loss...................................................... 55,250
Litigation Claims Payable .............................. 55,250
2. a. Product Warranty Expense ..................................... 13,520
Product Warranty Payable ................................. 13,520
Warranty expense for the current year.
b. Interest Expense ...................................................... 1,050
Interest Payable .................................................. 1,050
Interest on notes, $10,000 × 6% × 45/360 × 14.
Mar. 1. Borrowed $80,000 from Nova Company, issuing a 30-day, 9% note for that amount.
15. Purchased equipment by issuing a $180,000, 180-day note to Shelby Manufacturing Co., which discounted the note at the rate of 7.5%.
31. Paid Nova Company the interest due on the note of March 1 and renewed the loan by issuing a new 60-day, 9% note for $80,000. (Record both the debit and credit to the notes payable account.) May 30. Paid Nova Company the amount due on the note of March 31.
July 6. Purchased merchandise on account from Pacer Co., $56,000, terms, n/30.
Aug. 5. Issued a 45-day, 8% note for $56,000 to Pacer Co., on account.
Sept. 11. Paid Shelby Manufacturing Co. the amount due on the note of March 15.
19. Paid Pacer Co. the amount owed on the note of August 5.
Nov. 16. Purchased store equipment from Gremlin Co. for $190,000, paying $40,000 and issuing a series of fi fteen 6% notes for $10,000 each, coming due at 30- day intervals.
Dec. 16. Paid the amount due Gremlin Co. on the fi rst note in the series issued on November 16.
21. Settled a personal injury lawsuit with a customer for $55,250, to be paid in January. Javelin, Inc. accrued the loss in a litigation claims payable account.
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, $13,520.
b. Interest on the 14 remaining notes owed to Gremlin Co.
Answer:
1.
Mar. 1 Cash ...................................................................... 80,000
Notes Payable ................................................. 80,000
15 Equipment............................................................. 173,250
Interest Expense ($180,000 × 180/360 × 7.5%)... 6,750
Notes Payable ................................................. 180,000
31 Notes Payable....................................................... 80,000
Interest Expense ($80,000 × 30/360 × 9%).......... 600
Notes Payable ................................................. 80,000
Cash................................................................. 600
May 30 Notes Payable....................................................... 80,000
Interest Expense ($80,000 × 60/360 × 9%).......... 1,200
Cash................................................................. 81,200
July 6 Merchandise Inventory ........................................ 56,000
Accounts Payable—Pacer Co........................ 56,000
Aug. 5 Accounts Payable—Pacer Co. ............................ 56,000
Notes Payable ................................................. 56,000
Sept. 11 Notes Payable....................................................... 180,000
Cash................................................................. 180,000
19 Notes Payable....................................................... 56,000
Interest Expense ($56,000 × 45/360 × 8%).......... 560
Cash................................................................. 56,560
Nov. 16 Store Equipment .................................................. 190,000
Notes Payable ................................................. 150,000
Cash................................................................. 40,000
Dec. 15 Notes Payable....................................................... 10,000
Interest Expense ($10,000 × 30/360 × 6%).......... 50
Cash................................................................. 10,050
21 Litigation Loss...................................................... 55,250
Litigation Claims Payable .............................. 55,250
2. a. Product Warranty Expense ..................................... 13,520
Product Warranty Payable ................................. 13,520
Warranty expense for the current year.
b. Interest Expense ...................................................... 1,050
Interest Payable .................................................. 1,050
Interest on notes, $10,000 × 6% × 45/360 × 14.
