FINANCIAL ACCOUNTING (LOOSELEAF)
FINANCIAL ACCOUNTING (LOOSELEAF)
18th Edition
ISBN: 9781260706239
Author: williams
Publisher: MCG
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Chapter 10, Problem 3BP

a.

To determine

Prepare journey to record the given transactions.

a.

Expert Solution
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Explanation of Solution

Journal entry:

Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Liabilities:

The claims creditors have over assets or resources of a company are referred to as liabilities. These are the debt obligations owed by company to creditors. Liabilities are classified on the balance sheet as current liabilities and long-term liabilities.

Prepare journal entry to record borrowing of $20,000 from Bank W, signing a 90-day, 12 percent note payable.

DateAccounts title and explanation

Debit

($)

Credit

($)

July 1Cash20,000
     Notes payable20,000
(To record the  borrowing of $20,000 from Bank W, signing a 90-day promissory  note)

(Table 1)

  • Cash is an asset and there is an increase in the value of an asset. Hence, debit the cash by $20,000.
  • Notes payable is a liability and there is an increase in the value of liability. Hence, credit the notes payable by $20,000.

Prepare journal entry to record purchased office equipment from Company M.

DateAccounts title and explanation

Debit

($)

Credit

($)

September 16Office equipment30,000
     Notes payable30,000
(To record the purchase of equipment)

(Table 2)

  • Office equipment is an asset and there is an increase in the value of an asset. Hence, debit the office equipment by $30,000.
  • Notes payable is a liability and there is an increase in the value of liability. Hence, credit the notes payable by $30,000.

Prepare journal entry to record the payment made on bank W’s note along with accrued interest.

DateAccounts title and explanation

Debit

($)

Credit

($)

October 1Note payable20,000
Interest Expense (1)600
     Cash20,600
(To record the payment of Bank W’s  note with accrued interest)

(Table 3)

  • Notes payable is a liability and there is decrease in the value of liability. Hence, debit the notes payable by $20,000.
  • Interest expense is a component of stockholder’s equity and there is an increase in the value of expense. Hence, debit the interest expense by $600.
  • Cash is an asset and there is a decrease in the value of an asset. Hence, credit the office equipment by $20,600.

Prepare journal entry to record borrowing of $170,000 from Company J.

DateAccounts title and explanation

Debit

($)

Credit

($)

December 1Cash170,000
     Notes payable170,000
(To record the  borrowing of $170,000 from Company J)

(Table 4)

  • Cash is an asset and there is an increase in the value of an asset. Hence, debit the cash by $170,000.
  • Notes payable is a liability and there is an increase in the value of liability. Hence, credit the notes payable by $170,000.

Prepare journal entry to record purchase of merchandise inventory on account from Corporation L.

DateAccounts title and explanation

Debit

($)

Credit

($)

December 1Merchandise inventory10,000
     Notes payable10,000
(To record the purchase of merchandise inventory  on account)

(Table 5)

  • Merchandise inventory is an asset and there is an increase in the value of an asset. Hence, debit the merchandise inventory by $10,000.
  • Notes payable is a liability and there is an increase in the value of liability. Hence, credit the notes payable by $10,000.

Prepare journal entry to record the payment of note payable to Company M along with the accrued interest and issued a new 60-day, 12 percent note payable in the amount of $30,000 to replace the note that matured.

DateAccounts title and explanation

Debit

($)

Credit

($)

December 16Note payable30,000
Interest Expense (2)750
     Cash750
     Notes payable30,000
(To record the payment made to Company M on  note along with the interest and issued a 60-day, 12%, renewal note )

(Table 6)

  • Notes payable is a liability and there is decrease in the value of liability. Hence, debit the notes payable by $30,000.
  • Interest expense is a component of stockholder’s equity and there is an increase in the value of expense. Hence, debit the interest expense by $750.
  • Cash is an asset and there is a decrease in the value of an asset. Hence, credit the office equipment by $750.
  • Notes payable is a liability and there is an increase in the value of liability. Hence, credit the notes payable by $30,000.

Working Notes:

Calculate the amount of interest expense:

Interest Expense = Principal Amount ×Interest Rate ×Time period =$20,000×12%×90360=$600 (1)

Calculate the value of interest expense that is to be paid to Company M on purchase of office equipment.

Interest Expense = Principal Amount ×Interest Rate ×Time period =$30,000×10%×3(OctoberDecember)12=$750 (2)

b.

To determine

Prepare the adjusting entry needed at December 31, prior to closing the accounts.

b.

Expert Solution
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Explanation of Solution

Adjusting entries:

Adjusting entries are those entries which are recorded at the end of the year, to update the income statement accounts (revenue and expenses) and balance sheet accounts (assets, liabilities, and stockholders’ equity) to maintain the records according to accrual basis principle.

Prepare the adjusting entry needed at December 31, prior to closing the accounts.

DateAccounts title and explanation

Debit

($)

Credit

($)

December 31Interest expense (3)958
     Interest payable958
(To record interest accrued on notes payable)

(Table 7)

  • Debit to increase the interest expense account (Increase in interest expense decreases stockholders’ equity account).
  • Credit to increase the interest payable account (liability account).

Working Note:

Calculate the interest accrued on notes payable.

FINANCIAL ACCOUNTING (LOOSELEAF), Chapter 10, Problem 3BP

(Table 8)

(3)

c.

To determine

Provide reason to explain why the new 60-day note payable to Company M pays 16 percent interest instead of the 10 percent rate charged on the September 16 note.

c.

Expert Solution
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Explanation of Solution

The note made by Company M on September 16, is to be collected in full amount by December 16. The interest rate has increased on the new note, because due to the risk involved in collecting $30,000 in 60 days along with the accrued interest that is in due.

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Chapter 10 Solutions

FINANCIAL ACCOUNTING (LOOSELEAF)

Ch. 10 - 11. Deferred income taxes result from: Differences...Ch. 10 - Prob. 1DQCh. 10 - Prob. 2DQCh. 10 - Prob. 3DQCh. 10 - Prob. 4DQCh. 10 - Prob. 5DQCh. 10 - Prob. 6DQCh. 10 - Prob. 7DQCh. 10 - Prob. 8DQCh. 10 - Prob. 9DQCh. 10 - Prob. 10DQCh. 10 - Prob. 11DQCh. 10 - Prob. 12DQCh. 10 - Prob. 13DQCh. 10 - Prob. 14DQCh. 10 - Prob. 15DQCh. 10 - BRIEF EXERCISE 10.1 Cash Effects of...Ch. 10 - BRIEF EXERCISE 10.2 Effective Interest Rate One of...Ch. 10 - Prob. 3BECh. 10 - Prob. 4BECh. 10 - BRIEF EXERCISE 10.5 Recording Bonds Issued at a...Ch. 10 - Prob. 6BECh. 10 - Prob. 7BECh. 10 - Prob. 8BECh. 10 - Prob. 9BECh. 10 - Prob. 10BECh. 10 - Prob. 1ECh. 10 - EXERCISE 10.2 Effects of Transactions on the...Ch. 10 - Prob. 3ECh. 10 - EXERCISE 10.4 Employees—What Do They Really...Ch. 10 - EXERCISE 10.5 Accounting for Payroll...Ch. 10 - EXERCISE 10.6 Use of an Amortization Table Glen...Ch. 10 - Prob. 7ECh. 10 - EXERCISE 10.8 Bond Interest on Bonds Issued at...Ch. 10 - Prob. 9ECh. 10 - Prob. 10ECh. 10 - Prob. 11ECh. 10 - Prob. 12ECh. 10 - Prob. 13ECh. 10 - Prob. 14ECh. 10 - Prob. 15ECh. 10 - PROBLEM 10.1A Effects of Transactions on Financial...Ch. 10 - Prob. 2APCh. 10 - Prob. 3APCh. 10 - PROBLEM 10.4A Preparation and Use of an...Ch. 10 - Prob. 5APCh. 10 - Prob. 6APCh. 10 - Prob. 7APCh. 10 - Prob. 8APCh. 10 - Prob. 1BPCh. 10 - Prob. 2BPCh. 10 - Prob. 3BPCh. 10 - PROBLEM 10.4B Preparation and Use of an...Ch. 10 - Prob. 5BPCh. 10 - Prob. 6BPCh. 10 - PROBLEM 10.7B Reporting Liabilities in a Balance...Ch. 10 - PROBLEM 10.8B Financial Statement Presentation of...Ch. 10 - Prob. 1CTCCh. 10 - Prob. 2CTCCh. 10 - CASE 10.3 Loss Contingencies Discuss each of the...Ch. 10 - CASE 10.4 Off-Balance Sheet Financing Delta...
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