Warner Co. entered into the following transaction involving short-term liabilities in 2017 and 2018.
2017
Apr. 22Purchased $5,000 of merchandise on credit from Fox-Pro, terms n/30. Warner uses the perpetual inventory system.
May 23 Replaced the April 22 account payable to Fox-Pro with a 90-day, $4,600 note bearing 15% annual interest along with paying $400 in cash.
July 15 Borrowed $12,000 cash from Spring Bank by signing a 120-day, 10% interest-bearing note with a face value of $12,000.
Paid the amount due on the note to Fox-Pro at maturity.
Paid the amount due on the note to Spring Bank maturity.
Dec. 6 Borrowed $8,000 cash from City Bank by signing a 45-day, 9% interest-bearing note with a face value of $8,000.
31 Recorded an
2018
Paid the amount due on the note to City Bank at maturity.
Required
1. Determine the maturity date for each of the three notes described.
2. Determine the interest due at maturity for each of the three notes. (Assume a 360-day year.)
3. Determine the interest expense to be recorded in the adjusting entry at the end of 2017.
4. Determine the interest expense to be recorded in 2018.
5. Prepare
1.
Introduction: The note refers to a promissory note. It is assurance made by one person to another to pay an amount of borrowed money in the future on a specific date.
To identify: Maturity date for each of three notes.
Explanation of Solution
Particular | Maturity date |
Note to F | 22 July 2017 |
Note to S bank | 15 November 2017 |
Note to C bank | 20 January 2018 |
2.
Introduction: Interest is the non-operating expense that is to be paid on borrowings. Interest is calculated as a fixed percentage on the borrowed amount.
To calculate: Interest due at maturity date for each of three notes.
Explanation of Solution
3.
Introduction: Interest expenses are the non-operating expenses. It is the cost paid on borrowed fund.
To calculate: Interest expense for adjusting entries for 2017.
Explanation of Solution
4.
Introduction: Interest expenses are the non-operating expenses. It is the cost paid on borrowed fund.
To calculate: Interest expense for adjusting entries for 2018.
Explanation of Solution
5.
Introduction: Journal entries refer to initial entries made for any business transaction. Journal entries are done with the help of using source document. Journal entries have effect on both side i.e. debit and credit.
To prepare: Journal entries for of all transactions for year 2017 and 2018.
Explanation of Solution
Date | Account | Debit ($) | Credit($) |
2017
April 22 | Inventory a/c
Company F a/c | 5,000 | 5,000 |
(To record inventory purchased on credit ) |
- Inventory is an asset and it is increased by $5,000 therefore it is debited.
- Company Fis a creditor and it is increased by $5,000 therefore it is credited.
Date | Account | Debit ($) | Credit($) |
2017
May 23 | Company F a/c
Cash a/c Notes payable a/c | 5000 | 400
4,600 |
(To record cash payment to company F and notes issued ) |
- Company F is a creditor and it is replaced with notes payable therefore it is debited.
- Cash paid to company F reduces the cash balance therefore it is credited.
- Notes payable increases the liability therefore it is credited.
Date | Account | Debit ($) | Credit($) |
2017
July 15 |
Cash a/c Notes payable (bank S) a/c | 12,000 |
12000 |
(To record notes payable to S bank ) |
- Cash is borrowed by issuing notes payable due to which cash increases therefore cash account is debited.
- Notes payable is issued to bank Swhich increases the liability therefore it is credited.
Date | Account | Debit ($) | Credit($) |
2017
July 23 |
Notes payable(company F) a/c Interest expense a/c Cash a/c | 4,600
115 |
4,715 |
(To record interest and notes amount paid to company F ) |
- Notes payable is a liability which are paid therefore it is debited.
- Payment of notes payable reduces cash balance therefore it is credited.
- Interest expenses is an expense and are paid therefore it is debited.
Date | Account | Debit ($) | Credit($) |
2017
Nov 15 | Notes payable(bank S)a/c
Interest expense a/c Cash a/c | 12,000
400 |
12,400 |
(To record interest and notes amount paid to bank S ) |
- Notes payable(bank S) is a liability and it is paid therefore it is debited.
- Interest expense is an expense and it is increasing therefore it is debited.
- Cash account balance is reduced due to payment of liability therefore it is credited.
Date | Account | Debit ($) | Credit($) |
2017
Dec 06 | Cash a/c
Notes payable(bank C) a/c | 8,000 | 8000 |
(To record notes payable from bank C ) | |||
Date | Account | Debit ($) | Credit($) |
2017
Dec 31 | Interest expense a/c
Interest payable a/c | 50 |
50 |
(To record accrued interest ) |
- Cash account balance increases because of issuing of notes payable therefore it is debited.
- Notes payable (bank C) increases the liability therefore it is credited.
- Interest expense is debited because it is an expense and it is increasing.
- Interest payable is credited because it is a liability and it is increasing.
Date | Account | Debit ($) | Credit($) |
2018
Jan 21 | Notes payable (bank C) a/c
Interest payable a/c Interest expense a/c Cash a/c | 8,000
50 40 |
8,090 |
(To record amount paid to bank C for notes on maturity date) |
- Notes payable (bank C) reduces the liability as it is paid therefore it is debited.
- Interest payable paid reduces the liability therefore it is debited.
- Interest expense is an expense and it is increasing therefore it is debited.
- Cash account balance is credited because payment of liability and expense reduces cash balance.
Want to see more full solutions like this?
Chapter 9 Solutions
Gen Combo Ll Financial Accounting: Information For Decisions; Connect Ac
- Resin Milling issued a $390,500 note on January 1, 2018 to a customer in exchange for merchandise. The merchandise had a cost to Resin Milling of $170,000. The terms of the note are 24-month maturity date on December 31, 2019 at a 5% annual interest rate. The customer does not pay on its account and dishonors the note. Record the journal entries for Resin Milling for the following transactions. A. Initial sale on January 1, 2018 B. Dishonored note entry on January 1, 2020, assuming interest has not been recognized before note maturityarrow_forwardZing Cell Phone Company entered into the following transactions involving current liabilities during 2023 and 2024: 2023 Mar. 14 Purchased merchandise on credit from Ferris Inc. for $138,000. The terms were 1/10, n/30 (assume a perpetual inventory system). Apr. 14 Zing paid $24,000 cash and replaced the $114,000 remaining balance of the account payable to Ferris Inc. with a 5%, 60-day note payable. 21 Borrowed $124,000 from Scotiabank by signing a 4.5%, 90-day note. ? Paid the note to Ferris Inc. at maturity. ? Paid the note to Scotiabank at maturity. Dec. 15 Borrowed $99,000 and signed a 5.25%, 120-day note with National Bank. Recorded an adjusting entry for the accrual of interest on the note to National Bank. May Dec. 31 2024 ? Paid the note to National Bank at maturity. Required: 1. Determine the maturity dates of the three notes just described. Maturity date Ferris Inc. Scotiabank National Bankarrow_forwardZing Cell Phone Company entered into the following transactions involving current liabilities during 2020 and 2021. 2020 Mar. 14 Purchased merchandise on credit from Ferris Inc. for $136,000. The termswere 1/10, n/30 (assume a perpetual inventory system). Apr. 14 Zing paid $23,000 cash and replaced the $113,000 remaining balance of the accountpayable to Ferris Inc. with a 3%, 60-day note payable. May 21 Borrowed $123,000 from Scotiabank by signing a 2.5%, 90-day note. ? Paid the note to Ferris Inc. at maturity. ? Paid the note to Scotiabank at maturity. Dec. 15 Borrowed $98,000 and signed a 3.25%, 120-day note with National Bank. Dec. 31 Recorded an adjusting entry for the accrual of interest on the note to National Bank. 2021 ? Paid the note to National Bank at maturity. Required:1. Determine the maturity dates of the three notes just described.2. Present journal entries for each of the preceding dates. (Use 365 days an year. Do not round…arrow_forward
- Sarasota Corporation sells rock-climbing products and also operates an indoor climbing facility for climbing enthusiasts. During the last part of 2017, Sarasota had the following transactions related to notes payable. Sept. 1 Issued a $16,800 note to Pippen to purchase inventory. The 3-month note payable bears interest of 9% and is due December 1. (Sarasota uses a perpetual inventory system.) Sept. 30 Recorded accrued interest for the Pippen note. Oct. 1 Issued a $22,800, 10%, 4-month note to Prime Bank to finance the purchase of a new climbing wall for advanced climbers. The note is due February 1. Oct. 31 Recorded accrued interest for the Pippen note and the Prime Bank note. Nov. 1 Issued a $27,600 note and paid $8,100 cash to purchase a vehicle to transport clients to nearby climbing sites as part of a new series of climbing classes. This note bears interest of 6% and matures in 12 months. Nov. 30 Recorded accrued interest for the Pippen note, the Prime Bank…arrow_forwardZing Cell Phone Company entered into the following transactions involving current liabilities during 2020 and 2021. 2020 Mar. 14 Purchased merchandise on credit from Ferris Inc. for $152,000. The termswere 1/10, n/30 (assume a perpetual inventory system). Apr. 14 Zing paid $31,000 cash and replaced the $121,000 remaining balance of the accountpayable to Ferris Inc. with a 4%, 60-day note payable. May 21 Borrowed $131,000 from Scotiabank by signing a 3.5%, 90-day note. ? Paid the note to Ferris Inc. at maturity. ? Paid the note to Scotiabank at maturity. Dec. 15 Borrowed $106,000 and signed a 4.25%, 120-day note with National Bank. Dec. 31 Recorded an adjusting entry for the accrual of interest on the note to National Bank. 2021 ? Paid the note to National Bank at maturity. Required:1. Determine the maturity dates of the three notes just described. HINT: Maturity Date of Ferris Inc, Scotiabank, National bank respectively. Present journal entries…arrow_forwardZing Cell Phone Company entered into the following transactions involving current liabilities during 2020 and 2021. 2020 Mar. 14 Purchased merchandise on credit from Ferris Inc. for $160,000. The termswere 1/10, n/30 (assume a perpetual inventory system). Apr. 14 Zing paid $35,000 cash and replaced the $125,000 remaining balance of the accountpayable to Ferris Inc. with a 6%, 60-day note payable. May 21 Borrowed $135,000 from Scotiabank by signing a 5.5%, 90-day note. ? Paid the note to Ferris Inc. at maturity. ? Paid the note to Scotiabank at maturity. Dec. 15 Borrowed $110,000 and signed a 6.25%, 120-day note with National Bank. Dec. 31 Recorded an adjusting entry for the accrual of interest on the note to National Bank. 2021 ? Paid the note to National Bank at maturity. Required:1. Determine the maturity dates of the three notes just described. 2. Present journal entries for each of the preceding dates. (Use 365 days an year. Do not round…arrow_forward
- Tyrell Co. entered into the following transactions involving short-term liabilities. Year 1 Apr. 20 Purchased $40,250 of merchandise on credit from Locust, terms n∕30. May 19 Replaced the April 20 account payable to Locust with a 90-day, 10%, $35,000 note payable along with paying $5,250 in cash. July 8 Borrowed $80,000 cash from NBR Bank by signing a 120-day, 9%, $80,000 note payable. ___?___ Paid the amount due on the note to Locust at the maturity date. ___?___ Paid the amount due on the note to NBR Bank at the maturity date. Nov. 28 Borrowed $42,000 cash from Fargo Bank by signing a 60-day, 8%, $42,000 note payable. Dec. 31 Recorded an adjusting entry for accrued interest on the note to Fargo Bank. Year 2 ___?___ Paid the amount due on the note to Fargo Bank at the maturity date. Required 1. Determine the maturity date for each of the three notes described. 2. Determine the interest due at maturity for each of the three notes. Assume a 360-day year. 3. Determine the interest…arrow_forwardOn January 1, 2017, Oldham Company sold goods to Windall Company in exchange for a 3-year, non-interest-bearing note with a face value of $10,000. If Oldham entered into a separate financing transaction with Windall, an appropriate interest rate would be 8%. Which of the following statements is true about the journal entry that records the transaction when Oldham delivers the goods to Windall on January 1, 2017?Credit Sales Revenue $7,600 Credit Interest Revenue $2,400 Debit Note Receivable for $10,000 Credit Discount on Note Receivable $2,400arrow_forwardEhler Corporation sells rock-climbing products and also operates an indoor climbing facility for climbing enthusiasts. During the last part of 2017, Ehler had the following transactions related to notes payable. Sept. 1 Issued a $12,000 note to Pippen to purchase inventory. The 3-month note payable bears interest of 6% and is due December 1. (Ehler uses a perpetual inventory system.) Sept. 30 Recorded accrued interest for the Pippen note. Oct. 1 Issued a $16,500, 8%, 4-month note to Prime Bank to finance the purchase of a new climbing wall for advanced climbers. The note is due February 1. Oct. 31 Recorded accrued interest for the Pippen note and the Prime Bank note. Nov. 1 Issued a $26,000 note and paid $8,000 cash to purchase a vehicle to transport clients to nearby climbing sites as part of a new series of climbing classes. This note bears interest of 6% and matures in 12 months. Nov. 30 Recorded accrued interest for the Pippen note,…arrow_forward
- Shlee Corporation issued a 4-year, $60,000, zero-interest-bearing note to Garcia Company on January 1, 2017, and received cash of $60,000. In addition, Shlee agreed to sell merchandise to Garcia at an amount less than regular selling price over the 4-year period. The market rate of interest for similar notes is 12%. Prepare Shlee Corporation’s January 1 journal entry.arrow_forwardOn May 1, 2022, Barber Company purchased inventory costing $87,000 by signing an 8%, nine-month, short-term note payable. Barber will pay the entire note (principal and interest) on the note's maturity date. Journalize the company's (a) purchase of inventory and (b) accrual of interest on the note payable on November 31, 2022. (Record debits first, then credits. Exclude explanations from any journal entries.) (a) Journalize the company's purchase of inventory. May Date 2022 1 C Journal Entry Accounts Debit Credit (b) Journalize the company's accrual of interest on the note payable on November 31, 2022. Journal Entry Nov Date 2022 31 Accounts Debit Creditarrow_forwardTom’s Surf Company, whose fiscal year ends December 31, completed the following transactions involving notes payable:2018Nov 30 Purchased inventory display equipment by issuing a 60 day 10 percent note for $35,000.Dec 31 Made the end-of-year adjusting entry to accrue interest expense2019Jan 29 Paid off the balance of the notePrepare the journal entries for the above transactions. Round your answers for interest calculations to the nearest cent. Assume there are 365 days in the year.arrow_forward
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax CollegeFinancial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage Learning