Question

The following items were selected from among the transactions completed by O’Donnel Co. during the current year:

Jan.	10.	Purchased merchandise on account from Laine Co., $240,000, terms n/30.
Feb.	9.	Issued a 30-day, 4% note for $240,000 to Laine Co., on account.
Mar.	11.	Paid Laine Co. the amount owed on the note of February 9.
May	1.	Borrowed $160,000 from Tabata Bank, issuing a 45-day, 5% note.
June	1.	Purchased tools by issuing a $180,000, 60-day note to Gibala Co., which discounted the note at the rate of 5%.
	15.	Paid Tabata Bank the interest due on the note of May 1 and renewed the loan by issuing a new 45-day, 7% note for $160,000. (Journalize both the debit and credit to the notes payable account.)
July	30.	Paid Tabata Bank the amount due on the note of June 15.
	30.	Paid Gibala Co. the amount due on the note of June 1.
Dec.	1.	Purchased office equipment from Warick Co. for $400,000, paying $100,000 and issuing a series of ten 5% notes for $30,000 each, coming due at 30-day intervals.
	15.	Settled a product liability lawsuit with a customer for $260,000, payable in January. O’Donnel accrued the loss in a litigation claims payable account.
	31.	Paid the amount due Warick Co. on the first note in the series issued on December 1.

	Required:
1.	Journalize the transactions. Refer to the Chart of Accounts for exact wording of account titles. Assume a 360-day year.
2.	Journalize the adjusting entry for each of the following accrued expenses at the end of the current year (refer to the Chart of Accounts for exact wording of account titles): A. Product warranty cost, $23,000. B. Interest on the nine remaining notes owed to Warick Co. Assume a 360-day year.

Answer 1

(1)

Date	General Journal	Debit	Credit
Jan 10	Merchandise Inventory	$240000
	Accounts Payable- Laine Co.		$240000
	(To record merchandise on account)
Feb 9	Accounts Payable- Laine Co.	$240000
	Notes Payable		$240000
	(To record the issue of 4% notes on account)
March 11	Notes Payable	$240000
	Interest Expense ($240000 * 4% * 30/360)		$800
	Cash		$240800
	(To record payment on maturity and interest for notes
May 1	Cash	$160000
	Notes Payable		$160000
	(To record borrowing from T Bank by issuing 5% note)
June 1	Tools	$178500
	Interest Expense ($180000 * 5% * 60/360)	$1500
	Notes Payable		$180000
	(To record purchase of tools by issuing 5% discounted note)
June 15	Notes Payable	$160000
	Interest Expense ($160000 * 5% * 45/360)	$1000
	Notes Payable		$160000
	Cash		$1000
	(To record the payment for interest and renew the loan)
July 30	Notes Payable	$160000
	Interest Expense ($160000 * 7% * 45/360)	$1400
	Cash		$161400
	(To record payment for maturity and int for notes)
July 30	Notes Payable	$180000
	Cash		$180000
	(To record payment of due amount)
Dec 1	Office Equipment	$400000
	Notes Payable		$300000
	Cash		$100000
	(To record purchase of office equipment for cash and issuing notes)
Dec 15	Litigation Loss	$260000
	Litigation Claims Payable		$260000
	(To record the accrual of litigation claims)
Dec 31	Notes Payable	$30000
	Interest Expense ($30000 * 5% * 30/360)	$125
	Cash		$30125
	(To record the payment for interest)

(2a)

Product Warranty Expense	$23000
Product Warranty Payable		$23000
(To record Warranty Expense for the current year)

(2b)

Interest Expense ($30000 * 5% * 30/360 * 9)	$1125
Interest Payable		$1125