Question

Liability Transactions

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

Feb. 15.	Purchased merchandise on account from Kirkwood Co., $144,000, terms n/30.
Mar. 17.	Issued a 60-day, 8% note for $144,000 to Kirkwood Co., on account.
May 16.	Paid Kirkwood Co. the amount owed on the note of March 17.
June 15.	Borrowed $178,800 from Triple Creek Bank, issuing a 60-day, 9% note.
July 21.	Purchased tools by issuing a $108,000, 90-day note to Poulin Co., which discounted the note at the rate of 8%.
Aug. 14.	Paid Triple Creek Bank the interest due on the note of June 15 and renewed the loan by issuing a new 60-day, 10% note for $178,800. (Journalize both the debit and credit to the notes payable account.)
Oct. 13.	Paid Triple Creek Bank the amount due on the note of August 14.
Oct. 19.	Paid Poulin Co. the amount due on the note of July 21.
Dec. 1.	Purchased office equipment from Greenwood Co. for $144,000, paying $24,000 cash and issuing a series of ten 6% notes for $12,000 each, coming due at 30-day intervals.
Dec. 12.	Settled a product liability lawsuit with a customer for $70,000, payable in January. Accrued the loss in a litigation claims payable account.
Dec. 31.	Paid the amount due to Greenwood Co. on the first note in the series issued on December 1.

Required:

1. Journalize the transactions. If an amount box does not require an entry, leave it blank. Assume a 360-day year. If required, round to one decimal place. Don't round the intermediate calculations.

For a compound transaction, accounts should be listed largest to smallest.

Date	Account	Debit	Credit
Feb. 15
Mar. 17
May 16
June 15
July 21
Aug. 14
Oct. 13
Oct. 19
Dec. 1
Dec. 12
Dec. 31

2. Journalize the adjusting entry for each of the following accrued expenses at the end of the current year: (a) product warranty cost, $17,700; (b) interest on the nine remaining notes owed to Greenwood Co.

Item	Account	Debit	Credit
a.
b.

Answer 1

1.

Date	Account Titles	Debit	Credit
Feb. 15	Merchandise Inventory	$         144,000
	Accounts Payable-Kirkwood Co.		$         144,000
Mar. 17	Accounts Payable-Kirkwood Co.	$         144,000
	Notes Payable-Kirkwood Co.		$         144,000
May. 16	Notes Payable-Kirkwood Co.	$         144,000
	Interest Expense	$             1,920
	Cash		$         145,920
Jun. 15	Cash	$         178,800
	Notes Payable-Triple Creek Bank		$         178,800
Jul. 21	Tools	$         108,000
	Notes Payable-Poulin Co.		$         108,000
Aug . 14	Notes Payable-Triple Creek Bank	$         178,800
	Interest Expense	$             2,682
	Notes Payable-Triple Creek Bank		$         178,800
	Cash		$             2,682
Oct.13	Notes Payable-Triple Creek Bank	$         178,800
	Interest Expense	$             2,980
	Cash		$         181,780
Oct. 19	Notes Payable-Poulin Co.	$         108,000
	Interest Expense	$             2,160
	Cash		$         110,160
Dec. 1	Office Equipment	$         144,000
	Notes Payable-Greenwood Co.		$         120,000
	Cash		$           24,000
Dec. 12	Litigation Loss	$           70,000
	Litigation Claims Payable		$           70,000
Dec. 31	Notes Payable-Greenwood Co.	$           12,000
	Interest Expense	$                   60
	Cash		$           12,060

2.

Date	Account Titles	Debit	Credit
Dec-31	Product Warranty Expense	$           17,700
	Product Warranty Payable		$           17,700
Dec-31	Interest Expense	$                 540
	Interest Payable		$                 540