Question

On January 1, Year 1, Luzak Company issued a $120,000, five-year, 6% installment note to McGee Bank. The note requires annual payments of $28,488, beginning on December 31, Year 1.

Journalize the entries to record the following transactions. Refer to the Chart of Accounts for exact wording of account titles.

Year 1
Jan.	1	Issued the note for cash at its face amount.
Dec.	31	Paid the annual payment on the note, which consisted of interest of $7,200 and principal of $21,288.
Year 4
Dec.	31	Paid the annual payment on the note, including $3,134 of interest. The remainder of the payment reduced the principal balance on the note.

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Chart of Accounts

CHART OF ACCOUNTS
Luzak Company
General Ledger
ASSETS 110 Cash 111 Petty Cash 121 Accounts Receivable 122 Allowance for Doubtful Accounts 126 Interest Receivable 127 Notes Receivable 131 Merchandise Inventory 141 Office Supplies 142 Store Supplies 151 Prepaid Insurance 191 Land 192 Store Equipment 193 Accumulated Depreciation-Store Equipment 194 Office Equipment 195 Accumulated Depreciation-Office Equipment LIABILITIES 210 Accounts Payable 221 Salaries Payable 231 Sales Tax Payable 232 Interest Payable 241 Notes Payable 251 Bonds Payable 252 Discount on Bonds Payable 253 Premium on Bonds Payable EQUITY 311 Common Stock 312 Paid-In Capital in Excess of Par-Common Stock 315 Treasury Stock 321 Preferred Stock 322 Paid-In Capital in Excess of Par-Preferred Stock 331 Paid-In Capital from Sale of Treasury Stock 340 Retained Earnings 351 Cash Dividends 352 Stock Dividends 390 Income Summary	REVENUE 410 Sales 610 Interest Revenue 611 Gain on Redemption of Bonds EXPENSES 510 Cost of Merchandise Sold 515 Credit Card Expense 516 Cash Short and Over 521 Sales Salaries Expense 522 Office Salaries Expense 531 Advertising Expense 532 Delivery Expense 533 Repairs Expense 534 Selling Expenses 535 Rent Expense 536 Insurance Expense 537 Office Supplies Expense 538 Store Supplies Expense 541 Bad Debt Expense 561 Depreciation Expense-Store Equipment 562 Depreciation Expense-Office Equipment 590 Miscellaneous Expense 710 Interest Expense 711 Loss on Redemption of Bonds

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Journal

Journalize the entries to record the transactions. Refer to the Chart of Accounts for exact wording of account titles.

PAGE 10

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
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Solution

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1
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Points:

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Explanation

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Answer 1

• All working forms part of the answer

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1	01-Jan	Cash	110	$    120,000.00		[Increase]$    120,000.00
2		Notes payable	241		$   120,000.00		[Increase]$ 120,000.00
		(Notes issued)
3	31-Dec	Interest Expense	710	$       7,200.00				[Decrease]$   (7,200.00)
4		Notes Payable	241	$      21,288.00			[Decrease]$ (21,288.00)
5		Cash	110		$     28,488.00	[Decrease] $     (28,488.00)
		(Installment amount paid)
6	31-Dec [Year 4]	Interest Expense	710	$       3,134.00				[Decrease] $   (3,134.00)
7		Notes Payable	241	$      25,354.00			[Decrease] $ (25,354.00)
8		Cash	110		$     28,488.00	[Decrease] $     (28,488.00)
		(Installment paid)