Question

Solve the follwing problem.

CHART OF ACCOUNTSSherwood Co.General Ledger

	ASSETS
110	Cash
111	Accounts Receivable
112	Interest Receivable
113	Notes Receivable
115	Inventory
116	Supplies
118	Prepaid Insurance
120	Land
123	Building
124	Accumulated Depreciation-Building
125	Office Equipment
126	Accumulated Depreciation-Office Equipment
127	Tools
128	Accumulated Depreciation-Tools

	LIABILITIES
210	Accounts Payable-Kirkwood Co.
211	Accounts Payable-Greenwood Co.
212	Accounts Payable-Poulin Co.
213	Interest Payable
214	Notes Payable
215	Salaries Payable
216	Social Security Tax Payable
217	Medicare Tax Payable
218	Employees Federal Income Tax Payable
219	Employees State Income Tax Payable
220	Group Insurance Payable
221	Bond Deductions Payable
224	Federal Unemployment Tax Payable
225	State Unemployment Tax Payable
226	Vacation Pay Payable
227	Unfunded Pension Liability
228	Product Warranty Payable
229	Litigation Claims Payable

	EQUITY
310	Common Stock
311	Retained Earnings
312	Dividends
313	Income Summary

	REVENUE
410	Sales
610	Interest Revenue

	EXPENSES
510	Cost of Goods Sold
520	Salaries Expense
524	Depreciation Expense-Building
525	Delivery Expense
526	Repairs Expense
529	Selling Expenses
531	Rent Expense
532	Depreciation Expense-Office Equipment
533	Depreciation Expense-Tools
534	Insurance Expense
535	Supplies Expense
536	Payroll Tax Expense
537	Vacation Pay Expense
538	Pension Expense
539	Cash Short and Over
540	Product Warranty Expense
541	Miscellaneous Expense
710	Interest Expense
720	Litigation Loss

Liability transactions

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

Mar.	1	Purchased merchandise on account from Kirkwood Co., $402,000, terms n/30.
	31	Issued a 30-day, 4% note for $402,000 to Kirkwood Co., on account.
Apr.	30	Paid Kirkwood Co. the amount owed on the note of March 31.
Jun.	1	Borrowed $186,000 from Triple Creek Bank, issuing a 45-day, 4% note.
Jul.	1	Purchased tools by issuing a $246,000, 60-day note to Poulin Co., which discounted the note at the rate of 5%.
	16	Paid Triple Creek Bank the interest due on the note of June 1 and renewed the loan by issuing a new 30-day, 6.5% note for $186,000. (Journalize both the debit and credit to the notes payable account.)
Aug.	15	Paid Triple Creek Bank the amount due on the note of July 16.
	30	Paid Poulin Co. the amount due on the note of July 1.
Dec.	1	Purchased equipment from Greenwood Co. for $440,000, paying $120,000 cash and issuing a series of ten 8% notes for $32,000 each, coming due at 30-day intervals.
	22	Settled a product liability lawsuit with a customer for $319,500, payable in January. Accrued the loss in a litigation claims payable account.
	31	Paid the amount due to Greenwood 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. Round your answers to the nearest dollar.
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, $29,000. b. Interest on the nine remaining notes owed to Greenwood Co. Assume a 360-day year.

Answer 1

Date	Particulars	Debit($)	Credit($)
1-Mar	Inventory	402000
	Accounts Payable-Kirkwood Co.		402000
	Purchased merchandise terms n/30.
31-Mar	Accounts Payable-Kirkwood Co.	402000
	Notes Payable		402000
	Issued a 30-day, 4% note to Kirkwood Co
30-Apr	Notes Payable	402000
	Interest Expense(402000*4%)*30/360	1340
	Cash		403340
	Paid Amount to Kirkwood Co
1-Jun	Cash	186000
	Notes Payable		186000
	Borrowed from Triple Creek Bank 45-day, 4% note
1-Jul	Tools	246000
	Notes Payable		246000
	Purchased tools 60-day note rate of 5%
16-Jul	Interest Expense(186000*4%)*45/360	930
	Cash		930
	Paid Triple Creek Bank the interest due
16-Jul	Notes Payable	186000
	Notes Payable		186000
	Renewed the loan by issuing a new 30-day, 6.5% note
15-Aug	Notes Payable	186000
	Interest Expense(186000*6.5%)*30/360	1008
	Cash		187008
30-Aug	Notes Payable	246000
	Interest Expense(246000*5%)*60/360	2050
	Cash		248050
1-Dec	Office Equipment	440000
	Cash		120000
	Notes Payable		320000
	Purchased equipment from Greenwood Co 8% notes 30-day
22-Dec	Warranty Expense	319500
	Product Warranty Payable		319500
	Settled a product liability lawsuit with a customer
31-Dec	Notes Payable	320000
	Interest Expense(320000*8%)*30/360	2133
	Cash		322133

Answer 2

SOLUTION

1.

Date	Accounts titles and Explanation	Debit ($)	Credit ($)
Mar 1	Merchandise Inventory	402,000
	Accounts Payable		402,000
	(Purchased merchandise on account from Kirkwood Co., n/30)
Mar31	Accounts Payable	402,000
	Note payable		402,000
	(Issued a 30-day 4% note payable to Kirkwood)
Apr30	Note payable	402,000
	Interest expense (402,000*4%*30/360)	1,340
	Cash		403,340
	(Paid 4% note with interest to Kirkwood)
Jun1	Cash	186,000
	Note payable		186,000
	(Borrowed 45-day 4% note payable from Triple Creek Bank)
Jul1	Tools	243,950
	Interest Expense (246,000*5%*60/360)	2,050
	Note payable		246,000
	(Issued a 60-day notes for purchase of tools which is discounted at 5%)
Jul16	Interest Expense (186,000*4%*45/360)	930
	Note payable	186,000
	Cash		930
	Note payable		186,000
	(Paid the interest on previous note and renewed the note)
Aug15	Interest Expense (186,000*6.5%*30/360)	1,008
	Note Payable	186,000
	Cash		187,008
	(Paid the note payable and interest to Triple creek bank)
Aug30	Note Payable	246,000
	Cash		246,000
	(Paid the note payable due to Poulin Co.)
Dec1	Equipment	440,000
	Cash		120,000
	Note payable		320,000
	(Purchase of equipment and issue of 10 series of note payable)
Dec22	Litigation claim expense	319,500
	Litigation claim payable		319,500
	(Accrued the litigation claim payable)
Dec.31	Interest expense	2,133
	Cash (320,000*8%*30/360)		2,133
	(Interest expense paid on first interval)

2.

Date	Account Titles and Explanation	Debit ($)	Credit ($)
Dec.31	Product Warranty Expense	29,000
	Product Warranty Payable		29,000
	(Accrue Product warranty payable)
Dec.31	Interest expense	1,920
	Accrued interest (32,000*9*8%*30/360)		1,920
	(Accrue interest on remaining series of notes payable)