Question

Problem 10-2A

Cheyenne Corporation sells rock-climbing products and also operates an indoor climbing facility for climbing enthusiasts. During the last part of 2017, Cheyenne had the following transactions related to notes payable.

Sept. 1		Issued a $13,200 note to Pippen to purchase inventory. The 3-month note payable bears interest of 6% and is due December 1. (Cheyenne uses a perpetual inventory system.)
Sept. 30		Recorded accrued interest for the Pippen note.
Oct. 1		Issued a $20,400, 9%, 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 $30,000 note and paid $8,700 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 note, and the vehicle note.
Dec. 1		Paid principal and interest on the Pippen note.
Dec. 31		Recorded accrued interest for the Prime Bank note and the vehicle note.
a) Prepare journal entries for the transactions noted above. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.) b) Post the above entries to the Notes Payable, Interest Payable, and Interest Expense accounts. (Post entries in the order of journal entries posted in the previous part of the question.) c) Show the balance sheet presentation of notes payable and interest payable at December 31. d) How much interest expense relating to notes payable did Cheyenne incur during the year?

Answer 1

a) Journal Entries:-

Date	Particulars	Debit	Credit
Sept 1	Inventory	13,200
	6% Note Payable		13,200
Sept 30	Interest Expense (13,200 * 6% * 1/12)	66
	Accrued Interest Payable		66
Oct 1	Climbing Wall	20,400
	9% Note Payable		20,400
Oct 31	Interest Expense (66 + 20,400*9%*1/12)	219
	Accrued Interest Payable		219
Nov 1	Vehicle	38,700
	Cash		8,700
	6% Note Payable		30,000
Nov 30	Interest Expense (66 + 153 + 30,000*6%*1/12)	369
	Accrued Interest Payable		369
Dec 1	6% Note Payable	13,200
	Accrued Interest Payable(66 + 66 + 66)	198
	Cash		13,398
Dec 31	Interest Expense (153 + 150)	303
	Accrued Interest Payable		303

b) Notes Payable Account

Date	Particulars	Debit	Date	Particulars	Credit
			Sept 1	Inventory	13,200
			Oct 1	Climbing Wall	20,400
			Nov 1	Vehicle	30,000
Dec 1	Cash	13,200
Dec 31	Balance	50,400
		63,600			63,600

Interest Payable

Date	Particulars	Amount	Date	Particulars	Amount
			Sept 30	Interest Expense	66
			Oct 31	Interest Expense	219
			Nov 30	Interest Expense	369
Dec 1	Cash	198	Dec 31	Interest Expense	303
Dec 31	Balance	759
		957			957

Interest Expense

Date	Particulars	Amount	Date	Particulars	Amount
Sept 30	Interest Payable	66
Oct 31	Interest Payable	219
Nov 30	Intrerest Payable	369
Dec 31	Interest Payable	303
			Dec 31	Transfer to Income Statement	957
		957			957

c) Notes Payable Account - $50,400 (Under Current Liability)

Interest Payable - 759 (Under Current Liability)

d) Interest Expense - $957