Question

Described below are certain transactions of Tipper Transport Bhd for 2019 :

1.     On 10 May, the company purchased goods from Tommy Auto Bhd for RM50,000, terms 2/10, n/30. Purchases and accounts payable are recorded at net amounts. The invoice was paid on 18 May.

2.     On 1 June, the company purchased equipment for RM60,000 from Safety First Bhd, paying RM20,000 in cash and giving a one-year, 9% note for the balance.

3.     On 30 September, the company borrowed RM108,000, by signing a one-year zero-interest-bearing RM120,000 note at One Bank Bhd.

REQUIRED :

(a)   Prepare the journal entries necessary to record the transactions above using appropriate dates.

(b)   Prepare the adjusting entries necessary at 31 December, 2019 in order to properly report interest expense related to the above transactions. Assume straight-line amortization.

(c)   Indicate the manner in which the above transactions should be reflected in the Current Liabilities section of Tipper Transport Bhd's 31 December, 2019 statement of financial position.

Answer 1

(a)	Journal entries:
	Date	Account titles and explanation					Debit	Credit
	May 10.	Purchase		50000*(100-2)%			49000
		Accounts payable						49000
		(Purchase recorded at after discount of 2%)
	May 18.	Accounts payable					49000
		Cash						49000
		(Invoice paid)
	June 1.	Equipment					60000
		Cash						20000
		9% Notes payable						40000
		(Equipment purchased)
	Sep 30.	Cash					108000
		Discount on notes payable				(Plug)	12000
		Notes payable						120000
		(Amount borrowed)
(b)	Adjusting entries:
	Date	Account titles and explanation					Debit	Credit
	Dec 31.	Interest expense		(40000*9%*7/12)			2100
		Interest payable						2100
		(Interest accrued on 9% note from June 1 to Dec 31-7 months)
	Dec 31.	Interest expense		12000*(3/12)			3000
		Discount on notes payable						3000
		(Interest amortized from Sep 30. to Dec 31-3 months)
(c )
			Tipper Transport Bhd
			Statement of financial position
			For the year ended December 31,2019
					RM	RM
	Current liabilities:
	Interest payable		(2100+3000)			5100
	9% Notes payable					40000
	Notes payable				120000
	Less: Discount on notes payable			(12000-3000)	9000	111000