Question

he following items were selected from among the transactions completed by O’Donnel Co. during the current year:

Jan.	10.	Purchased merchandise on account from Laine Co., $240,000, terms n/30.
Feb.	9.	Issued a 30-day, 4% note for $240,000 to Laine Co., on account.
Mar.	11.	Paid Laine Co. the amount owed on the note of February 9.
May	1.	Borrowed $160,000 from Tabata Bank, issuing a 45-day, 5% note.
June	1.	Purchased tools by issuing a $180,000, 60-day note to Gibala Co., which discounted the note at the rate of 5%.
	15.	Paid Tabata Bank the interest due on the note of May 1 and renewed the loan by issuing a new 45-day, 7% note for $160,000. (Journalize both the debit and credit to the notes payable account.)
July	30.	Paid Tabata Bank the amount due on the note of June 15.
	30.	Paid Gibala Co. the amount due on the note of June 1.
Dec.	1.	Purchased office equipment from Warick Co. for $400,000, paying $100,000 and issuing a series of ten 5% notes for $30,000 each, coming due at 30-day intervals.
	15.	Settled a product liability lawsuit with a customer for $260,000, payable in January. O’Donnel accrued the loss in a litigation claims payable account.
	31.	Paid the amount due Warick 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.
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, $23,000. B. Interest on the nine remaining notes owed to Warick Co. Assume a 360-day year.

Answer 1

Date	Account titles & Description					Debit	Credit
10-Jan	merchandise inventory					240,000
	Accounts payable-laine						240,000
9-Feb	Accounts payable-laine					240,000
	Notes payable						240,000
11-Mar	Notes payable					240,000
	interest expense		(240,000*4%*30/360)			800
	cash						240,800
1-May	Cash					160,000
	notes payable						160,000
1-Jun	Tools					178,500
	interest expense		(180000*5%*60/360)			1500
	notes payable						180,000
15-Jun	4% notes payable					160,000
	interest expense		(160,000*5%*45/360)			1000
	6.5% notes payable						160,000
	cash						1000
30-Jul	notes payable					160,000
	interest expense					1400
	Cash						161,400
30-Jul	Notes payable					180,000
	cash						180,000
1-Dec	office Equipment					400,000
	cash						100,000
	notes payable						300,000
15-Dec	litigation loss					260,000
	litigation Claims payable						260,000
31-Dec	notes payable					30,000
	interest expense					125
	cash						30,125
2)	product warranty expense					23,000
	product warranty payable						23,000
	interest expense					1125
	interest payable		(30000*9*5%*30/360				1,125