Question

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.

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Chart of Accounts

CHART OF ACCOUNTS
O’Donnel Co.
General Ledger
ASSETS 110 Cash 111 Accounts Receivable 112 Interest Receivable 113 Notes Receivable 115 Merchandise 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-Laine Co. 211 Accounts Payable-Warick Co. 212 Accounts Payable-Tabata Bank 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 Owner, Capital 311 Owner, Drawing 312 Income Summary	REVENUE 410 Sales 610 Interest Revenue EXPENSES 510 Cost of Merchandise 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

Answer 1

1.

Jan-10	Merchandise Inventory	$     240,000
	Accounts Payable-Laine Co.		$    240,000
Feb-09	Accounts Payable-Laine Co.	$     240,000
	Notes Payable-Laine Co.		$    240,000
Mar-11	Notes Payable-Laine Co.	$     240,000
	Interest Expense	$             800
	Cash		$    240,800
May-01	Cash	$     160,000
	Notes Payable-Tabata Bank		$    160,000
Jun-01	Tools	$     180,000
	Notes Payable-Gibala Co.		$    180,000
Jun-15	Notes Payable-Tabata Bank	$     160,000
	Interest Expense	$          1,000
	Notes Payable-Tabata Bank		$    160,000
	Cash		$         1,000
Jul-30	Notes Payable-Tabata Bank	$     160,000
	Interest Expense	$          1,400
	Cash		$    161,400
Jul-30	Notes Payable-Gibala Co.	$     180,000
	Interest Expense	$          1,500
	Cash		$    181,500
Dec-01	Office Equipment	$     400,000
	Notes Payable-Warick Co.		$    300,000
	Cash		$    100,000
Dec-15	Litigation Loss	$     260,000
	Litigation Claims Payable		$    260,000
Dec-31	Notes Payable-Warick Co.	$        30,000
	Interest Expense	$             125
	Cash		$      30,125

2.

Date	Account Titles	Debit	Credit
Dec-31	Product Warranty Expense	$        23,000
	Product Warranty Payable		$      23,000
Dec-31	Interest Expense	$          1,125
	Interest Payable		$         1,125