Question

Described below are certain transactions of Edwardson Corporation. The company uses the periodic inventory system. 1. On February 2, the corporation purchased goods from Martin Company for $71,400 subject to cash discount terms of 2/10, n/30. Purchases and accounts payable are recorded by the corporation at net amounts after cash discounts. The invoice was paid on February 26. 2. On April 1, the corporation bought a truck for $76,000 from General Motors Company, paying $3,000 in cash and signing a one-year, 10% note for the balance of the purchase price. 3. On May 1, the corporation borrowed $118,800 from Chicago National Bank by signing a $128,280 zero-interest-bearing note due one year from May 1. 4. On August 1, the board of directors declared a $316,500 cash dividend that was payable on September 10 to stockholders of record on August 31.Edwardson Corporation’s year-end is December 31. Assuming that no adjusting entries relative to the transactions above have been recorded, prepare any adjusting journal entries concerning interest that are necessary to present fair financial statements at December 31. Assume straight-line amortization of discounts

Answer 1

1.

Date	Accounts Titles	Debit	Credit
2-Feb	Purchases (71400 x 98%)	69972
	Accounts Payable		69972
26-Feb	Accounts Payable	69972
	Purchase discounts lost	1428
	Cash		71400
	No adjustment necessary

2.

Date	Accounts Titles	Debit	Credit
2-April	Truck	76000
	Cash		3000
	Notes payable		73000
31-Dec	Interest Expense(73000 x 10% x 9/12)	5475
	Interest Payable		5475

3.

Date	Accounts Titles	Debit	Credit
1-May	Cash	118800
	Discount on notes payable	9480
	Notes Payable		128280
31-Dec	Interest Expense (9480 x 8/12)	6320
	Discount on Notes Payable		6320

4.

Date	Accounts Titles	Debit	Credit
1-Aug	Retained Earnings(Dividend Declared)	316500
	Dividends payable		316500
31-Aug	No entry - the date of record is a reference date only
10-Sep	Dividends Payable	316500
	Cash		316500
	No adjusting entry necessary as dividend was paid before year end