Question

The following selected transactions of Johnson Motors Company were completed during the current accounting year ended December 31, 2019:

March 1 – Borrowed $25,000 on a two-year, 8% interest-bearing note. Interest is paid annually in 2020 and 2021.

April 1 – Borrowed cash and signed a $20,000, one-year, noninterest-bearing note. The note was discounted at an annual interest rate of 6%.

June 1 – Purchased a truck with a list price of $33,000. Paid $3,000 cash and signed a $30,000, one-year, noninterest-bearing note. The market rate for this type of note is 10%. The truck will be depreciated over five years using the straight-line method. The estimated salvage value is $5,000.

September 1 - Sold $6,000 of gift cards.

October 1 – Sold merchandise of $30,000 for cash. Gift cards of $2,000 were redeemed. The cost of the merchandise was $16,000. The merchandise carries a two-year warranty for parts and labor. A reasonable estimate of the cost of the warranty is 1.5% of sales revenue.

December 31 - $20,000 cash dividends were declared. The dividends will be paid in 2020.

Instructions: Prepare the 2019 journal entries required to record the preceding transactions, along with any required adjusting entries. (Round answers to the nearest dollar)

Answer 1