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In: Accounting

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

The 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., $414,000, terms n/30.
Feb. 9. Issued a 30-day, 4% note for $414,000 to Laine Co., on account.
Mar. 11. Paid Laine Co. the amount owed on the note of February 9.
May 1. Borrowed $180,000 from Tabata Bank, issuing a 45-day, 4% note.
June 1. Purchased tools by issuing a $228,000, 60-day note to Gibala Co., which discounted the note at the rate of 6%.
15. Paid Tabata Bank the interest due on the note of May 1 and renewed the loan by issuing a new 45-day, 6.5% note for $180,000. (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 $520,000, paying $90,000 and issuing a series of ten 4% notes for $43,000 each, coming due at 30-day intervals.
15. Settled a product liability lawsuit with a customer for 315,000, 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. Round your answers to the nearest dollar.
2. Journalize the adjusting entry for each of the following accrued expenses at the end of the current year:
A. Product warranty cost, $26,500.
B. Interest on the nine remaining notes owed to Warick Co.
Refer to the Chart of Accounts for exact wording of account titles. Assume a 360-day year. Round your answers to the nearest dollar.

Solutions

Expert Solution

Answer
(A)
Date Accounts title and Explanations Debit ($) Credit ($)
Jan.10 Inventory $ 414,000
Accounts Payable-Laine Co. $       414,000
Feb.9 Accounts Payable-Laine Co. $ 414,000
  Notes Payable $       414,000
Mar-11 Notes Payable $ 414,000
Interest Expense ($414,000*30/360*4%) $      1,380
Cash $       415,380
May-01 Cash $ 180,000
Notes Payable $       180,000
Jun-01 Tools $ 225,720
Interest Expense ($228,000*60/360*6%) $      2,280
Notes Payable $       228,000
Jun-15 Notes Payable $ 180,000
Interest Expense ($180,000*45/360*6.5%) $      1,463
Notes Payable $       180,000
Cash $           1,463
Jul-30 Notes Payable $ 180,000
Interest Expense ($180,000*45/360*6%) $      1,350
Cash $       181,350
Jul-30 Notes Payable $ 228,000
Cash $       228,000
Dec.1 Office Equipment $ 520,000
Notes Payable $       430,000
Cash $         90,000
Dec-15 Litigation Loss $ 315,000
Litigation Claims Payable $       315,000
Dec.31 Notes payable $    43,000
Interest Expense ($43,000*30/360*4%) $         143
Cash $         43,143
(B)
S.No. Accounts title and Explanations Debit ($) Credit ($)
a. Product warranty expense $    26,500
Product warranty payable $         26,500
b. Interest Expense $      1,290
  Interest Payable ($43,000*9*30/360*4%) $           1,290

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