Question

Liability Transactions

The following items were selected from among the transactions completed by Aston Martin Inc. during the current year:

Apr. 15.	Borrowed $225,000 from Audi Company, issuing a 30-day, 6% note for that amount.
May 1.	Purchased equipment by issuing a $320,000, 180-day note to Spyder Manufacturing Co., which discounted the note at the rate of 6%.
15.	Paid Audi Company the interest due on the note of April 15 and renewed the loan by issuing a new 60-day, 8% note for $225,000. (Record both the debit and credit to the notes payable account.)
July 14.	Paid Audi Company the amount due on the note of May 15.
Aug. 16.	Purchased merchandise on account from Exige Co., $90,000, terms, n/30.
Sept. 15.	Issued a 45-day, 6% note for $90,000 to Exige Co., on account.
Oct. 28.	Paid Spyder Manufacturing Co. the amount due on the note of May 1.
30.	Paid Exige Co. the amount owed on the note of September 15.
Nov. 16.	Purchased store equipment from Gallardo Co. for $450,000, paying $50,000 and issuing a series of twenty 9% notes for $20,000 each, coming due at 30-day intervals.
Dec. 16.	Paid the amount due Gallardo Co. on the first note in the series issued on November 16.
28.	Settled a personal injury lawsuit with a customer for $87,500, to be paid in January. Aston Martin Inc. accrued the loss in a litigation claims payable account. Required: For a compound transaction, accounts should be listed largest to smallest. 1. Journalize the transactions. For a compound transaction, if an amount box does not require an entry, leave it blank. Assume a 360-day year. Date Account Debit Credit Apr. 15 May 1 May 15 July 14 Aug. 16 Sept. 15 Oct. 28 Oct. 30 Nov. 16 Dec. 16 Dec. 28 2. Journalize the adjusting entry for each of the following accrued expenses at the end of the current year: a. Product warranty cost, $26,800. b. Interest on the 19 remaining notes owed to Gallardo Co. Item Account Debit Credit a. b.

Answer 1

	Aston Martin Inc.
	General Journal
Date	Journal	Amount (DR)	Amount (CR)
15-Apr	Cash	$                   2,25,000.00
	To 6% Note Payable		$                           2,25,000.00
	(Being amount borrowed from Audi Company by issuing 30 days 6% Note Payable)
01-May	Equipments	$                   3,20,000.00
	To 6 % Note Payable		$                           3,20,000.00
	(Being amount of Equipment from Spyder Manufacturing by issuing 180 days 6% Note Payable )
15-May	Note Payable	$                   2,25,000.00
	Interest Expense=($225000*6%*30/360)	$                         1,125.00
	To Note Payable		$                           2,25,000.00
	To Cash		$                                 1,125.00
	(Being aount of Interest paid and new 60 days 8 % note issued)
14-Jul	Note Payable	$                   2,25,000.00
	Interest Expense	$                         3,000.00
	To Cash		$                           2,28,000.00
	(Being amount of Note due was paid including interest )
16-Aug	Merchandise	$                       90,000.00
	To Accounts Payable		$                               90,000.00
	(Being amount of Merchandise Purchased on account from Exige Company terms, n/30)
15-Sep	Accounts Payable	$                       90,000.00
	To Note Payable		$                               90,000.00
	(Being amount of 45days 6% Note issued to Exige Co.)
28-Oct	Note Payable	$                   3,20,000.00
	Interest Expense($320000*6%*(180/360)	$                       96,000.00
	To Cash		$                           4,16,000.00
	(Being amount paid on Note Payable on May1st)
30-Oct	Note Payable	$                       90,000.00
	Interest Expense($90000*6%*45/360)	$                             675.00
	To Cash		$                               90,675.00
	(Being amount paid to on note due to Exige Co.)
16-Nov	Office Equipment	$                   4,50,000.00
	To Cash		$                               50,000.00
	To Note Payable		$                           4,00,000.00
	(Being amount paid to Gallardo Co. $50,000 cash remaing 20 9% Note due at 30 days intervals)
16-Dec	Note Payable	$                       20,000.00
	Interest Expense($20000*9%*30/360)	$                             150.00
	Cash		$                               20,150.00
	(Being amount paid on first note due to Gallardo Co.)
	(Being amount of Service performed)
28-Dec	Litigation Loss	$                       87,500.00
	To Litigation Claim Payable		$                               87,500.00
	(Being amount of Personal lawsuit with a customer to be paid in Jan)
	Adjusted Entries
a)	Product Warranty Expenses	$                       26,800.00
	to Cash		$                               26,800.00
	(Being amount of Product Warranty Expenses Payable)
b)	Interest Expenses($20000*9%*19*(30/360)	$                         2,850.00
	To Interest Expenses Payable		$                                 2,850.00
	(Being amount of Interest due on 19 notes @9% for 30 days intervals)