Question

The following are selected transactions of Blanco Company. Blanco prepares financial statements quarterly.

Jan.		2		Purchased merchandise on account from Nunez Company, $26,400, terms 3/10, n/30. (Blanco uses the perpetual inventory system.)
Feb.		1		Issued a 9%, 2-month, $26,400 note to Nunez in payment of account.
Mar.		31		Accrued interest for 2 months on Nunez note.
Apr.		1		Paid face value and interest on Nunez note.
July		1		Purchased equipment from Marson Equipment paying $10,800 in cash and signing a 10%, 3-month, $60,000 note.
Sept.		30		Accrued interest for 3 months on Marson note.
Oct.		1		Paid face value and interest on Marson note.
Dec.		1		Borrowed $31,200 from the Paola Bank by issuing a 3-month, 8% note with a face value of $31,200.
Dec.		31		Recognized interest expense for 1 month on Paola Bank note.

A: Prepare Journal Entries for the listed transactions and events. Record entries in the order they are presented in the problem

B: Post to the accounts Notes Payable, Interest Payable, and Interest Expense

C: Show the balance sheet presentation of notes and interest payable at December 31.

D: What is the total interest expense for the year?

Answer 1

(A).

Date	Accounts Title & Explanation	Debit	Credit
Jan. 2	Merchandise Inventory	$26400
	Accounts payable		$26400
	(For recording purchase of merchandise inventory)
Feb. 1	Accounts payable	$26400
	Notes payable		$26400
	(For recording issue of notes payable)
March 31	Interest expense ($26400 * .09 * 2 / 12)	$396
	Interest payable		$396
	(for recording interest expense)
April 1	Note payable	$26400
	Interest payable	$396
	Cash		$26796
	(For recording payment of interest)
July 1	Equipment	$70800
	Cash		$10800
	Notes payable		$60000
	(for recording purchase of equipment)
Sep. 30	Interest expense ($60000 * 0.10 * 3 / 12)	$1500
	Interest payable		$1500
	(for recording interest expense)
Oct. 1	Note payable	$60000
	Interest payable	$1500
	Cash		$61500
	(For recording payment of interest)
Dec. 1	Cash	$31200
	Notes payable		$31200
	(For recording borrowings)
Dec. 31	Interest expense ($31200 * .08 * 1 / 12)	$208
	Interest payable		$208
	(for recording interest expense)

(B).

Notes Payable
April 1	$26400	Feb . 1	$26400
Oct. 1	$60000	July 1	$60000
		Dec. 1	$31200
			$31200

Interest expense
March 31	$396
Sept. 30	$1500
Dec. 31	$208

Interest Payable
March 31	$396	April 1	$396
Sept. 30	$1500	Oct. 1	$1500
Dec. 31	$208
			$208

(C).

Balance Sheet (Extract)
Liabilities & Shareholders’ funds		Assets
Current liabilities;
Notes payable	$31200
Interest payable	$208

(D).

Interest expenses for the year = $2104