Question

Liability Transactions

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., $144,000, terms n/30.
Feb. 9.	Issued a 30-day, 6% note for $144,000 to Laine Co., on account.
Mar. 11.	Paid Laine Co. the amount owed on the note of February 9.
May 1.	Borrowed $142,800 from Tabata Bank, issuing a 45-day, 7% note.
June 1.	Purchased tools by issuing a $81,000, 60-day note to Gibala Supply Co., which discounted the note at the rate of 8%.
15.	Paid Tabata Bank the interest due on the note of May 1 and renewed the loan by issuing a new 45-day, 7% note for $142,800. (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 $96,000, paying $16,000 and issuing a series of ten 5% notes for $8,000 each, coming due at 30-day intervals.
15.	Settled a product liability lawsuit with a customer for $78,000, 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. If an amount box does not require an entry, leave it blank. Assume a 360-day year. Don't round the intermediate calculations and round the final answers to the nearest dollar amount.

For a compound transaction, accounts should be listed largest to smallest.

Date	Account	Debit	Credit
Jan. 10	Accounts Payable - Laine Co.
	Accounts Payable - Laine Co.
Feb. 9	Accounts Payable - Laine Co.
	Notes Payable
Mar. 11	Notes Payable
	Interest Expense
	Cash
May 1	Cash
	Notes Payable
June 1	Tools
	Interest Expense
	Notes Payable
June 15	Litigation Claims Payable
	Cash
	Notes Payable
	Cash
July 30	Notes Payable
	Interest Expense
	Cash
July 30	Notes Payable
	Cash
Dec. 1	Office Equipment
	Notes Payable
	Cash
Dec. 15	Litigation Claims Payable
	Litigation Claims Payable
Dec. 31	Notes Payable
	Interest Expense
	Cash

2. Journalize the adjusting entry for each of the following accrued expenses at the end of the current year: (a) product warranty cost, $15,300; (b) interest on the nine remaining notes owed to Warick Co. Assume a 360-day year. Round your answers to the nearest dollar amount.

Item	Account	Debit	Credit
a.	Product Warranty Expense
	Product Warranty Payable
b.	Interest Expense
	Interest Payable

Answer 1