Question

Apr.	8	Issued a $48,000, 75-day, 8% note payable in payment of an account with Bennett Company.
May	15	Borrowed $360,000, 60-day, 9% note from Lincoln Bank.
Jun.	22	Paid Bennett Company the principal and interest due on the April 8 note payable.
Jul.	6	Purchased $120,000 of merchandise from Bolton Company; signed a note for 90-day, 10% interest.
Jul.	14	Paid the May 15 note due Lincoln Bank.
Oct.	2	Borrowed $240,000, 120-day, 12% note from Lincoln Bank.
Oct.	4	Defaulted on the note payable to Bolton Company.

Required

a. Record these transactions in general journal form.
b. Record any adjusting entries for interest in general journal form. Logan Company has a December 31 year-end.

Round answers to nearest dollar. Use 360 days for interest calculations.

Answer 1

• All working forms part of the answer
• Working for all the notes

Working		Bennet Company	Lincon Bank	Bolton Company	Lincoln Bank
A	Date of Issue	08-Apr	15-May	06-Jul	02-Oct
B	Amount	$                   48,000.00	$              3,60,000.00	$           1,20,000.00	$            2,40,000.00
C	Term [days]	75	60	90	120
D=A + C	Maturity date	22-Jun	14-Jul	04-Oct	30-Jan
E	Interest rate	8%	9%	10%	12%
F= B x E	Annual interest	$                     3,840.00	$                  32,400.00	$              12,000.00	$                28,800.00
G = F x C/360	Interest expense for notes term	$                         800.00	$                    5,400.00	$                 3,000.00	$                  9,600.00

• Requirement ‘a’ Journal Entries based on above working

Date	General Journal	Debit	Credit
08-Apr	Accounts payable	$                  48,000.00
	Notes payable		$              48,000.00
	(notes issued)
15-May	Cash	$              3,60,000.00
	Notes payable		$           3,60,000.00
	(notes issued)
22-Jun	Notes payable	$                  48,000.00
	Interest expense	$                        800.00
	Cash		$              48,800.00
	(notes repaid)
06-Jul	Inventory	$              1,20,000.00
	Notes payable		$           1,20,000.00
	(notes issued for purchase of inventory)
14-Jul	Notes payable	$              3,60,000.00
	Interest expense	$                    5,400.00
	Cash		$           3,65,400.00
	(notes repaid)
02-Oct	Cash	$              2,40,000.00
	Notes payable		$           2,40,000.00
	(notes issued)
04-Oct	Notes payable	$              1,20,000.00
	Interest expense	$                    3,000.00
	Accounts payable		$           1,23,000.00
	(defaulted in Notes payable)

• Requirement ‘b’ Adjusting entry on Dec 31

Date	General Journal	Debit	Credit
31-Dec	Interest expense [9600 x 90/120days]	$                    7,200.00
	Interest payable		$                 7,200.00
	[interest accrued on Oct 2 Note payable recorded]