Question

The following are selected transactions of Blanco Company. Blanco prepares financial statementsquarterly.

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)	Journal Entries
	Date	Account titles & Explanations				Debit	Credit
	2-Jan	Merchandise inventory				26,400
		Accounts payable -Nunez					26,400
	1-Feb	Accounts payable-Nunez				26,400
		Notes payable					26,400
	31-Mar	interest expense				396
		interest payable					396
		(26400*9%*2/12)
	1-Apr	notes payable				26,400
		interest payable				396
		cash					26,796
	1-Jul	Equipment				70,800
		notes payable					60,000
		Cash					10,800
	30-Sep	interest expense				1500
		interest payable					1,500
		(60,000*10%*3/12)
	1-Oct	notes payable				60,000
		interest payable				1,500
		cash					61,500
	1-Dec	cash				31,200
		notes payable					31,200
	31-Dec	interest expense				208
		interest payable					208
		(31,200*8%*1/12)
	B)	T- Accounts
		Notes payable
		1-Apr	26,400	1-Feb	26,400
		I oct	60,000	1-Jul	60,000
				1-Dec	31,200
				end bal	31,200
		interest payable
		1-Apr	396	31-Mar	396
		1-Oct	1,500	30-Sep	1,500
				31-Dec	208
				End bal	208
		interest expense
		31-Mar	396
		30-Sep	1,500
		31-Dec	208
		End bal	2104
	c)	Balance Sheet presentation
		current liabilities
		interest payable			208
		short term notes payable			31,200
		total current liabilities			31408
	d)	total interest expense for the year				2,104