Question

The following items were selected from among the transactions completed by Shin Co. during the current year:

Jan. 10. Purchased merchandise on account from Beckham Co., $420,000, terms n/30.

Feb. 9. Issued a 30-day, 6% note for $420,000 to Beckham Co., on account.

Mar. 11. Paid Beckham Co. the amount owed on the note of February 9.

May 1. Borrowed $240,000 from Verity Bank, issuing a 45-day, 5% note.

June 1. Purchased tools by issuing a $312,000, 60-day note to Rassmuessen Co., which discounted the note at the rate of 5%.

June 15. Paid Verity Bank the interest due on the note of May 1 and renewed the loan by issuing a new 45-day, 7% note for $240,000. (Journalize both the debit and credit to the notes payable account.)

July 30. Paid Verity Bank the amount due on the note of June 15.

July 30. Paid Rassmuessen Co. the amount due on the note of June 1.

Dec. 1. Purchased office equipment from Lambert Co. for $700,500, paying $160,500 and issuing a series of ten 5% notes for $54,000 each, coming due at 30-day intervals.

Dec. 15. Settled a product liability lawsuit with a customer for $144,200, payable in January. Shin Co. accrued the loss in a litigation claims payable account.

Dec. 31. Paid the amount due Lambert Co. on the first note in the series issued on December 1.

Instructions

1. Journalize the transactions.

2. Journalize the adjusting entry for each of the following accrued expenses at the end of the current year:

a. Product warranty cost, $19,500.

b. Interest on the nine remaining notes owed to Lambert Co.

Answer 1

(1).

Journal Entry
Date		Account title and Explanation	Post. Ref.	Debit ($)	Credit ($)
Jan. 10		Merchandise inventory		420,000
		Accounts payable-B corporation			420,000
		(To Record the purchase of merchandise)
Journal Entry
Date		Account title and Explanation	Post. Ref.	Debit ($)	Credit ($)
Feb. 9		Accounts payable-B corporation		420,000
		Notes payable			420,000
		(To Record the issue of notes payable)
Journal Entry
Date		Account title and Explanation	Post. Ref.	Debit ($)	Credit ($)
Mar. 11		Notes payable		420,000
		Interest expense ($420,000*30/360*6%)		2,100
		Cash			422,100
		(To Record the paid amount of the notes payable)
Journal Entry
Date		Account title and Explanation	Post. Ref.	Debit ($)	Credit ($)
May. 1		Cash		240,000
		Notes payable			240,000
		(To Record the borrowed amount)
Journal Entry
Date		Account title and Explanation	Post. Ref.	Debit ($)	Credit ($)
Jun. 1		Tools		309,400
		Interest expense ($312,000*60/360*5%)		2,600
		Notes payable			312,000
		(To Record the purchase of tool)
Journal Entry
Date		Account title and Explanation	Post. Ref.	Debit ($)	Credit ($)
Jun. 15		Notes payable		154,800
		Interest expense ($240,000*45/360*5%)		1,500
		Notes payable			154,800
		Cash			1,500
		(To Record the paid interest)
Journal Entry
Date		Account title and Explanation	Post. Ref.	Debit ($)	Credit ($)
Jul. 30		Notes payable		240,000
		Interest expense ($240,000*45/360*7%)		2,100
		Cash			242,100
		(To Record the paid amount due on the note )
Journal Entry
Date		Account title and Explanation	Post. Ref.	Debit ($)	Credit ($)
Jul. 30		Notes payable		312,000
		Cash			312,000
		(To Record the paid amount due on the note )
Journal Entry
Date		Account title and Explanation	Post. Ref.	Debit ($)	Credit ($)
Dec. 1		Office equipment		700,500
		Notes payable			540,000
		Cash			160,500
		(To Record the purchased equipment)
Journal Entry
Date		Account title and Explanation	Post. Ref.	Debit ($)	Credit ($)
Dec. 15		Litigation loss		144,200
		Litigation claims payable			144,200
		(To Record the loss)
Journal Entry
Date		Account title and Explanation	Post. Ref.	Debit ($)	Credit ($)
Dec. 31		Notes payable		54,000
		Interest expense ($54,000*30/360*5%)		225
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