Question

Liability Transactions 

The following items were selected from among the transactions completed by Aston Martin Inc. during the current year: 

Apr. 15. Borrowed $225,000 from Audi Company, issuing a 30-day, 6 % note for that amount. 

May 1 Purchased equipment by issuing a $320,000, 180-day note to Spyder Manufacturing Co., which discounted the note at the rate of 6 %. 

     15. Paid Audi Company the interest due on the note of April 15 and renewed the loan by issuing a new 60-day, 8 % note for $225,000. (Record both the debit and credit to the notes payable account.) 

July 14. Paid Audi Company the amount due on the note of May 15.  

Aug. 16. Purchased merchandise on account from Exige Co., $90,000, terms, n/30. 

Sept. 15. Issued a 45-day, 6 % note for $90,000 to Exige Co., on account.  

Oct. 28. Paid Spyder Manufacturing Co. the amount due on the note of May 1.  

       30. Paid Exige Co. the amount owed on the note of September 15. 

Nov. 16. Purchased store equipment from Gallardo Co. for $450,000, paying $50,000 and issuing a series of twenty 9% notes for $20,000 each, coming due at 30-day intervals. 

Required:

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

1. Journalize the transactions. If an amount box does not require an entry, leave it blank. Assume a 360 -day year.

Answer 1

Journal Entry's

Date	Account Title and Explanation	Debit	Credit
April 15	Cash	$ 225,000
	Note Payable		$ 225,000
	(To record borrowing from Audi Company by issuing 6% note )
May 1	Equipment	$ 310,400
	Interest Expenses ($320,000×6%×180/360)	$ 9,600
	Note Payable		$ 320,000
	(To record purchase of equipment by issuing 6% discount note )
May 15	Note Payable	$225,000
	Interest Expense ( $225,000×6%×30/360)	$ 1,125
	Note Payable		$ 225,000
	Cash		$ 1,125
	(To record the payment of intrest for Audi company and renew the loan by issuing 8% note )
July 14	Note Payable	$ 225,000
	Interest Expenses ($225,000×8%×60/360)	$ 3,000
	Cash		$228,000
	(To record payment of maturity and Intrest for notes)
August 16	Merchandise Inventory	$ 90,000
	Accounts Payable		$ 90,000
	( To record purchase of merchandise on account )
September 15	Accounts Payable	$ 90,000
	Note Payable		$ 90,000
	(To record the issue of 6% notes in account)
October 28	Note Payable	$ 320000
	Cash		$320,000
	(To record the payment of due amount)
October 30	Note Payable	$ 90,000
	Intrest Expenses	$675
	Cash		$90,675
	( To record payment of maturity and intrest for notes)
November 16	Store Equipment	$ 450,000
	Note Payable		$ 400,000
	Cash		$ 50,000
	( To record purchase of store equipment for cash and issuing of 9% , notes)
December 16	Note Payable	$ 20,000
	Interest Expenses	$ 150
	Cash		$ 20,150
	( To record payment of maturity and Intrest for notes)
December 28	Litigation loss	$ 87,500
	To Litigation claim Payable		$ 87,500
	(To record the accrual of litigation claim)

2)

No	Account Title and Explanation	Debit	Credit
a	Product Warranty Expenses	$ 26,800
	Product Warranty Payable		$ 26,800
b	Interest Expenses	$900
	Interest Payable		$900

Interest Expenses = 20000 × 9× 6% ×30/360