Question

chapter 10-01

instructions

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

Mar.	1	Purchased merchandise on account from Kirkwood Co., $300,000, terms n/30.
	31	Issued a 30-day, 4% note for $300,000 to Kirkwood Co., on account.
Apr.	30	Paid Kirkwood Co. the amount owed on the note of March 31.
Jun.	1	Borrowed $156,000 from Triple Creek Bank, issuing a 45-day, 4% note.
Jul.	1	Purchased tools by issuing a $228,000, 60-day note to Poulin Co., which discounted the note at the rate of 9%.
	16	Paid Triple Creek Bank the interest due on the note of June 1 and renewed the loan by issuing a new 30-day, 6.5% note for $156,000. (Journalize both the debit and credit to the notes payable account.)
Aug.	15	Paid Triple Creek Bank the amount due on the note of July 16.
	30	Paid Poulin Co. the amount due on the note of July 1.
Dec.	1	Purchased equipment from Greenwood Co. for $580,000, paying $102,000 cash and issuing a series of ten 6% notes for $47,800 each, coming due at 30-day intervals.
	22	Settled a product liability lawsuit with a customer for $300,500, payable in January. Accrued the loss in a litigation claims payable account.
	31	Paid the amount due to Greenwood Co. on the first note in the series issued on December 1.

	Required:
1.	Journalize the transactions. Refer to the Chart of Accounts for exact wording of account titles. Assume a 360-day year. Round your answers to the nearest dollar.
2.	Journalize the adjusting entry for each of the following accrued expenses at the end of the current year (refer to the Chart of Accounts for exact wording of account titles): a. Product warranty cost, $28,000. b. Interest on the nine remaining notes owed to Greenwood Co. Assume a 360-day year. CHART OF ACCOUNTS Sherwood Co. General Ledger ASSETS 110 Cash 111 Accounts Receivable 112 Interest Receivable 113 Notes Receivable 115 Inventory 116 Supplies 118 Prepaid Insurance 120 Land 123 Building 124 Accumulated Depreciation-Building 125 Office Equipment 126 Accumulated Depreciation-Office Equipment 127 Tools 128 Accumulated Depreciation-Tools LIABILITIES 210 Accounts Payable-Kirkwood Co. 211 Accounts Payable-Greenwood Co. 212 Accounts Payable-Poulin Co. 213 Interest Payable 214 Notes Payable 215 Salaries Payable 216 Social Security Tax Payable 217 Medicare Tax Payable 218 Employees Federal Income Tax Payable 219 Employees State Income Tax Payable 220 Group Insurance Payable 221 Bond Deductions Payable 224 Federal Unemployment Tax Payable 225 State Unemployment Tax Payable 226 Vacation Pay Payable 227 Unfunded Pension Liability 228 Product Warranty Payable 229 Litigation Claims Payable EQUITY 310 Common Stock 311 Retained Earnings 312 Dividends 313 Income Summary REVENUE 410 Sales 610 Interest Revenue EXPENSES 510 Cost of Goods Sold 520 Salaries Expense 524 Depreciation Expense-Building 525 Delivery Expense 526 Repairs Expense 529 Selling Expenses 531 Rent Expense 532 Depreciation Expense-Office Equipment 533 Depreciation Expense-Tools 534 Insurance Expense 535 Supplies Expense 536 Payroll Tax Expense 537 Vacation Pay Expense 538 Pension Expense 539 Cash Short and Over 540 Product Warranty Expense 541 Miscellaneous Expense 710 Interest Expense 720 Litigation Loss

1. Journalize the transactions. Refer to the Chart of Accounts for exact wording of account titles. Assume a 360-day year. Scroll down to access page 12 of the journal. Round your answers to the nearest dollar.

PAGE 11

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1
2
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12
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2.	Journalize the adjusting entry for each of the following accrued expenses at the end of the current year (refer to the Chart of Accounts for exact wording of account titles): A. Product warranty cost, $28,000. B. Interest on the nine remaining notes owed to Greenwood Co. Assume a 360-day year.

PAGE 12

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1		Adjusting Entries
2
3
4
5

Answer 1

SOLUTION

1.

Date	Accounts title and Explanation	Debit ($)	Credit ($)
Mar. 1	Inventory	300,000
	Accounts Payable-Kirkwood Co.		300,000
Mar. 31	Accounts Payable-Kirkwood Co.	300,000
	Notes Payable		300,000
Apr.30	Notes Payable	300,000
	Interest Expense ($300,000*30/360*4%)	1,000
	Cash		301,000
June1	Cash	156,000
	Notes Payable		156,000
Jul. 1	Tools	224,580
	Interest Expense ($228,000*60/360*9%)	3,420
	Notes Payable		228,000
Jul. 16	Notes Payable	156,000
	Interest Expense ($156,000* 45/360*4%)	780
	Notes Payable		156,000
	Cash		780
Aug.15	Notes Payable	156,000
	Interest Expense ($156,000*30/360*6.5%)	845
	Cash		156,845
Aug.30	Notes payable	156,000
	Cash		156,000
Dec.1	Office Equipment	580,000
	Notes Payable		478,000
	Cash		102,000
Dec. 22	Litigation Loss	300,500
	Litigation Claims payable		300,500
Dec. 31	Notes Payable	47,800
	Interest Expense ($478,000*30/360*6%)	2,390
	Cash		50,190

2.

S.No.	Accounts title and Explanation	Debit ($)	Credit ($)
1.	Product Warranty expense	28,000
	Product Warranty Payable		28,000
2.	Interest Expense ($47,800*9*6%*30/360)	2,151
	Interest Payable		2,151