Question

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

Jan. 10. Purchased merchandise on account from Laine Co., $240,000, terms n/30.

Feb. 9. Issued a 30-day, 4% note for $240,000 to Laine Co., on account.

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

May 1. Borrowed $160,000 from Tabata Bank, issuing a 45-day, 5% note.

June 1. Purchased tools by issuing a $180,000, 60-day note to Gibala Co., which discounted the note at the rate of 5%.

15. Paid Tabata Bank the interest due on the note of May 1 and renewed the loan by issuing a new 45-day, 7% note for $160,000. (Journalize both the debit and credit to the notes payable account.)

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

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

Dec. 1. Purchased office equipment from Warick Co. for $400,000, paying $100,000 and issuing a series of ten 5% notes for $30,000 each, coming due at 30-day intervals.

15. Settled a product liability lawsuit with a customer for $260,000, payable in January. O’Donnel accrued the loss in a litigation claims payable account.

31. Paid the amount

Required:

1. Journalize the transactions. Refer to the Chart of Accounts for exact wording of account titles. Assume a 360-day year.

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, $23,000.

B. Interest on the nine remaining notes owed to Warick Co. Assume a 360-day year.

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.

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, $23,000.

B. Interest on the nine remaining notes owed to Warick Co. Assume a 360-day year.

Answer 1

Solution:

1.)

No.	Date	Account Title and Explanation	Debit ($)	Credit ($)
1.	Jan.10	Merchandise Inventory	240,000
		Accounts Payable - Laine Co.		240,000
		(To record purchase of merchandise on account )
2.	Feb.9	Accounts payable -LaineCo.	240,000
		Notes Payable		240,000
		(To record the issue 4% note on account)
3.	Mar.11	Notes payable	240,000
		Interest expenses ($240,000 ×30/360 × 4%)	800
		Cash		240,800
		(To record payment of maturity and interest for notes)
4.	May 1	Cash	160,000
		Notes Payable		160,000
		(To record the borrowing from Tabata Bank by issuing 5% note)
5.	June 1	Tools	178,500
		Interest Expenses ($180,000 ×60/360 ×5%)	1,500
		Notes Payable		180,000
		(To record the purchase of tools)
6.	June 15	Notes Payable	160,000
		Interest Expenses (160,000 × 45/360 ×5%)	1,000
		Note Payable		160,000
		Cash		1000
		(To record the payment of interest for Tabta Bank)
7.	July 30	Notes Payable	160,000
		Interest expenses (160000 ×45/360 ×7%)	1,400
		Cash		161,400
		(To record the payment of maturity and for interest expenses)
8.	July 30	Notes payable	180,000
		Cash		180,000
		(To record the payment of due amount)
9.	Dec.1	Office Equipment	400,000
		Notes Payable		300,000
		Cash		100,000
		(To record purchase of office equipment)
10.	Dec.15	litigation loss	260,000
		Litigation claims payable		260,000
		(To record the accural of litigation claims)
11.	Dec.31	Notes payable	30,000
		Interest expenses (30000 ×30/360 ×5%)	125
		Cash		30125
		(To record the payment of interest)

2.a.)

No.	Account Title and Explanation	Debit($)	Credit($)
1	Product Warranty Expenses	23,000
	Product Warranty Payable		23,000
	(To record warranty expenses for the current year)

b.)

No.	Account Title and Explanation	Debit	Credit
1.	Interest Expenses(30000 ×5% ×30/360 ×9)	1125
	Interest Payable		1125
	(To record the interest on the nine remaining notes)