Question

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., $225,000, terms n/30.
	31	Issued a 30-day, 8% note for $225,000 to Kirkwood Co., on account.
Apr.	30	Paid Kirkwood Co. the amount owed on the note of March 31.
Jun.	1	Borrowed $600,000 from Triple Creek Bank, issuing a 45-day, 6% note.
Jul.	1	Purchased tools by issuing a $50,000, 60-day note to Poulin Co., which discounted the note at the rate of 6%.
	16	Paid Triple Creek Bank the interest due on the note of June 1 and renewed the loan by issuing a new 30-day, 7% note for $600,000. (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 $280,000, paying $80,000 cash and issuing a series of ten 9% notes for $20,000 each, coming due at 30-day intervals.
	22	Settled a product liability lawsuit with a customer for $40,000, 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.
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, $65,000.b. Interest on the nine remaining notes owed to Greenwood Co. Assume a 360-day year.

Answer 1

SOLUTION

1.

Date	Accounts titles and Explanation	Debit ($)	Credit ($)
Mar.1	Merchandise inventory	225,000
	Accounts payable- Kirkwood co.		225,000
Mar.31	Accounts payable- Kirkwood co.	225,000
	Notes payable		225,000
April 30	Notes payable	225,000
	Interest expense (225,000*8%*30/360)	1,500
	Cash		226,500
June 1	Cash	600,000
	Notes payable		600,000
July 1	Tools	49,500
	Interest expense (50,000*6%*60/360)	500
	Notes payable		50,000
July 16	Notes payable	600,000
	Interest expense (600,000*6%*45/360)	4,500
	Notes payable		600,000
	Cash		4,500
Aug.15	Notes payable	600,000
	Interest expense (600,000*7%*30/360)	3,500
	Cash		603,500
Aug.30	Notes payable	50,000
	Cash		50,000
Dec.1	Office Equipment	280,000
	Notes payable		200,000
	Cash		80,000
Dec.22	Litigation loss	40,000
	Litigation claims payable		40,000
Dec.31	Notes payable	20,000
	Interest expense (20,000*9%*30/360)	150
	Cash		20,150

2.

S.No.	Accounts titles and Explanation	Debit ($)	Credit ($)
a.	Product warranty expense	65,000
	Product warranty payable		65,000
b.	Interest expense	1,350
	Interest payable (20,000*9%*30/360*9)		1,350