In: Accounting
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.,
$414,000, terms n/30.
Feb. 9. Issued a 30-day, 4% note for $414,000 to Laine Co., on
account.
Mar. 11. Paid Laine Co. the amount owed on the note of February
9.
May 1. Borrowed $180,000 from Tabata Bank, issuing a 45-day, 4%
note.
June 1. Purchased tools by issuing a $228,000, 60-day note to
Gibala Co., which discounted the note at the rate of 6%.
June 15. Paid Tabata Bank the interest due on the note of May 1 and
renewed the loan by issuing a new 45-day, 6.5% note for $180,000.
(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.
July 30. Paid Gibala Co. the amount due on the note of June
1.
Dec. 1. Purchased office equipment from Warick Co. for $520,000,
paying $90,000 and issuing a series of ten 4% notes for $43,000
each, coming due at 30-day intervals.
Dec 15. Settled a product liability lawsuit with a customer for
315,000, payable in January. O’Donnel accrued the loss in a
litigation claims payable account.
Dec 31. Paid the amount due Warick 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:
A. Product warranty cost, $26,500.
B. Interest on the nine remaining notes owed to Warick Co. Refer to
the Chart of Accounts for exact wording of account titles. Assume a
360-day year. Round your answers to the nearest dollar.
Answer to A | |||
Date | Account Title & Explanation | Debit | Credit |
Jan.10 | Inventory | 414,000 | |
Accounts Payable-Laine Co. |
414,000 | ||
Feb.9 | Accounts Payable-Laine Co. | 414,000 | |
4% Notes Payable |
414,000 | ||
Mar-11 | 4% Notes Payable | 414,000 | |
Interest Expense ($414000*30/360*4%) | 1380 | ||
Cash |
415,380 | ||
May-01 | Cash | 180,000 | |
4.% Notes Payable |
180,000 | ||
Jun-01 | Tools | 225,720 | |
Interest Expense ($228000*60/360*6%) | 2,280 | ||
6% Notes Payable |
228,000 | ||
Jun-15 | 4.% Notes Payable | 180,000 | |
Interest Expense ($180000*45/360*4%) | 900 | ||
6.5% Notes Payable |
180,000 | ||
Cash |
900 | ||
Jul-30 | 6.5% Notes Payable | 180,000 | |
Interest Expense ($180000*45/360*6.5%) | 1462.5 | ||
Cash |
181,463 | ||
Jul-30 | 6% Notes Payable | 228,000 | |
Cash |
228,000 | ||
Dec.1 | Office Equipment | 520,000 | |
4% Notes Payable |
430,000 | ||
Cash |
90,000 | ||
Dec-15 | Litigation Loss | 315,000 | |
Litigation Claims Payable | 315,000 | ||
Dec.31 | 4% Notes payable | 43,000 | |
Interest Expense ($43000*30/360*4%) | 143.33 | ||
Cash |
43,143.33 | ||
Answet to B | |||
Date | Account Title & Explanation | Debit | Credit |
Product warranty expense | 26,500 | ||
Product warranty payable |
26,500 | ||
Interest Expense | 1,290 | ||
Interest Payable ($387000*30/360*4%) |
1,290 |