Question

In: Accounting

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

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.


Solutions

Expert Solution

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

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