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In: Accounting

The January 1, Year 1 trial balance for the Wilson Company is found on the trial...

The January 1, Year 1 trial balance for the Wilson Company is found on the trial balance tab. The beginning balances are assumed. Smith Co. entered into the following transactions involving short-term liabilities. (Use 360 days a year.) Year 1 Apr. 20 Purchased $43,750 of merchandise on credit from Sanchez, terms n/30. May 19 Replaced the April 20 account payable to Sanchez with a 90-day, 8%, $38,000 note payable along with paying $5,750 in cash. July 8 Borrowed $102,000 cash from NBR Bank by signing a 120-day, 12%, $102,000 note payable. Aug. 17 Paid the amount due on the note to Sanchez at the maturity date. Nov. 5 Paid the amount due on the note to NBR Bank at the maturity date. Nov. 28 Borrowed $63,000 cash from Chicago Bank by signing a 60-day, 12%, $63,000 note payable. Dec. 31 Recorded an adjusting entry for accrued interest on the note to Chicago Bank. Year 2 Jan. 27 Paid the amount due on the note to Chicago Bank at the maturity date.

General Journal tab - Prepare the Year 1 journal entries related to the notes and accounts payable of Smith Co.

Calculation of interest tab - Use the interest formula (P x R x T) to verify the amount of interest recorded in your entries. Verify that total interest expense agrees with the trial balance.

Year 2 payment tab - Prepare the January 27, Year 2 entry to record the repayment of the note at maturity.

Solutions

Expert Solution

Sanchez NBR Bank Chicago Bank
Maturity Date Aug 17 Nov 05 Jan 27
Principal Rate Time Interest
Sanchez $          38,000 8% 90 $                 760
NBR Bank $        102,000 12% 120 $              4,080
Chicago Bank $          63,000 12% 60 $              1,260
Principal Rate Time Interest
Interest Accrued Year 1 $       63,000 12% 33 $             693
Principal Rate Time Interest
Interest Year 2 $       63,000 12% 27 $             567
Date Account Titles Debit Credit
Apr-20 Inventory $           43,750
      Accounts Payable $           43,750
May-19 Accounts Payable $           43,750
       Cash $             5,750
       Notes Payable-Sanchez $           38,000
Jul-08 Cash $        102,000
       Notes Payable-NBR bank $        102,000
Aug-17 Notes Payable-Sanchez $           38,000
Interest Expense $                760
       Cash $           38,760
Nov-05 Notes Payable-NBR Bank $        102,000
Interest Expense $             4,080
       Cash $        106,080
Nov-28 Cash $           63,000
       Notes Payable-Chicago $           63,000
Dec-31 Interest Expense $                693
      Interest Payable $                693
Year 2
Jan-27 Notes Payable-Chicago $           63,000
Interest Payable $                693
Interest Expense $                567
       Cash $           64,260

ekkarill92 answered 2 years ago
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