Concept explainers
1.
Liabilities: Liabilities are debt and obligations of a business. These are the claims against the resources that a business owes to outsiders of the company. Liabilities may be Current liabilities, and Long-term liabilities. Examples: Creditors, Bills payable, Bank overdraft, Salaries and wages payable, and Notes payable.
To journalize: The liabilities transactions.
1.
Answer to Problem 11.1BPR
Prepare
Date | Accounts and Explanation | Post Ref | Debit ($) | Credit ($) |
April 15 | Cash | 225,000 | ||
Notes Payable | 225,000 | |||
(To record borrowing from A Company by issuing 6% note) | ||||
May 1 | Equipment | 310,400 | ||
Interest Expense (1) | 9,600 | |||
Notes Payable | 320,000 | |||
(To record purchase of equipment by issuing 6% discounted note) | ||||
May 15 | Notes Payable | 225,000 | ||
Interest Expense (2) | 1,125 | |||
Notes Payable | 225,000 | |||
Cash | 1,125 | |||
(To record the payment of interest for A Company and renew the loan by issuing 8% note) | ||||
July 14 | Notes Payable | 225,000 | ||
Interest Expense (3) | 3,000 | |||
Cash | 228,000 | |||
(To record payment of maturity and interest for notes) | ||||
August 16 | Merchandise Inventory | 90,000 | ||
Accounts Payable | 90,000 | |||
(To record purchase of merchandise on account) | ||||
September 15 | Accounts payable | 90,000 | ||
Notes Payable | 90,000 | |||
(To record the issue of 6% notes on account ) | ||||
October 28 | Notes Payable | 320,000 | ||
Cash | 320,000 | |||
(To record the payment of due amount) | ||||
October 30 | Notes Payable | 90,000 | ||
Interest Expense (4) | 675 | |||
Cash | 90,675 | |||
(To record payment of maturity and interest for notes) | ||||
November 16 | Store Equipment | 450,000 | ||
Notes Payable | 400,000 | |||
Cash | 50,000 | |||
(To record purchase of store equipment for cash and issuing of 9% notes) | ||||
December 16 | Notes Payable | 20,000 | ||
Interest Expense (5) | 150 | |||
Cash | 20,150 | |||
(To record payment of maturity and interest for notes) | ||||
December 28 | Litigation Loss | 87,500 | ||
Litigation Claims Payable | 87,500 | |||
(To record the accrual of litigation claims) |
Table (1)
Explanation of Solution
Working notes:
Calculate interest expense for discounted notes.
Calculate interest expense for 30 days on notes.
Calculate interest expense for 60 days on notes.
Calculate interest expense for 45 days on notes.
Calculate interest expense for 30 days on notes.
- On April 15, Cash is debited as it increased the asset. Notes payable is credited as it increased the liability.
- On May 1, Equipment is debited as it increased the asset. Interest expense is debited as it decreases the equity value. Notes payable is credited as it increased the liability.
- On May 15, Notes payable is debited as it decreased the liability. Interest expense is debited as it decreases the equity value. Notes payable is credited as it increased the liability. Cash is credited as it decreased the asset.
- On July 14, Notes payable is debited as it decreased the liability. Interest expense is debited as it decreases the equity value. Cash is credited as it decreased the asset.
- On August 16, Merchandise inventory is debited as it increased the asset. Accounts payable is credited as it increased the liability.
- On September 15, Accounts payable is debited as it decreased the liability. Notes payable is credited as it increased the liability.
- On October 28, Notes payable is debited as it decreased the liability. Cash is credited as it decreased the asset.
- On October 30, Notes payable is debited as it decreased the liability. Interest expense is debited as it decreases the equity value. Cash is credited as it decreased the asset.
- On November 16, Store equipment is debited as it increased the asset. Notes payable is credited as it increased the liability. Cash is credited as it decreased the asset.
- On December 16, Notes payable is debited as it decreased the liability. Interest expense is debited as it decreases the equity value. Cash is credited as it decreased the asset.
- On December 28, Litigation loss is debited as it decreases the equity value. Litigation claims payable is credited as it increased the liability.
2. a
To journalize: The
2. a
Explanation of Solution
Prepare journal entry to record product warranty.
Date | Accounts and Explanation | Post Ref | Debit ($) | Credit ($) | |||
Product Warranty Expense | 26,800 | ||||||
Product Warranty Payable | 26,800 | ||||||
(To record the accrual of warranty payable) | |||||||
- Product warranty expense is an expense and it decreases the equity value. So, debit it by $26,800.
- Product warranty payable is a liability and it is increased. So, credit it by $26,800.
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Chapter 11 Solutions
Accounting
- Saverin, Inc. produces and sells outdoor equipment. On July 1, 2016, Saverin, Inc. issued 62,500,000 of 10-year, 9% bonds at a market (effective) interest rate of 8%, receiving cash of 66,747,178. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year. Instructions 1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds. 2. Journalize the entries to record the following: a. The first semiannual interest payment on December 31, 2016, and the amortization of the bond premium, using the interest method. (Round to the nearest dollar.) b. The interest payment on June 30, 2017, and the amortization of the bond premium, using the interest method. (Round to the nearest dollar.) 3. Determine the total interest expense for 2016.arrow_forwardNotes Payable Rogers Machinery Company borrowed $330,000 on February 1, with a 6-month, 10%, interest-bearing note. Required: 1. Record the borrowing transaction. 2. Record the repayment transaction.arrow_forwardWhirlie Inc. issued $300,000 face value, 10% paid annually, 10-year bonds for $319,251 when the market of interest was 9%. The company uses the effective-interest method of amortization. At the end of the year, the company will record ________. A. a credit to cash for $28,733 B. a debit to interest expense for $31,267 C. a debit to Discount on Bonds Payable for $1,267 D. a debit to Premium on Bonds Payable for $1.267arrow_forward
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