Tan Inc. operates with a December 31 year-end. During 2016, the following transa

Question

Tan Inc. operates with a December 31 year-end. During 2016, the following transactions occurred:

1.) January 1: Received a two-year, 5% loan for $80,000. Interest and principal are to be paid at maturity.

2.) February 1: Was approved for a line of credit of $50,000 with the bank. Interest of 7% will be charged on borrowed funds with appropriate interest paid as borrowings are repaid. Tan borrowed $10,000 on the line of credit.

3.) June 1: Repaid $5,000 on the line of credit, and accrued interest.

4.) November 1: Acquired equipment needed for the business and issued a one year Note Payable @4% for $30,000. Equipment has an 8 yr. life; Company uses S/Line depreciation.

Required:

1)   Record all journal entries necessary to report the above transactions.

Record all necessary adjusting entries as of December 31, 2016. (Adjusting entries are done annually.)

Show the Liabilities section of your Balance Sheet at December 31, 2016.

Explanation / Answer

Journal entries

Date

General Journal

Debit

Credit

1-Jan

Cash

$ 80,000.00

    Loan

$ 80,000.00

(Loan received)

1-Feb

Cash

$ 10,000.00

Bank Loan

$ 10,000.00

(withdrawn from line of credit)

1-Jun

Interest Expense

$        233.00

Bank Loan

$    5,000.00

         Cash

$    5,233.00

(Interst on $ 10000 for 4 months paid along with principal of $ 5000)

1-Nov

Equipment

$ 30,000.00

      Notes Payable

$ 30,000.00

(Equipment purchased)

Adjusting entries

31-Dec

Interest Expense

$    4,604.00

            Interest Payable

$    4,604.00

31-Dec

Depreciation Expense- Equipment

$ 625

               Accumulated Depreciation-Equipment

$ 625

(Depreciation for 2 Months Recorded)

TAN INC

Balance Sheet (Partial)

As at December 31 2016

Liabilities

Current Liabilities

Notes Payable

$      30,000.00

Interest Payable

$         4,604.00

Total Current liabilities

$      34,604.00

Long term Liabilities

Bank Loan

$         5,000.00

Other Loans

$      80,000.00

Total Long Term Liabilities

$      85,000.00

Total liabilities

$    119,604.00

Journal entries

Date

General Journal

Debit

Credit

1-Jan

Cash

$ 80,000.00

    Loan

$ 80,000.00

(Loan received)

1-Feb

Cash

$ 10,000.00

Bank Loan

$ 10,000.00

(withdrawn from line of credit)

1-Jun

Interest Expense

$        233.00

Bank Loan

$    5,000.00

         Cash

$    5,233.00

(Interst on $ 10000 for 4 months paid along with principal of $ 5000)

1-Nov

Equipment

$ 30,000.00

      Notes Payable

$ 30,000.00

(Equipment purchased)

Adjusting entries

31-Dec

Interest Expense

$    4,604.00

            Interest Payable

$    4,604.00

31-Dec

Depreciation Expense- Equipment

$ 625

               Accumulated Depreciation-Equipment

$ 625

(Depreciation for 2 Months Recorded)

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