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Problem 10-2A
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Account Titles and Explanation
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Problem 10-2A
Ermlar Corporation sells rock-climbing products and also operates an indoor climbing facility for climbing enthusiasts. During the last part of 2014, Ermlar had the following transactions related to notes payable.Sept. 1 Issued a $13,200 note to Lippert to purchase inventory. The 3-month note payable bears interest of 6% and is due December 1. (Ermlar uses a perpetual inventory system.) Sept.30 Recorded accrued interest for the Lippert note. Oct. 1 Issued a $19,200, 8%, 4-month note to Shanee Bank to finance the purchase of a new climbing wall for advanced climbers. The note is due February 1. Oct. 31 Recorded accrued interest for the Lippert note and the Shanee Bank note. Nov. 1 Issued a $26,400 note and paid $8,000 cash to purchase a vehicle to transport clients to nearby climbing sites as part of a new series of climbing classes. This note bears interest of 7% and matures in 12 months. Nov. 30 Recorded accrued interest for the Lippert note, the Shanee Bank note, and the vehicle note. Dec. 1 Paid principal and interest on the Lippert note. Dec. 31 Recorded accrued interest for the Shanee Bank note and the vehicle note.
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Explanation / Answer
Date Title Debit credit sep 1 Inventory 13200 Note payable 13200 [being inventory purchased and note issued] sep 30 Interest expense 66 Interest payable 66 [being accrued interest for 1 month recorded (13200*.06*1/12] oct1 climbing wall 19200 Note payable 19200 [being purchase made ] oct 31 Interest expense 194 Interest payable 194 [being accrued interest recorded[(13200*.06*1/12)+(19200*.08*1/12)] nov 1 Vehicle 34400 Note payable 26400 cash 8000 [being vehicle purchased] nov 30 Interest expense 348 Interest payable 348 [Being accrued interest paid (26400*.07*1/12)+194on above two notes] Dec1 note payable 13200 Interest payable 198 cash 13398 [being note paid] Dec31 Interest expense 282 Interest payable 282 [being accrued interest (19200*.08*1/12)+(26400*.07*1/12)
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