The following are selected transactions of Blanco Company. Blanco prepares finan

Question

The following are selected transactions of Blanco Company. Blanco prepares financial statements quarterly.

A: Prepare Journal Entries for the listed transactions and events. Record entries in the order they are presented in the problem

B: Post to the accounts Notes Payable, Interest Payable, and Interest Expense

C: Show the balance sheet presentation of notes and interest payable at December 31.

D: What is the total interest expense for the year?

Jan. 2 Purchased merchandise on account from Nunez Company, $26,400, terms 3/10, n/30. (Blanco uses the perpetual inventory system.) Feb. 1 Issued a 9%, 2-month, $26,400 note to Nunez in payment of account. Mar. 31 Accrued interest for 2 months on Nunez note. Apr. 1 Paid face value and interest on Nunez note. July 1 Purchased equipment from Marson Equipment paying $10,800 in cash and signing a 10%, 3-month, $60,000 note. Sept. 30 Accrued interest for 3 months on Marson note. Oct. 1 Paid face value and interest on Marson note. Dec. 1 Borrowed $31,200 from the Paola Bank by issuing a 3-month, 8% note with a face value of $31,200. Dec. 31 Recognized interest expense for 1 month on Paola Bank note.

Explanation / Answer

(A).

Date

Accounts Title & Explanation

Debit

Credit

Jan. 2

Merchandise Inventory

$26400

      Accounts payable

$26400

(For recording purchase of merchandise inventory)

Feb. 1

Accounts payable

$26400

     Notes payable

$26400

(For recording issue of notes payable)

March 31

Interest expense ($26400 * .09 * 2 / 12)

$396

     Interest payable

$396

(for recording interest expense)

April 1

Note payable

$26400

Interest payable

$396

     Cash

$26796

(For recording payment of interest)

July 1

Equipment

$70800

     Cash

$10800

     Notes payable

$60000

(for recording purchase of equipment)

Sep. 30

Interest expense ($60000 * 0.10 * 3 / 12)

$1500

     Interest payable

$1500

(for recording interest expense)

Oct. 1

Note payable

$60000

Interest payable

$1500

     Cash

$61500

(For recording payment of interest)

Dec. 1

Cash

$31200

     Notes payable

$31200

(For recording borrowings)

Dec. 31

Interest expense ($31200 * .08 * 1 / 12)

$208

     Interest payable

$208

(for recording interest expense)

(B).

Notes Payable

April 1

$26400

Feb . 1

$26400

Oct. 1

$60000

July 1

$60000

Dec. 1

$31200

$31200

Interest expense

March 31

$396

Sept. 30

$1500

Dec. 31

$208

Interest Payable

March 31

$396

April 1

$396

Sept. 30

$1500

Oct. 1

$1500

Dec. 31

$208

$208

(C).

Balance Sheet (Extract)

Liabilities & Shareholders’ funds

Assets

Current liabilities;

Notes payable

$31200

Interest payable

$208

(D).

Interest expenses for the year = $2104

Date

Accounts Title & Explanation

Debit

Credit

Jan. 2

Merchandise Inventory

$26400

      Accounts payable

$26400

(For recording purchase of merchandise inventory)

Feb. 1

Accounts payable

$26400

     Notes payable

$26400

(For recording issue of notes payable)

March 31

Interest expense ($26400 * .09 * 2 / 12)

$396

     Interest payable

$396

(for recording interest expense)

April 1

Note payable

$26400

Interest payable

$396

     Cash

$26796

(For recording payment of interest)

July 1

Equipment

$70800

     Cash

$10800

     Notes payable

$60000

(for recording purchase of equipment)

Sep. 30

Interest expense ($60000 * 0.10 * 3 / 12)

$1500

     Interest payable

$1500

(for recording interest expense)

Oct. 1

Note payable

$60000

Interest payable

$1500

     Cash

$61500

(For recording payment of interest)

Dec. 1

Cash

$31200

     Notes payable

$31200

(For recording borrowings)

Dec. 31

Interest expense ($31200 * .08 * 1 / 12)

$208

     Interest payable

$208

(for recording interest expense)

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