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Liability Transactions The following items were selected from among the transact

ID: 2570121 • Letter: L

Question

Liability Transactions

The following items were selected from among the transactions completed by Emerald Bay Stores Co. during the current year:

Feb. 15. Purchased merchandise on account from Hood Co., $144,000, terms n/30.

Mar. 17. Issued a 60-day, 8% note for $144,000 to Hood Co., on account.

May 16. Paid Hood Co. the amount owed on the note of March 17.

June 15. Borrowed $132,000 from Acme Bank, issuing a 60-day, 9% note.

July 21. Purchased tools by issuing a $117,000, 90-day note to Columbia Supply Co., which discounted the note at the rate of 9%.

Aug. 14. Paid Acme Bank the interest due on the note of June 15 and renewed the loan by issuing a new 60-day, 10% note for $132,000. (Journalize both the debit and credit to the notes payable account.)

Oct. 13. Paid Acme Bank the amount due on the note of August 14.

Oct. 19. Paid Columbia Supply Co. the amount due on the note of July 21.

Dec. 1. Purchased office equipment from Mountain Equipment Co. for $108,000, paying $18,000 and issuing a series of ten 6% notes for $9,000 each, coming due at 30-day intervals.

Dec. 12. Settled a product liability lawsuit with a customer for $61,000, payable in January. Emerald Bay accrued the loss in a litigation claims payable account.

Dec. 31. Paid the amount due Mountain Equipment Co. on the first note in the series issued on December 1.

Required:

1. Journalize the transactions. If an amount box does not require an entry, leave it blank. Assume a 360-day year. If required, round to one decimal place. Don't round the intermediate calculations.

For a compound transaction, accounts should be listed largest to smallest.

Date Account Debit Credit

Feb. 15

Mar. 17

May 16

June 15

July 21

Aug. 14

Oct. 13

Oct. 19

Dec. 1

Dec. 12

Dec. 31

2. Journalize the adjusting entry for each of the following accrued expenses at the end of the current year: (a) product warranty cost, $19,700; (b) interest on the nine remaining notes owed to Mountain Equipment Co.

Item Account Debit Credit

a.

b.

Explanation / Answer

Journal entries:

1.

Date

Account/Description

Debit

Credit

Feb 15

Merchandise Inventory

      Accounts Payable—Hood Co

$144,000

$144,000

Mar 17

Accounts Payable—Hood Co

      Notes Payable

$144,000

$144,000

May 16

Notes Payable

Interest Expense ($144,000 × 30/360 × 8%)

      Cash

$144,000

       $960

$144,960

Jun 15

Cash

     Notes payable

$132,000

$132,000

Jul. 10

Tools

Interest expense (117,000 x 90/360 x 9%)

     Notes payable

$114367.5

$2632.5

$117,000

Aug 14

Notes Payable

Interest expenses (132,000 x 60/360 x 9%)

      Notes payable

      Cash     

$132,000

$1980

$132,000

$1980

Oct 13

Notes Payable

Interest Expense ($132,000 × 60/360 × 10%)

      Cash

$132,000

$2200

$134,200

Oct 19

Notes payable

      Cash

$117,000

$117,000

Dec 1

Office equipment

       Notes payable

       Cash

$108,000

$90,000

$18,000

Dec 12

Litigation loss

       Litigation Claims payable

61,000

76,000

Dec 31

Notes payable

Interest expense ($100,000 x 6% x 30/360)

        Cash

$9,000

$450

$9,450

2.   

Account/Description

Debit

Credit

a.

Product warranty expense

        Product warranty payable

$19,700

$19,700

b.

Interest expense

       Interest payable (9,000 x 9 x 6% x 30/360)

$405

$405

Date

Account/Description

Debit

Credit

Feb 15

Merchandise Inventory

      Accounts Payable—Hood Co

$144,000

$144,000

Mar 17

Accounts Payable—Hood Co

      Notes Payable

$144,000

$144,000

May 16

Notes Payable

Interest Expense ($144,000 × 30/360 × 8%)

      Cash

$144,000

       $960

$144,960

Jun 15

Cash

     Notes payable

$132,000

$132,000

Jul. 10

Tools

Interest expense (117,000 x 90/360 x 9%)

     Notes payable

$114367.5

$2632.5

$117,000

Aug 14

Notes Payable

Interest expenses (132,000 x 60/360 x 9%)

      Notes payable

      Cash     

$132,000

$1980

$132,000

$1980

Oct 13

Notes Payable

Interest Expense ($132,000 × 60/360 × 10%)

      Cash

$132,000

$2200

$134,200

Oct 19

Notes payable

      Cash

$117,000

$117,000

Dec 1

Office equipment

       Notes payable

       Cash

$108,000

$90,000

$18,000

Dec 12

Litigation loss

       Litigation Claims payable

61,000

76,000

Dec 31

Notes payable

Interest expense ($100,000 x 6% x 30/360)

        Cash

$9,000

$450

$9,450

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