Liability Transactions The following items were selected from among the transact
ID: 2570125 • Letter: L
Question
Liability Transactions
The following items were selected from among the transactions completed by Emerald Bay Stores Co. during the current year:
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.
2. Journalize the adjusting entry for each of the following accrued expenses at the end of the current year: (a) product warranty cost, $17,300; (b) interest on the nine remaining notes owed to Mountain Equipment Co.
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 $145,200 from Acme Bank, issuing a 60-day, 9% note. July 21. Purchased tools by issuing a $72,000, 90-day note to Columbia Supply Co., which discounted the note at the rate of 6%. 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 $145,200. (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 $120,000, paying $20,000 and issuing a series of ten 6% notes for $10,000 each, coming due at 30-day intervals. Dec. 12. Settled a product liability lawsuit with a customer for $77,000, 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.Explanation / Answer
Journal Entry
Date
Particulars
Dr. Amount (In $)
Cr. Amount (In $)
Feb 15
Purchase
TO Hood & CO. (Account payable)
144,000
144,000
Mar 17
Hood & CO.
TO Notes Payable (8%)
144,000
144,000
May 16
Notes Payable
Interest Expense
TO Cash
(See note 1)
144,000
1,920
145,920
June 15
Cash
TO Notes Payable (9%)
145,200
145,200
July 21
Tools
TO Notes Payable
72,000
72,000
Aug 14
Interest Expense on note
Note Payable (9%)
TO Cash
TO Notes Payable (10%)
(See Note 2)
2,178
145,200
2,178
145,200
Oct 13
Notes Payable (10%)
Interest Expense
TO Cash
145,200
2,420
147,620
Oct 19
Notes Payable
TO Cash
72,000
72,000
Dec 1
Equipment
TO Cash
TO Notes Payable 6% (10 notes)
120,000
20,000
100,000
Dec 12
Litigation claims payable
TO Obligation for Lawsuit
77,000
77,000
Dec 31
Notes Payable 6%
Interest Expense
TO Cash
10,000
50
10,050
Note 1: Interest expense on Notes issued
Interest Expense for 60 days = $144,000 x 8% / 360days x 60 days = $1,920
Note 2: Interest expense on Notes issued to Acme Bank
Interest expense for 60 days = $145,200 x 9% /360 x 60 = 2,178
Date
Particulars
Dr. Amount (In $)
Cr. Amount (In $)
Feb 15
Purchase
TO Hood & CO. (Account payable)
144,000
144,000
Mar 17
Hood & CO.
TO Notes Payable (8%)
144,000
144,000
May 16
Notes Payable
Interest Expense
TO Cash
(See note 1)
144,000
1,920
145,920
June 15
Cash
TO Notes Payable (9%)
145,200
145,200
July 21
Tools
TO Notes Payable
72,000
72,000
Aug 14
Interest Expense on note
Note Payable (9%)
TO Cash
TO Notes Payable (10%)
(See Note 2)
2,178
145,200
2,178
145,200
Oct 13
Notes Payable (10%)
Interest Expense
TO Cash
145,200
2,420
147,620
Oct 19
Notes Payable
TO Cash
72,000
72,000
Dec 1
Equipment
TO Cash
TO Notes Payable 6% (10 notes)
120,000
20,000
100,000
Dec 12
Litigation claims payable
TO Obligation for Lawsuit
77,000
77,000
Dec 31
Notes Payable 6%
Interest Expense
TO Cash
10,000
50
10,050
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