Liability Transactions The following items were selected from among the transact
ID: 341220 • Letter: L
Question
Liability Transactions The following items were selected from among the transactions completed by O'Donnel Co. during the current year: Jan. 10. Purchased merchandise on account from Laine Co., $144,000, terms n/30. Feb. 9. Issued a 30-day, 796 note for $144,000 to Laine Co., on account. Mar. 11. Paid Laine Co. the amount owed on the note of February 9. May 1 . Borrowed $154,800 from Tabata Bank, issuing a 45-day, 8% note. June 1. Purchased tools by issuing a $114,000, 60-day note to Gibala Supply Co., which discounted the note at the rate of 9%. 15. Paid Tabata Bank the interest due on the note of May 1 and renewed the loan by issuing a new 45-day, 7% note for $154,800. (Journalize both the debit and credit to the notes payable account.) July 30. Paid Tabata Bank the amount due on the note of June 15 30. Paid Gibala Co. the amount due on the note of June 1. Dec. 1. Purchased office equipment from Warick Co. for $108,000, paying $18,000 and issuing a series of ten 5% notes for $9,000 each, coming due at 30-day intervals. 15. Settled a product liability lawsuit with a customer for $75,000, payable in January. O'Donnel accrued the loss in a litigation claims payable account. 31. Paid the amount due Warick Co. on the first note in the series issued on December 1Explanation / Answer
Solution:
1.
Jan. 10 Merchandise Inventory.............................................. 144,000
Accounts Payable—Laine Co............................ 144,000
Feb. 9 Accounts Payable—Laine Co.................................. 144,000
Notes Payable........................................................ 144,000
Mar. 11 Notes Payable.............................................................. 144,000
Interest Expense ($144,000 × 30/360 × 7%).......... 840
Cash......................................................................... 144,840
May 1 Cash............................................................................... 154,800
Notes Payable........................................................ 154,800
Jun 1 Tools.............................................................................. 112,290
Interest Expense ($114,000 × 60/360 × 9%).......... 1,710
Notes Payable........................................................ 114,000
Jun. 15 Notes Payable.............................................................. 154,800
Interest Expense ($154,800 × 45/360 × 8%).......... 1,548
Notes Payable........................................................ 154,800
Cash......................................................................... 1,548
Jul. 30 Notes Payable.............................................................. 154,800
Interest Expense ($154,800 × 45/360 × 7%).......... 1,355
Cash......................................................................... 156,155
30 Notes Payable.............................................................. 114,000
Cash......................................................................... 114,000
Dec. 1 Office Equipment........................................................ 108,000
Notes Payable........................................................ 90,000
Cash......................................................................... 18,000
15 Litigation Loss............................................................. 75,000
Litigation Claims Payable................................... 75,000
31 Notes Payable.............................................................. 9,000
Interest Expense ($9,000 × 5% × 30/360)............... 38
Cash......................................................................... 9,038
2. a. Product Warranty Expense.......................................... 16,100
...................................... Product Warranty Payable 16,100
......... Warranty expense for the current year.
b. Interest Expense.............................................................. 338
......................................................... Interest Payable 338
. Interest on notes, $9,000 × 5% × 30/360 × 9.
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