Apr. 15. Borrowed $225,000 from Audi Company, issuing a 30-day, 6% note for that amount.
May 1. Purchased equipment by issuing a $320,000, 180-day note to Spyder Manufacturing Co., which discounted the note at the rate of 6%.
15. Paid Audi Company the interest due on the note of April 15 and renewed the loan by issuing a new 60-day, 8% note for $225,000. (Record both the debit and credit to the notes payable account.)
July 14. Paid Audi Company the amount due on the note of May 15.
Aug. 16. Purchased merchandise on account from Exige Co., $90,000, terms, n/30.
Sept.15. Issued a 45-day, 6% note for $90,000 to Exige Co., on account.
Oct. 28. Paid Spyder Manufacturing Co. the amount due on the note of May 1.
30. Paid Exige Co. the amount owed on the note of September 15.
Nov. 16. Purchased store equipment from Gallardo Co. for $450,000, paying $50,000 and issuing a series of twenty 9% notes for $20,000 each, coming due at 30-day intervals.
Dec. 16. Paid the amount due Gallardo Co. on the first note in the series issued on November 16.
28. Settled a personal injury lawsuit with a customer for $87,500, to be paid in January. Aston Martin Inc. accrued the loss in a litigation claims payable account.
Instructions
1. Journalize the transactions.
2. Journalize the adjusting entry for each of the following accrued expenses at the end of the current year:
a. Product warranty cost, $26,800.
b. Interest on the 19 remaining notes owed to Gallardo Co.
Answer:
1. Apr. 15 Cash 225,000
Notes Payable 225,000
May 1 Equipment 310,400
Interest Expense ($320,000 × 180/360 × 6%) 9,600
Notes Payable 320,000
15 Notes Payable 225,000
Interest Expense ($225,000 × 30/360 × 6%) 1,125
Notes Payable 225,000
Cash 1,125
July 14 Notes Payable 225,000
Interest Expense ($225,000 × 60/360 × 8%) 3,000
Cash 228,000
Aug. 16 Merchandise Inventory 90,000
Accounts Payable—Exige Co. 90,000
Sept. 15 Accounts Payable—Exige Co. 90,000
Notes Payable 90,000
Oct. 28 Notes Payable 320,000
Cash 320,000
30 Notes Payable 90,000
Interest Expense ($90,000 × 45/360 × 6%) 675
Cash 90,675
Nov. 16 Store Equipment 450,000
Notes Payable 400,000
Cash 50,000
Dec. 16 Notes Payable 20,000
Interest Expense ($20,000 × 30/360 × 9%) 150
Cash 20,150
28 Litigation Loss 87,500
Litigation Claims Payable 87,500
2. a. Product Warranty Expense 26,800
Product Warranty Payable 26,800
Warranty expense for the current year.
b. Interest Expense 4,275
Interest Payable 4,275
Interest on notes, $20,000 × 9% × 45/360 × 19.