Question

Will Rate:

P13.1B (LO 1) (Current Liability Entries and Adjustments) Described below are certain transactions of Shark Company. The company uses the periodic inventory system. 1. On March 10, the company purchased goods from Bait Company for $42,000 subject to cash discount terms of 1/10,n/30. Purchases and accounts payable are recorded by the company at gross amounts. The invoice was paid on March 19. 2. On April 1, the company borrowed $172,000 from Omega National Bank by signing a $200,000 zero-interest-bearing note due two years from April 1. 3. On June 30, the company bought a fishing boat for $40,000 from Open Water Corporation, paying $6,000 in cash and sign- ing a two-year, 8% note for the balance of the purchase price. 4. On September 8, the board of directors declared a $65,000 cash dividend that was payable on October 15 to stockholders of record on September 25. Instructions (a) Make all the journal entries necessary to record the transactions above using appropriate dates. (b) Shark Company's year-end is December 31. Assuming that no adjusting entries relative to the transactions above have been recorded, prepare any adjusting journal entries concerning interest that are necessary to present fair financial statements at December 31. Assume straight-line amortization of discounts.

Answer 1

a)
Shark Company
Journal Entries
	General,Journal	Debit	Credit
Mar-10	Purchases Account($42000*99%)	$     41,580.00
	To Accounts Payable		$     41,580.00
	(Being amount of goods purchased on credit)
19-Mar	Accounts Payable	$     41,580.00
	Purchase discount lost($42000-$41580)	$           420.00
	To Cash		$     42,000.00
	(Being amount paid after discount period of 10 days)
Apr-01	Cash	$ 1,72,000.00
	Discount on Notes Payable	$     28,000.00
	To Notes Payable		$ 2,00,000.00
	(Being amount borrowed from Omega National Bank)
Jun-30	Fishing Boat	$     40,000.00
	To Cash		$       6,000.00
	To Notes Payable		$     34,000.00
	(Being amount of Fishing boat purchased by paying $4000 cash and balance of Notes Payable)
Sep-08	Retained Earnings	$     65,000.00
	To Dividend Payable		$     65,000.00
	(Being amount of Dividend Declared)
Oct-15	Dividend Payable	$     65,000.00
	To Cash		$     65,000.00
	(Being amount of cash dividend Paid)
b)
	Adjusted Journal Entry
1)	No Entry
2)	Interest Expense	$     10,500.00
	To Discount on Note Payable($28000*9/24)		$     10,500.00
	(Being amount of Discount on Note Payable due two years from 1st April.(From 1st April to 31st Dec 9 months)
3)	Interest Expense($34000*8%*2*(6/24))	$       1,360.00
	To Interest Payable		$       1,360.00
	(Being amount of Interest 8% 2 years from Note.From 1st July to 31st Dec 6 months)