Question

Eddie Edwards and Phil Bell own and operate The Second Hand Equipment Shop. The following transactions involving notes and interest were completed during the last three months of 20--: Oct. 1 Issued a $6,800, 60-day, 5% note to Mac Farm Equipment for purchase of merchandise. 15 Received a $2,000, 60-day, 6% note from R. Chambers in payment for sale of merchandise. Nov. 1 Discounted the note received from R. Chambers on October 15 at Merchants National Bank. The discount rate is 7%. 1 Borrowed $5,000 from First National Bank on a three-month, non-interestbearing note that was discounted at 6%. 20 Received a $4,000, 90-day, 6.5% note from L. Revsine in payment of an account receivable. 30 Issued a check to Mac Farm Equipment in payment of the note issued on October 1, including interest. Dec. 10 Issued a $3,000, 90-day, 6% note to Remak Tractors to extend time for payment of an account payable. 16 Received notification from Merchants National Bank that R. Chambers has dishonored his note. A check is issued to cover the note plus a $20 bank fee that must be paid to the bank. Required: 1. Prepare general journal entries for the transactions. 2. Prepare necessary adjusting entries for the notes outstanding on December 31.

Answer 1

Journal No. Date Account Titles and Explanation Debit ($) Credit (S) 10/1/2018 Merchandise 6,800 5% Notes payable To record the issue of notes for purchasing merchandise) 6,800 10/15/2018|6% Notes receivable Sale 2,000 2,000 To record the sale of merchadise) 11/1/2018 Cash 1,860 140 Discount on notes receivable (2000x796) 636 Notes receivable 2,000 To record the encashment of notes from bank) 11/1/2018 Cash 4,700 300 Discount on notes payable (5000x636) Notes payable To record the sum borrowed from first national bank) 5,000 11/20/2018|6.5% Notes receivable Accounts receivable 4,000 4,000 To record the notes received) 11/30/2018|5% Notes payable 6,800 57 Interest on 5% Notes payable (6800X5%x60/360) Cash 6,857 To record the payment made for notes payable with interest)