Question

mote balance P11-24 The following are selected transactions of Blanco Company. Blanco prepares financial statements quarterly. Jan. 2 Purchased merchandise on account from Nunez Company, $30,000, terms 2/10, n/30. (Blanco uses the perpetual inventory system.) Feb. 1 Issued a 9%, 2-month, $30,000 note to Nunez in payment of account. Mar 31 Accrued interest for 2 months on Nunez note. Apr 1 Paid face value and interest on Nunez note. July 1 Purchased equipment from Marson Equipment paying $11,000 in cash and signing a 10%, 3-month, $60,000 note. Sept. 30 Accrued interest for 3 months on Marson note. Paid face value and interest on Marson note. Dec. 1 Borrowed $24,000 from the Paola Bank by issuing a 3-month, 8% note with a face value of $24,000. Dec. 31 Recognized interest expense for 1 month on Paola Bank note.

Answer 1

Answer to Question a:

Credit Question a Date Account Title Debit 02-Jan Inventory $ 30,000 Accounts Payable (To record purchase of inventory on account) $ 30,000 01-Feb Accounts Payable $ 30,000 Notes Payable $ 30,000 (To record issue of notes payable in settlement of account) 31-Mar Interest Expense $ 450 Interest Payable $ 450 (To record interest accrued on notes payable for 2 months) Interest = Face Value X Rate X Time Interest = $30,000 X 9% X 2/12 Interest = $450 01-Apr Notes Payable $ 30,000 Interest Payable $ 450 Cash $ (To record payment of notes and interest payable) 30,450 71,000 01-Jul Equipment $ Cash Notes Payable (To record purchase of equipment) $ $ 11,000 60,000

Answer to Question a:

Question a Date Account Title Debit Credit 30-Sep Interest Expense $ 1,500 Interest Payable $ 1,500 (To record interest accrued on notes payable for 2 months) Interest = Face Value X Rate X Time Interest = $60,000 X 10% X 3/12 Interest = $1,500 01-Oct Notes Payable $ 60,000 Interest Payable $ 1,500 Cash $ (To record payment of notes and interest payable) 61,500 01-Dec Cash $ 24,000 Notes Payable $ 24,000 (To record loan taken by way of issuing notes payable) 31-Dec Interest Expense $ 160 Interest Payable $ 160 (To record interest accrued on notes payable for 2 months) Interest = Face Value X Rate X Time Interest = $24,000 X 8% X 1/12 Interest = $160

Answer to Question b:

Question b 01-Apr Cash 01-Oct Cash $ $ Notes Payable Accounts 30,000 1-Feb Payable 60,000 01-Jul Equipment 01-Dec Cash 24,000 $ $ $ 30,000 60,000 24,000 31-Dec Closing Bal. $ 01-Apr Cash $ $ 450 01-Oct Cash $ Interest Payable Interest 450 31-Mar Expense Interest 1,500 30-Sep Expense Interest 31-Dec Expense 160 $ 1,500 $ 160 31-Dec Closing Bal. $ Interest Expense $ 450 Interest 31-Mar Payable Interest 30-Sep Payable Interest 31-Dec Payable $ 1,500 $ 160 Income 31-Dec Summary $ 2.110

Answer to Question c and d:

Question c Blanco Company Balance Sheet Partial December 31, 20XX Liabilities: Current Liabilities: Notes Payable $ 24,000 Interest Payable $ 160 $ 24,160 Question d The total interest expense for the year is $2,110 (Refer to T-account for interest expense)