Question

Problem 10-2A

The following are selected transactions of Monty Corp.. Monty prepares financial statements quarterly.

Jan.		2		Purchased merchandise on account from Nunez Company, $18,000, terms 2/10, n/30. (Monty uses the perpetual inventory system.)
Feb.		1		Issued a 9%, 2-month, $18,000 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, $50,400 note.
Sept.		30		Accrued interest for 3 months on Marson note.
Oct.		1		Paid face value and interest on Marson note.
Dec.		1		Borrowed $36,000 from the Paola Bank by issuing a 3-month, 8% note with a face value of $36,000.
Dec.		31		Recognized interest expense for 1 month on Paola Bank note.

a. Prepare journal entries for the listed transactions and events. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.)

b. Post to the accounts Notes Payable, Interest Payable, and Interest Expense. (Post entries in the order of journal entries presented in the previous part.)

c. Show the balance sheet presentation of notes and interest payable at December 31.

d. What is total interest expense for the year?

Answer 1

Journal entries in the books of Monty Corp

Date	Account Titles	Debit ($)	Credit ($)
Jan 2	Purchases	18,000
	Accounts Payable		18,000
	(Merchandise purchases on account)
Feb 1	Accounts Payable	18,000
	Notes Payable		18,000
	(Issued 9%, 2 month Note to Nunez against account payable)
Mar 31	Interest expense (18,000*9%*2/12)	270
	Interest Payable		270
	(Interest accrued on Note to Nunez)
Apr 1	Notes payable	18,000
	Interest payable	270
	Cash		18,270
	(Note to Nunez settled with interest)
July 1	Equipment	61,400
	Cash		11,000
	Notes Payable		50,400
	(Equipment purchased thru Cash and note)
Sep 30	Interest expense (50,400*10%*3/12)	1,260
	Interest payable		1,260
	(Accrued interest on note to Marson equipment)
Oct 1	Notes Payable	50,400
	Interest Payable	1,260
	Cash		51,660
	(Note to Marson settled with interest)
Dec 1	Cash	36,000
	Note payable		36,000
	(Amount borrowed from bank against note)
Dec 31	Interest expense (36,000*8%*1/12)	240
	Interest Payable		240
	(Accrued interest on note to Paola Bank)

b) Postings to Accounts

Please refer the picture attached for the postings.

c) Balance sheet presentation

Particulars	Amount ($)
Liabilities and Equity
Current Liabilities
Notes Payable	36,000
Interest Payable	240

d) Total Interest expense

Total interest expense accrued during the year = $ 1,770 (Refer Ledger Posting)
Debit Date Apr-01 To, Cash Oct-01 To, Cash Notes Payable Amount Date Credit 18,000 Feb-01 By, Accounts Payable 50,400 Jul-01 By, Equipment Dec-01 By, Cash 36000 Amount 18,000 50,400 36000 Dec-31 To, Balance C/d 1,04,400 Debit Date Apr-01 To, Cash Oct-01 To, Cash 1,04,400 Interest Payable Amount Date Credit 270 Mar-31 By, Interest Expense Sep-30 By, Interest Expense Dec-01 By, Interest Expense 240 Amount 270 1260 240 Dec-31 To, Balance C/d 1770 1770 Interest Expense Amount Date Credit Amount 270 Date Debit Mar-31 To, Interest Payable Sep-30 To, Interest Payable Dec-01 To, Interest Payable 1260 240 Dec-31 By, Profit & Loss A/C 1770 1770 1770)