Question

Question 4 (20 marks)

Unit 7 – Liabilities

Fixer Upper Housing Limited purchased equipment costing $150,000 on October 1, 2019, by paying 10% down and signing an 8%, 9-month note payable for the balance. Fixer Upper Housing Limited's year end is December 31.

1. Prepare journal entries to record the purchase of the equipment, the accrual of interest on December 31, and the payment of the note at maturity. For ease of computation assume that Fixer Upper calculates interest expense based on the number of months, outstanding, rather than the number of days.

2. Determine the balance of any current liabilities associated with the note as of December 31, 2019.

		Debit	Credit
Oct 1, 2019
Dec 31, 2019
June 30, 2020
	.

Answer 1

Solution: A
Journal Entries
Date	ACCT Title and explanation	Debit	Credit
Oct 01. 2019	Equipment	$               1,50,000
	Cash ($ 150,000 X 10%)		$                   15,000
	Note Payable		$               1,35,000
Dec 31. 2019	Interest Expenses ($ 135,000 X 8% X 3 / 12 Month)	$                     2,700
	Interest Payable		$                     2,700
June 30. 2020	Interest Expenses ($ 135,000 X 8% X 6 / 12 Month)	$                     5,400
	Interest Payable	$                     2,700
	Note Payable	$               1,35,000
	Cash		$               1,43,100
Solution: B
	Note Payable of $ 135,000 is classified as current liabilities and interest payable for 3 Months
	from october to December is also classified in current liabilities section.
	Interest Payable against note payable as on Dec 31 = $ 2,700