Question

Described below are certain transactions of L Company for 2021:

1. On May 10, the company purchased goods from F Company for $80,000, terms 3/10, n/30. The invoice was paid on May 23.

2. On June 1, the company purchased equipment for $150,000 from R Company, paying $40,000 in cash and giving a one-year, 9% note for the balance.

3. On October 30, the company discounted at 11% its $300,000, one-year zero-interest-bearing note at Virginia State Bank, receiving $270,000.

Instructions

(a) Prepare the journal entries necessary to record the transactions above using appropriate dates.

(b) Prepare the adjusting entries necessary at December 31, 2021 in order to properly report interest expense related to the above transactions. Assume straight-line amortization of discounts.

(c) Indicate the manner in which the above transactions should be reflected in the Current Liabilities section of Lamar Company's December 31, 2021 balance sheet.

Answer 1

(a) Journal Entries:

Particulars	Debit	Credit
May 10, 2021
Purchases/ Inventory	$77,600
To Accounts Payable		$77,600
May 23, 2021
Accounts Payable	$77,600
To Cash		$77,600
June 01, 2021
Equipment	$150,000
To Cash		$40,000
To Notes Payable		$110,000
October 30, 2021
Cash	$267,000
Discount on Notes Payable	$33,000
To Notes Payable		$300,000

(b) Adjusting Entering on December 31, 2021

Particulars	Debit	Credit
Interest Expense	$5,775
To Interest Payable ( $110,000*0.09*7/12)		$5,775
Interest Expense	$500
To Discount on Notes Payable ( $33,000*2/12)		$500

(c) Schedule of Current Liabilities

Particulars
Current Liabililities:
Interest Payable		$5,775
Note Payble- R Company		$110,000
Note Payble- Virginia State Bank	$300,000
Less: Discount on Notes Payable	$(27,500)	$272,500
Total	$388,275