Question

Liability Transactions The following items were selected from among the transactions completed by Sherwood Co. during the current year: Feb. 15. Purchased merchandise on account from Kirkwood Co., $144,000, terms n/30. Mar. 17. Issued a 60-day, 8% note for $144,000 to Kirkwood Co., on account. May 16. Paid Kirkwood Co. the amount owed on the note of March 17. June 15. Borrowed $153,600 from Triple Creek Bank, issuing a 60-day, 9% note. July 21. Purchased tools by issuing a $99,000, 90-day note to Poulin Co., which discounted the note at the rate of 6%. Aug. 14. Paid Triple Creek Bank the interest due on the note of June 15 and renewed the loan by issuing a new 60-day, 10% note for $153,600. (Journalize both the debit and credit to the notes payable account.) Oct. 13. Paid Triple Creek Bank the amount due on the note of August 14. Oct. 19. Paid Poulin Co. the amount due on the note of July 21. Dec. 1. Purchased office equipment from Greenwood Co. for $120,000, paying $20,000 cash and issuing series of ten 6% notes for $10,000 each, coming due at 30-day intervals. Dec. 12. Settled a product liability lawsuit with a customer for $64,000, payable in January. Accrued the loss in a litigation claims payable account. Dec. 31. Paid the amount due to Greenwood Co. on the first note in the series issued on December 1.

Answer 1

Answer: Date Feb-15 Credit Account Inventory A/C Account Payable -Kirkwood Co. Debit 144,000 $ $ 144,000 Mar-17 $ 144,000 Account Payable -Kirkwood Co. Note Payable A/C 144,000 May-16 $ Note Payable A/C Interest Expenses A/C Cash A/C 144,000 1,920 $ 145,920 June-15 $ 153,600 Cash A/C Note Payable A/c - triple Creek bank $ 153,600 July-21 Tools A/C Discount on Note Payable Note Payable A/C $ $ 99,000 1,485 100,485 Aug-14 $ $ 2,304 153,600 Interest Expenses A/C Note Payable A/c - triple Creek bank Note Payable A/c - triple Creek bank Cash A/C 153,600 2,304 $ Oct-13 Note Payable A/c - triple Creek bank Interest Expenses A/C Cash A/C $ $ 153,600 2,560 $ 156,160 Oct - 19 $ 1,485 Interest Expenses A/C Discount on Note Payable 1,485 $ 100,485 Note Payable A/C Cash A/C $ 100,485 Dec-01 $ 120,000 Equipment A/C Cash A/C Note Payable A/C- Greenwood Co $ 20,000 100,000 $ Dec-12 $ 64,000 Product Waranty cost Expenses A/C Account Payable A/C $ 64,000 Dec-31 $ Note Payable A/c - Greenwood Co Interest expenses Cash A/C 10,000 500 $ $ 10,600 b. Adjusting Entries Dec-31 $ 17,200 Interest Expenses A/C Interest Payable A/C $ 17,200 Dec-31 $ 4,500 Interest Expenses A/C Interest Payable A/C $ 4,500