Question

Spath Company borrows $75,000 by issuing a 4-year, noninterest- bearing note to a customer on January 1, 2016. In addition, Spath agrees to sell inventory to the customer at reduced prices over a 5-year period. Spath’s incremental borrowing rate is 12%. The customer agrees to purchase an equal amount of inventory each year over the 5-year period so that a straight-line method of revenue recognition is appropriate.

!!!!!!!!!!!!!!!!! you have to use present value table !!!!!!!!!!!!!!!!!!!

Required:

Prepare the journal entries on Spath’s books for 2016 and 2017.

CHART OF ACCOUNTS
Spath Company
General Ledger
ASSETS 111 Cash 121 Accounts Receivable 141 Inventory 152 Prepaid Insurance 181 Equipment 198 Accumulated Depreciation LIABILITIES 211 Accounts Payable 231 Salaries Payable 250 Unearned Revenue 251 Notes Payable 252 Discount on Notes Payable 261 Income Taxes Payable EQUITY 311 Common Stock 331 Retained Earnings	REVENUE 411 Sales Revenue EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 521 Salaries Expense 532 Bad Debt Expense 540 Interest Expense 541 Depreciation Expense 559 Miscellaneous Expenses 910 Income Tax Expense

Prepare the journal entries on Spath’s books for 2016 and December 31, 2017. Additional Instructions

Please fill out both charts for PAGE 2016 and PAGE 2017. There is supposed to be two charts. First chart (2016) with 8 entries and the second chart (2017) with 4 entries.

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8

Answer 1

Prepare the required journal entries as follows: Date Accounts Title 1/1/2016 Cash Discount on notes payable Notes payable Unearned revenue (To record notes borrowed) Post. Ref. Debit Credit 111 $75,000.00 252 $27.336.15 251 $75,000.00 $27,336.15 $5,719.66 31/12/16 Interest expense (47663.86 x 12%) Discount on notes payable (To record interest expense) 540 252 $5,719.66 $5,467.23 250 411 $5,467.23 31/12/16 Unearned revenue (27336.15/5) Sales revenue (To record the amount of unearned revenue) $6,406.02 31/12/17 Interest expense Discount on notes payable (To record interest expense) 540 252 $6,406.02 $5,467.23 250 411 $5,467.23 31/12/17 Unearned revenue (27336.15/5) Sales revenue (To record the amount of unearned revenue)