Question

Blossom Corporation sells rock-climbing products and also operates an indoor climbing facility for climbing enthusiasts. During the last part of 2022, Blossom had the following transactions related to notes payable.

Sept. 1		Issued a $16,800 note to Pippen to purchase inventory. The 3-month note payable bears interest of 8% and is due December 1. (Blossom uses a perpetual inventory system.)
Sept. 30		Recorded accrued interest for the Pippen note.
Oct. 1		Issued a $21,600, 9%, 4-month note to Prime Bank to finance the purchase of a new climbing wall for advanced climbers. The note is due February 1.
Oct. 31		Recorded accrued interest for the Pippen note and the Prime Bank note.
Nov. 1		Issued a $26,400 note and paid $8,800 cash to purchase a vehicle to transport clients to nearby climbing sites as part of a new series of climbing classes. This note bears interest of 7% and matures in 12 months.
Nov. 30		Recorded accrued interest for the Pippen note, the Prime Bank note, and the vehicle note.
Dec. 1		Paid principal and interest on the Pippen note.
Dec. 31		Recorded accrued interest for the Prime Bank note and the vehicle note. Prepare journal entries for the transactions noted above. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.) Show the balance sheet presentation of notes payable and interest payable at December 31.

Answer 1

Solution:

Journal Entries

Sept 1 Inventory 16800

To Notes Payable-Pippen 16800

(3 months Notes payable issued to Pippen for inventory purchase@ 8%)

Sept 30 Interest Expense 112

   To Interest Payable 112

(Interest recorded 16800*8%*1/12)

Oct 1 Purchase 21600

   To Notes Payable-Prime Bank 21600

(4 months Notes payable issued to Prime Bank for purchase of a new climbing wall @ 9%)

Oct 31 Interest Expense 275

   To Interest Payable 275

(Interest recorded (16800+112)*8%*1/12 + 21600*9%*1/12)

Nov 1 Vehicle 35200

   To Notes Payable 26400

   To Cash    8800

(12 months Notes payable issued for purchase of a new vehicle @ 7%)

Nov 30 Interest Expense 431

   To Interest Payable 431

(Interest recorded (16800+112+113)*8%*1/12 + (21600+162)*9%*1/12+ (26400*7%*1/12))

Dec 1 Notes Payable -Pippen 16800

Interest Payable 338

To Cash    17138

(Being amount paid to Pippen bond)

Dec 31 Interest Expense 319

   To Interest Payable 319

(Interest recorded (21600+162+163)*9%*1/12+ ((26400+154)*7%*1/12))

Balance Sheet Presentation

Current Liabilities

Borrowings(Notes Payable) 48000

Other Current Liabilities (Interest Payable) 799