Question

The January 1, 2016 trial balance for the Tyrell Company is found on the trial balance tab. The beginning balances are assumed Tyrell Co. entered into the following transactions involving short-term liabilities in 2016 and 2017. (Use 360 days a year.) 2016 Apr. 20 Purchased $40,250 of merchandise on credit from Locust, terms are n/30. Tyrell uses the perpetual inventory system with paying $5,250 in cash. $80,000. May 19 Replaced the April 20 account payable to Locust with a 90-day, $35,000 note bearing 10% annual interest along July 8 Borrowed $80,000 cash from NBR Bank by signing a 120-day, 9% interest-bearing note with a face value of Aug. 17 Paid the amount due on the note to Locust at the maturity date. Nov. 5 Paid the amount due on the note to NBR Bank at the maturity date. Nov. 28 Borrowed $42,000 cash from Fargo Bank by signing a 60-day, 8% interest-bearing note with a face value of $42,000. Dec. 31 Recorded an adjusting entry for accrued interest on the note to Fargo Bank. 2017 Jan. 27 Paid the amount due on the note to Fargo Bank at the maturity date.

The January 1, 2016 trial balance for the Tyrell Company is found on the trial balance tab. The beginning balances are assumed. Tyrell Co. entered into the following transactions involving short-term liabilities in 2016 and 2017

Prepare the journal entries related to notes and accounts payable.

Answer 1

Tyrell company
Calculation of interest exp.
Locust note :
Principal	35000
Interest rate	10%
Number of days interest to be recorded	90
Interest	875
NBR bank note :
Principal	80000
Interest rate	9%
Number of days interest to be recorded	120
Interest amount	2400
Fargo bank note :
Principal	42000
Interest rate	8%
Number of days interest to be recorded	33
Interest amount	308
Total int. Exp. For 2016	3583
Interest for 2017
Fargo bank note
Principal	42000
Interest rate	8%
Number of days int to be recorded	27
Interest amount for 2017	252

Journal entries for 2016 & 2017 are as follows

Date	general journal	debit	credit
April 20	merchandise inventory To accounts payable (To inventory purchased on account)	40250	40250
May 19	accounts payable To cash To notes payable-locust (To accounts payable paid and converted )	40250	5250 35000
July 8	cash To notes payable (To notes from NBR bank)	80000	80000
Aug 17	notes payable Interest exp To cash (to notes from locust paid along with int)	35000 875	35875
Nov 5	notes payable Interest exp To cash (To notes from nbr bank paid along with int)	80000 2400	82400
Nov 28	cash To notes payable (To notes from Fargo bank)	42000	42000
Dec 31	interest exp To interest payable (To internet accrued)	308	308
Jan 27	notes payable Int. Exp Int. Payable To cash (To notes from Fargo bank repaid)	42000 252 308	42560