
Concept explainers
1.
Liabilities: Liabilities are debt and obligations of a business. These are the claims against the resources that a business owes to outsiders of the company. Liabilities may be Current liabilities, and Long-term liabilities. Examples: Creditors, Bills payable, Bank overdraft, Salaries and wages payable, and Notes payable.
To journalize: The liabilities transactions.
1.

Answer to Problem 10.1BPR
Prepare
Date | Accounts and Explanation | Post Ref | Debit ($) | Credit ($) |
April 15 | Cash | 225,000 | ||
Notes Payable | 225,000 | |||
(To record borrowing from A Company by issuing 6% note) | ||||
May 1 | Equipment | 310,400 | ||
Interest Expense (1) | 9,600 | |||
Notes Payable | 320,000 | |||
(To record purchase of equipment by issuing 6% discounted note) | ||||
May 15 | Notes Payable | 225,000 | ||
Interest Expense (2) | 1,125 | |||
Notes Payable | 225,000 | |||
Cash | 1,125 | |||
(To record the payment of interest for A Company and renew the loan by issuing 8% note) | ||||
July 14 | Notes Payable | 225,000 | ||
Interest Expense (3) | 3,000 | |||
Cash | 228,000 | |||
(To record payment of maturity and interest for notes) | ||||
August 16 | Merchandise Inventory | 90,000 | ||
Accounts Payable | 90,000 | |||
(To record purchase of merchandise on account) | ||||
September 15 | Accounts payable | 90,000 | ||
Notes Payable | 90,000 | |||
(To record the issue of 6% notes on account ) | ||||
October 28 | Notes Payable | 320,000 | ||
Cash | 320,000 | |||
(To record the payment of due amount) | ||||
October 30 | Notes Payable | 90,000 | ||
Interest Expense (4) | 675 | |||
Cash | 90,675 | |||
(To record payment of maturity and interest for notes) | ||||
November 16 | Store Equipment | 450,000 | ||
Notes Payable | 400,000 | |||
Cash | 50,000 | |||
(To record purchase of store equipment for cash and issuing of 9% notes) | ||||
December 16 | Notes Payable | 20,000 | ||
Interest Expense (5) | 150 | |||
Cash | 20,150 | |||
(To record payment of maturity and interest for notes) | ||||
December 28 | Litigation Loss | 87,500 | ||
Litigation Claims Payable | 87,500 | |||
(To record the accrual of litigation claims) |
Table (1)
Explanation of Solution
Working notes:
Calculate interest expense for discounted notes.
Calculate interest expense for 30 days on notes.
Calculate interest expense for 60 days on notes.
Calculate interest expense for 45 days on notes.
Calculate interest expense for 30 days on notes.
- On April 15, Cash is debited as it increased the asset. Notes payable is credited as it increased the liability.
- On May 1, Equipment is debited as it increased the asset. Interest expense is debited as it decreases the equity value. Notes payable is credited as it increased the liability.
- On May 15, Notes payable is debited as it decreased the liability. Interest expense is debited as it decreases the equity value. Notes payable is credited as it increased the liability. Cash is credited as it decreased the asset.
- On July 14, Notes payable is debited as it decreased the liability. Interest expense is debited as it decreases the equity value. Cash is credited as it decreased the asset.
- On August 16, Merchandise inventory is debited as it increased the asset. Accounts payable is credited as it increased the liability.
- On September 15, Accounts payable is debited as it decreased the liability. Notes payable is credited as it increased the liability.
- On October 28, Notes payable is debited as it decreased the liability. Cash is credited as it decreased the asset.
- On October 30, Notes payable is debited as it decreased the liability. Interest expense is debited as it decreases the equity value. Cash is credited as it decreased the asset.
- On November 16, Store equipment is debited as it increased the asset. Notes payable is credited as it increased the liability. Cash is credited as it decreased the asset.
- On December 16, Notes payable is debited as it decreased the liability. Interest expense is debited as it decreases the equity value. Cash is credited as it decreased the asset.
- On December 28, Litigation loss is debited as it decreases the equity value. Litigation claims payable is credited as it increased the liability.
2. A.
To journalize: The
2. A.

Answer to Problem 10.1BPR
Prepare journal entry to record product warranty.
Date | Accounts and Explanation | Post Ref | Debit ($) | Credit ($) | |||
Product Warranty Expense | 26,800 | ||||||
Product Warranty Payable | 26,800 | ||||||
(To record the accrual of warranty payable) | |||||||
Explanation of Solution
- Product warranty expense is an expense and it decreases the equity value. So, debit it by $26,800.
- Product warranty payable is a liability and it is increased. So, credit it by $26,800.
B.
To Journalize: The interest on notes payable.
B.

Answer to Problem 10.1BPR
Prepare journal entry to record interest on notes payable.
Date | Accounts and Explanation | Post Ref | Debit ($) | Credit ($) |
Interest Expense | 4,275 | |||
Notes Payable | 4,275 | |||
(To record interest on notes payable) |
Explanation of Solution
Working note:
Calculate interest expense on remaining amount of notes payable.
- Interest expense is an expense and it decreases the equity value. So, debit it by $4,275.
- Notes payable is a liability and it is increased. So, credit it by $4,275.
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Chapter 10 Solutions
Corporate Financial Accounting
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