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Liability transactions The following items were selected from among the transactions completed by Aston Martin Inc. during the current year: Apr. 15. Borrowed $225,000 from Audi Company, issuing a 30-day, 6% note for that amount. May 1. Purchased equipment by issuing a $320,000, 180-day note to Spyder Manufacturing Co., which discounted the note at the rate of 6%. 15. Paid Audi Company the interest due on the note of April 15 and renewed the loan by issuing a new 60-day, 8% note for $225,000. (Record both the debit and credit to the notes payable account.) July 14. Paid Audi Company the amount due on the note of May 15. Aug. 16. Purchased merchandise on account from Exige Co., $90,000, terms, n/30. Sept. 15. Issued a 45-day, 6% note for $90,000 to Exige Co., on account. Oct. 28. Paid Spyder Manufacturing Co. the amount due on the note of May 1. 30. Paid Exige Co. the amount owed on the note of September 15. Nov. 16. Purchased store equipment from Gallardo Co. for $450,000, paying $50,000 and issuing a series of twenty 9% notes for $20,000 each, coming due at 30-day intervals. Dec. 16. Paid the amount due Gallardo Co. on the first note in the series issued on November 16. 28. Settled a personal injury lawsuit with a customer for $87,500, to be paid in January. Aston Martin Inc. accrued the loss in a litigation claims payable account. Instructions 1. Journalize the transactions. 2. Journalize the adjusting entry for each of the following accrued expenses at the end of the current year: a. Product warranty cost, $26,800. b. Interest on the 19 remaining notes owed to Gallardo Co.

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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 11, Problem 1PB
Textbook Problem
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Liability transactions

The following items were selected from among the transactions completed by Aston Martin Inc. during the current year:

Apr. 15. Borrowed $225,000 from Audi Company, issuing a 30-day, 6% note for that amount.

May 1. Purchased equipment by issuing a $320,000, 180-day note to Spyder Manufacturing Co., which discounted the note at the rate of 6%.

15. Paid Audi Company the interest due on the note of April 15 and renewed the loan by issuing a new 60-day, 8% note for $225,000. (Record both the debit and credit to the notes payable account.)

July 14. Paid Audi Company the amount due on the note of May 15.

Aug. 16. Purchased merchandise on account from Exige Co., $90,000, terms, n/30.

Sept. 15. Issued a 45-day, 6% note for $90,000 to Exige Co., on account.

Oct. 28. Paid Spyder Manufacturing Co. the amount due on the note of May 1.

30. Paid Exige Co. the amount owed on the note of September 15.

Nov. 16. Purchased store equipment from Gallardo Co. for $450,000, paying $50,000 and issuing a series of twenty 9% notes for $20,000 each, coming due at 30-day intervals.

Dec. 16. Paid the amount due Gallardo Co. on the first note in the series issued on November 16.

28. Settled a personal injury lawsuit with a customer for $87,500, to be paid in January. Aston Martin Inc. accrued the loss in a litigation claims payable account.

Instructions

  1. 1. Journalize the transactions.
  2. 2. Journalize the adjusting entry for each of the following accrued expenses at the end of the current year:
    1. a. Product warranty cost, $26,800.
    2. b. Interest on the 19 remaining notes owed to Gallardo Co.

1.

To determine

Journalize the liabilities transactions.

Explanation of Solution

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.

Prepare journal entry to record the liabilities transactions of Incorporation AM.

DateAccounts and ExplanationPost RefDebit ($)Credit ($)
April 15Cash 225,000 
 Notes Payable  225,000
 (To record borrowing from A Company by issuing 6% note)   
May 1Equipment 310,400 
 Interest Expense (1) 9,600 
 Notes Payable  320,000
 (To record purchase of equipment by issuing 6% discounted note)   
May 15Notes 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 14Notes Payable 225,000 
 Interest Expense (3) 3,000 
       Cash  228,000
 (To record payment of maturity and interest for notes)   
August  16Merchandise Inventory 90,000 
 Accounts Payable   90,000
 (To record purchase of merchandise on account)   
September 15Accounts payable 90,000 
 Notes Payable  90,000
 (To record the issue of 6% notes on account )   
October 28Notes Payable 320,000 
 Cash  320,000
 (To record the payment of due amount)   
October 30Notes Payable 90,000 
 Interest Expense (4) 675 
       Cash  90,675
 (To record payment of maturity and interest for notes)   
November 16Store Equipment 450,000 
 Notes Payable   400,000
 Cash   50,000
 (To record purchase of store equipment for cash and issuing of 9% notes)   
December 16Notes Payable 20,000 
 Interest Expense (5) 150 
       Cash  20,150
 (To record payment of maturity and interest for notes)   
December 28Litigation Loss 87,500 
    Litigation Claims Payable  87,500
 (To record the accrual of litigation claims)   

Table (1)

Working notes:

Calculate interest expense for discounted notes.

  Interestexpense=Principalamount×Rateof interest×Time=$320,000 ×6% ×180360=$9,600 (1)

Calculate interest expense for 30 days on notes

2. a

To determine

Journalize the adjusting entry for product warranty.

2. b

To determine

Journalize the interest on notes payable.

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Chapter 11 Solutions

Financial Accounting
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