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Pickles R Us is a pickle farm located in the Northeast. The following transactions take place: A. On November 6, Pickles borrows $820,000 from a bank to cover the initial cost of expansion. Terms of the loan are payment due in six months from November 6, and annual interest rate of 3%. B. On December 12, Pickles borrows an additional $200,000 with payment due in three months from December 12, and an annual interest rate of 10%. C. Pickles pays its accounts in full on March 12, for the December 12 loan, and on May 6 for the November 6 loan. Record the journal entries to recognize the initial borrowings, and the two payments for Pickles.

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Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685

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Section
FindFindarrow_forward

Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
Chapter 12, Problem 9PB
Textbook Problem
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Pickles R Us is a pickle farm located in the Northeast. The following transactions take place:

A. On November 6, Pickles borrows $820,000 from a bank to cover the initial cost of expansion. Terms of the loan are payment due in six months from November 6, and annual interest rate of 3%.

B. On December 12, Pickles borrows an additional $200,000 with payment due in three months from December 12, and an annual interest rate of 10%.

C. Pickles pays its accounts in full on March 12, for the December 12 loan, and on May 6 for the November 6 loan.

Record the journal entries to recognize the initial borrowings, and the two payments for Pickles.

To determine

Introduction:

A current liability is a debt or obligation due during the operating period of the company. A company has normally one year of operating period.

To journalize:

The transactions relating to the initial borrowings and its payment.

Explanation of Solution

A.

Record the initial cost of expansion:

Date Account Debit ($) Credit ($)
November 6 Cash 820,000
Long-term loan 820,000
(To record loan, 3% interest, payable in six months)

Table (1)

  • Cash is an asset and it is increased by $820,000. Therefore, cash account debited with $820,000.
  • Long-term loan is a liability and it is increased by $820,000. Therefore, long-term loan account is credited with $820,000.

B.

Record the loan:

Date Account Debit ($) Credit ($)
December 12 Cash 200,000
Long-term loan 200,000
(To record loan, 10% interest, payable in three months)

Table (2)

  • Cash is an asset and it is increased by $200,000. Therefore, cash account is debited with $200,000.
  • Long-term loan is a liability and it is increased by $200,000. Therefore, long-term loan account is credited with $200,000.

C.

Record the payment of loan:

Date Account Debit ($) Credit ($)
March 12 Long-term loan 200,000
Interest Expense ($200,000&#

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Chapter 12 Solutions

Principles of Accounting Volume 1
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