# 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

#### Solutions

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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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