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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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BuyFindarrow_forward

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

NOTES PAYABLE ENTRIES Milo Radio Shop had the following notes payable transactions:

images

REQUIRED

Record the transactions in a general journal.

To determine

Prepare journal entry to record the following transactions of MR Shop.

Explanation

Note Payable:

Note payable is an obligation of the business to pay to its creditors in future for the benefits received that carries some interest.

Prepare journal entry to record the following transactions of MR Shop are shown below:

DateAccount titles and ExplanationDebitCredit
April 1Cash$5,000
     Notes payable$5,000
(To record note issued for bank loan)
April 5Purchases$2,000
     Notes payable$2,000
(To record note issued for inventory purchase)
April 10Accounts payable - M.K.R$2,000
     Cash$500
     Notes payable$1,500
(To record partial payment made and issued note to settle account)
May 10Notes payable (old note)$1,500
Interest expense (1)$7.50
     Cash$507.50
     Notes payable (new note)$1,000
(To record paid interest and part of partial of principal on old note and issued new note)
May 20Cash (3)$3,459.17
Discount on bonds payable (2)$40.83
     Notes payable$3,500
(To record issued note for bank loan)
June 4Notes payable (old note)$2,000
Interest expense (4)$23.33
     Cash$523.33
     Notes payable (new note)$1,500
(To record paid interest and part of partial of principal on old note and issued new note)
June 9Notes payable$1,000
Interest expense (5)$5.83
     Cash$1,005.83
(To record paid note with interest at maturity)
June 30Notes payable$5,000
Interest expense (6)$100
     Cash$5,100
(To record paid note with interest at maturity)
July 4Notes payable$1,500
Interest expense (7)$8.75
     Cash$1,508.75
(To record paid note with interest at maturity)
July 19Notes payable$3,500
Interest expense (8)$40.83
     Discount on notes payable$40.83
      Cash$3,500
(To record paid note at maturity)

Table (1)

Working notes:

(1)Calculate interest expenses.

Interest expense =Notes payable ×Interest rate×Time period=$1,500×6%×30360=$7.50 

(2)Calculate discount on notes payable.

Discount on notes payable =Notes payable×Interest rate×Time period=$3,500×7%×60360=$40

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