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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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Chapter
Section
BuyFindarrow_forward

College Accounting, Chapters 1-27

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

JOURNAL ENTRIES (NOTE ISSUED, RENEWED, AND PAID) Prepare general journal entries for the following transactions:

images

To determine

Prepare journal entries to record the following transactions.

Explanation

Notes payable:

Notes payable is a written promise to make payment for specific sum at a certain future date that includes component of interest.

Prepare journal entry to record purchase of equipment from a supplier on account.

DateAccount titles and ExplanationDebitCredit
May 1Equipment$5,000
     Accounts payable$5,000
(To record purchase of equipment on account)

Table (1)

  • Equipment is a non-current asset, and it is increased. Therefore, debit equipment account for $5,000.
  • Accounts payable is a current liability, and it is increased. Therefore, credit accounts payable account for $5,000.

Prepare journal entry to record issued a $5,000, 30-days, 6% note in payment of the accounts payable.

DateAccount titles and ExplanationDebitCredit
June 1Accounts payable$5,000
     Notes payable$5,000
(To record issue note to settle an account)

Table (2)

  • Accounts payable is a current liability, and it is decreased. Therefore, debit accounts payable account for $5,000.
  • Notes payable is a current liability, and it is increased. Therefore, credit notes payable account for $5,000.

Prepare journal entry to record $500 payment of cash plus interest to the supplier, extending the note for 30 days.

DateAccount titles and ExplanationDebitCredit
July 1Notes payable (old note)$5,000
Interest expense (1)$25
     Notes payable (new note)$4,500
      Cash (2)$525
(To record payment of interest and part of principle on old note and issued new note)

Table (3)

Working notes:

(1)Calculate interest expense.

Interest expense =Notes payable (Old note)×Interest rate×Time period=$5,000×6%×30360=$25

(2)Calculate cash proceeds.

Cash proceeds=Old notes payable +Interest expense=$500+$25=$525

  • Notes payable (old note) is a current liability, and it is decreased

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