College Accounting, Chapters 1-27
Solutions
College Accounting, Chapters 1-27
JOURNAL ENTRIES (NOTE ISSUED, RENEWED, AND PAID) Prepare general journal entries for the following transactions:
Prepare journal entries to record the following transactions.
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.
| Date | Account titles and Explanation | Debit | Credit |
| May 1 | Equipment | $5,000 | |
| Â Â Â Â 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.
| Date | Account titles and Explanation | Debit | Credit |
| June 1 | Accounts payable | $5,000 | |
| Â Â Â Â 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.
| Date | Account titles and Explanation | Debit | Credit |
| July 1 | Notes payable (old note) | $5,000 | |
| Interest expense (1) | $25 | ||
| Â Â Â Â Notes payable (new note) | $4,500 | ||
| Â Â Â Â Â 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.
(2)Calculate cash proceeds.
- Notes payable (old note) is a current liability, and it is decreased
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