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College Accounting, Chapters 1-27 ...

22nd Edition
James A. Heintz + 1 other
Publisher: Cengage Learning
ISBN: 9781305666160

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BuyFindarrow_forward

College Accounting, Chapters 1-27 ...

22nd Edition
James A. Heintz + 1 other
Publisher: Cengage Learning
ISBN: 9781305666160
Chapter 17, Problem 7SEB
Textbook Problem
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JOURNAL ENTRIES (NOTE ISSUED, RENEWED, AND PAID) Prepare general journal entries for the following transactions:

Chapter 17, Problem 7SEB, JOURNAL ENTRIES (NOTE ISSUED, RENEWED, AND PAID) Prepare general journal entries for the following

To determine

Prepare journal entries to record the following transactions.

Explanation of Solution

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
June 15Equipment$6,000
     Accounts payable$6,000
(To record purchase of equipment on account)

Table (1)

  • Equipment is a non-current asset, and it is increased. Therefore, debit equipment account for $6,000.
  • Accounts payable is a current liability, and it is increased. Therefore, credit accounts payable account for $6,000.

Prepare journal entry to record issued a $6,000, 30-days, 7% note in payment of the accounts payable.

DateAccount titles and ExplanationDebitCredit
July 15Accounts payable$6,000
     Notes payable$6,000
(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 $6,000.
  • Notes payable is a current liability, and it is increased. Therefore, credit notes payable account for $6,000.

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

DateAccount titles and ExplanationDebitCredit
August 14Notes payable (old note)$6,000
Interest expense (1)$35
     Notes payable (new note)$5,400
      Cash (2)$635
(To record payment of interest and part of principl 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=$6,000×7%×30360=$35

(2)Calculate cash proceeds.

Cash proceeds=Old notes payable +Interest expense=$600+$35=$635

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

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Chapter 17 Solutions

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)
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