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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Trade Note Transactions Adjusto Corporation (which is on a December 31 fiscal year-end) engaged in the following transactions during 2019 and 2020:

Chapter 9, Problem 3P, Trade Note Transactions Adjusto Corporation (which is on a December 31 fiscal year-end) engaged in

Required:

Prepare journal entries to record the preceding transactions on Adjusto’s books, including the adjusting entries at the end of 2019. Assume a 360-day year.

To determine

Prepare the necessary entries for the given transaction in the books of Company A, by assuming that there were 360 days in a year.

Explanation

Liabilities:

The claims creditors have over assets or resources of a company are referred to as liabilities. These are the debt obligations owed by company to creditors. Liabilities are classified on the balance sheet as current liabilities and long-term liabilities.

Prepare the necessary entries for the given transaction in the books of Company A, by assuming that there were 360 days in a year.

DateAccount Titles and explanationDebit ($)Credit ($)
November 1,2019Accounts payable 20,000 
      Notes payable (Person J) 20,000
 (To record the issuance of note)  

Table (1)

  • Accounts payable is a liability and there is a decrease in the value of liability. Hence, debit the accounts payable by $20,000.
  • Notes payable is a liability and there is an increase in the value of liability. Hence, credit the notes payable by $20,000.
DateAccount Titles and explanationDebit ($)Credit ($)
December 1,2019Inventory32,000 
      Notes payable (Person W) 32,000
 (To record the issuance of note for the purchase of  merchandise)  

Table (2)

  • Inventory is an asset and there is an increase in the value of an asset. Hence, debit the inventory by $32,000.
  • Notes payable is a liability and there is an increase in the value of liability. Hence, credit the notes payable by $32,000.
DateAccount Titles and explanationDebit ($)Credit ($)
December 31, 2019Interest expense (1)720 
      Interest payable  720
 (To record the interest payable)  

Table (3)

  • Interest expense is a component of stockholder’s equity and there is an increase in the value of expense. Hence, debit the interest expense by $720.
  • Interest payable is a liability and there is an increase in the value of liability. Hence, credit the interest payable by $720.
DateAccount Titles and explanationDebit ($)Credit ($)
March 1, 2020Notes payable (Person J)20,000 
 Interest payable400 
 Interest expense400 
      Cash 20,800
 (To record the interest payable)  

Table (4)

  • Notes payable is a liability and there is a decrease in the value of liability...

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