Chapter 9, Problem 3P

### Intermediate Accounting: Reporting...

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

Chapter
Section

### Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
94 views

# Trade Note Transactions Adjusto Corporation (which is on a December 31 fiscal year-end) engaged in the following transactions during 2019 and 2020: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.

 Date Account Titles and explanation Debit ($) Credit ($) November 1,2019 Accounts 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$20,000.
 Date Account Titles and explanation Debit ($) Credit ($) December 1,2019 Inventory 32,000 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$32,000.
 Date Account Titles and explanation Debit ($) Credit ($) December 31, 2019 Interest 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$720.
 Date Account Titles and explanation Debit ($) Credit ($) March 1, 2020 Notes payable (Person J) 20,000 Interest payable 400 Interest expense 400 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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